Cogeco Inc. reports strong fiscal 2013 financial results – detailed press release
PRESS RELEASE
For immediate release
COGECO Inc. reports s tr ong fiscal 2013 financial results
• Solid revenue and operating income before depreciation and amortization
(1)
increases in the fourth
quarter and in fiscal year 2013, meeting revised financial guidelines
• On target
financial
results from
Cogeco
Cable
Inc.'s
recent
acquisitions
Atlantic Broadband
and Peer
1 Network Enterprises Inc. ("PEER 1"); and
• Quarterly dividend increase of 15.8%.
Montréal, October 30, 2013 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Corporation”) announced its financial
results for the fourth quarter and fiscal year 2013, ended August 31, 2013, in accordance with International Financial Reporting
Standards (“IFRS”).
For the fourth quarter and fiscal 2013, which include nine months operating results of Atlantic Broadband and seven months
operating results of PEER 1:
• Fourth quarter revenue increased by 41.5% to reach $504.7 million and by 30.4% for fiscal 2013 to close at $1.8 billion
when compar ed to the same periods of the prior year;
• Operating income before depreciation and amortization
(1)
increased by 37.1% to $224.3 million compared to the fourth
quarter of fiscal 2012, and by 31.4% to $797.4 million compared to the prior year. Operating income before depreciation
and amortization increases for both periods are mainly from the Cable segment and attributable to the acquisitions of
Atlantic Broadband and PEER 1 (the "recent acquisitions") as well as to the financial results improvement from organic
growth;
• Profit for the period from continuing operations amounted to $43.8 million in the fourth quarter compared to $44.9
million for the same period of the previous fiscal year. The decrease is mostly attributable to additional depreciation
and amortization and financial expense both related to the recent acquisitions. It is partly offset by the operating income
before depreciation and amortization improvement stemming from the Cable segment organic growth, the recent
acquisitions combined with lower income tax expenses resulting from the recent acquisitions tax structure. For fiscal
2013, profit for the year from continuing operations amounted to $189.8 million compared to $174.2 million for fiscal
2012. Profit progression is mostly attributable to the improvement in the operating income before depreciation and
amortization generated by the Cable segment, partly offset by additional depreciation and amortization, financial
expense and acquisition costs all related to the recent acquisitions;
• Profit for the period amounted to $43.8 million in the fourth quarter when compared to $44.9 million for the same period
of the previous fiscal year due to the factors previously described. For the year ended August 31, 2013, profit for the
year amounted to $189.8 million when compared to $229.7 million for the same period of fiscal 2012. The decline for
the year is attributable to the factors previously described and also due to last year's profit of $55.4 million from the
sale of the Portuguese subsidiary, Cabovisão - Televisão por Cabo, S.A. (“Cabovisão”), reported as discontinued
operations in fiscal 2012;
(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
discuss ion and analysis (“ MD &A ”)
• Free cash flow
(1)
reached $53.7 million for the fourth quarter compared to negative free cash flow of $5.0 million in the
comparable quarter of the prior year. The increase for the period is mostly attributable to the improvement of operating
income before depreciation and amortization as well as to the decrease in acquisition of property, plant and equipment
and current income taxes, partly offset by the increase in financial expense. Fiscal 2013 free cash flow amounted to
$151.7 million compared to $68.7 million in fiscal 2012. The increase for the year is mostly attributable to the
improvement of operating income before depreciation and amortization and the decrease in current income taxes,
partly
offset
by the increase in financial expense, the recent acquisition
costs
and the increase in acquisition of property,
plant and equipment;
• A quarterly dividend of $0.19 per share was paid to the holders of subordinate and multiple voting shares, an increase
of $0.01 per share, or 5.6%, compared to a dividend of $0.18 per share paid in the fourth quarter of fiscal 2012.
Dividends paid in fiscal 2013 totaled $0.76 per share compared to $0.72 per share in fiscal 2012;
• Cable segment fourth-quarter 2013 primary service units (“PSU”)
(2)
decreased by 15,237 and increased by 5,546 for
fiscal 2013
.
