Virgin Australia Holdings Limited Appendix 4D Interim Report VIRGIN AUSTRALIA HOLDINGS LIMITED ABN 54 100 686 226 ASX CODE: VAH
Appendix 4D Interim Report 1. Details of the reporting period and the prior corresponding period Reporting period (reviewed): 1 July 2012 to 2012 Previous corresponding period (reviewed): 1 July 2011 to 2011 2. Results for announcement to the market $m Revenue from ordinary activities Up 5% to 2,108.1 Profit from ordinary activities after tax attributable to members Down 56% to 23.0 Net profit for the period attributable to members Down 56% to 23.0 3. The net profit for the period attributable to members is made up of: Half-year ended 2012 $m Half-year ended 2011 $m Profit before related income tax expense and net finance costs 48.7 99.4 Net finance costs (20.5) (22.1) Income tax expense (5.2) (25.5) Net profit for the period attributable to members 23.0 51.8 4. Dividends (cents per share) 2012 Amount per security Franked amount per security Final Dividend Nil Nil Interim Dividend Nil Nil No dividends were declared or paid by the Company during the half-year ended 2012. 5. Net tangible assets Half-year ended 2012 $ Year ended 30 June 2012 $ Net tangible asset backing per ordinary share* 0.38 0.38 * This has been calculated by dividing the net assets attributable to equity holders less intangible assets, calculated on total issued shares of 2,455,775,111 (30 June 2012: 2,190,037,856). Virgin Australia Holdings Limited Appendix 4D - Interim Report 1
Appendix 4D Interim Report (continued) 6. Control gained or lost over entities during the period, and those having material effect Name of entities where control was gained in the period The following entities were incorporated during the period: Entity Date of incorporation VAH Newco No.1 Pty Ltd 22 October 2012 VAH Newco No.2 Pty Ltd 22 October 2012 Name of entities where control was lost in the period No entities were disposed of due to loss of control during the period. 7. Details of associates and joint venture entities Percentage of ownership interest held: Contribution to net profit: 2012 2011 2012 2011 Entity % % $m $m Virgin Samoa Limited (associate) 49 49 0.7 0.3 8. Commentary on results A commentary on the results for the half-year ended 2012 is contained in the accompanying Interim Financial Report and the Media Release. The Interim Financial Report includes financial statements for the halfyear ended 2012 and their related corresponding period. 9. Statement if financial report is subject to review dispute or qualification The Interim Financial Report has been subject to review, and is not subject to dispute or qualification. Virgin Australia Holdings Limited Appendix 4D - Interim Report 2
Virgin Australia Holdings Limited Interim Financial Report VIRGIN AUSTRALIA HOLDINGS LIMITED ABN 54 100 686 226 ASX CODE: VAH
Contents Corporate directory 1 Directors report 2 Lead auditor s independence declaration 4 Consolidated income statement 5 Consolidated statement of comprehensive income 6 Consolidated statement of financial position 7 Consolidated statement of changes in equity 8 Consolidated statement of cash flows 10 Condensed notes to the consolidated financial statements 11 1. Reporting entity 11 2. Basis of preparation 11 3. Significant accounting policies 12 4. Seasonality 12 5. Financial risk management 12 6. Operating segments 13 7. Property, plant and equipment 15 8. Intangible assets 15 9. Interest-bearing liabilities 15 10. Share capital 15 11. Dividends paid 15 12. Commitments 16 13. Share-based payments 16 14. Contingent liabilities and contingent assets 16 15. Related parties 16 Directors declaration 17 Independent auditor s review report 18
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) 3295 3000 (within Australia) or +61 7 3295 3000 (outside Australia) Share registry Computershare Investor Services Pty Limited 117 Victoria Street West End, QLD 4101 Australia Telephone: 1300 850 505 (within Australia) or +61 3 9415 4000 (outside Australia) Securities exchange Virgin Australia Holdings Limited 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 1
Directors report The directors present their report together with the consolidated financial statements of the Group comprising Virgin Australia Holdings Limited (VAH) (the Company) and its subsidiaries and the Group s interest in its associate, for the half-year ended 2012 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 Mr John Borghetti Non-Executive Director Company Chairman Managing Director Chief Executive Officer Appointed 11 May 2006 Appointed 14 June 2007 Appointed 8 May 2010 Mr David Baxby Non-Executive Director Appointed 30 September 2004 Mr Joshua Bayliss Non-Executive Director Appointed 6 April 2011 Ms Samantha Mostyn Independent Non-Executive Director Appointed 1 September 2010 Mr Robert Thomas Independent