The assignment submission should take the form of a board level PowerPoint presentation, on individual basis. Case 20 The Virgin Group in 2015 On July 18, 2015, Sir Richard Branson celebrated his 65th birthday. There was little in his appearance or behavior that suggested a man who had reached normal retirement age. His enthusiasm for his business ventures seemed little dimmed. During the early months of 2015, he announced the launch of a Virgin cruise line, he accompanied the Virgin Racing team to a Formula E race at Miami where he expressed an interest in launching a Virgin electric automobile to compete with Tesla, in Chicago he opened the first of a US chain of Virgin hotels, and announced a major investment in OneWeb—a satellite internet service company whose satellites would be launched by Virgin Galactic’s LauncherOne spacecraft. However, the Virgin Group’s investment in new ventures was dwarfed by its recent divestments. During 2014–2015, these included the sale of Virgin Mobile France, the flotation of Virgin America and Virgin Money, and the sale of the major part of Virgin’s stake in Virgin Active. Yet, even after these sales, the Virgin Group remained a highly diversified business empire. Bloomberg described Virgin as follows: Virgin Group Ltd., through its subsidiaries, engages in the businesses of mobile telephony, travel, financial services, leisure, music, holidays, and health and wellness in the United Kingdom and internationally. Its mobile telephony business includes IP-VPN, Wi-Fi, phones, phone plans, mobile broadband, TV phone, broadband services, and SIM cards. The company’s travel business comprises airlines, leisure and travel Websites, travel booking services, travel information, flying clubs, commercial spaceline services, holiday services, hotel services, holiday cruise services, hotels, private islands, mountain retreats, game reserves, catamarans, lodges, tented camps, vineyards, restaurants, private members clubs, trains, and tour operating services. Its financial services include credit cards, home loans, insurance, savings, superannuation, fundraising services, and small business funding. The company’s leisure businesses comprise balloon rides, corporate gifts, competition prizes and promotions, benefits, rewards and incentives, corporate events and hospitality, PR events and photography/filming, advertising balloons, book publishing, employee rewards, gift cards, electric vehicle championships, wine production, and online wine retail. Its health and wellness business includes health clubs, fitness clubs, NHS and social care services, health banks, and employee wellness services. The company also engages in entertainment businesses, such as casinos, bingo, slots, and radio stations.1 The complexity of the Virgin Group was also reflected in its structure. In May 2015, there were 312 Virgin companies registered at Britain’s Companies House (113 of This case was prepared by Robert M. Grant. ©2015 Robert M. Grant. Case20The Virgin Group in 2015.indd 655 09/11/15 3:05 PM 656 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS which had been identified as “converted/closed” or “recently dissolved”). In addition, there were Virgin companies registered in about 28 other countries. The Virgin companies were linked through a complex network of parent–subsidiary relations—many of which were identified as “holding companies.” For most of the Virgin companies the ultimate parent was identified as Virgin Group Holdings Ltd., registered in the British Virgin Islands. Some Virgin companies where wholly or majority owned; in others, Virgin Group held minority stakes. In some, such as Virgin Media, a subsidiary of Liberty Global, Virgin Group owned no equity and simply licensed the Virgin brand. The dispersed ownership and control structure of the Virgin Group had facilitated its dynamic, entrepreneurial growth. But now that Branson’s business empire had matured and was consolidating around fewer businesses, did its structure and management systems still match the strategy? And was the strategy attuned to the changing conditions the group faced? The maturing of Virgin had been accompanied by greater formalization of structure and management systems. The appointment of co-CEOs in 2011 marked the beginning of a more conventional management structure and Branson’s transition to a more peripheral role, where he remained the inspiration, public face, and unifying force for the group but was less involved in Virgin’s business activities and more committed to environmental and charity activities. However, the future of the Virgin Group remained uncertain—would Virgin remain an entrepreneurial organization committed to launching new business ventures designed to upset the status quo in different industries or was Virgin transitioning to a more conventional financially based holding company along the lines of Warren Buffet’s