The other directors are here today and they're sitting in the front row. They are Mr. Trevor Bourne, who's an independent director and Chairman of the Safety and Operational Risk Review Committee. Mr. Mark Chellew, who's an independent director and Chair of the Remuneration Committee. Mr. Ken Dean, who's also an independent director and Chair of the Audit and Risk Management Committee. Ms. Samantha Mostyn, who is also an independent director. Mr. Lan Xiang, who is a director nominated by Nanshan Group. Mr. Warwick Negus, a director nominated by Virgin Group. Mr. Marvin Tan, a director nominated by Singapore Airlines, my apologies, Marvin. Mr. XIang Kui, a director nominated by HNA, and Mr. Ray Gammell, an alternate director for Mr. Robin Kamark, who is nominated by Etihad Airways.
Unfortunately, Mr. Kamark and Mr. Mark Vaile are unable to attend today's meeting, and they have extended their apologies to you. The company auditor, Mr. John Wigglesworth, from KPMG is also here today, just out in front of me. Before we move on to the formal part of our meeting, I'd like to give you a short address, and that'll be followed by a presentation from our CEO and Managing Director, John Borghetti. Let me turn to my address. Your company has achieved a solid operating profit this year. Our underlying profit before tax for the financial year to June 2018 was AUD 109.6 million. This is an improvement of AUD 113 million on last year, and the result of many changes that we've undertaken over the past three years. 2018 has seen us continue to play an important role in Australia's transport infrastructure and economy.
During the year, we kept driving competition in the aviation industry and challenging the status quo. We safely transported nearly 25 million passengers and served many Australian communities, including those in regional locations. We were directly responsible for almost 10,000 Australian jobs and created further economic value by using Australian suppliers. I'd like to reflect for a moment on the significant journey our company has taken to arrive at this point. It's been almost 20 years since the establishment of Virgin Blue as a low-cost carrier in Australia. It's been 15 years since the company was listed on the Australian Securities Exchange. It was more than eight years ago that the board and leadership determined that the company's future success required it to offer all of the components of a full-service airline.
It's been more than four years since the capacity war that hurt the financial performance of both Australian airlines. Following these events, the Virgin Australia Group has undertaken a major restructuring of both its balance sheet and of its business. That was done in order to strengthen the financial foundation of our business and to ensure that we can create sustainable profitability. During this time, we've undertaken several key actions. These include a major review of our capital structure in 2016, and following that review, we raised AUD 1.1 billion in capital from our shareholders to renew our financial base. We have restructured our debt and de-leveraged the business. We have achieved significant improvements in our cash balance and the cash flow performance, and we have successfully taken significant costs out of our operations and made our business more efficient.
It's these actions that have enabled the Virgin Australia Group to report an underlying profit before tax this year. The group also reported its highest ever operating cash flow and cash balance, and the best financial leverage result in a decade. John will provide more details on our financial results in his address in a moment. As part of the final stages of rebuilding our balance sheet, we have reported a statutory loss after tax of AUD 653 million. The key driver of this result was the decision to make AUD 573 million of non-cash accounting adjustments. We took a prudent approach under accounting standards to de-recognize our deferred tax assets and to reduce the carrying value of the assets of the international business.
While these accounting adjustments affected the group's statutory result for the year, it's important to remember that they do not affect the fundamentals of the group's underlying performance. Against this summary, I'd like to turn to a number of matters that have been raised in feedback from you and from some of our other shareholders. Firstly, the potential privatization of the company. As we reported in February this year, the board considered whether it was appropriate to remain a listed company or to become a privately held company. Ultimately, the board determined that it was not appropriate to privatize the business at the time, and that remains our position. However, the board is conscious that the group continues to have a small free float comprised of many small shareholders. In February, many of our shareholders had shareholdings valued at AUD 500 or less that could not be sold by usual means.
We took action to address this issue by giving these shareholders the ability to sell their shares back to the company at an appropriate price and in a cost-effective manner. This buyback facility was well-received, with approximately 19,800 shareholders choosing to participate in the facility. This resulted in a 0.15% of the group's total issued share capital being bought back and canceled. Let me now turn to remuneration, that favorite topic of annual general meetings. I'll formally address the remuneration report later in the meeting, but before we do, I'd like to make some general comments on our remuneration program for the past year. The remuneration structure for the 2018 financial year was designed to incentivize good executive performance in the areas of underlying profitability, business efficiency, and cash flow savings.
The weighting of underlying profitability in the company scorecard was increased compared to the prior year, and profitability was made a gateway hurdle. This means that the metric of underlying profitability had to be met in order for any short-term incentive payments relating to financial performance to be made. The board's signal to the management team this year, through our restructuring of the incentive payments, was about the importance of driving operating profit. Management team responded to this signal. The board's action to take the accounting write-downs that produced the statutory loss is independent of the success of our operations. Going forward, the board will continue to ensure that the remuneration structure for the group is closely aligned with shareholder interests and that executives are incentivized to perform well. The value of our business can be measured not only by profit, but also by the value it adds to society.
In order to keep building the value of our business over the long term, we will continue to build trust in our brand and operations by serving our communities. The service that we provide to our guests does not end when they leave our aircraft. This year, we supported Australian farmers affected by the severe drought by collecting donations from our passengers and employees on behalf of the Australian Red Cross. Through our partnership with leading food rescue organization OzHarvest, we also helped provide more than 1 million meals to schoolchildren using the surplus food from our aircraft. We also recognize our role in making our environmental footprint as sustainable as possible. This year, the Virgin Australia Group led a trial of sustainable aviation fuel, known as biofuel, at Brisbane Airport.
The trial is an important step in developing commercial biofuels, which will drive further investment and jobs in Australia and reduce carbon emissions from flying. I'd like to thank all of our directors and the members of the group's management team for their hard work and leadership over the past year. We've had some changes to the board over the past 12 months, including Mr. Nang Qi, who was nominated by HNA Innovation, who stepped down from his role and was replaced by Mr. Zhang Kui. Mr. Harsh Mohan, who was nominated by Etihad Aviation Group, stepped down from his role and was replaced by Mr. Robin Kamark. Mr. Rob Thomas stepped down from his role as an independent non-executive director, and Mr. Trevor Bourne and Mr. Mark Chellew joined the board as independent non-executive directors.
