Virgin Blue lodges prospectus for IPO

Virgin Blue, Australia's low fare, low cost airline, today lodged a prospectus with the Australian Securities and Investments Commission (ASIC) for the company's initial public offering and intended listing on the Australian Stock Exchange (ASX).

The gross proceeds of the offer are expected to be between $501 million and $558 million based on the indicative price range of $1.80 and $2.25 and a free float of 25%. The company reserves the right to price outside this range.

The offer includes the issue of new shares worth in excess of $400 million by Virgin Blue and will also facilitate the sale of some of Virgin Group's shares. Virgin Group will sell sufficient shares to ensure that a minimum of 25% of Virgin Blue's capital will be owned by investors other than it and Patrick Corporation. Virgin Group can also choose to sell additional shares through the Offer.

Patrick Corporation will also be acquiring shares in the issue to maintain an ownership stake of 45% on a fully diluted basis post the listing.

The final price of shares will be determined by the selling shareholder, Virgin Group, and the Joint Global Coordinators, after the close of the institutional offer. Applicants under the Retail Offer will pay the final price.

Brett Godfrey, Chief Executive Officer of Virgin Blue, said the Company's track record of growth and profitability, strong competitive position and attractive growth opportunities going forward, are some of the key investment features of the Offer.

"Virgin Blue has achieved significant growth in profits since the commencement of operations back in August 2000 and we have good margins producing high earnings," Mr Godfrey said.

"Virgin Blue's unit costs have declined as the Company has grown. Our success to date is testament to the commitment of our people and this IPO provides the opportunity for them to share directly in the Company's future success," he said.

Mr Godfrey added that Virgin Blue believes it has developed a strong safety culture, supported by a practice of providing extensive training to ensure its staff have appropriate skills for their respective jobs.

Chris Corrigan, newly appointed Chairman of Virgin Blue, said the Directors believe the Company's positive growth outlook, good margins combined with low fares, and returns well in excess of capital costs, represent an attractive investment proposition.

"The key competitive strengths of Virgin Blue are its relatively low cost structure, its low fare offering and a management team with significant airline experience, a strong brand, unique culture and the enthusiasm, commitment and productivity of its workforce," Mr Corrigan said.

"Virgin Blue has already proven its ability to operate successfully in a competitive market and the Directors are confident that this will continue in the future," he added.

Virgin Group founder, Sir Richard Branson, who backed the concept of a low fare, low cost airline in Australia, said Virgin Group was delighted to have provided the initial equity funding and helped Virgin Blue capture a total domestic market share of more than 28%.

"The Virgin Blue brand has itself become a well recognised brand in Australia," Sir Richard Branson said.

"I am extremely pleased the Australian travelling public who have supported Virgin Blue since its inception, and our employees who have helped build the airline, will now have the opportunity to be part of its growth and promising future.

"We believe the future is bright for Virgin Blue and, as such, we plan to maintain a significant stake in Virgin Blue in the long-term as part of our global airline strategy."

Sir Richard Branson has been appointed Life President of Virgin Blue, and will continue the strategic mentoring, advisory and promotional role, which he has done for Virgin Blue to date. As the largest private shareholder, Virgin Group has appointed two of its most senior directors, Stephen Murphy and Patrick McCall, to the board. Both have considerable experience in the transport and travel sectors.

"Given my other global commitments, I don't feel it appropriate to personally undertake a formal board role. With the need for Virgin Blue to be an Australian owned and controlled company to expand in the Asia Pacific region, it's wholly appropriate that an Australian should be Chairman, and Chris Corrigan has a wealth of experience to undertake such a role," Sir Richard Branson said.

In addition to Chris Corrigan as Chairman and Brett Godfrey, the Board of the Company includes David Mortimer, former CEO of TNT Limited, David Ryan, previously Managing Director of Adsteam Marine Limited, Stephen Murphy and Patrick McCall, representing Virgin Group, and William Hara and David Knight, executives of Patrick Corporation.