Non-Executive Director Appointed 8 September 2006 The Hon. Mark Vaile Independent Non-Executive Director Appointed 22 September 2008 Mr Keith Roberts Alternative Director Appointed 28 November 2008 for Mr David Baxby 2. Review of operations Appointed 17 May 2012 for Mr Joshua Bayliss Net profit after income tax attributable to the owners decreased 56 per cent from $51.8 million in the prior corresponding half-year ended 2011 to $23.0 million for the half-year ended 2012. Net operating income increased 5 per cent from $2,006.4 million in the prior corresponding half-year ended 31 December 2011 to $2,108.1 million for the half-year ended 2012. Net operating expenses increased 8 per cent from $1,907.0 million in the prior corresponding half-year ended 31 December 2011 to $2,059.4 million for the half-year ended 2012. On 30 October 2012 the Group announced three major proposed transactions: (a) Singapore Airlines Limited acquisition of 10% shareholding in Virgin Australia Holdings Limited; (b) The Group s proposal to purchase 60% shareholding of Tiger Airways Australia Pty Limited; and (c) The Group s proposal to purchase 100% of Skywest Airlines Limited (Skywest). (a) Singapore Airlines Limited acquisition of 10% shareholding in Virgin Australia Holdings Limited This transaction resulted in VAH issuing 245.6 million shares at $0.4288 per share to Singapore Airlines Limited, with a total value of $105.3 million, on 16 November 2012. This agreement has an anti-dilution clause resulting in 12.5 million options being issued to Singapore Airlines Limited on 16 November 2012. These options can only be exercised at a price of $0.4288 per share should the Skywest acquisition proceed and up to the point where Singapore Airlines Limited holds 10% of VAH. (b) Proposal to purchase 60% shareholding of Tiger Airways Australia Pty Limited The purchase will be for $35.0 million with another $5.0 million payable by Tiger Airways Australia Pty Limited to Tiger Airways Holdings Limited if performance targets are met within a 5.5 year period. After acquisition date there is joint commitment by the Group and Tiger Airways Holdings Limited to invest up to $62.5 million (based on the ownership interest) into the Tiger Airways Australia Pty Limited operation. On 1 February 2013, shareholders of Tiger Airways Holdings Limited approved the proposed acquisition. Virgin Australia Holdings Limited Interim Financial Report 2
Directors report (continued) 2. Review of operations (continued) (b) Proposal to purchase 60% shareholding of Tiger Airways Australia Pty Limited (continued) The transaction still remains subject to certain conditions and regulatory approvals, including Australian Foreign Investment Review Board (FIRB) approval and the Australian Competition and Consumer Commission (ACCC) approval. The expected date for the ACCC s final decision is 14 March 2013. If either Tiger Airways Holdings Limited or VAH intentionally cause a condition precedent not to be met, or terminate the Share Purchase Agreement, then $3.0 million must be paid by the offending party to the other party. (c) Proposal to purchase 100% of Skywest Airlines Limited (Skywest) The offer price comprises $0.225 per share in cash and 0.53 new VAH shares for every Skywest share. The issued and paid-up share capital of Skywest currently consists of 213,040,000 shares. The purchase shall occur by way of a Scheme of Arrangement under section 210, chapter 50 of the Singapore Companies Act. Approval for the Scheme from the Securities Industry Council (SIC) was announced on 6 December 2012, and the ACCC on 31 January 2013 however the Scheme remains conditional to the satisfaction of further approvals, including but not limited to, approval from the FIRB, the High Court of the Republic of Singapore and the approval of Skywest shareholders at a general meeting. The Scheme requires an Implementation Agreement that will terminate if any of the Scheme Conditions have not been satisfied (or, where applicable, waived) by 30 April 2013, after consultation with the SIC. In the event that the Group terminates the Implementation Agreement, resulting in a non-fulfilment of a Scheme Condition, the Group has agreed to pay Skywest $3.25 million. 3. Lead auditor s independence declaration under section 307C of the Corporations Act 2001 The lead auditor s independence declaration is set out on page 4, and forms part of the Directors report for the half-year ended 2012. 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 interim financial 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 26 February 2013 John Borghetti Director Sydney 26 February 2013 Virgin Australia Holdings Limited Interim Financial Report 3
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 2012 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 26 February 2013 KPMG, an Australian partnership and 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 4