I'd like to thank our departing directors for their service and welcome our new directors. Those that are up for election to the board today will address the meeting shortly. I thank all of our shareholders, including our major shareholders, Etihad Airways, HNA, Nanshan Group, Singapore Airlines, and the Virgin Group. I also acknowledge our smaller shareholders, including those that exited their shareholding by participating in the share buyback earlier this year. I also want to thank, sincerely, the people who work for the Virgin Australia Group. Every day, they deliver an exceptional customer experience to thousands of our guests. It was announced in June that John Borghetti would like to step down from his role as CEO by latest January 2020. I'd like to thank John for providing this long transition period to us.
John remains fully focused on leading the company as CEO while the board conducts a global recruitment process. I've been very pleased with the high level of interest from quality candidates, both domestically and internationally, and we will provide an update when the recruitment process has been finalized. As we move into the 2019 financial year, the board and management are firmly focused on creating sustainable profitability within the Virgin Australia Group. The business has positive momentum in its underlying performance, supported by an excellent product, an optimized network and fleet, engaged employees, and a solid financial foundation. We will continue to carefully manage our capital while targeting revenue and earnings growth. We will also strive for excellence in the service we offer our customers, the way we treat our people, and the value we deliver to our communities.
Thank you all for your attention, and I'd now like to ask CEO John Borghetti to deliver his report to you. John.
Well, good morning, everyone, and thank you all for attending this morning. It's a great pleasure for me to be here today and update you on the performance over the past year and also talk about some of the focus on the year ahead. I recall that when I spoke to you all at the AGM a year ago, I said that during the 2018 financial year, we would grow our earnings, we would deliver significant cash flow savings, and we would improve our leverage and free cash positions. It's very pleasing for me to stand here and report that we have achieved these goals, and frankly, more, and that we are on a path, a very clear path, towards sustained profitability. For the 2018 financial year, the Virgin Group delivered the following. The highest ever group revenue, EBITDAR, and EBITDA results.
The highest EBIT and underlying profit before tax result in 10 years. Record profitability in the core domestic business, the engine room of our business. A very effective transformation program that was delivering AUD 324 million in annualized cash flow savings by the end of that financial year, which may I add, was one year ahead of target. AUD 570.4 million in net cash from operating activities, which was more than double that of the prior year's result and the highest ever recorded in our history. A free cash flow result that was also more than double the prior year's result, notwithstanding, importantly notwithstanding, over AUD 200 million invested in our fleet. We also delivered the highest ever 30 June cash balance of AUD 1.4 billion and the strongest financial leverage result in 10 years. The improvements in our underlying profitability, cash flow, and leverage were really driven by three things.
Our strengthening position in the domestic market, the simplification of our fleet and network, and our disciplined approach to capacity management, capital expenditure, and debt. An unrelenting focus on efficiency in every part of the business through the Better Business Program, which we spoke about on the last couple of AGMs. The Virgin Australia domestic business, which sits at the center of our operation, showed strong performance over the 2018 financial year. In fact, its segment report was the highest EBITDA, EBIT, and EBIT margin results since the domestic segment reporting commenced in 2012. Indeed, Virgin Australia's domestic EBIT margin was two and a half times higher than it was the previous financial year. These excellent outcomes were supported by record high unit revenues and strong growth in yield and passenger numbers.
Having said that, the Virgin Australia international business did report an EBIT loss of AUD 12.8 million, and this was significantly impacted by some external headwinds, obviously, of increasing fuel prices, some of the disruptions caused by the volcanic activity in Bali, and the startup cost, obviously, of our launch of the Hong Kong services. The earnings performance of Tigerair were also impacted by the depreciation costs from its fleet transition program. The fundamentals of Tigerair in terms of passenger numbers, unit revenues, and yield were very strong. Earnings for the Velocity business declined due to several factors, including external changes to the credit card interchange regime. That said, the business is well-placed for growth. Velocity's members now total more than 9.3 million, and importantly, its EBIT margin for the year was a healthy 29.6%. It was higher than that of its competitor.
As the chairman noted, the group reported a statutory loss after tax of AUD 653 million, largely, as Elizabeth said, impacted by non-cash adjustments. It is important to remember that these accounting adjustments do not impact our cash, the fundamentals of our underlying business, or our confidence in its performance. It's also important to remember that because the derecognition of the deferred tax assets is an accounting adjustment only, those assets remain available to the company to be offset with future tax liabilities. While we have completed the transition of Virgin Australia, we do recognize that the importance of further evolving and improving our customer offering and operation is very important. This is going to be the key to strengthening our performance in a very competitive market and ensuring that our long-term success occurs.
Throughout the 2018 financial year, we kept challenging the status quo, and raising standards to deliver the best possible experience to our customers. For example, during the year, both Virgin Australia domestic business and the broader group outperformed our major competitor on on-time performance. We became the only Australian airline to offer Wi-Fi on flights to North America. Additionally, more than 60% of our domestic fleet has been fitted with Wi-Fi, and the balance is planned to be finished by the end of February 2019. We start our 330 fleet, and that will be fitted with Wi-Fi by September 2019. We also became the only Australian airline to offer in-flight entertainment on charter flights, which is a very important segment of our market.
We continue to improve our airport experience by introducing self-service check-ins at Adelaide, Sydney Airport, launched comprehensive redevelopment plans at Melbourne Airport, which you all know is one of our busiest ports. Our cargo business, importantly, began offering freight capacity on our flights to Hong Kong, creating even more opportunities for Australian businesses to share their product to the world. Tigerair kept building its presence in the low-cost travel market through a range of product enhancements that attract more passengers to its growing customer base. Velocity, the Velocity business introduced new and innovative growth initiatives, which culminated in a major partnership with a bank and a new mobile app. Our key differentiator in this very competitive industry is without doubt, our people. I'd like to express my gratitude to all of our team members.
