Cogeco Communications

Press release details

Cogeco Cable announces strong financial results for the first quarter of fiscal 2013

PRESS RELEASE
For immediate release
Cogeco Cable announces strong financial results for the first quarter of
fiscal 2013
11.6% growth of its operating income before depreciation and amortization
(1)
8.1% revenue increase for its Enterprise services segment
4% increase in its quarterly dividend compared to the same period of last year
Montréal, January 14, 2013 – Today, Cogeco Cable Inc. (TSX: CCA) (“Cogeco Cable” or the “Corporation”) announced its
financial results for the first quarter of fiscal 2013, ended November 30, 2012, in accordance with International Financial
Reporting Standards (“IFRS”).
For the first quarter of fiscal 2013:
Revenue increased by 4% to reach $327.9 million;
Operating income before depreciation and amortization increased by 11.6% to $147.1 million when compared to the
first quarter of fiscal 2012;
Operating margin
(1)
increased to 44.9% from 41.8% in the quarter when compared to the same period of the prior
year;
Profit for the period from continuing operations amounted to $42.2 million in the first quarter when compared to
$39.6 million for the same period of the previous fiscal year. Profit progression for the quarter is mostly attributable
to the increase in operating income before depreciation and amortization, partly offset by the acquisition costs
related to the Atlantic Broadband (“ABB”) acquisition and the increase in income taxes;
Profit for the period amounted to $42.2 million in the first quarter when compared to $43 million for the same period
of the previous fiscal year. This variation is mostly attributable to the increase in income taxes, acquisition costs
related to the ABB acquisition and last year’s profit from the disposition of the Portuguese subsidiary, Cabovisão –
Televisão por Cabo, S.A. (“Cabovisão”), reported as discontinued operations and disposed of on February 29,
2012, partly offset by the improvement in operating income before depreciation and amortization;
Free cash flow
(1)
reached $17 million for the quarter compared to $19.8 million in the comparable quarter of the prior
year. Free cash flow decreased in the first quarter over the prior year due to the increase in current income tax
expense, the acquisition costs related to ABB acquisition as well as the increase in acquisition of property, plant and
equipment, partly offset by the improvement of operating income before depreciation and amortization;
A quarterly dividend of $0.26 per share was paid to the holders of subordinate and multiple voting shares, an
increase of $0.01 per share, or 4%, when compared to a dividend of $0.25 per share paid in the first quarter of fiscal
2012;
Fiscal 2013 first-quarter primary service units (“PSU”)
(2)
grew by 15,080 in Canada in the Cable services segment.
At November 30, 2012, the total consolidated PSU amounted to 2,478,887 of which 494,674 comes from the
conclusion of the acquisition of ABB on November 30
th
;
(1) The indicated terms do not have standard definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other
companies. For more details, please consult the “Non-IFRS financial measures” section of the Management’s discussion and analysis.
(2) Represents the sum of Television, High Speed Internet (“HSI”) and Telephony service customers.
On December 21, 2012, Cogeco Cable announced an agreement to acquire all of the issued and outstanding
shares of PEER 1 Network Enterprises Inc. (“PEER 1”) by way of takeover bid (the “offer”) valued at approximately
$635 million. The offer is supported by a committed financing from the National Bank of Canada in the amount of
$650 million. PEER 1 is one of the world’s leading internet infrastructure providers, specializing in managed hosting,
dedicated servers, cloud services and co-location. This acquisition combined with Cogeco Cable’s existing data
centre facilities will increase the scale and scope by adding the capability to serve approximately 10,000 additional
businesses worldwide through 19 data centres and 21 points-of-presence across North America and Europe.
PEER 1’s primary network centre and head office are located in Vancouver. The offer will be subject to usual
closing conditions and the Corporation expects the transaction to be completed in the second quarter of fiscal 2013;
On November 30, 2012, the Corporation completed the acquisition of ABB, an independent cable system operator
formed in 2003, serving about 495,000 PSU’s and providing Analogue and Digital Television, as well as HSI and
Telephony services. The transaction, valued at US$1.36 billion, was financed through a combination of cash on
hand, a draw-down on the existing Term Revolving Facility of approximately US$588 million and US$660 million of
borrowings under a new committed non-recourse debt financing at ABB. Ranked the 12th-largest cable television
system operator in the United States, ABB operates cable systems in Western Pennsylvania, Southern Florida,
Maryland, Delaware and South Carolina.
