Australian second largest Airline Virgin Australia Holdings Limited (ASX:VAH) has narrowed its loss for FY15 and expects to turn profitable in FY16.
Virgin released its full year results to the ASX this morning which showed an underlying loss before tax of $49m, a significant improvement compared to the $211.7m loss during FY14. Revenue increased by 10.2% to $4,749.2m. Revenue includes a total of $284.1m of revenue from Tigerair Australia. Operating cash flow was positive at $218.1m which contributes to a much healthier cash position and strong balance sheet. Return on invested capital was 6.1 per cent, a 4.7 per cent improvement to the previous corresponding period.
Investors will most likely pay attention to Virgin Australia’s prediction to turn profitable during the upcoming financial year. Given the strong growth trajectory of the past few years, the company is confident that both the Virgin Group as well as Tigerair will continue to experience positive growth momentum over the next 12 months. Virgin Australia Group CEO John Borghetti said that “the Virgin Australia Group has delivered a significant improvement in performance for the 2015 financial year, which reflects the positive trajectory of the overall business.”
The company will also continue to focus on the execution of tis $1bn cost reduction program by lowering the Group’s unit costs. The company states that Tigerair will play an important role and provide further flexibility in reducing costs.
While Virgin Australia domestic experienced healthy single digit growth in most areas, the international segment of the business continues to struggle. Underlying EBIT for Virgin Australia International declined $22.8m to a loss of $68.9m while revenue decreased 3.3 per cent.
Investors are expected to be pleased with the results. Year to date VAH has gained 8.6% as a result of lower oil prices and a strong lead of industry leader Qantas (ASX:QAN). The stock hit a high of 56 cents in early April, before retreating to 44 cents in line with declines in the broader market.
Wise-owl has VAH on the watchlist and we will update subscribers about any trading opportunities if they arise.
Author: Simon Herrmann
Aug 07, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.