They are passionate, they are dedicated, and our success in the 2018 financial year can be attributed to their hard work, and they deserve every accolade and recognition for what they've achieved. We also know that we have an important role to play in training the next generation of aviation professionals. You're familiar with the Virgin Australia Pilot Cadet program, which is building a pipeline of talent for our airline. This year, two groups of cadets will graduate from this program and commence flying with Virgin Australia. I'm pleased to say that we have also finalized the recruitment process for the next class of the program. Our new cadets will begin training in January next year.
In addition to the cadetship program, I'm pleased to note that last week we announced that the Virgin Australia Group has been selected to create an aviation center of excellence in Tamworth, and there is no doubt that this will be a world-class training academy that will equip the next generation of Australian pilots. Let me turn now to what the future holds for the Virgin Australia Group. Firstly, we are in a good position for success going forward. We have built an outstanding customer offering that attracts passengers and creates competition in every single part of the aviation industry, something that is critical in a country that is so reliant on air transportation. We've also built a better business. Over the past several years, we have significantly strengthened our balance sheet through improvements in our cash flow performance and our financial leverage positions.
Importantly, our positive momentum in the 2018 financial year has continued into the current financial year. We provided a trading update to the market two weeks ago to the effect that our revenue for the first quarter of the 2019 financial year grew at 9.7% compared to the prior corresponding quarter. Furthermore, the revenue for the second quarter of the year is expected to grow by 10% compared to the prior corresponding quarter. We expect that our underlying profit before tax for the first half of the 2019 financial year will be at least AUD 100 million. This represents at least a 22% increase on the previous comparable first half result of AUD 81.9.
This result will be achieved despite an estimated year-on-year fuel price increase of AUD 88 million. Now, I'd just like to conclude by thanking all of our shareholders for their support throughout the year, and I am absolutely confident that the year ahead holds further success for our company. Thank you very much.
Thank you. Thank you very much, John. Let me now turn to the formal business of the meeting. The notice of meeting has been sent to shareholders, and if there are no objections, I'd like to take it as read. We have 3 items of business to be put to the meeting today. 2 of them require a vote. The items requiring a vote are the proposed resolutions set out in items 2 and 3 of the notice of meeting. To assist with the efficient conduct of the meeting, I declare that each of those proposed resolutions is now properly before the meeting without the need to be moved when we come to the relevant item. After discussion on each of the proposed resolutions, I will show the proxy position for the relevant resolution on the screen behind me.
This will be the proxy position as at 10:00 A.M. Brisbane time on Monday, 5 November 2018, which was the closing time for appointment of proxies. As outlined in the notice of meeting, each of the proposed resolutions will be put to a poll at today's meeting. The polls will be conducted at the end of the meeting rather than after each item has been discussed. If you need to leave before the end of the meeting, please ensure that you lodge your completed and signed voting card at the registration desk outside the room. As a result, I declare the poll open on each of the proposed resolutions in items 2 and 3 of the notice of meeting. I appoint Mr. Wayne Hopkins of Computershare to be the Returning Officer for the conduct of the poll.
I give the Returning Officer power to appoint members of his staff and the staff of the company to act as his agents in conducting the poll. Each shareholder or proxy who registered today and is entitled to vote will have received a purple voting card. Yellow cards are being given to non-voting shareholders who have the right to speak. Should you wish to ask a question at the appropriate time, please raise your purple or your yellow card, and one of our team members will bring a microphone to you. You should identify yourself as a shareholder or a proxyholder and state your name. Please note that only shareholders and proxyholders are permitted to raise questions during the meeting. All questions are to be addressed to me as chairman.
The first item of business concerns the receipt and consideration of the financial report, the directors' report, and the auditor's report for the company for the year ended 30 June 2018. These reports are included in the company's 2018 annual report, and I present the reports to the meeting. A printed copy of the annual report was sent to those shareholders who requested a copy, and an online copy is available on our website. Copies are also available at the registration desk. There is no requirement to pass a resolution on this item. During this item, shareholders and proxyholders may ask questions about or may make comments on the various reports and on the business operations and management of the Virgin Australia Group.
You may also ask questions of the company's auditor during this item relating to the auditor's report, the conduct of the audit, and other related matters outlined in the notice of meeting. I ask that the questions on other agenda items be deferred until we come to those items. I now open for item one to be discussed. Do you have any questions or comments? Yes.
Look, thanks, Elizabeth. My name is Geoff Wilson from Wilson Asset Management, and we're a shareholder in Virgin. You know, first of all, congratulations on yourself and John and all the employees on the exceptional result. I was here last year and I know you talked about achieving some You know, you had some quite significant goals, and congratulations on what you've achieved. As a shareholder, you know, one thing that I'm incredibly disappointed with is that exceptional performance hasn't been reflected in the share price. You talked earlier about 2016, the AUD 1.1 billion you raised, which was around the current share price. From my perspective is the current shareholding structure is dysfunctional.
My question is, you know, why do you and the board, you refuse to enact what I believe is good corporate governance and do the right thing by all shareholders, by the company, the long-term benefit for the company and all employees, and why don't you privatize Virgin. I'm disappointed, and you know I sent you a letter earlier in the year. I'm disappointed that, A, you didn't answer the questions I asked there, and why you don't fully disclose why you've come to that conclusion. Thank you.
Okay. Geoff, thank you for your question, and thank you for your acknowledgement of the progress that the company's made. I appreciate that on behalf of not only the board and my colleagues, but also our executive team who worked hard to achieve that. The question you ask is a question that has been considered by the board. It's an issue that all our directors and our major shareholders have spent significant time considering, and they've been fully informed on. We understand where the call for a privatized company comes from, we have a business judgment to make on the course forward for the company that will most effectively drive us to a sustainable profit position. You've heard John and I use those words a couple of times from the platform today, that's the focus and the imperative in this company at the moment.