“Today, the residential telecommunications market is maturing and more competitive than ever. I am very pleased with our
overall positive results, clearly demonstrating that the combination of our customer service efforts, our marketing strategies,
along with our strong cost control initiatives have produced the expected positive effects on our financial results,” declared
Louis Audet, President and Chief Executive Officer of Cogeco Cable.
“Cogeco Data Services’ (“CDS”) results are very encouraging and confirm the growth potential of the investments that we have
made in this promising sector.”
Louis Audet added: “As for our entry into the American market, it is with great enthusiasm that we concluded the acquisition of
ABB on November 30, 2012. ABB and our residential / small and medium business sector of Cogeco Cable have much in
common, including the expertise of both our management teams; we foresee good prospects for the future. ABB’s first
quarterly financial results will be reported next quarter.”
FINANCIAL HIGHLIGHTS
Quarters ended November 30,
(in thousands of dollars, except PSU growth, percentages and per
share data)
2012
$
Operations
Revenue
327,911
Operating income before depreciation and amortization
(1)
147,126
Operating margin
(1)
44.9%
Operating income
75,160
Profit for the period from continuing operations
42,160
Profit for the period from discontinued operations
–
Profit for the period
42,160
)
Cash Flow
Cash flow from operating activities
(280
)
Cash flow from operations
(1)
99,845
Acquisitions of property, plant and equipment, intangible and other
assets
82,833
Free cash flow
(1)
17,012
)
Financial Condition
(2)
Property, plant and equipment
1,544,806
Total assets
4,331,597
Indebtedness
(3)
2,333,766
Shareholders’ equity
1,215,831
Primary service units (“PSU”) growth
(4)
15,080
)
Per Share Data
(5)
Earnings per share
From continuing and discontinued operations
Basic
0.87
)
Diluted
0.86
)
From continuing operations
Basic
0.87
Diluted
0.86
From discontinued operations
Basic
–
Diluted
–
(1) The indicated terms do not have standardized definitions prescribed by International Financial Reporting Standards (“IFRS”) and therefore, may not be
comparable to similar measures presented by other companies. For more details, please consult the “Non-IFRS financial measures” section of the
Management’s discussion and analysis (“MD&A”).
(2) At November 30, 2012 and August 31, 2012.
(3) Indebtedness is defined as the total of bank indebtedness, principal on long-term debt, balance due on a business acquisition and obligations under
derivative financial instruments.
(4) Represents the sum of Television, High Speed Internet (“HSI”) and Telephony service customers.
(5) Per multiple and subordinate voting share.
FORWARD-LOOKING STATEMENTS
Certain statements in this Management’s Discussion and Analysis (“MD&A”) may constitute forward-looking information within the meaning of
securities laws. Forward-looking information may relate to Cogeco Cable’s future outlook and anticipated events, business, operations,
financial performance, financial condition or results and, in some cases, can be identified by terminology such as "may"; "will"; "should";
"expect"; "plan"; "anticipate"; "believe"; "intend"; "estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions
concerning matters that are not historical facts. In particular, statements regarding the Corporation’s future operating results and economic
performance and its objectives and strategies are forward-looking statements. These statements are based on certain factors and
assumptions including expected growth, results of operations, performance and business prospects and opportunities, which Cogeco Cable
believes are reasonable as of the current date. While management considers these assumptions to be reasonable based on information
currently available to the Corporation, they may prove to be incorrect. The Corporation cautions the reader that the economic downturn
experienced over the past few years makes forward-looking information and the underlying assumptions subject to greater uncertainty and
that, consequently, they may not materialize, or the results may significantly differ from the Corporation’s expectations. It is impossible for
Cogeco Cable to predict with certainty the impact that the current economic uncertainties may have on future results. Forward-looking
information is also subject to certain factors, including risks and uncertainties (described in the “Uncertainties and main risk factors” section of
the Corporation’s 2012 annual MD&A) that could cause actual results to differ materially from what Cogeco Cable currently expects. These
factors include technological changes, changes in market and competition, governmental or regulatory developments, general economic
conditions, the development of new products and services, the enhancement of existing products and services, and the introduction of
competing products having technological or other advantages, many of which are beyond the Corporation’s control. Therefore, future events
and results may vary significantly from what management currently foresee. The reader should not place undue importance on forward-looking
information and should not rely upon this information as of any other date. While management may elect to, the Corporation is under no
obligation (and expressly disclaims any such obligation), and does not undertake to update or alter this information before the next quarter.