Consolidated income statement Half-year to 2012 Half-year to 2011 $m $m Revenue and income Revenue 2,106.0 1,997.4 Other income 1.3 2.8 Foreign exchange gains 0.1 5.9 Share of net profits of associate accounted for using the equity method 0.7 0.3 2,108.1 2,006.4 Operating expenditure Aircraft operating lease expenses 120.3 92.6 Airport charges, navigation and station operations 363.0 334.6 Contract and other maintenance expenses 100.6 95.5 Commissions and other marketing and reservations expenses 147.1 142.9 Fuel and oil 576.0 531.6 Labour and staff related expenses 449.6 429.2 Other expenses from ordinary activities 193.5 146.7 Depreciation and amortisation 123.3 125.6 Ineffective cash flow hedges and non-designated derivatives (14.0) 8.3 Net operating expenses 2,059.4 1,907.0 Profit before related income tax expense and net finance costs 48.7 99.4 Finance income 12.5 17.9 Finance cost (33.0) (40.0) Net finance costs (20.5) (22.1) Profit before income tax expense 28.2 77.3 Income tax expense (5.2) (25.5) Net profit for the half-year attributable to the owners of Virgin Australia Holdings Limited 23.0 51.8 Earnings per share for profit attributable to the ordinary equity holders of the Company: Cents Cents Basic earnings per share - profit 1.0 2.3 Diluted earnings per share - profit 1.0 2.3 The above consolidated income statement is to be read in conjunction with the accompanying notes to the consolidated financial statements. Virgin Australia Holdings Limited Interim Financial Report 5
Consolidated statement of comprehensive income Half-year to 2012 Half-year to 2011 $m $m Profit for the period 23.0 51.8 Other comprehensive income Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations 4.9 (26.9) Effective portion of changes in fair value of cash flow hedges 20.9 (1.4) Net change in fair value of cash flow hedges transferred to profit or loss 10.7 23.5 Income tax expense on other comprehensive income (9.5) (6.7) Other comprehensive income / (loss) for the period net of tax 27.0 (11.5) Total comprehensive income for the period attributable to owners of Virgin Australia Holdings Limited 50.0 40.3 The above consolidated statement of comprehensive income is to be read in conjunction with the accompanying notes to the consolidated financial statements. Virgin Australia Holdings Limited Interim Financial Report 6
Consolidated statement of financial position As at 2012 As at 2012 As at 30 June 2012 Note $m $m Current assets Cash and cash equivalents 685.1 802.6 Trade and other receivables 210.8 202.8 Inventories 20.1 14.9 Derivative financial instruments 10.2 0.6 Other financial assets 4.3 8.1 Other current assets 2.6 2.6 Current tax assets 0.6 0.4 Total current assets 933.7 1,032.0 Non-current assets Trade and other receivables 11.5 8.0 Derivative financial instruments 1.7 0.1 Other financial assets 33.0 47.7 Investments accounted for using the equity method 8.0 7.7 Deferred tax assets 11.8 10.9 Property, plant and equipment 7 2,900.2 2,769.0 Intangible assets 8 147.5 101.0 Other non-current assets 17.5 18.8 Total non-current assets 3,131.2 2,963.2 Total assets 4,064.9 3,995.2 Current liabilities Trade and other payables 497.1 505.5 Interest-bearing liabilities 9 234.5 254.0 Derivative financial instruments 5.7 36.1 Provisions 77.4 104.1 Unearned revenue 624.0 691.9 Total current liabilities 1,438.7 1,591.6 Non-current liabilities Trade and other payables 4.6 2.8 Interest-bearing liabilities 9 1,472.6 1,420.1 Derivative financial instruments 12.6 16.4 Provisions 27.5 25.9 Deferred tax liabilities 23.4 8.7 Total non-current liabilities 1,540.7 1,473.9 Total liabilities 2,979.4 3,065.5 Net assets 1,085.5 929.7 Equity Share capital 10 740.8 633.3 Reserves 78.7 53.4 Retained profits 266.0 243.0 Total equity 1,085.5 929.7 The above consolidated statement of financial position is to be read in conjunction with the accompanying notes to the consolidated financial statements. Virgin Australia Holdings Limited Interim Financial Report 7
Consolidated statement of changes in equity Share capital Attributable to owners of the Company Foreign Sharebased currency translation Hedging payments Retained reserve reserve reserve earnings Total equity Note $m $m $m $m $m $m Balance at 1 July 2012 633.3 71.4 (34.7) 16.7 243.0 929.7 Total comprehensive income for the period Profit for the period - - - - 23.0 23.0 Other comprehensive income* Foreign currency translation differences - 4.9 - - - 4.9 Effective portion of changes in fair value of cash flow hedges - - 14.6 - - 14.6 Net change in fair value of cash flow hedges transferred to profit or loss - - 7.5 - - 7.5 Total other comprehensive income - 4.9 22.1 - - 27.0 Total comprehensive income for the period - 4.9 22.1-23.0 50.0 Transactions with owners, recorded directly in equity* Issue of ordinary shares for cash 10 105.3 - - - - 105.3 Share-based payment transactions 13 2.2 - - (1.7) - 0.5 Total transactions with owners 107.5 - - (1.7) - 105.8 Balance at 2012 740.8 76.3 (12.6) 15.0 266.0 1,085.5 * Amounts recognised are disclosed net of income tax (where applicable) The above consolidated statement of changes in equity is to be read in conjunction with the accompanying notes to the consolidated financial statements. Virgin Australia Holdings Limited Interim Financial Report 8