The board's view was that at this time, their business judgment was not to proceed with the privatization. That's the information that we put out, I think, earlier this year, and it's the response I gave you to your letter, and unfortunately, it's the same response I'm going to give you today. We have thoroughly considered the issue, and our current position is to leave the company in its existing position.
I mean, what my problem is with that answer is it's just an overarching answer. Who is looking after the small shareholders from a board's perspective in a board that appears to be, or in a shareholding structure that appears to be seemingly dysfunctional? John talked about the record operating profit was AUD 570 million, up AUD 300 odd million on the previous year. Unfortunately, that isn't reflected for the minority shareholders. To me, I'm a big believer in listed companies, and I just think, unfortunately, the shareholding structure is dysfunctional. Unfortunately, it'll never get fully reflected. The value of the company and the performance of the management will never get fully reflected in the share price.
I would assume that the benefits to the company, particularly medium and long term, would be seemingly greater as a private company to, at some point in time, be listed, even if it's maybe via Velocity or bringing Virgin back to the market. At the moment, since you raised the money, since people put in AUD 1.1 billion at AUD 0.21, the Qantas share price is up 85%, from AUD 3 to AUD 5.50 over that period of time, and Virgin has done nothing. To me, if I was standing there as chair, I'd be embarrassed with that.
Okay. Let me take issue with a couple of the words that you've used there, Geoff. One, I'm not embarrassed about this company. I'm very proud of its achievements, and they've been hard fought and hard won. The shareholding structure is not dysfunctional. It's unusual. I will grant you unusual, but I won't grant you dysfunctional. We work very well together as a board, and the board is very mindful of its minority shareholders. That's why we held such extensive and did such extensive work on how we best run the company and the structure that we think is appropriate for the time. The shares are liquid. They are traded. You have reservations about the share price. I don't really know. That's the market working at the moment. There's no reason necessarily to say that the market has got it wrong.
It's a business judgment that we've come to after a lot of consideration. The move that we made to take out the very small parcels was recognition that they were actually quite a significant number of them, and that's been accepted. We are going to continue for the foreseeable future with the structure that we've got, which is actually working well for the company.
Not for shareholders.
Well, that's your claim.
Well, you prove otherwise.
I don't have to prove anything. This is being run as a public company. There is trading in the stock. The board is aware of the issues that you've raised. The board has very thoroughly investigated them. At the moment, we've come to the business judgment that we will stay with the existing structure.
[audio distortion]
It's a judgment. I don't think it's something that the board can debate with you at the moment. You did enter the register. You were aware of the state of the company when you came into the register. That hasn't changed. All right. Question down here. Oh, no.
Oh.
Sorry, a bit dark for me to see over there.
I'm a shareholder. My name's Martin Doyle. To placate, perhaps, is there any hope of receiving a dividend sometime down the track? Is Virgin going to be viewed as an income stock or a growth stock? Which way is the company headed? Maybe perhaps a bit of both.
Well, a bit of both would be nice.
Yeah.
The story that John and I have told you today is one about successful turnaround of the company. That's the position that the company is in. We are on track, I think, to creating a sustainably profitable company for you. It's a bit early for me to comment on your question. I had a question down here.
Nola Hall. I'm a shareholder. I first bought shares in 2004, and my last purchase was 2009. Well, in that time, they've gone from AUD 1.89 in 2004 to AUD 0.20, but I think they went to AUD 0.17 after that. Two years ago, just before the meeting, they were AUD 0.40 a share, then they dropped to around AUD 0.20. For the last two years, they've been AUD 0.20-AUD 0.23. I'm like the other people. I'm just absolutely astounded that a company or an airline as big as Virgin, their shares are worth AUD 0.20. I don't think anyone I speak to and say that to, they can't believe it. I flew to Sydney a couple of weeks ago with Virgin. It's a big company. It's a big way. The share's worth AUD 0.20. That's a tenth of what it was floated at.
You can't imagine why the small shareholders who've been supporting for years, I don't know when it was floated, probably about 2002 or something, I don't know. I paid AUD 1.89 for my first-
lot of shares.
I feel exactly the same. Small shareholders get nothing. Not a dividend, nothing. Nothing better than anyone anywhere. Okay. I find it unbelievable.
Okay. Well, thank you for that comment. Again, all I can say is we're putting all our endeavors into producing a sustainable profit for this company, and that's really the role that the board can perform best for its shareholders, and it gets all our attention. Okay. If there are no further questions, we'll now move on to the items of business, which are the-
I have.
I'm sorry. Is there another question? It's a little bit glary. I can't see very clearly down there.
I'm a small shareholder. Unfortunately, I wasn't small enough to get the AUD 0.30 which you offered to smaller shareholders. I think that's a bit discriminating. Why should you offer AUD 0.30 to shareholders with a value of AUD 500 worth of shares, whereas I've got, I think about AUD 3,000 worth, which isn't a lot of shares really, is it? Why didn't you extend that offer to more shareholders? That's my first question. The second thing is relating to us small shareholders. We've had no benefits. The amount of capital that was raised a few years ago is over AUD 1 billion. Now, the people that put in that money, you think they would be expecting or getting some return. My second question is relating to those overseas, Singapore Airlines and the other airlines.
When their passengers arrive in Australia, they travel on that Virgin Group within Australia, what sort of discounts do they get for their passengers on fares in Virgin in their Australian transits or whatever?
Okay.
How do those fares compare to what I would pay or any other Australian retail buyer?
Okay. All right. Let me deal with the first of your questions, and then I'll make sure that we have an accurate answer by handing over to John for the second set of questions. The first question, if you have AUD 500 or less in your shareholding, they're not marketable in the normal way that larger shareholdings are.
As of now, you can market small shareholding.
That was the case. It used to be. On the internet now, you just put them on, and they go.
Yes. That's correct.
Well, what you've just said is not correct. Why say one thing when you know that it's not true?
Well, they're marketed in a different way to the larger shareholding.
In what way are they marketed differently?
Well
All the shares are marketed the same way to my knowledge, perhaps I'm not fully aware. I have traded in shares for quite a long time.
