Virgin Media O2 posted a £3.3 billion loss in 2023 after the firm added a huge goodwill impairment to its accounts amid rising debt costs and tighter cash flows.
The telecoms giant has more than £8 billion in loans which are pegged against central bank interest rate benchmarks such as SONIA. That has led to hundreds of millions in extra debt interest costs after interest rates increased by more than 5% over the past two years. The firm’s average borrowing cost is now 5.2%, up from 4.7% a year ago.
In a statement the company said: “We recorded a non-cash goodwill impairment of £3.1 billion primarily related to an increase in the weighted average cost of capital and the impacts of the broader macroeconomic conditions in the UK on estimated future cash flows.”
Virgin Media O2 said consumer fixed revenue decreased 2.3% to £3.3 billion during the year as “spend optimisation on mid-tier TV and home phone as household budgets were squeezed by the increased cost-of-living.”Total mobile revenue increased by 0.6% to £5.9 billion as the firm said growth had been impacted by “low-margin handset revenue performance which weakened through the year” while B2B fixed revenue decreased 2.4% to £554.0 million due to “pricing headwinds.”
VMO2 added 64,000 new broadband customers during the year, and 47,000 new mobile customers.
The company said revenues could fall further in 2024 on top of a predicted single-digit decline in earnings.
It comes amid a turbulent period for European telecoms firms as high inflation, rising interest rates and fierce price competition hurt margins and increase the costs of infrastructure investment.
Virgin Media rival Vodafone last year unveiled plans for a £15 billion merger with operator Three, a deal which it said would allow it to create a “sustainable” operator with the financial might to invest more in communications technology.
At the end of January, Vodafone said it planned to either sell or merge its operations in Italy in a bid to become more profitable.
Fierce competition in the Italian market has led to declining revenues and squeezed margins for Vodafone’s business, prompting it to explore " in-market consolidation in countries where it is not achieving appropriate returns.”
Virgin Media O2 said it had spent more than £2 billion investing in its fibre and 5G rollout in 2023. A spokesperson added that the firm’s debt is exchanged to have a fixed rate, making it immune to short-term fluctuations in interest rates or foreign currency movements.