At August 31, 2013, consolidated PSU amounted
to
2,465,780
of
which 1,980,122 come from the Canadian
operations and 485,658 from the American opera tions;
•
On
October 30, 2013,
COGECO
declared an eligible dividend of $0.22 per share, an increase of 15.8% when compared
to the $0.19 dividend per share paid in the fourth quarter of fiscal 2013;
• On June 27, 2013, the Corporation's subsidiary, Cogeco Cable, completed, pursuant to a private placement, the
issuance of US$215 million Senior Secured Notes bearing interest at 4.30% payable semi-annually and maturing on
June 16, 2025. The net proceeds from this offering along with drawings under Cogeco Cable's credit facilities were
used to repay, on July 29, 2013, all the outstanding amount of $300 million Senior Secured Debentures Series 1, due
on June 9, 2014;
• On July 22, 2013, Cogeco Cable entered into interest rate swap agreements to fix the interest rate on US$200 million
of its LIBOR based loans. These agreements have the effect of converting the floating US LIBOR base rate at an
average fixed rate of 0.39625% under its Term Revolving Facility until July 25, 2015; and
• On July 5, 2013, Cogeco Cable reduced its Term Revolving Facility from $750 million to $600 million and its Revolving
Facility of its Secured Credit Facilities from $240 million to $190 million .
"Fiscal 2013 proved to be a strong financial year for COGECO and its subsidiaries, during which good headway was made in
positioning the business toward sustained profitable growth," stated Louis Audet, President & Chief Executive Officer of COGECO
Inc.
"Our Cogeco Cable subsidiary completed two acquisitions that allowed the Corporation, on the one hand, to diversify its cable
assets geographically and, on the other hand, build a stronger footprint in the promising data hosting and managed IT services
market. As a logical aftermath to its evolving portfolio, Cogeco Cable regrouped its Canadian cable operations under a self-
standing operational unit, a move that will better facilitate continued excellence in product innovation and customer service to the
benefit of its Canadian Digital Television, Telephony and HSI customers. All of this, along with the successful refinancing that
was completed during a period of low interest rates, should enhance Cogeco Cable’s financial performance in fiscal 2014,"
continued Mr. Audet.
"Our Cogeco Diffusion subsidiary also fared well in fiscal 2013, having completed the full integration of Cogeco Métromédia.
Today, we have the largest commercial talk radio network in the province of Quebec, attracting listeners who represent families
among those with the highest per capita income profile very much sought after by advertisers. I am very pleased with our overall
results and am optimistic about our ability to deliver on our 2014 projections with a steady performance our investors can count
on," concluded Lou is Audet.
Fiscal 2014 Financial Guidelines
COGECO revised its fiscal 2014 financial guidelines, as issued on July 10, 2013, as a result of certain adjustments related to the
preliminary allocation of the purchase price of Atlantic Broadband and PEER 1 in the Cable segment. Please consult the “Fiscal
2014 financial guidelines” section of the Corporation’s 2013 Annual Report for further details.
(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 MD&A.
(2) Re pr es e nts th e sum of Television, High S pee d Internet (" HSI") and Telephony service customers.
FINANCIAL HIGHLIGHTS
Quarte rs end ed Years ended
(in thousands of dollars, except PSU growth, percentages and
per share data)
August 31,
2013
August 31,
2012 Change
August 31,
2013
August 31,
2012 Change
Operations
$ $ % $ $ %
Revenue 504,714 356,685 41.5 1,834,257 1,406,353 30.4
Operating income before depreciation and amortization
(1)
224,304 163,617 37.1 797,426 606,842 31.4
Operating income 104,110 95,943 8.5 387,489 324,989 19.2
Profit for the period from continuing operations 43,759 44,900 (2.5) 189,777 174,246 8.9
Profit for the period from discontinued operations — —
— — 55,446
—
Profit for the period 43,759 44,900 (2.5) 189,777 229,692 (17.4)
Profit for the period attributable to owners of the Corporation 13,826 13,889 (0.5) 64,088 77,051 (16.8)
Cash Flow
Cash flow from op era ti ng acti viti es 233,464 203,193 14.9 552,195 448,764 23.0
Cash flow from op era ti on s
(1)
162,427 119,612 35.8 563,091 447,110 25.9
Acquisitions of property, plant and equipment, intangible and
other asse ts
(2)
108,756 124,638 (12.7) 411,422 378,369 8.7
Free cash flow
(1)
53,671 (5,026) — 151,669 68,741 —
Financial Condition
Property, plant and equipment — — — 1,874,866 1,343,904 39.5
Total assets — — — 5,452,513 3,103,919 75.7
Indebtedness
(3)
— — — 3,054,275 1,180,971 –
Equity attributable to owners of the Corporation — — — 457,285 397,799 15.0
Primary service units (“PSU”) gr o wt h (decline)
(4)
(15,237) 7,564 — 5,546 73,645 (92.5)
Per Share Data
(5)
Earnings per share attributable to owners of the Corporation
From continuing and discontinued operations
Basic 0.83 0.83
— 3.83 4.61 (16.9)
Diluted 0.82 0.83 (1.2) 3.81 4.58 (16.8)
From continuing operations
Basic 0.83 0.83 — 3.83 3.54 8.2
Diluted 0.82 0.83 (1.2) 3.81 3.52 8.2
From discontinued operations
Basic — — — — 1.07 —
Diluted — — — — 1.06 —
(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 of the MD&A.