All amounts are stated in Canadian dollars unless otherwise indicated. This report should be read in conjunction with the Corporation’s
condensed interim consolidated financial statements and the notes thereto, prepared in accordance with the International Financial Reporting
Standards (“IFRS”) and the MD&A included in the Corporation’s 2012 Annual Report.
CORPORATE OBJECTIVES AND STRATEGIES
Cogeco Cable Inc.’s (“Cogeco Cable” or the “Corporation”) objectives are to provide outstanding service to its customers, improve profitability
and create shareholder value. To achieve these objectives, the Corporation has developed strategies that focus on expanding its service
offering, enhancing its existing services and bundles, The Corporation measures its performance, with regard to these objectives by
monitoring operating income before depreciation and amortization
(1)
, operating margin
(1)
, PSU
(2)
growth and free cash flow
(1)
.
KEY PERFORMANCE INDICATORS
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND OPERATING MARGIN
First-quarter operating income before depreciation and amortization increased by 11.6% when compared to the same period of fiscal 2012 to
reach $147.1 million and operating margin increased to 44.9% from 41.8%. As a result of the acquisition of Atlantic Broadband (“ABB”),
management revised upwards its November 1, 2012 projections for fiscal 2013. Operating income before depreciation and amortization is now
expected to reach $735 million from $614 million and operating margin should increase to 46.2% from 45.5%. For further details, please
consult the fiscal 2013 revised projections in the “Fiscal 2013 financial guidelines” section.
FREE CASH FLOW
For the three-month period ended November 30, 2012, Cogeco Cable reports free cash flow of $17 million, compared to $19.8 million for the
first three months of the previous fiscal year, representing a decrease of $2.7 million. This variance is mostly attributable to the increase in
current income tax expense, the acquisition costs related to Atlantic Broadband (“ABB”) acquisition as well as the increase in acquisition of
property, plant and equipment, partly offset by the improvement of operating income before depreciation and amortization. Giving effect to the
acquisition of ABB, the revised guidelines of operating income before depreciation and amortization and the reduction in acquisition of
property, plant and equipment in Canada, management also revised its free cash flow projections from $105 million to $170 million. For further
details, please consult the fiscal 2013 revised projections in the “Fiscal 2013 financial guidelines” section.
PSU GROWTH AND PENETRATION OF SERVICE OFFERINGS
During the three-month period ended November 30, 2012, PSU reach 2,478,887 of which 494,674 comes from the recently completed
acquisition of ABB. In the Cable Services segment in Canada, PSU increased at a lower pace to 15,080, mainly as a result of a more
competitive environment and tightening of customer credit controls, thus containing collection and bad debt expenses. Cogeco Cable
maintains targeted marketing initiatives to increase the penetration level of its services and still benefits from the continuing interest for high
definition (“HD”) television service. Consequently, and combined with the acquisition of ABB, Cogeco Cable revised downwards its guidelines
from 50,000 PSU, as issued on November 1, 2012, to 35,000 PSU. PSU growth is expected to stem primarily from HSI and Telephony
services, the continued strong interest in Digital Television services, enhanced service offerings, and through promotional activities. For further
details, please consult the fiscal 2013 revised projections in the “Fiscal 2013 financial guidelines” section.
BUSINESS DEVELOPMENTS
On December 21, 2012, Cogeco Cable announced an agreement to acquire all of the issued and outstanding shares of PEER 1 Network
Enterprises Inc. (“PEER 1”) by way of takeover bid (the “offer”) valued at approximately $635 million. The offer is supported by a committed
financing from the National Bank of Canada in the amount of $650 million. PEER 1 is one of the world’s leading internet infrastructure
providers, specializing in managed hosting, dedicated servers, cloud services and co-location. This acquisition combined with Cogeco Cable’s
existing data centre facilities will increase the scale and scope by adding the capability to serve approximately 10,000 additional businesses
worldwide through 19 data centres and 21 points-of-presence across North America and Europe. PEER 1’s primary network centre and head
office are located in Vancouver. The offer will be subject to usual closing conditions and the Corporation expects the transaction to be
completed in the second quarter of fiscal 2013.