Consolidated statement of changes in equity (continued) Share capital Attributable to owners of the Company Sharebased Hedging payments reserve reserve Foreign currency translation reserve Retained earnings Total equity Note $m $m $m $m $m $m Balance at 1 July 2011 633.3 90.9 (33.5) 15.4 220.2 926.3 Total comprehensive income for the period Profit for the period - - - - 51.8 51.8 Other comprehensive income* Foreign currency translation differences - (26.9) - - - (26.9) Effective portion of changes in fair value of cash flow hedges - - (1.0) - - (1.0) Net change in fair value of cash flow hedges transferred to profit or loss - - 16.4 - - 16.4 Total other comprehensive income - (26.9) 15.4 - - (11.5) Total comprehensive income for the period - (26.9) 15.4-51.8 40.3 Transactions with owners, recorded directly in equity* Issue of ordinary shares for cash 10 - - - - - - Share-based payment transactions 13 - - - 2.8-2.8 Total transactions with owners - - - 2.8-2.8 Balance at 2011 633.3 64.0 (18.1) 18.2 272.0 969.4 * Amounts recognised are disclosed net of income tax (where applicable) The above consolidated statement of changes in equity is to be read in conjunction with the accompanying notes to the consolidated financial statements. Virgin Australia Holdings Limited Interim Financial Report 9
Consolidated statement of cash flows Cash flows from operating activities Half-year to 2012 Half-year to 2011 Note $m $m Cash receipts from customers 2,252.1 2,187.3 Cash paid to suppliers and employees (2,169.3) (1,916.2) 82.8 271.1 Cash paid for business transformation expenses (18.1) - Finance costs paid (35.4) (35.5) Finance income received 13.3 17.9 Net cash from operating activities 42.6 253.5 Cash flows from investing activities Acquisition of property, plant and equipment 7 (260.5) (392.0) Proceeds on disposal of property, plant and equipment 7-183.8 Acquisition of intangible assets 8 (55.1) (14.8) Proceeds from / (acquisition of) other deposits 2.7 (1.8) Net cash used in investing activities (312.9) (224.8) Cash flows from financing activities Proceeds from borrowings 9 196.5 220.0 Repayment of borrowings 9 (151.4) (113.8) Payments of transaction costs related to borrowings (7.4) (8.5) Proceeds from share issue 10 105.3 - Loan from related party 15 8.7 - Net cash from financing activities 151.7 97.7 Net (decrease) / increase in cash and cash equivalents (118.6) 126.4 Cash and cash equivalents at 1 July 802.6 731.3 Effect of exchange rate fluctuations on cash held 1.1 (6.3) Cash and cash equivalents at 685.1 851.4 The above consolidated statement of cash flows is to be read in conjunction with the accompanying notes to the consolidated financial statements. Virgin Australia Holdings Limited Interim Financial Report 10
Condensed notes to the consolidated 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, Qld 4006. The consolidated interim financial report of the Company as at and for the half-year ended 2012 comprise; the Company and its subsidiaries (together referred to as the Group ) and the Group s interest in its associate. The Group is a for-profit entity and is primarily involved in the airline industry both domestic and international. The consolidated annual financial report of the Group as at and for the year ended 30 June 2012 is available upon request from the Company s registered office, or at www.virginaustralia.com.au. 2. Basis of preparation (a) Statement of compliance The consolidated interim financial report is a general purpose financial report which has been prepared in accordance with AASB 134 Interim Financial Reporting and the Corporations Act 2001. The consolidated interim financial report does not include all of the information required for a full annual financial report, and should be read in conjunction with the consolidated annual financial report of the Group as at and for the year ended 30 June 2012. The consolidated interim financial report was approved by the Board of Directors on 26 February 2013. 