O2 dials up record profit ahead of Virgin Media merger

UK mobile network O2 has signed off as an independent company ahead of its merger with Virgin Media with a record profit performance.

The telecoms company, which is owned by Spain’s Telefónica, will also pay out a near £2,000 cash bonus to its 6,700 workers to reward them for its growth in the first quarter of the year.

O2 is on the cusp of a £31bn merger with Liberty Global’s cable network Virgin Media, a tie-up which is expected to create a more powerful competitor to BT.

The company’s operating income before depreciation and amortisation rose almost 8 per cent to €547m in the three months to March, despite an 11 per cent decline in revenue to €1.5bn as its shops remained closed. The growth also came despite a 17 per cent rise in capital expenditure as O2 expanded its 5G network.

O2 was helped in part by lower commissions paid to reseller Carphone Warehouse after it stopped selling handsets and contracts through the retailer. The rise in profits also reflected lower churn, the rate at which customers defect to a rival, and a one-off payment related to its towers joint venture with Vodafone.

The results coincided with news that retailer Dixons is to retire the Carphone Warehouse brand that has been a key part of the UK mobile industry for more than three decades, in favour of the Currys name.

Mark Evans, the outgoing chief executive of O2 who will leave the company once the merger with Virgin Media is complete, said that the rise in profits and staff bonus reflected high levels of customer satisfaction. “Not all operators are delivering that level of return. The health of this business bodes well for the future of the joint venture,” he said.

The merger, expected to be complete by June as the competition regulator nears its approval, will help reduce parent Telefónica’s debt burden. Ángel Vilá, Telefónica’s chief operating officer, said that the deal, combined with the sale of its Telxius tower division, would reduce its €36bn net debt by €9bn.

O2, which was demerged from BT at the turn of the century before being sold to Telefónica in 2005, has grown its customer base to become the largest in the UK with 36.6m users.

That has come despite uncertainty over the ownership of the business in recent years as the Spanish company held talks with BT and Three over a sale and also considered a float and private equity investment ahead of the Virgin Media deal. “It has been tough,” said Evans, who has led the business for five years.