On November 30, 2012, the Corporation completed the acquisition of ABB, an independent cable system operator formed in 2003, serving
about 495,000 PSU’s and providing Analogue and Digital Television, as well as HSI and Telephony services. The acquisition is an attractive
entry point into the US market, providing a significant increase in PSU base with further growth potential, a high quality network infrastructure
and the ability for the Corporation’s management to leverage its core knowledge and operational experience. The transaction, valued at
US$1.36 billion, was financed through a combination of cash on hand, a draw-down on the existing Term Revolving Facility of approximately
US$588 million and US$660 million of borrowings under a new committed non-recourse debt financing at ABB. Ranked the 12th-largest cable
television system operator in the United States (“USA”), ABB operates cable systems in Western Pennsylvania, Southern Florida, Maryland,
Delaware and South Carolina.
(1) The indicated terms do not have standardized definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other
companies. For more details, please consult the “Non-IFRS financial measures” section.
(2) Represents the sum of Television, High Speed Internet (“HSI”) and Telephony service customers.
OPERATING AND FINANCIAL RESULTS
OPERATING RESULTS
Quarters ended November 30,
2012
2011
Change
(in thousands of dollars, except percentages)
$
$
%
Revenue
327,911
315,424
4.0
Operating expenses
174,204
176,459
(1.3
)
Management fees – COGECO Inc.
6,581
7,142
(7.9
)
Operating income before depreciation and amortization
147,126
131,823
11.6
Operating margin
44.9%
41.8%
REVENUE
Fiscal 2013 first-quarter revenue increased by $12.5 million, or 4%, to reach $327.9 million, when compared to the same period last year,
primarily by rate increases implemented in June and July 2012 and PSU growth. For further details on the Corporation’s revenue, please refer
to the “Cable services” and “Enterprise services” sections.
OPERATING EXPENSES AND MANAGEMENT FEES
For the first quarter of fiscal 2013, operating expenses decreased by $2.3 million, to reach $174.2 million, a decrease of 1.3% compared to the
prior year. The decrease in operating expenses is mainly attributable to deployment and support costs incurred in fiscal 2012 related to the
migration of Television service customers from analogue to digital, partly offset by PSU growth. For further details on the Corporation’s
operating expenses, please refer to the “Cable services” and “Enterprise services” sections.
Management fees paid to COGECO Inc. amounted to $6.6 million, 7.9% lower when compared to $7.1 million in fiscal 2012. Management
fees have decreased due to the sale of the Portuguese subsidiary, Cabovisão – Televisão por Cabo, S.A. (“Cabovisão”), on February 29,
2012. For further details on the Corporation’s management fees, please refer to the “Related party transactions” section.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND OPERATING MARGIN
Fiscal 2013 first-quarter operating income before depreciation and amortization increased by $15.3 million, or 11.6%, to reach $147.1 million
as a result of revenue growth and lower operating expenses. Cogeco Cable’s first-quarter operating margin increased to 44.9% from 41.8% in
the comparable period of the prior year. For further details on the Corporation’s operating income before depreciation and amortization and
operating margin, please refer to the “Cable services” and “Enterprise services” sections.
FIXED CHARGES
Quarters ended November 30
2012
2011
Change
(in thousands of dollars, except percentages)
$
$
%
Depreciation and amortization
64,666
64,824
(0.2
)
Financial expense
15,600
16,829
(7.3
)
For the first quarter of fiscal 2013, depreciation and amortization expense was essentially the same at $64.7 million when compared to
$64.8 million for the same period of the prior year resulting, mainly from higher acquisition of property, plant and equipment offset by additional
depreciation expense recorded in fiscal 2012 related to the reduction of useful lives for certain home terminal devices.
Fiscal 2013 first-quarter financial expense decreased by $1.2 million, or 7.3%, at $15.6 million, when compared to $16.8 million in the prior
year. Financial expense decrease is primarily attributable to the foreign exchange loss of $1.5 million recorded in fiscal 2012.
INCOME TAXES
Fiscal 2013 first-quarter income tax expense amounted to $17.4 million, compared to $10.6 million in the prior year. The increase is mostly
attributable to the improvement in operating income before depreciation and amortization and by a reduction in income taxes, in fiscal 2012,
from the implementation of certain tax measures of the 2011 federal budget limiting the tax deferrals for corporations with a significant interest
in a partnership.