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 consolidated interim financial report 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 2012. The interim financial report has been prepared on a going concern basis, which contemplates the continuity of normal operations, as the Group is currently trading profitably and has a cash and cash equivalents balance of $685.1 million. (b) Use of estimates and judgements The preparation of the consolidated interim financial report 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 this consolidated interim financial report, the significant judgements made by management in applying the Group s accounting policies and key sources of estimation uncertainty are the same as those that applied to the consolidated annual financial report as at and for the year ended 30 June 2012. The significant estimation changes for the half-year ended 2012 are detailed below: (i) Maintenance provisions The Group continually assesses maintenance obligations including those under leasing arrangements. The Group has an evolving lease portfolio and is experiencing an increase in leased aircraft with the addition of new aircraft types to the fleet which have been predominantly leased. Aircraft leasing arrangements are increasingly on compensation arrangements which impact the determination of the future maintenance obligations for leased aircraft. Total contract and other maintenance costs have increased by 5.3% for the half-year ended 2012 compared to the corresponding half-year period ended 2011. Included in this increase are estimated changes relating to component overhauls on leased aircraft. This increase of 5.3% is inclusive of the impact relating to a reassessment of estimates for maintenance provisions which resulted in a decrease in maintenance expenses of $20.8 million. Virgin Australia Holdings Limited Interim Financial Report 11
Condensed notes to the consolidated financial statements (continued) 2. Basis of Preparation (continued) (b) Use of estimates and judgements (continued) (ii) Estimation of unearned revenue redemption rates There is a continuous assessment of future obligations in relation to credit vouchers. As a consequence of continuing system improvements and a review of issued and expired credit vouchers in the last twelve months, there has been a reassessment of credit voucher redemption rates resulting in an increase in revenue of $11.3 million for the half-year ended 2012. The continuous assessment of unearned passenger revenue obligations and historical trends of non-attendance rates has resulted in an increase in revenue of $8.0 million for the half-year ended 2012. A review of the Velocity frequent flyer program has occurred during the half-year ended 2012. The unused points liability increased by $13.3 million during this 6 month period. The closing unused points liability is after an increase in revenue of $6.7 million for the half-year ended 2012. This is based on a period of non-disrupted activity in the market and greater levels of program information. (c) Comparatives Where applicable, various comparative balances have been reclassified to align with current period presentation. These amendments have no material impact on the consolidated interim financial report. 3. Significant accounting policies Except as described below, the accounting policies applied by the Group in the consolidated interim financial report are the same as those applied by the Group in its consolidated annual financial report as at and for the year ended 30 June 2012. The following changes in accounting policies are also expected to be reflected in the Group s consolidated annual financial report as at and for the year ending 30 June 2013. (a) Presentation of transactions recognised in other comprehensive income From 1 July 2012 the Group applied amendments to AASB 134 Interim Financial Reporting outlined in AASB 2011-9 Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income. The change in accounting policy only relates to disclosures and has had no impact on consolidated earnings per share or net income. The changes have been applied retrospectively and require the Group to separately present those items of other comprehensive income that may be reclassified to profit or loss in the future from those that will never be reclassified to profit or loss. 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. However, the current change in business model may reduce the impact of seasonality over this financial year. 5. Financial risk management The Group s financial risk management objectives and policies are consistent with those disclosed in the consolidated annual financial report as at and for the year ended 30 June 2012. Virgin Australia Holdings Limited Interim Financial Report 12