(2) Fiscal 2013 fourth-qua rter and fisc al 20 13 ac q uis itions of property, plant and equipment, intangible and other assets include assets acquired under finance
lease of $0.9 million that are excluded from the statements of cas h flo ws .
(3) Indebtedness is defined as the aggregate of bank indebtedness, principal on long-term debt, bala nce due on busi nes s com bin ati o ns and obl iga ti on s under
derivative financial instruments.
(4)
Represents the sum of Television, High Spee d Inte rn et (“H S I ”) an d Telephony service customers.
(5) Per multiple and subordinate voting share.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking
information may relate to COGECO’s future outlook and anticipated events, business, operations, financial performance, financial condition
or results and, in some cases, can be identified by terminology s uch as "may"; "will"; "should"; " expect"; "plan"; " anticipate"; "beli eve"; "intend";
"estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters t hat 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 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 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 2013 annual Management's Discussion and Analysis ("MD&A")) that could cause actual results
to differ materially from what
COGECO
currently expects. These
factors
include risks pertaining to markets and competition, technology, regulatory
developments, operating costs, information systems, disasters or other contingencies, financial risks related to capital requirements, human
resources, controlling shareholder and holding
structure,
many of which are beyond the Corporation’s control. Therefore, future events and results
may vary significantly from what management currently foresees. 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 does
not undertake to update or alter this information at any particular time, except as may be required by law.
All amounts are stated in Canadian dollars unless otherwise indicated. This press release should be read in conjunction with the MD&A included
in the Corporation’s 2013 Annual Report, the Corporation's consolidated financial statements and the notes thereto, prepared in accordance with
the International Financ i al Reporting Standards (“IFRS”) for the year ended August 31, 2013
Consolidated UNITED STATES
(1)
CANADA
August 31, 2013
Net additions (losses)
Quarte rs end ed
August 31, August 31,
2013 2012
PSU 2,465,780 485,658 1,980,122
Television service customers 1,065,075 230,304 834,771
HSI service customers 838,445 177,108 661,337
Telephony service customers 562,260 78,246 484,014
(15,237) 7,564
(14,210) (5,758)
1,097 6,287
(2,124) 7,035
RESULTS OVERVIEW
This analysis should be read in conjunction with the Corporati on’s 2013 Annual Report available on SEDAR at www.sedar.com. Please refer to
the Corporation’s 2013 Annual Report for more details on the annual results.
FOUR-QUARTER OPERATING RESULTS
OPERATING RESULTS
Consolidated
Quarters ended August 31, 2013 2012 Change
(in thousands of dollars, except percentages) $ $ %
Revenue 504,714 356,685 41.5
Operati ng e xpenses 280,410 193,068 45.2
Operating income before depreciation and amortization 224,304 163,617 37.1
Fiscal 2013 fourth-quarter consolidated revenue improved by $148.0 million, or 41.5%, to reach $504.7 million compared to the prior year primarily
due to the Cable segm ent and t he revenue generated by Métromédia acquired duri ng the second quarter of fiscal 2012. For t he fourt h-quarter
ended A ugust 31, 2013, consolidated operating expenses increased by $87.3 million, or 45.2%, at $280.4 million mainly attributable to the Cable
segment. As a result, consolidated operating income before depreciation and amortization increased by $60.7 million, or 37.1%, to reach $224.3
million.
Fiscal 2013 fourth-quarter Cable segment's revenue improved by $145.6 million, or 44.8%, to reach $470.4 million compared to the prior year.
Revenue increased primarily due to the recent acquisitions and rate increases implemented in June 2013 in Canada. For the fourth-quarter ended
August 31, 2013, operating expenses increased by $84.0 million, or 51.2%, at $247.9 million, mainly due to the recent acquisitions as well as
additional st aff to m anage the PSU base, programm ing cost inc reases and incentive programs such as bonuses, partly offset by cost reduction
initiatives in Canada. As a result, operating income before depreciation and amortization increased by $61.7 million, or 38.3%, to reach $222.5
million in fiscal 2013.
