Virgin Australia’s Clayton’s Privatisation

By Glenn Dyer | More Articles by Glenn Dyer

A Clayton’s privatisation for Virgin Australia?

Clayton’s was a non-alcoholic drink from the 1970s that looked like beer and was promoted as ‘a drink when you’re not having a drink’. In finance it means something similar to what Virgin Airlines Australia revealed yesterday in its interim results and long awaited statement on the future of its small float of non-affiliated shareholders.

Virgin Australia said it had decided not to privatise the airline, but will give minority investors the chance to exit by buying shareholdings too small for holders to sell.

Chair Elizabeth Bryan revealed the privatisation idea at the general meeting last November although at that time the board was still considering whether to privatise the company, which is 90% controlled by five major investors.

Ms Bryan yesterday that following discussions with its major shareholders – Etihad Airways, Singapore Airlines, HNA Group, Nanshan Group and Richard Branson’s Virgin Group – the board had decided again privatising.

The decision will keep Virgin Australia listed on the ASX.

However, Virgin will offer a buyback to the roughly 21,000 of Virgin’s 38,000 investors whose shareholdings are worth less than $500 and unmarketable.

"This facility will give those shareholders the ability to sell their shares at an appropriate price and in a convenient, cost effective manner," Ms Bryan said.

The buyback will be at a price of 30 cents share. The shares closed at 25 cents (down 3.8%) on Wednesday, and are up from 19 cents in November after the AGM talk of privatisation.

The total value of unmarketable parcels in Virgin Australia is put at about $5 million. Investors can opt out of the buyback. Virgin meanwhile also revealed that it moved back into profit in the six months to December.

It reported a $4.4 million after-tax profit for the first half off the back of strong passenger growth and rising ticket prices.

The result is much better than the $21.5 million loss reported a year ago.

Without the cost of the its business turnaround plan, including removing older aircraft from its fleet, Virgin claimed an underlying profit before tax of $102.5 million, up from $42.3 million in the first half last year.

“The improvement was driven by a number of factors including unit revenue and passenger growth, capacity and network optimisation and further progress in implementing the Better Business program,” chief executive John Borghetti said.

Earnings before interest and tax from Virgin’s domestic operations grew to $153 million from $80 million as it phased out those older aircraft and attracted more business travellers, while its international arm earned $1.4 million, up from $800,000 last year.

Fares increased 3.2% and 3.4% respectively. Revenue rose to $2.38 billion for the latest half from $2.22 billion a year ago. No dividends were declared and total debt was reduced by 13% or $364 million.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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