Condensed notes to the consolidated financial statements (continued) 6. Operating segments The following summary describes the operations in each of the Group s reportable segments: Domestic operations: Operations using the fleet of Boeing 737 aircraft, Airbus A330 aircraft, ATR aircraft, Embraer 170 and 190, and Fokker 100 aircraft. This comprises Australian domestic flying. The Group s Velocity frequent flyer program is also reported within domestic operations. International operations: Operations using a mix of Boeing 777 aircraft and Boeing 737 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 included below. Performance is measured based on EBIT (earnings before interest, accelerated depreciation due to changes in useful life of assets, business transformation and other expenses, including net loss on disposal / write down of property, plant and equipment, and income tax expense) as included in the internal management reports that are reviewed by the Board. The 31 December 2011 comparative numbers have been restated to reflect the current definition of EBIT. EBIT 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. Inter-segment pricing is determined on an arm s 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. Domestic International Eliminations Consolidated 2012 $m $m $m $m Sales and other income External revenues and other income 1,512.0 595.4-2,107.4 Inter-segment revenue 203.0 - (203.0) - Segment revenue 1,715.0 595.4 (203.0) 2,107.4 Share of net profit of associate - 0.7-0.7 Segment EBITDA 129.2 59.9-189.1 Depreciation and amortisation (89.2) (29.2) - (118.4) Segment EBIT excluding ineffective cash flow hedges and non-designated derivatives 40.0 30.7-70.7 Ineffective cash flow hedges and non-designated derivatives 9.3 4.7-14.0 Segment EBIT 49.3 35.4-84.7 Accelerated depreciation due to change in useful life of assets (4.9) 79.8 Business transformation and other expenses, including net loss on disposal / write down of property, plant and equipment (31.1) 48.7 Net financing costs (20.5) Profit before related income tax expense 28.2 Income tax expense (5.2) Profit for the period 23.0 Virgin Australia Holdings Limited Interim Financial Report 13
Condensed notes to the consolidated financial statements (continued) 6. Operating segments (continued) Domestic International Eliminations Consolidated 2011 $m $m $m $m Sales and other income External revenues and other income 1,454.4 551.7-2,006.1 Inter-segment revenue 28.4 - (28.4) - Segment revenue 1,482.8 551.7 (28.4) 2,006.1 Share of net profit of associate - 0.3-0.3 Segment EBITDA 184.6 64.3-248.9 Depreciation and amortisation (92.2) (29.2) - (121.4) Segment EBIT excluding ineffective cash flow hedges and non-designated derivatives 92.4 35.1-127.5 Ineffective cash flow hedges and non-designated derivatives (5.4) (2.9) - (8.3) Segment EBIT 87.0 32.2-119.2 Accelerated depreciation due to change in useful life of assets (4.2) 115.0 Business transformation and other expenses, including net loss on disposal / write down of property, plant and equipment (15.6) Net financing costs (22.1) Profit before related income tax expense 77.3 Income tax expense (25.5) Profit for the period 51.8 99.4 Virgin Australia Holdings Limited Interim Financial Report 14
Condensed notes to the consolidated financial statements (continued) 7. Property, plant and equipment During the half-year ended 2012, the Group acquired assets with a cost of $267.4 million (2011: $392.0 million) primarily comprising aircraft and aeronautic related assets. The Group realised nil proceeds (2011: $183.8 million) during the period. 8. Intangible assets During the half-year ended 2012, costs totalling $58.4 million (2011: $14.8 million) consisting predominantly of software were capitalised. 9. Interest-bearing liabilities As at 2012 As at 30 June 2012 Current $m $m Loans (aeronautic finance facilities) - secured 225.8 254.0 Related party loan (refer to note 15) 8.7-234.5 254.0 Non-current Loans (aeronautic finance facilities) - secured 1,472.6 1,420.1 During the half-year ended 2012, the Group entered into additional interest-bearing liabilities to finance the purchase of additional aeronautical assets. The facilities are secured over assets purchased and issued share capital of 737 2012 No.1 Pty Ltd and 737 2012 No.2 Pty Ltd, consolidated entities of the Group. Proceeds from external borrowings for the half-year ended 2012 totalled $196.5 million (2011: $220.0 million), with repayment of borrowings totalling $151.4 million (2011: $113.8 million). 10. Share capital The number of ordinary shares issued at 2012 was 2,442.1 million (30 June 2012: 2,190.0 million). On 1 July 2012, upon vesting of the employee share plans as disclosed in note 13, 6.5 million performance rights represented by shares were issued from the Key Employee Performance Plan Trust, a consolidated entity of the Group. This entity was incorporated to retain ownership of a portion of VAH shares for distribution to employees of the VAH Group through share based payment plans. On 16 November 2012 Singapore Airlines Limited subscribed for 245,577,511 shares in VAH at a price of $0.4288 per share resulting in an increase in share capital of $105.3 million. 11. Dividends paid No dividends were declared and paid by the Company during the half-year ended 2012 (2011: nil). No dividends have been declared subsequent to 2012. Virgin Australia Holdings Limited Interim Financial Report 15
