Tommy Bahama
7th Nov 2018, 00:54
From The SMH
'Dysfunctional, embarrassing': Major investor slams Virgin Australia
Virgin Australia has come under attack from high-profile investor Geoff Wilson, who has said the airline's chairman should be "embarrassed" by its share price and demanded the board reconsider privatisation.
The country's second-largest carrier is 90 per cent owned by major airlines. Its board weighed up taking the company private earlier this year but eventually decided against it.
Virgin CEO John Borghetti improved the airline's underlying profitability, but its share price doesn't reflect that.
At Virgin's annual general meeting on Wednesday, Mr Wilson, from fund management company Wilson Asset Management, expressed frustration that his firm's shares in the airline had not increased in value to reflect its improved underlying profitability. He blamed Virgin's "dysfunctional" shareholding structure for the disappointing share performance.
“You refuse to enact what I believe is good corporate governance, and do the right thing by all shareholders and the company and all its employees," he said. "Why don’t you privatise Virgin?"Virgin's share price has remained stubbornly low at between 16¢ and 21¢ since the company raised $1.1 billion in new capital from its major investors in 2016. By contrast, rival Qantas' share price has climbed about 85 per cent during the same time.
“If I was standing there as chair, I’d be embarrassed by that," said Mr Wilson, who owns about 12 million Virgin shares.
Virgin chairman Elizabeth Bryan said the board had spent "significant time" considering a privatisation, but decided it was not in the best interests of the business as it tried to achieve "sustainable profitability".
"The board’s view was that at this time their business judgement was not to proceed with the privatisation," she said.
Ms Bryan said that while Virgin's shareholding structure was "unusual", it was not dysfunctional.
Strategic airline investors Singapore Airlines, Etihad Airways and Chinese groups HNA and Nanshan each own about 20 per cent of Virgin, with Richard Branson’s Virgin Group owning another 10 per cent.
Virgin has not paid a dividend since 2008, and has been unprofitable for the past six years, falling to a record net loss of $653 million in 2018, due to $120 million in writedowns to the value of its international business, and the de-recognition of deferred tax assets worth $451.9 million.
On an underlying basis, excluding impairment costs and the cost of its business turnaround plan, Virgin reported a before-tax profit of $113 million last year - up from an $3.7 million loss - and last month said its first-half underlying profit was on track to improve by 22 per cent.
Revenue in the first quarter was up 9.7 per cent year-on-year, Virgin said in a trading update on October 22, while forecasting revenue growth of 10 per cent in the second quarter.
'Dysfunctional, embarrassing': Major investor slams Virgin Australia
Virgin Australia has come under attack from high-profile investor Geoff Wilson, who has said the airline's chairman should be "embarrassed" by its share price and demanded the board reconsider privatisation.
The country's second-largest carrier is 90 per cent owned by major airlines. Its board weighed up taking the company private earlier this year but eventually decided against it.
Virgin CEO John Borghetti improved the airline's underlying profitability, but its share price doesn't reflect that.
At Virgin's annual general meeting on Wednesday, Mr Wilson, from fund management company Wilson Asset Management, expressed frustration that his firm's shares in the airline had not increased in value to reflect its improved underlying profitability. He blamed Virgin's "dysfunctional" shareholding structure for the disappointing share performance.
“You refuse to enact what I believe is good corporate governance, and do the right thing by all shareholders and the company and all its employees," he said. "Why don’t you privatise Virgin?"Virgin's share price has remained stubbornly low at between 16¢ and 21¢ since the company raised $1.1 billion in new capital from its major investors in 2016. By contrast, rival Qantas' share price has climbed about 85 per cent during the same time.
“If I was standing there as chair, I’d be embarrassed by that," said Mr Wilson, who owns about 12 million Virgin shares.
Virgin chairman Elizabeth Bryan said the board had spent "significant time" considering a privatisation, but decided it was not in the best interests of the business as it tried to achieve "sustainable profitability".
"The board’s view was that at this time their business judgement was not to proceed with the privatisation," she said.
Ms Bryan said that while Virgin's shareholding structure was "unusual", it was not dysfunctional.
Strategic airline investors Singapore Airlines, Etihad Airways and Chinese groups HNA and Nanshan each own about 20 per cent of Virgin, with Richard Branson’s Virgin Group owning another 10 per cent.
Virgin has not paid a dividend since 2008, and has been unprofitable for the past six years, falling to a record net loss of $653 million in 2018, due to $120 million in writedowns to the value of its international business, and the de-recognition of deferred tax assets worth $451.9 million.
On an underlying basis, excluding impairment costs and the cost of its business turnaround plan, Virgin reported a before-tax profit of $113 million last year - up from an $3.7 million loss - and last month said its first-half underlying profit was on track to improve by 22 per cent.
Revenue in the first quarter was up 9.7 per cent year-on-year, Virgin said in a trading update on October 22, while forecasting revenue growth of 10 per cent in the second quarter.