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS
For the three-month period ended November 30, 2012, profit for the period from continuing operations amounted to $42.2 million, or $0.87 per
share compared to $39.6 million, or $0.81 per share for the comparable period of fiscal 2012. The variance for the quarter is mostly
attributable to the increase in operating income before depreciation and amortization, partly offset by the acquisition costs related to ABB
acquisition and the increase in income taxes explained above.
PROFIT FOR THE PERIOD
For the period ended November 30, 2012, profit for the period amounted to $42.2 million, or $0.87 per share, compared to $43 million, or
$0.88 per share, in fiscal 2012. This variation is mostly attributable to the acquisition costs related to ABB acquisition, the increase in income
taxes explained above and the profit from the Portuguese subsidiary reported as discontinued operations in fiscal 2012, partly offset by the
improvement in operating income before depreciation and amortization.
FINANCING ACTIVITIES
In the normal course of business, Cogeco Cable has incurred financial obligations, primarily in the form of long-term debt, operating and
finance leases and guarantees. Cogeco Cable’s obligations, as discussed in the 2012 Annual Report, have not materially changed since
August 31, 2012, except as mentioned below.
In connection with the acquisition of ABB on November 30, 2012, the Corporation concluded, through two of its US subsidiaries, First Lien
Credit Facilities totalling US$710 million with a syndicate of banks and other institutional lenders in three tranche and draw down by an amount
of US$660 million of which US$641.5 million was used to repay ABB’s secured debt and $US18.5 million to pay for some of the transaction
costs. The first tranche, a Term Loan A Facility amounting to US$240 million, which will mature on November 30, 2017, the second tranche, a
Term Loan B Facility amounting to US$420 million, which will mature on November 30, 2019 and the third tranche, a Revolving Credit Facility
of US$50 million unused at November 30, 2012, including a swingline of US$15 million, which will mature on November 30, 2017. Interest
rates on the First Lien Credit Facilities are based on LIBOR plus the applicable margin, with a LIBOR floor of 1.00% for the Term Loan B
Facility. Starting on December 31, 2013, the Term Loan A Facility is subject to quarterly amortization of 1.25% in the first year, 2.5% in the
second year and 3.0% in the third and fourth years. Starting on December 31, 2012, the Term Loan B Facility is subject to quarterly
amortization of 0.25% until its maturity date. In addition to the fixed amortization schedule and commencing in the first quarter of fiscal 2015,
loans under the Term Loan Facilities shall be prepaid according to a Prepayment Percentage of excess cash flow generated during the prior
fiscal year. The First Lien Credit Facilities are non-recourse to the Corporation and its Canadian subsidiaries and are indirectly secured by a
first priority fixed and floating charge on substantially all present and future real and personal property and undertaking of every nature and
kind of the Corporation’s US subsidiaries. The provisions under these facilities provide for restrictions on the operations and activities of the
Corporation’s US subsidiaries. Generally, the most significant restrictions relate to permitted indebtedness and investments, distributions and
maintenance of certain financial ratios.
DIVIDEND DECLARATION
At its January 14, 2013 meeting, the Board of Directors of Cogeco Cable declared a quarterly eligible dividend of $0.26 per share for multiple
voting and subordinate voting shares, payable on February 11, 2013, to shareholders of record on January 28, 2013. The declaration, amount
and date of any future dividend will continue to be considered and approved by the Board of Directors of the Corporation based upon the
Corporation’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors, at its sole
discretion, deems relevant. There is therefore no assurance that dividends will be declared, and if declared, the amount and frequency may
vary.
SEGMENTED OPERATING RESULTS
The Corporation reports its operating results in two operating segments: Cable services and Enterprise services. The reporting structure
reflects how the Corporation manages the business activities to make decisions about resources to be allocated to the segment and to assess
its performance.
CABLE SERVICES
CUSTOMER STATISTICS
CANADA
Net additions (losses)
% of penetration
(1)
Consolidated
USA
CANADA
Quarters ended November 30,
November 30,
November 30, 2012
2012
2011
2012
2011
PSU
2,478,887
494,674
1,984,213
15,080
46,179
Television service customers
1,105,443
244,404
861,039
(2,076
)
4,452
52.1
54.2
HSI service customers
817,019
171,640
645,379
10,845
17,285
39.0
38.0
Telephony service customers
556,425
78,630
477,795
6,311
24,442
28.9
27.2
(1) As a percentage of homes passed.