THE OFFER

The Offer is structured as follows:

- The Retail Offer
- The Institutional Offer
- The Patrick Offer
- The Executive Offer 
- The Employee Gift Offer

The Retail Offer

Brett Godfrey said the Retail Offer consists of a General Public Offer, an Employee Offer and a Broker Firm Offer.

"The General Public Offer is open to Australian resident retail investors, while the Employee Offer is open to all employees of Virgin Blue who are Australian residents, were employed by Virgin Blue on or before 31 August this year and remain employed by Virgin Blue on the retail closing date," he said.

"In addition, employees eligible to participate in the Employee Offer who meet certain criteria are entitled to certain guaranteed minimum allocations of shares. Finally, as part of the Employee Gift Offer, certain eligible employees of Virgin Blue are entitled to a tax-free gift of $1,000 worth of new shares at the final price," Mr Godfrey said.

The Broker Firm Offer is open to Australian resident retail investors who have received a firm allocation from their broker.

The Institutional Offer

The Institutional Offer consists of an invitation to bid for shares made to institutional investors in Australia and certain overseas jurisdictions.

The Patrick Offer

Patrick Corporation, which is an existing part owner of Virgin Blue, has agreed to subscribe for a number of shares in the Offer, such that after the Offer, its shareholding in Virgin Blue is not less than 45% of the fully diluted capital of the Company.

The Executive Offer

The Executive Offer consists of an invitation to existing option holders to receive shares in consideration for the cancellation of certain of their existing options.

The Employee Gift Offer

The Employee Gift Offer consists of an offer of $1,000 worth of new shares (tax-free) to certain eligible employees based on the final price.

The purpose of the Virgin Blue Offer is to:

- establish a financial platform and capital structure to allow it to continue to take advantage of growth opportunities;

- enhance its capital position to effectively compete and protect it from any temporary deterioration in business conditions; and

- facilitate an ongoing employee incentive program through share ownership in the Company.

Proceeds from the Offer will also enable a selling shareholder, Virgin Group, to realise a portion of its original investment in Virgin Blue.

Applications under the Retail Offer can be made by completing and lodging an Application Form attached to or accompanying a prospectus or a paper copy of the Application Form from the online version of the prospectus.

Applications under the General Public Offer can also be made by submitting an online Application Form via Virgin Blue's website, www.virginblue.com.au/shareoffer

THE VIRGIN BLUE STRATEGY

Virgin Blue said it's strategy is to continue to leveraging its existing business model to provide high quality, low fare, low cost airline services and to take advantage of growth opportunities. Virgin Blue aims to offer fares that are on average substantially lower than those of its competitors, and to provide guests with a differentiated, value for money service alternative.

As outlined in the prospectus lodged with ASIC, the key elements of Virgin Blue's strategy includes:

- increasing frequencies on existing routes (including key business routes);

- launching new services on secondary business routes;

- adding regional leisure routes to its network;

- commencing international operations within the Pacific region; and

- introducing new value-added, user-pay service enhancements.

VIRGIN BLUE SO FAR

Virgin Blue was established in August 2000 with equity funding from the Virgin Group and offers high frequency passenger services on routes between all of Australia's major cities. In just over three years, the Company has captured a market share of more than 28% of the total domestic Australian market and has grown from a company operating two leased aircraft between Brisbane and Sydney, to 40 aircraft, servicing 37 domestic routes.

Virgin Blue has received strong growth since commencing operations. For the year ended 31 March 2003, Virgin Blue carried more than 6.6 million passengers and generated total revenues of $915 million, an increase of 136% over the previous year.

For the six months ended 30 September 2003, 4.5 million customers were carried by Virgin Blue resulting in total revenues of $617 million, an increase of 55% from the previous corresponding period. During the same period, Virgin Blue achieved $64 million in profit from ordinary activities after income tax expense, representing a 30% increase from the previous corresponding period.