CABLE SEGMENT CUSTOMER STATISTICS
(3)
(2)
(2)
(1) Includes 485,180 PSU (237,313 Television service, 169,553 HSI service a nd 78, 31 4 Telephony service customers) from the acquisition of Atlantic Broadband.
(2) In the fourth quarter of fiscal 2013, HSI custom er s have been adjusted upwards retroactively to comply with the industry practices and consequently, PSU and
penetration rate have been also adjusted.
(3) Net additions (losses) and penetration rates for fiscal 2012 are only for the Canadian cable services.
Fiscal 2013 fourth-quarter PSU net losses stood at 15,237 compared to net additions of 7,564 for the comparable period mainly as a result of
service category maturity, competitive offers and tightening of our customer credit controls and processes in Canada. Fiscal 2013 fourth-quarter
net customer losses for Television service customers stood at 14,210 compared to 5,758 for fiscal 2012. Television service customer net losses
are mainly due to promotional offers of competitors for the video service, the tightening of our customer credit controls in Canada combined with
the end of the school year for college and university students and residents returning home from the Miami region from late Spring through the
Fall in the United States. Fiscal 2013 fourth-quarter HSI service customers grew by 1,097 compared to 6,287 for the prior year, and the number
of net losses to the Telephony service stood at 2,124 customers compared to net additions of 7,035 customers for last y ear.
CASH FLOW ANALYSIS
Quarte rs end ed Aug ust 31 ,
(in thousands of dollars)
2013
$
2012
$
Operating activities
Cash flow from op era ti on s
162,427
119,612
Changes in non-cash operating activities
58,644
81,809
Amorti zati on of deferred transaction costs and discounts on long-term debt
(4,255)
(6)
Income taxes paid
(24,066)
(15,700)
Current income tax expense
11,583
15,798
Financial expense paid
(20,850)
(15,738)
Financial expense
49,981
17,418
233,464
203,193
Investing activities
(104,976)
(124,726)
Financing activities
(125,642)
(16,041)
Effect of exchange rate changes on cas h and cash equival e nts denominated in foreign currencies
1,304
—
Net change in cash and cash equivalents from continuing operations
4,150
62,426
Cash and cas h equi valents from continuing and discontinued operations, beginning of period
39,643
153,097
Cash and cas h equi valents from continuing and discontinued operations, end of period
43,793
215,523
Fourth quarter 2013 cash flow from operations reached $162.4 million compared to $119.6 million last year, an increase of $42.8 million, or 35.8%,
primarily due to the improvement of operating income before depreciation and amortization, partly offset by financial expense increase and by
the Cable segment recent acquisition costs. In the fourth quarter of fiscal 2013, changes in non-cash operating activities generated cash inflows
of $58.6 million compared to $81.8 million in the comparable period of fiscal 2012, mainly as a result of a lower decrease in trade and other
payables, partl y offset by an increase in provisions compared to a decrease in the prior year.
ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT, INTANGIBLE AND OTHER
ASSETS
For the quarter ended August 31, 2013, acquisiti on of property, plant and equipment amount ed to $103.8 mil l i on compared to $119.4 million f or
the comparable period of fiscal 2012 mai nl y as a result of the recent acquisitions and the following factors in the Cable segment:
• A decrease in customer premise equipment capital expenditures, mainly due to the completion in fiscal 2012 of the first phase in the
conversion of Television service customers from analogue to digital and the lower PSU growth during fiscal 2013 as a result of service
maturity;
• A decrease in scalable infrastructure capital expenditures due to the timing of initiatives to improve network capacity in existing areas
served; and
• An increase in data centre facilities capital expenditures mainly due to the construction of a new data centre facility in Barrie (nort h of
Toronto), Canada, opened last June, and by the expansion of data centre facilities in Toronto, Canada and in Portsmouth, England as
well as the fibre expansion in the Toronto area in order to fulfi l l orders from new customers demand.
Acquisition of intangible and other assets are mainly attributable to reconnect and additional service activation costs as well as other customer
acquisition costs. Fiscal 2013 fourth-quarter acquisition of intangible and other assets amounted to $4.9 million compared to $5.2 million for the
fourth-quarter of f iscal 2012.
FREE CASH FLOW AND FINANCING ACTIVITIES
Fourth quarter 2013 free cash flow amounted t o $53.7 million, an increase of $58.7 million compared to negat ive free cash flow of $5.0 million
in the fourth-quarter of fiscal 2012, mainly as a result of the improvement of operati ng income before depreciation and amortization as well as
the decrease in acquisition of property, plant and equipment and current income taxes, partly offset by the increase in financial expense and the
increase, all in the Cable segment.