It's always been a matter for most companies in Australia to make sure that their shareholdings were in significant enough parcels so that they could be handled by the normal stockbroking channels. What we did was not unusual. It's something many companies do annually or every couple of years to clean up the small shareholders. That's what we did. With a nearly 20,000 uptake, we had quite a large pool of these very, very small shareholdings. Why didn't we extend it to everyone? That's your question, and that's the same question that Geoff Wilson asked about privatization, and I've given you the answer on that the company did not think it was in the best interest of its business at the moment to do that.
Yeah, but this-
John, can you handle the question of the relationship we have with our large international shareholders, and particularly the fare question?
No. Thanks, Elizabeth. Thanks for asking that question. It's an interesting one because a shareholding in an airline by another airline doesn't guarantee them preferred rates for their passengers. Airlines do business with other airlines, whether they're shareholders or not, and have arrangements individually with those airlines. The price the passenger pays of that airline is subject to market conditions, the competitive condition in the market. It would be wrong to assume that because an airline invests in another airline, in this case specifically us, that automatically gives them a right to have cheaper fares for their passengers. That's inaccurate. Yeah.
Yeah. They would tend to use, if they own 20% of Virgin, surely they'd be using you for transits within Australia. Surely-
Yeah.
There is no-
No, that's not. Well, let me answer that. Delta, for example. Delta is not a shareholder in us. Their passengers use us, and we have an arrangement with Delta.
Yeah. Those people that have a share in you, they'd be a bit. Singapore Airlines, for instance. Surely they would want to support you, seeing they own 20% of the company. They'd rather use you than use Jetstar or some of these others.
Yeah, sure. They do because we have a commercial arrangement, not because of their shareholding. They are two very separate things.
You don't give them any discounts? They pay exactly the same fare as I would pay from Sydney to here.
Fares that are charged for inbound passengers are always different to passengers that pay in a local market because the currency is different. Currency fluctuations.
Yeah
make a difference. The short answer is, there is no preferential treatment because they are a shareholder. There may be a commercial agreement between the two airlines, but commercial agreements apply to whether you're a shareholder or not, depending on what makes sense for both parties.
I'm just surprised and amazed that those companies, those large overseas companies, invested that amount of money recently, over AUD 1 billion.
They're not getting any return on it. I assume that unless.
Well, I'm not going to answer a question on behalf of my shareholders.
They're not getting any dividends. I'm not getting any dividends, and the share price hasn't gone up. They cannot be very happy with the situation. Surely, as the previous speaker spoke, they should wake up and take the thing over and run it separately off the ASX.
I can only explain to you how fares work. What the views are of individual shareholders, large or small, you have to ask the shareholders, not me.
Yeah. They also want to keep the shareholders' holding down because I noticed I was going to come to it later in the remuneration, where you get all the cash, the chief executive. The reason they give is because there's so few shares on the market. Can you not issue new shares to the chief executive for his STI? I think they are. I was going to mention that. I'll mention that when the remuneration comes up.
I'll look forward to it at that time. Thank you very much. Any other questions? Don't let me cut it off too soon. I can't see anything at the moment. No. All right. Thank you. No further questions. We'll now move to the items of business, which are the proposed resolutions to be put to a vote. Before we consider and discuss each proposed resolution, I'd like to remind you that the vote on each resolution will be conducted by a poll at the end of the meeting. Our company secretary will provide more information on the polling process at the end of the meeting. The next item of business is item two, which concerns the election and re-election of directors. We have five directors, including me, standing for election or re-election at today's meeting.
Four of these directors have been appointed by the board since last year's annual general meeting, and are required to stand for election by shareholders at this meeting in accordance with the company's constitution. As I was elected by shareholders to my role as a director three years ago, I'm standing for re-election today in accordance with the company's constitution. I'd like to ask Ken Dean to chair the meeting while you consider my re-election.
Thank you, Elizabeth. Now we turn to item 2A on the agenda, which concerns the re-election, as Elizabeth has mentioned, of Elizabeth as a director. The proposed resolution for Elizabeth's re-election is on the screen. Elizabeth was appointed as a director and chair of the company on the 20th of May 2015. She's also the chair of the nomination committee. There's further details about Elizabeth set out in the notice of meeting. The board considers Elizabeth to be an independent director of the company. Elizabeth, I'd like to invite you to address the meeting on your re-election.
Thank you. Thank you, Ken. As Ken just said, you elected me to the board three years ago, and at that time, I felt very privileged and proud to be asked to join the board of Virgin Australia. After three years, I have exactly the same feelings. This is a good company with a genuine ambition to use its skills and knowledge to create a strong, sustainable second airline in Australia. Being able to work with the board and the management team as chairman in guiding these activities has been an honor. When I think back over the past three years, I'm pleased with the progress that's been made on our journey. Our progress has been underpinned by an enormous amount of work that has been done in strengthening and optimizing the performance of the company.
I believe that the Virgin Australia Group is in a strong position for the future, and I'm proud to be a part of the team that has achieved that. I'd be delighted to serve as a director, should you wish me to do so. In addition to my experience in chairing this company for the last three years, I also serve as the chairman for IAG, and as a director on that company. I've been a chairman and director of a number of other large Australian companies. I believe that I have the appropriate experience and background to enable me to continue to make a positive contribution to your company. If elected, I'll continue to use my abilities and insights to act in the best interest of all shareholders. I will also continue to lead the board as an independent chairman.
In doing so, I'll work closely with the other directors to ensure the Virgin Australia Group maintains its positive trajectory and delivers the best results for all our shareholders. I'd like to humbly ask you for your support for my re-election. Thank you.
Thank you, Elizabeth. Are there any comments or questions on Elizabeth's proposed re-election? No comments. The proxy position on the proposed resolution is shown on the screen. Congratulations, Elizabeth. Now that the resolution concerning Elizabeth's re-election has been considered, I'll hand the chair of the meeting back to Elizabeth. Thank you.