Canada
Fiscal 2013 first-quarter PSU net additions were lower than in the comparable period of the prior year mainly as a result of service category
maturity, competitive offers and tightening of our customer credit controls and processes. The net customer losses for Television service
customers stood at 2,076 compared to 4,452 net additions for the same period of the prior year. Television service customer net losses are
mainly due to the promotional offers of competitors for the video service combined with the tightening of our customer credit controls. Fiscal
2013 first-quarter HSI service customers grew by 10,845 compared to 17,285 in the first quarter of the prior year, and the number of net
additions to the Telephony service stood at 6,311 customers compared to 24,442 customers for the same period of the prior year. HSI and
Telephony net additions continue to stem from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete
Connection) of Television, HSI and Telephony services, and promotional activities.
OPERATING RESULTS
Quarters ended November 30,
2012
2011
Change
(in thousands of dollars, except percentages)
$
$
%
Revenue
304,815
293,679
3.8
Operating expenses
156,210
159,883
(2.3
)
Operating income before depreciation and amortization
148,605
133,796
11.1
Operating margin
48.8%
45.6%
Revenue
Fiscal 2013 first-quarter revenue increased by $11.1 million, or 3.8%, to reach $304.8 million, when compared to the same period last year,
primarily due to the PSU growth and rate increases implemented in June and July 2012.
Operating expenses
For the period ended November 30, 2012, operating expenses decreased by $3.7 million, or 2.3%, at $156.2 million. This decrease is mainly
attributable to the deployment and support costs incurred in fiscal 2012 related to the migration of Television service customers from analogue
to digital, partly offset by PSU growth.
Operating income before depreciation and amortization and operating margin
As a result of revenue growth exceeding the operating expenses, fiscal 2013 first-quarter operating income before depreciation and
amortization amounted to $148.6 million, or 11.1% higher than in the same period of the prior year. Operating margin increased to 48.8% from
45.6% when compared to fiscal 2012 first-quarter.
ENTERPRISE SERVICES
OPERATING RESULTS
Quarters ended November 30,
2012
2011
Change
(in thousands of dollars, except percentages)
$
$
%
Revenue
23,500
21,745
8.1
Operating expenses
13,682
13,180
3.8
Operating income before depreciation and amortization
9,818
8,565
14.6
Operating margin
41.8%
39.4%
Revenue
Fiscal 2013 first-quarter revenue increased by $1.8 million, or 8.1%, to reach $23.5 million, when compared to the same period last year,
primarily due the organic growth from data centre, managed IT and connectivity services.
Operating expenses
For the first quarter of fiscal 2013, operating expenses increased by $0.5 million, or 3.8%, to $13.7 million. The increase in operating expenses
is mainly attributable to servicing new customers.
Operating income before depreciation and amortization and operating margin
As a result of revenue growth exceeding the increase in operating expenses, fiscal 2013 first-quarter operating income before depreciation
and amortization amounted to $9.8 million, or 14.6%, higher than the same period of the prior year. Operating margin increased to 41.8% from
39.4% when compared to fiscal 2012 first-quarter.
FISCAL 2013 FINANCIAL GUIDELINES
Giving effect to the recent acquisition of ABB on November 30, 2012, the Corporation revised its financial guidelines for the 2013 fiscal year
issued on November 1, 2012 to include a nine-month period of ABB’s financial projections. Projections for the Enterprise services were
maintained as initially projected. In the Cable services segment in Canada, guidelines remained essentially the same, except for revenue and
acquisitions of property, plant and equipment which should be lower than originally expected due to lower PSU growth as a result of current
uncertain economic environment, the service category maturity and competitive offers. Nonetheless, management expects revenue to reach
$1.590 billion, representing a growth of $240 million, or 17.8%, when compared to those issued on November 1, 2012. PSU progression
should reduce from 50,000 to 35,000, including ABB nine-month operations. Operating income before depreciation and amortization should
increase by $121 million to reach $735 million reflecting the ABB acquisition and the cost reduction initiatives implemented in Canada during
the current fiscal year and, consequently operating margin should increase from 45.5% to 46.2%. Depreciation and amortization of property,
plant and equipment and intangible assets should increase from $290 million to $330 million and acquisition of property, plant and equipment,
intangible and other assets should increase by $20 million to take into consideration the ABB nine-month operations, partly offset by the
reduction in the Cable services segment in Canada. Financial expense should amount to $96 million, an increase of $32 million, as a result of
the cost of financing of ABB acquisition. Fiscal 2013 free cash flow is expected to amount to $170 million, an increase of $65 million, or 61.9%,
when compared to the free cash flow projection issued on November 1, 2012, stemming primarily from the nine-month operations of ABB
combined with the reduction in acquisitions of property, plant and equipment, intangible and other assets explained above. Profit for the year
is expected to amount to $225 million, $35 million higher than the November 1, 2012 projections, mainly as a result of the ABB’s expected
financial results for the nine-month operations.