Condensed notes to the consolidated financial statements (continued) 12. Commitments As at 2012 As at 30 June 2012 $m $m Commitments payable for the acquisition of property, plant and equipment (primarily aircraft and aeronautic assets) contracted for at the reporting date but not recognised as liabilities: 3,115.0 2,075.6 As disclosed in note 42, Events subsequent to reporting date, of the consolidated annual financial report as at and for the year ended 30 June 2012, VAH announced in July 2012 an agreement with Boeing to order Boeing 737 MAX 8 aircraft. These fuel-efficient aircraft join the Group s fleet between 2019 and 2021. 13. Share-based payments During the half-year ended 2012 no new share-based payment plans were issued. Employee Share Plans On 1 July 2012 the vesting conditions associated with the active Employee Share Plans, Key Employee Performance Plan 11 (KEPP) and Employee Share Grant (ESG), as detailed in the consolidated annual financial report, were met resulting in the issue of ordinary shares of 6.5 million (KEPP 0.6 million and ESG 5.9 million). 14. Contingent liabilities and contingent assets There were no material changes in contingent liabilities or contingent assets since 30 June 2012. 15. Related parties During the half-year ended 2012, Virgin Australia Airlines Pty Ltd (the borrower), a consolidated entity of the Company, entered into a revolving loan facility at arm s length with Virgin Samoa Limited (the lender) an associate of the Group. A drawdown of NZD $11.0 million (AUD $8.7 million) was made during the half-year and remained as a loan at 2012. All other arrangements with related parties continue to be in place. For details on these arrangements, refer to the consolidated annual financial report as at and for the year ended 30 June 2012. Virgin Australia Holdings Limited Interim Financial Report 16
Directors declaration In the opinion of the directors of Virgin Australia Holdings Limited (the Company): (a) the financial statements and notes, set out on pages 5 to 16, are in accordance with the Corporations Act 2001, including: (i) (ii) giving a true and fair view of the Group s financial position as at 2012 and of its performance, as represented by the results of its operations and its cash flows, for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. Signed in accordance with a resolution of the directors: Neil Chatfield Director Sydney 26 February 2013 John Borghetti Director Sydney 26 February 2013 Virgin Australia Holdings Limited Interim Financial Report 17
Independent auditor s review report to the members of Virgin Australia Holdings Limited We have reviewed the accompanying interim financial report of Virgin Australia Holdings Limited, which comprises the consolidated statement of financial position as at 2012, consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the interim period ended on that date, notes 1 to 15 comprising a summary of significant accounting policies and other explanatory information and the directors declaration of the Group comprising the company and the entities it controlled at the half-year s end or from time to time during the interim period. Directors responsibility for the interim financial report The directors of the company are responsible for the preparation of the interim financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the interim financial report that is free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express a conclusion on the interim financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the interim financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the Group s financial position as at 2012 and its performance for the interim period ended on that date; and complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As auditor of Virgin Australia Holdings Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of an interim financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act 2001. KPMG, an Australian partnership and 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 18
Independent auditor s review report to the members of Virgin Australia Holdings Limited (continued) Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the interim financial report of Virgin Australia Holdings Limited is not in accordance with the Corporations Act 2001, including: (a) giving a true and fair view of the Group s financial position as at 2012 and of its performance for the interim period ended on that date; and (b) complying with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. KPMG A W Young Partner Sydney 26 February 2013 19