Thanks very much, Ken. The next item of business concerns the election of Mr Trevor Bourne as a director. The proposed resolution for Trevor's election is shown on the screen. Trevor was appointed to the board on the 1st of January 2018, and Trevor has taken up the chair of the Safety and Operational Risk Committee. He's also a member of the Audit and Risk Management Committee and the Remuneration Committee. There's some additional details on Trevor are set out in the notice of meeting. The board considers Trevor to be an independent director of the company. Let me now invite Trevor to address the meeting about his election.
Thank you, Elizabeth. Good morning, ladies and gentlemen. Thank you for the opportunity to say a few words in support of my re-election to the board of Virgin Australia. Being asked to recommend yourself has the obvious objectivity pitfalls and feels to me somewhat un-Australian. However, with that caveat, I'll do my best. Boards of large companies need a range of skills and experience to test and debate the decisive experience in large-scale, capital-intensive, hazardous industries with the common theme of safety as the number one priority. This experience will hopefully serve me well in my role as chairman of your Safety and Risk Committee, an important part of this business.
I also bring more than 10 years' experience as managing director of a large public listed company with the associated financial, strategic, and international experience that goes with that role. Additionally, as a non-executive director for more than 15 years, having served on public company and large joint venture boards in Australia and Asia, I clearly understand the responsibilities I have to shareholders, both large and small. I very much welcome the opportunity to serve on this board of this great company, and would seek your support for my re-election. Thank you very much.
Thank you, Trevor. There's some steps here. Are there any comments or questions on Trevor's proposed election? No? The proxy position is shown on the screen. Congratulations, Trevor.
Thank you.
Okay. The next item of business concerns the election of Mr Mark Chellew as a director. The proposed resolution for Mark's election is shown on the screen. Mark was appointed to the board on 1 January 2018. Mark's the chair of the Remuneration Committee. He's also a member of the Audit and Risk Management Committee. We have some additional details on Mark set out in the notice of meeting. The board also considers Mark to be an independent director of the company. Let me now invite Mark to address the meeting.
Thank you, Elizabeth. Thank you for the opportunity to address you all today about my election as a director of the Virgin Australia Group. I have served as a director since being appointed in January this year. Since joining as a director, I have been a member of the Audit and Risk Management Committee and the Remuneration Committee. I became chair of the Remuneration Committee in March this year. I believe that my skills and experiences enable me to act in the best interest of all shareholders and the company. I have extensive experience as a director over the last 20 years. I currently serve as a director of the ASX-listed companies Caltex and Infigen Energy, and until recently was chairman of the industry body Manufacturing Australia.
Previously, about four years ago, I was chief executive and managing director of Adelaide Brighton, and I've also held executive management experiences in Blue Circle and CSR. I believe those experiences enable me to make a positive contribution to the leadership of this company. I believe I can play a productive role in managing the complex strategic and financial matters that this board oversees. I bring a very independent perspective to the board's activities that support the board in acting in the best interest of all shareholders. If I'm elected to continue as a director, I will continue to draw on my experiences and skills to the best of my ability in order to deliver the best possible outcomes for this company and its shareholders. It will be a privilege to continue serving as a director, and therefore I seek your support for my election today. Thank you.
Thank you, Mark. Are there any comments or questions on Mark's proposed election? No? Yes, one.
Thanks, Elizabeth. Geoff Wilson again. My question to you is when the decision was made not to privatize. Warwick's looking this way. I remember Warwick was quoted. There was a talk in the paper that he was one of the supporters of privatization. I've got a lot of respect for Warwick in the investment industry. Who were the independent directors that were on the board at the time that the decision was made not to privatize?
I'm just having a look at Warwick Negus to see how he wants to handle that particular one.
No, but he's not independent. It's not a question for Warwick Negus. It was just a comment about Warwick Negus. No, there was a question, who were the independent directors?
The independent directors on the board would have been Let me go through the people who are currently here. I was on the board. Samantha Mostyn was on the board. Mark Vaile was on the board. Rob Thomas was on the board. How am I going, Sam? Have I remembered everyone? Ken Dean was on the board. I think that's it.
The decision not to privatize was before Mark joined the board, was it?
Yes, it was. It was before Mark and Trevor joined the board.
Mark joined the board at the last AGM, didn't he? Just after?
Afterwards.
You said at the last AGM that you were thinking about privatizing. You didn't say you hadn't decided not to privatize.
Okay.
That's a lie.
I'm sorry?
That's a lie, what you just said.
Let me just see if I can get my recollection straight. I wasn't quite clear where you were going on that. We announced that the board would not be privatized, when?
In February.
In February. I think at the last AGM, there was enormous press speculation about it. If I recall, I said that the board was considering or had been looking at the issue or some words to that effect because of the amount of speculation. Just to acknowledge that we were aware of the speculation that was going on.
I think you actually said that you were unfortunately, I haven't got the words here either, but I think you said that you were going to look at it at the last AGM.
Well,
You actually, when you said that, you'd actually already looked at it and decided not to.
No, I'm not saying that. I'm saying that when we made it.
Mark joined the board after the last AGM.
In January, did he? Can I take this offline with you, Geoff? You're tangling me up in dates that I can't quite remember about when Mark came on the board and when we made the announcement and the difference between the consideration period and when we made a decision. I'd like to take it offline if I can. You're making it difficult for me up here at the moment without any notes to make sure that I've got the facts actually accurate for you. Give me a break.
Well, you didn't answer my letter I sent you, why should I give you a break?
Well.
I sent you a clear letter about my frustration about Virgin.
You got a clear response back.
Yeah
which told you what had happened.
Which didn't answer any of my frustration. It didn't.
Well, I'm sorry that if I didn't meet your frustration, we certainly answered your letter.
You didn't answer my questions. I'll leave it there.
Okay. Right. That comes back to Mark. The proxy position is on the screen. Congratulations, Mark. You're on the board. The next item of business concerns Mr. Xiang Cui. The proposed resolution for Mr. Xiang's election is shown on the screen. Mr. Xiang was appointed to the board on 31 January 2018. He's the shareholder representative director nominated by HNA and a major shareholder of the company. Mr. Xiang is also a member of the Safety and Operational Risk Committee. Some additional details about Mr. Xiang are set out in the notice of meeting. I now invite Mr. Xiang to address the meeting in relation to his election.