Berkshire Hathaway or the Wallenberg family’s Investor AB group? Perhaps, the string of divestments pointed to the fact that Virgin—like Branson himself—was entering an era of old age and decline where the break-up of the group was the best option. Development of the Virgin Group, 1968–2015 Richard Branson’s first business venture was a magazine, Student, which was first published on January 26, 1968 when he was a student at Stowe, a private boarding school. The magazine displayed features that would characterize many of Branson’s subsequent entrepreneurial initiatives. It targeted the baby-boomer generation; embodied the optimism, irreverence, and anti-authoritarianism of the 1960s; combined fashion, popular music, and avant-garde culture; and filled a “gaping hole in the market.” The success of the magazine encouraged Branson to leave school at the age of 17, before taking final exams. Virgin Records Branson’s next venture, mail-order record sales, saw the birth of the Virgin brand name. In 1971, Virgin Records opened its first retail store, on London’s busy Oxford Street and, in 1973, Virgin created its own record label. Its first release, Tubular Bells, by an unknown musician, Mike Oldfield, was a huge hit eventually selling over five million copies. Virgin Records went on to sign up a series of new artists such as Phil Collins, Human League, Simple Minds, and Boy George’s Culture Club—including several that had been shunned by the major record companies, most notably the Sex Pistols. Case20The Virgin Group in 2015.indd 656 09/11/15 3:05 PM Case 20 The Virgin Group in 2015   657 Virgin Atlantic Airways Virgin Atlantic began with a phone call from Randolph Fields, a Californian lawyer, suggesting a transatlantic, budget airline. To the horror of his colleagues at Virgin Records, Branson was enthralled with the idea. On June 24, 1984, Branson appeared in a First World War flying outfit to celebrate the inaugural flight of Virgin Atlantic in a second-hand 747 bought from Aereolíneas Argentinas. Unlike Branson’s other businesses, the airline business was highly capital-intensive and heavily regulated; it also required a completely new set of business skills, including collaboration with governments, banks, and aircraft manufacturers. Virgin Atlantic’s massive financing needs encouraged Branson to seek an initial public offering for most of Virgin’s other businesses. In 1985, 35% of Virgin Group PLC was listed on the London and NASDAQ stock markets and Branson began an unhappy few years as the chairman of a public corporation—a role which ill-fitted his own personality and leadership style. Following the October 1987 stock market crash, Branson took the opportunity to raise £200 million to buy out external shareholders. Virgin Everywhere, 1988–2004 Between 1988 and 2004, Virgin launched a near-continuous stream of new businesses. These were concentrated around a few main areas of opportunity: ●● ●● ●● ●● Travel: The success of Virgin Atlantic encouraged Branson to launch other airlines. The Virgin approach was to mesh the business model of the low-cost carriers with Virgin’s dist
inctive approach to enhancing customers’ experience in novel ways. New airlines included the Brussels-based Virgin Express, Virgin Australia (originally Virgin Blue and Pacific Blue), and Virgin America. Other aviation ventures included Vintage Air Tours, Virgin Lightships (blimp advertisements), Virgin Galactic, and Virgin Balloons. Virgin Rail was established in 1997 to operate two passenger rail franchises awarded in the privatization of Britain’s rail system. In 1998, Virgin sold 49% of Virgin Rail to the Stagecoach travel group. Holidays: Linked to Virgin’s airline interests were investments in hotels and vacation services, including a lodge and wildlife park in South Africa and Branson’s own Necker Island resort in the Caribbean. Retailing: Virgin’s record stores provided a platform for internationally expanding retail interests. The Our Price chain of UK record stores was a joint venture between Virgin and WHSmith. Virgin Megastores pioneered “experience-based retailing” not just in the UK but also in Japan, the US, Australia, and Europe. Virgin Bride was a UK chain of bridal stores. Information and communication technology: Developments in digital technologies offered a broad new field of opportunity to Virgin. The internet allowed Virgin to expand its retail interests into the online retailing of cars, motorcycles, wine, and music downloads. The most successful of these was Virgin Direct (later renamed Virgin Money), a joint venture with Norwich Union, which offered credit cards and other personal financial products. The start of cellular communication encouraged the launch of Virgin Mobile, a joint venture with Deutsche Telekom, which pioneered the “virtual network Case20The Virgin Group in 2015.indd 657 09/11/15 3:05 PM 658 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS ●● ●● operator” model of wireless service (Virgin Mobile purchased network access from other providers). The Virgin Mobile strategy was then replicated in the US, Australia, South Africa, and South-East Asia. Virgin.net, an internet service provider, was a joint venture with cable operator NTL. NTL subsequently acquired both Virgin.net and Virgin Mobile UK to create Virgin Media Inc., the UK’s first “quadruple play” provider offering TV, broadband internet, mobile, and fixed-line phone services—Virgin Group held a 10.6% shareholding in Virgin Media. Leisure and entertainment. From its origins in music and magazine publishing, Virgin entered video games (Virgin Games, 1991), book publishing (Virgin Publishing, 1991), radio broadcasting (Virgin Radio, 1992), cinemas (Virgin Cinemas, 1995), and health clubs (Virgin Active, 1998). International expansion: Virgin’s expansion outside the UK began with its Megastores. After 2000, Virgin replicated several of its successful UK businesses overseas, including Virgin Mobile, Virgin Active, and Virgin Money. Other new ventures defied categorization; they were the result of opportunism and Branson’s whims. These included biofuels (Virgin Fuels, Virgin Bioverda), video games (Virgin Interactive), beverages (Virgin Drinks, Virgin Cola), clothing (Victory Corporation), cosmetics (Virgin Vie), and Virgin Health Bank, where parents could store the stem cells from their newly born babies. Focusing the Group, 2004–2015 Throughout its history, Virgin has divested businesses, either wholly or partially, in order to release equity for other business ventures or simply to take advantage of the high valuations that others placed on Virgin businesses. In 1992, it sold its music business to EMI and, in 1999, sold 49% of Virgin Atlantic to Singapore Airlines. From 2005, the pace of divestment increased with the sale or closure of financially unsuccessful businesses—such as Virgin Vie, Virgin Cosmetics, Virgin Cars, Virgin Bikes, Virgin Brides, Virgin Cola, Virgin Drinks, and Virgin Money USA—and the sale or floatation of some of its most successful businesses, including Virgin Media, Virgin Money, and Virgin America. Many of Virgin’s new initiatives during this period reflected Branson’s increased commitment to environmental and charitable causes. Virgin Unite was established by The Virgin Foundation, the charitable arm of Virgin, to channel efforts by Virgin Group companies, Virgin employees, and contributions from Virgin customers toward charitable causes. Virgin Green Fund was established as a private equity fund to invest in renewable energy and resource conservation businesses. One indication of Virgin’s shifting view of itself was when, in 2012, the Virgin website described itself as a “branded venture capital organization”; by 2015, it proclaimed: “Virgin is a leading international investment group” and described its corporate executives as “Virgin’s Senior Investment Team.”2 The Virgin Group of Companies in 2015 Among the several hundred companies that are part of the Virgin Group, the Virgin website lists 59, which it groups into seven categories. These are shown in Figure 1. Case20The Virgin Group in 2015.indd 658 09/11/15 3:05 PM Case 20 The Virgin Group in 2015   659 FIGURE 1 Virgin’s business portfolioa Entertainment Virgin Casino Virgin Festival Virgin Games Virgin Megastore Virgin Produced Virgin Radio Telecom and Tech Virgin Connect Virgin Media Virgin Media Business Virgin Mobile (Australia, Canada, Chile, Columbia, France, India, Mexico, Poland, South Africa, UK, USA, Saudi Arabia) Health and Wellness Virgin Active (separate cos. in Australia, Italy, Portugal, South Africa, Spain, UK) Virgin Care Virgin Health Bank Virgin Pulse Virgin Pure Planet and People Virgin Earth Challenge Virgin Green Fund Virgin Unite Money Virgin Money UK Virgin Money Australia Virgin Money S. Africa Virgin Money Giving Virgin Start-up Leisure Virgin Balloon Flights Virgin Experience Days Virgin Gift Cards Virgin Megastore Virgin Racing Virgin Wines (UK, US, Australia) Travel Virgin America Virgin Atlantic Virgin Australia Virgin Galactic Virgin Holidays Virgin Holidays + Hip Hotels Virgin Limited Edition Virgin Trains Virgin Vacations Note: a Includes only those companies listed on the Virgin website. Sources: http://www.virgin.com/company. Most Virgin companies were not wholly owned by Virgin Group. Virgin Atlantic and Virgin Trains were 51% owned, Virgin Money 34%, and Virgin Active 20%. Virgin had sold off Virgin Media, Virgin Mobile and Virgin Wines entirely, licensing the brand to the new owners. Virgin’s Financial Performance Financial reporting by the Virgin companies was fragmented, hard to locate, and difficult to interpret. No consolidated accounts were available for the group as a whole and tracking financial results for individual companies was complicated by Virgin’s tendency to transfer