Fiscal 2013 revised financial guidelines are as follows:
Revised
projections
January 14, 2013
Original
projections
November 1, 2012
Fiscal 2013
Fiscal 2013
(in millions of dollars, except net customer additions and operating margin)
$
$
Financial guidelines
Revenue
1,590
1,350
Operating income before depreciation and amortization
735
614
Operating margin
46.2%
45.5%
Depreciation and amortization
330
290
Financial expense
96
64
Current income tax expense
92
95
Profit for the year
225
190
Acquisitions of property, plant and equipment, intangible and other assets
370
350
Free cash flow
(1)
170
105
Net customer addition guidelines
PSU growth
35,000
50,000
(1) Free cash flow is calculated as operating income before depreciation and amortization less integration, restructuring and acquisition costs, financial expense,
current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.
NON-IFRS FINANCIAL MEASURES
This section describes non-IFRS financial measures used by Cogeco Cable throughout this MD&A. It also provides reconciliations between
these non-IFRS measures and the most comparable IFRS financial measures. These financial measures do not have standard definitions
prescribed by IFRS and therefore, may not be comparable to similar measures presented by other companies. These measures include “cash
flow from operations”, “free cash flow”, “operating income before depreciation and amortization” and “operating margin”.
CASH FLOW FROM OPERATIONS AND FREE CASH FLOW
Cash flow from operations is used by Cogeco Cable’s management and investors to evaluate cash flows generated by operating activities,
excluding the impact of changes in non-cash operating activities, amortization of deferred transaction costs and discounts on long-term debt,
income taxes paid, current income tax expense, financial expense paid and financial expense. This allows the Corporation to isolate the cash
flows from operating activities from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating
the non-IFRS measure, “free cash flow”. Free cash flow is used, by Cogeco Cable’s management and investors, to measure its ability to repay
debt, distribute capital to its shareholders and finance its growth.
The most comparable IFRS measure is cash flow from operating activities. Cash flow from operations is calculated as follows:
Free cash flow is calculated as follows:
Quarters ended November 30,
2012
2011
(in thousands of dollars)
$
$
Cash flow from operations
99,845
97,043
Acquisition of property, plant and equipment
(78,192
)
(73,339
)
Acquisition of intangible and other assets
(4,641
)
(3,944
)
Free cash flow
17,012
19,760
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION AND OPERATING
MARGIN
Operating income before depreciation and amortization is used by Cogeco Cable’s management and investors to assess the Corporation’s
ability to seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income
before depreciation and amortization is a proxy for cash flows from operations excluding the impact of the capital structure chosen, and is one
of the key metrics used by the financial community to value the business and its financial strength. Operating margin is a measure of the
proportion of the Corporation's revenue which is available, before income taxes, to pay for its fixed costs, such as interest on Indebtedness.
Operating margin is calculated by dividing operating income before depreciation and amortization by revenue.