Thank you, Chairman, Chief Executive Officer, and shareholders. I'm standing for election as a director on this board as a nominee of HNA Innovation Ventures. I have been the board vice chairman of Hong Kong Airlines since October 2018. Before that, I was the president of Hong Kong Airlines for three years. I was also the chairman of HNA Group International Headquarters and the president and executive director of Hainan Airlines Import and Export Company. I have extensive experience in the aviation industry. If I am elected, I will continue to use my deep knowledge and experience as a director and act in the best interests of this company and its shareholders. It would be an honor to continue to be a part of the board of the Virgin Australia Group. I ask for the support of shareholders for my election to the board. Thank you.
Thank you, Mr. Xiang. Are there any comments or questions on Mr. Xiang's proposed election? Okay. The proxy position on this proposed resolution is shown on the screen. Congratulations, Mr. Xiang, and welcome to the board. The next item of business concerns the election of Mr. Robin Kamark as a director. The proposed resolution for Robin's re-election is shown on the screen. Robin was appointed to the board on 30 April 2018. He's the shareholder representative director nominated by Etihad Airways, a major shareholder of the company. Robin is also a member of the Audit and Risk Management Committee. Unfortunately, Robin is unable to join us today. However, his alternate director, Mr. Ray Gammell, is in attendance, and I'll invite Ray to say a few words on behalf of Robin in relation to Robin's elections. Ray? Thank you.
Thank you, Elizabeth. Good morning, ladies and gentlemen. First of all, I'd like to thank the chairman, chief executive officer, shareholders for this opportunity to address the meeting on behalf of Robin Kamark, who could not be with us today. Robin is standing for election as a director of this board as the nominee of Etihad Aviation Group, and I'm delighted to be speaking on his behalf this morning. He's provided a significant contribution to the aviation industry, working in executive-level roles, including 17 years at SAS Airline, where he was appointed to the role of global head of sales and marketing in 2008 and became chief commercial officer in 2010. He's also held senior roles in commercial and other linked positions outside the airline industry, particularly in banking.
Robin was appointed as chief commercial officer, Etihad Aviation Group in July 2018, having joined the business in October 2017 as chief executive officer of Airline Equity Partners. In his roles at Etihad Aviation Group, he has been responsible for the overall commercial direction and deliverables of core airline businesses, leading Etihad Aviation Group's minority equity investment strategy, and optimizing business performance, revenue, and cost synergies between Etihad Airways and its equity partners around the world. I would like to ask for the support of shareholders in the election of Robin Kamark to the board today. Thank you very much.
Thank you very much, Ray. Are there any comments or questions on Robin's proposed election? No?
I'm just going to help you, Elizabeth.
Good.
A year ago, at the AGM, you said in your speech, "There is no outcome," and this is the shareholders here, because some of them aren't that happy. "There is no outcome to report to the market at this stage." That was logged with the ASX at 11:45 on the 8th. On the same day, at 11:49, that Trevor and Mark were appointed as independent directors. I know we've gone past their appointment, so we've already voted on them, but I would like to know from both of those people whether they were involved in the discussion on privatization. Effectively, there was four minutes between the two events occurring.
Okay. I'm just checking. Danielle, can you come up here and just provide me with confirmation of the timing?
Yes. Officially appointed on the 1st of February.
All right. Okay. All right. Look, I'm sorry about that. I've now got the information out of the annual report. In answer to your question, the independent directors on the board when the announcement was made in February last year were me, Samantha Mostyn, Mark Vaile, Trevor Bourne, and Mark Chellew. My apologies-
No-
My apologies for that-
Yes
inadvertent wrong list previously.
Elizabeth, actually, I wanted to know, were they the independent directors when the decision was made? They saw the report and they were part of the decision not to privatize. That's my question. Not, were they on the board when the announcement was made.
That's what I've just said. I've just had confirmation that they were on the board when we announced it in February, which is what I've just said. We announced it when the board had come to a final and firm view on it, as we should to the market.
Okay.
The matter had been discussed in the lead up to that over many months. That's where you've got much confusion.
Okay. No problem. I apologize for saying that you said something that was What does Donald Trump call them? Anyway, whatever it was.
Well, thank you for that.
Thank you.
Okay. Where am I up to? The proxy position for Robin Kamark is on the board, and he's been elected. Ray, thank you very much for providing that for Robin. The next item of business is the adoption of the remuneration report, which commences on page 22 of the 2008 annual report. The proposed resolution for the adoption of the remuneration report is shown on the screen. While the vote on the remuneration report is advisory only, it provides an important indication to the directors as to whether there are any concerns about the company's remuneration policies. Your directors are committed to addressing any such concerns, and these will be considered in terms of the remuneration policies going forward. Are there any comments or questions on the remuneration report? Yes?
I've got quite a few questions, actually, but I'll reduce them. First of all, I think the remuneration is too generous, like all the other companies. I don't probably have to say that because everybody realizes that, especially when you see the chief executive got over AUD 4 million last year. That's, what is it, AUD 80,000 a week. These remunerations are just far, far too generous and in the short-term incentive scheme. The 35% of it is non-financial. There should be more financial in there. 65% of it is financial, but the rest is non-financial, and they're very sort of subjective things. In the long-term one, it's cash and of course, you gave the excuse in the report that there were so few shares free on the market, that you had to give the cash. That was the reason for it.
Can I ask you why you couldn't issue shares? Couldn't you issue some new shares? You could have bought some shares on the market and helped us out in that way. That's a question.
The question is?
Why didn't you give the incentives in cash and shares rather than equities?
Okay. That's a suggestion?
It's a question, why didn't you give them? The excuse you give in the report is that there are so few shares, free shares on the market, and because of that, you gave cash. I don't think that's a reasonable excuse. Couldn't you have issued new shares, or couldn't you have bought some shares on the market for him?