its investments in operating companies between group companies. Among the several hundred British-registered Virgin companies filing their financial statements with the UK’s Companies House, the closest to an overall parent company was Virgin Wings Ltd. Table 1 shows financial data for Virgin Wings, Table 2 shows data for its main business segments, and Table 3 shows its principal subsidiaries. Doubts had frequently been expressed about the overall financial health of the group.3 Branson was dismissive of such speculation, claiming that analysts and journalists misunderstood his business empire, emphasizing that the financial performance goals of a private company were different from a public corporation: “Short-term taxable profits with good dividends are a prerequisite of public life. Avoiding short-term taxable profits and seeking long-term capital growth is the best Case20The Virgin Group in 2015.indd 659 09/11/15 3:05 PM 660 CASES TO ACCOMPANY CONTEMPORARY STRATEGY ANALYSIS TABLE 1 Consolidated financial data for Virgin Wings Ltd. 9 months to 31/12/2013 12 months to 31/03/2013 (£million) (£million) Turnover Operating profit Pre-tax profit Net profit Fixed assets Current assets Total assets Total liabilities Net assets Shareholders’ equity 3,548 70 62 60 880 1,383 2,263 1,977 286 285 4,046 99 86 106 853 1,668 2,521 2,316 205 204 Source: Virgin Wings Ltd. and
Subsidiary Companies: Strategic Report, Directors’ Report and Financial Statements (December 31, 2013). approach to growing private companies.”4 The observation that few Virgin companies were generating significant profits was reinforced by concerns over the balance sheet strength of the group. The complex financing arrangements between Virgin companies made it difficult to estimate the overall financial position—it is notable that many Virgin companies operated with negative shareholder equity and liabilities exceeding current assets. Also, the accounts for UK companies did not take account of the cash drain from Virgin Galactic. Galactic had absorbed over $600 million by November 2014, $380 million of which was provided by Abu Dhabi’s state investment agency.5 The Virgin Brand The Virgin brand was the group’s greatest single asset. Compared to most other consumer brands, it was unusual in the range of products it encompassed. Could a TABLE 2 Segment financial data for Virgin Wings Ltd. Revenue (£million) 9 months to 12 months to 31/12/2013 31/03/2013 Air travel Rail Mobile telecoms Financial services Hotels Healthcare Other trading Management services TOTAL Operating profit (£million) Net operating assets (£million) 9 months to 31/12/2013 12 months to 31/03/2013 9 months to 31/12/2013 12 months to 31/03/2013 2,554 716 120 25 22 153 22 59 2,854 898 211 29 28 156 30 55 20 8 (3) (2) (2) (3) 8 44 (78) 31 1 (4) (5) (5) 10 149 (123) (33) (23) (5) (11) (11) 32 423 (247) (43) (20) (8) (8) (8) 30 159 3,671 4,261 70 99 311 159 Source: Virgin Wings Ltd. and Subsidiary Companies: Strategic Report, Directors’ Report and Financial Statements (December 31, 2013). Case20The Virgin Group in 2015.indd 660 09/11/15 3:05 PM Case 20 The Virgin Group in 2015   661 TABLE 3 Virgin Wings Ltd. subsidiary companies Subsidiary Country Activity Virgin Holdings Ltd. Classboss Ltd. Virgin Rail Group Holdings Ltd. Virgin Management SA Virgin Healthcare Holdings Ltd. VML 2 Ltd. Virgin Atlantic Ltd. Barfair Ltd. Vanson Developments Ltd. Virgin Management Ltd. Virgin Models Ltd. Voyager Group Ltd. Necker Island BVI Virgin Life Care Investments Ltd. Virgin Management USA Inc. Virgin Sky investments Ltd. Vexair Ltd. Virgin Management Asia Pacific Pty Ltd. Bluebottle UK Ltd. Bluebottle Investment (UK) Ltd. Virgin Cinemas Group Ltd. VEL Holdings Ltd. Virgin Enterprises Ltd. Virgin Hotels Group Ltd. Virgin Insight Ltd. UK UK UK Switz. UK BVI UK UK UK UK UK UK BVI UK USA UK UK Australia UK UK UK UK UK UK UK Investment holding co. Investment holding co. Train operator Management services Health service provider Investment holding co. Flight and holiday operator Investment holding co Investment holding co. Management services Investment holding co. Investment holding co. Hotel operator Health and rewards program Management services Investment holding co. Investment holding co. Management services Investment holding co. Investment holding co. Investment holding co. Investment holding co. Brand licensing Hotel operator Procurement services Ownership (%) 100 100 51 100 94 100 51 100 100 100 100 100 100 91 100 100 100 100 100 100 100 100 100 100 100 Note: For all but two of the companies listed above, Virgin Wings’ investments are held indirectly. Source: Virgin Wings Ltd. and Subsidiary Companies: Strategic Report, Directors’ Report and Financial Statements (December 31, 2013). brand that extended from rail travel to streamed music have any meaningful identity? The Virgin website offered the following explanation: Al …