The most comparable IFRS financial measure is operating income. Operating income before depreciation and amortization and operating
margin are calculated as follows:
Quarters ended November 30,
2012
2011
(in thousands of dollars, except percentages)
$
$
Operating income
75,160
66,999
Depreciation and amortization
64,666
64,824
Integration, restructuring and acquisitions costs
7,300
–
Operating income before depreciation and amortization
147,126
131,823
Revenue
327,911
315,424
Operating margin
44.9%
41.8%
Quarters ended November 30,
2012
2011
(in thousands of dollars)
$
$
Cash flow from operating activities
(280
)
13,807
Changes in non-cash operating activities
81,113
62,668
Amortization of deferred transaction costs and discounts on long-term debt
740
675
Income taxes paid
42,533
36,182
Current income tax expense
(25,091
)
(19,490
)
Financial expense paid
16,430
20,030
Financial expense
(15,600
)
(16,829
)
Cash flow from operations
99,845
97,043
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
ABOUT COGECO CABLE
Cogeco Cable (www.cogeco.ca) is a telecommunications corporation and is the second largest hybrid fibre coaxial cable operator in Ontario
and Québec. Through its two-way broadband cable networks, Cogeco Cable provides its residential customers with Analogue and Digital
Television, High Speed Internet («HSI») and Telephony services. Cogeco Cable is also present in the United States through its subsidiary,
Atlantic Broadband, whose head office is located in Quincy, Massachusetts. Atlantic Broadband is ranked the 12
th
largest cable television
system operator in the United States and, serves the following areas: Western Pennsylvania, Southern Florida, Maryland, Delaware and South
Carolina. Cogeco Cable provides as well to its commercial customers, through its subsidiary Cogeco Data Services, data networking, e-
business applications, video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, data storage, data security, co-location
services, managed IT services, cloud services and other advanced communication solutions. Cogeco Cable’s subordinate voting shares are
listed on the Toronto Stock Exchange (TSX: CCA).
ADDITIONAL INFORMATION
For additional information relating to the Corporation, including its Annual Information Form, and for a detailed analysis of Cogeco Cable's
results for the first quarter of 2013, please refer to the Management Discussion and Analysis and condensed consolidated financial statements
of Cogeco Cable, available on the SEDAR website at www.sedar.com.
Quarters ended
November 30,
August 31,
May 31,
February,
29
February,
28
(in thousands of dollars, except percentages and per share
data)
2012
2011
2012
2011
2012
2011
2012
2011
$
$
$
$
$
$
$
$
Revenue
327,911
315,424
324,768
305,811
319,771
298,211
317,735
293,457
Operating income before depreciation and amortization
147,126
131,823
160,825
151,579
152,661
138,147
143,743
130,399
Operating margin
44.9%
41.8%
49.5%
49.6%
47.7%
46.3%
45.2%
44.4%
Operating income
75,160
66,999
94,709
97,941
90,981
86,995
59,491
80,426
Income taxes
17,400
10,603
32,987
20,713
21,449
18,747
13,617
15,007
Profit for the period from continuing operations
42,160
39,567
45,705
62,745
53,159
52,352
31,086
41,319
Profit (loss) for the period from discontinued operations
–
3,399
–
6,219
–
(233,573
)
52,047
(9,223
)
Profit (loss) for the period
42,160
42,966
45,705
68,964
53,159
(181,221
)
83,133
32,096
Cash flow from operating activities
(280
)
13,807
203,343
211,847
112,275
142,009
120,961
88,420
Cash flow from operations
99,845
97,043
126,946
144,699
113,075
125,923
104,622
114,682
Acquisitions of property, plant and equipment, intangible
and other assets
82,833
77,283
124,392
120,663
87,459
62,782
86,234
61,079
Free cash flow
17,012
19,760
2,554
24,036
25,616
63,141
18,388
53,603
Earnings (loss) per share
(1)
From continuing and discontinued operations
Basic
0.87
0.88
0.94
1.42
1.09
(3.73
)
1.71
0.66
Diluted
0.86
0.88
0.93
1.42
1.09
(3.73
)
1.70
0.66
From continuing operations
Basic
0.87
0.81
0.94
1.29
1.09
1.08
0.64
0.85
Diluted
0.86
0.81
0.93
1.29
1.09
1.08
0.63
0.85
From discontinued operations
Basic
–
0.07
–
0.13
–
(4.80
)
1.07
(0.19
)
Diluted
–
0.07
–
0.13
–
(4.80
)
1.06
(0.19
)
(1) Per multiple and subordinate voting share.
– 30 –
Source: Cogeco Cable Inc.
Pierre Gagné
Senior Vice President and Chief Financial Officer
Tel.: 514-764-4700
Information: Media
René Guimond
Vice-President, Public Affairs and Communications
Tel.: 514-764-4700
Analyst Conference Call: Tuesday, January 15, 2013 at 9:30 a.m. (Eastern Standard Time)
Media representatives may attend as listeners only.
Please use the following dial-in number to have access to the conference call by dialling five minutes
before the start of the conference:
Canada/USA Access Number: 1 800-820-0231
International Access Number: + 1 416-640-5926
Confirmation Code: 4571052
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until January 22, 2013, by dialling:
Canada and US access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 4571052
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