The issue facing a board when it designs its remuneration scheme is how to motivate the staff and what components best make up their salary. Companies do it differently. Given the circumstance of this company when that scheme went into place, the board considered the way we have structured it to be the most appropriate way to go.
You're not answering the question.
I'm sorry?
That's not an answer to my question. My question is, why don't you give the CEO shares instead of cash? Your excuse, it was on the annual report that the market for the shares is so small and it's not very liquid, I suppose you would say, and because of that, you give him cash. Couldn't you have issued new shares? Couldn't you have bought some shares? Unless his remuneration is going to be increased substantially more, there would be enough shares, I'm sure, on the market for you to purchase.
We could have done that, as you suggested. We chose to go in another direction.
Doesn't answer the question, I don't think. The other thing relating to this is that with the remuneration, in the short-term incentives, you can get a maximum up to 150% of the fixed annual remuneration. In the long term, you can get 250% of the fixed annual remuneration. The fixed annual remuneration is, of course, AUD 2 million. As short-term, you could get up to another AUD 3 million. That'd bring you up to AUD 5 million. In the long term, one is 250%. That's another AUD 5 million. That's AUD 8 million or AUD 9 million. That's surely overgenerous. I don't see how any chief executive could be worth that, especially as your Chief Executive is only part-time. He's also a director on Coca-Cola, where I've got shares. Surely the board, when he took on that position, would have questioned it.
I think the Virgin job should be a full-time job, especially, you're earning AUD 4 million, you're getting AUD 4 million, and up to AUD 8 million or AUD 9 million you could get. Us, the shareholders, have got nothing. Why did the board agree? I assume they would have agreed for the chief executive to take on the director-
Okay
job at Coca-Cola.
Mostly, many boards do not allow their chief executive to take on any additional directorships. It is quite common when a CEO is nearing the end of his tenure to allow him to take an opportunity like that to help him in the next stage of his career development. It was only towards the end of John's, when John was starting to think about retiring, that the board agreed to that.
He's not retiring for two more years or something, is it?
Well, he has agreed to stay and to provide the company with his services to ensure that we have a smooth transition to a new CEO and to ensure that we have plenty of time to do the work that we need to do in the global and domestic industries to find someone who is able to replace him.
Well, I hope when you get the new CEO, that he gets some return from all this money that has been spent, all this capital. I hope that is one of the main points of selection. Not somebody that is going to spend, spend.
Okay.
Thank you, Mr. Chairman.
Thank you. Your views are noted.
Thanks, Elizabeth. I've actually just taken a different view to the gentleman there. I actually think John has done an exceptional job. I think the whole management team have in terms of how this company has grown and been built and actually achieved a lot of things that the market believed it was impossible to achieve. I personally think he's underpaid, but that's just my personal view. Thanks.
John, on behalf of the board, you're not getting any more.
He's already got plenty.
Good. Okay. Yes, we have a follow-up question from over here.
Just one other question. I noticed on the annual report that directors' fees have increased 10% over the last year from the previous year. That seems to be a large increase considering inflation is so low and the wages of the average people are not increasing by such large amounts. The other thing is these options which you've got for directors' options. I notice there's no exercise price, so they're not really options. They're getting these rights. Why do you call them options?
Okay. During the tough times of Virgin, during the price war and the periods between, or certainly prior to the time I came onto the board and for a couple of years after, the Virgin board didn't have its director's remuneration changed at all. When we came to board renewal, the Virgin directors' fees were a long way out of market, and it was not possible to recruit in the director marketplace for directors of the experience level that we needed. That was what prompted the increase in directors' fees. That's the story behind that. The directors' fees for a public company are modest. All right. The proxy position on the proposed resolution is shown on the screen.
As we have concluded the discussion on the last item of business, we'll now conduct the polls on the proposed resolution set out in items two and three of the notice of meeting. Our Company Secretary, Sharyn Page, will explain the procedure to be followed on the polls. Ladies and gentlemen, from me, thank you very much for your attendance and your interest here today. I declare the meeting will close once the polls have been conducted, subject to counting and declaration of the poll results. After the votes have been counted, the results of the polls will be announced to the ASX and published on our website. Once you've lodged your votes, you're invited to join the directors and members of the executive management team for refreshments. Thank you. Sharyn.
Thank you, Elizabeth. We'll now conduct the polls on the proposed resolution set out in items two and three of the notice of meeting. You are entitled to a vote on the polls if you are a shareholder or a proxy attorney or representative of a shareholder, and hold a purple voting card. If you believe you're entitled to vote but have not been issued with a purple voting card, please raise your hand and a Computershare representative will assist you. Please note that voting exclusions apply to the proposed resolution in item three, as outlined in the notice of meeting.
If you are a director or another member of the key management personnel, or a closely related party or associate of a director or key management personnel, or a proxy or representative acting on behalf of those people, please ensure that you abstain from voting on item three where required. To vote in the poll, you need to complete the reverse side of the purple voting card. This lists each item of business being put to this poll. The proposed resolutions being voted for are set out in the notice of meeting. If you are a shareholder, please place a tick or a cross in one of the boxes beside each item of business. If you wish to split your vote, please follow the instructions on the voting card. If you are a proxy holder, you will have received a summary of proxy vote form with your voting card.
This provides details of directed and open proxies that you hold. Any directed proxies must be voted in the way that you have been directed. To vote as directed, all you need to do is sign the voting card and lodge it in the ballot box. To the extent that you hold directed proxies, the boxes on the voting card do not apply and will be disregarded if they are marked. If you are holding an open proxy, you need to mark a box beside each item of business to indicate how you wish to cast those open proxies. When you have completed your voting card, please sign the card and place it in a ballot box. Please raise your hand if you require any assistance and a Computershare representative will help you.
Has everyone voted who wishes to vote? Can we get to the closing?
Thank you. As everybody has voted, I now declare the poll closed. After the votes have been counted, the results of the poll will be released to the ASX and published on our website. As Elizabeth has mentioned, you are now welcome to join us in the adjoining bar area for refreshments. That concludes the meeting, subject to the counting and declaration of the results of the poll. I thank you for your attendance today.