In the fourth quarter of fiscal 2013, higher Indebtedness level provided for a cash decrease of $113.5 million, mainly due to the issuance in the
Cable segment, on June 27, 2013, of $225.3 million (US$215 million) Senior secured notes for net proceeds of $223.8 million, net of transaction
costs of $1.5 million, offset by the repayment of the Senior Secured Debentures Series 1 of $300 million. In the fourth quarter of fiscal 2012,
Indebtedness l evel remained ess ential l y t he same.
In the fourth quarter of fiscal 2013, a quarterly dividend of $0.19 per share was paid to the holders of subordinate and multiple voting shares, for
a total of $3.2 million. In fiscal 2012, a quarterly dividend of $0.18 per share was paid to the holders of subordi nate and multiple voting shares,
for a total of $3.0 million. In addition, dividends paid by a subsidiary to non-controlling interests in the fourth quarter of fiscal 2013 amounted to
$8.6 million compared to $8.2 million in the prior year.
FISCAL 2014 FINANCIAL GUIDELINES
As a result of revised projections in the Cable segment described below, the Corporation revised its consolidated projections for the 2014 fiscal
year as issued on July 10, 2013, and consequently current income taxes, profit for the year and free cash flow have been adjusted.
Revised
projections
October 30,
2013
Preliminary
projections
July 10, 2013 Actuals
Fiscal 2014 Fiscal 2014 Fiscal 2013
(in millions of dollars) $ $ $
Financial guidelines
Revenue
2,075
2,075
1,834
Operating income before depreciation and amortization
900
900 797
Integration, restructuring and acquisition costs
—
—
22
Financial expense
134
134
134
Current income tax expense
101
106
88
Profit for the year
233
250 190
Profit for the year attrib uta bl e to owners of the Corporation
75
82
64
Acquisitions of pro pe rty, plant and equi pment, int an gibl e and oth er assets
430
430
411
Free cash flow
(1)
235
230
152
(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.
CABLE SEGMENT
Cogeco Cable revised its fiscal 2014 financial guidelines, as issued on July 10, 2013, as a result of certain adjustments made to the preliminary
allocat i on of the purchase price of Atlantic Broadband and PEER 1.
Fiscal 2014 financial guidelines take into consideration the current uncertain global economic environment as well as the competitive environment
that prevails in Canada, the deployment of new technologies such as Fibre to the Home
("FTTH"),
Fibre to the Node
(“FTTN”)
and Internet Protocol
Television (“IPTV”) by the incumbent telecommunications providers .
For fiscal 2014, Cogeco Cable expects to achieve revenue of $1.935 billion, representing growth of $243 million, or 14.4% compared to fiscal
2013. Revenue should increase primarily as a result of the full year impact from the recent acquisitions. In the Cable segment, revenue increase
should stem primarily from targeted marketing initiatives to improve penetration rates of the Digital Television, HSI and Telephony services.
Furthermore, the Digital Television service should continue to benefit from the customers' ongoing strong interest in the Corporation's growing
HD service offerings. Revenue will also benefit, in Canada, from the impact of rate increases implemented in June 2013 in Quebec and Ontario,
ranging on average between $2
to
$3 per
HSI
and
Telephony service customers. Cogeco Cable's strategies include consistently effective
marketing
to residential and business customers, competitive product offerings and superior customer service, which combined, lead to the expansion and
loyalty of the Television service clientele. As the penetration of residential
HSI,
Telephony and Digital Television services increase, the new demand
for these products should slow in Canada, reflecting service category maturity. However, growth in the commercial and business sector is expected
to continue at a consistent pace in the Cable segment. Finally, revenue shoul d increase from the hosting services and the data transport.
As a result of the full year impact from the recent acquisitions, the increased costs to service additional customers, inflation and manpower
increases, as well as the continuation of the marketing initiatives and retention strategies, operating expenses are expected to expand by
approximately $138 million, or 15.1% in the 2014 fiscal year compared to fiscal 2013.
For fiscal 2014, Cogeco Cable expects operating income before depreciation and amortization of $885 million, an increase of $104 million, or
13.3% compared to fiscal 2013. The operating margin is expected to reach approximately 45.7% in fiscal 2014, compared to 46.1% for fiscal
2013, reflec ting operating expenses growth sl ightly higher than the revenue growth as well as lower m argins business activities f rom PEER 1
acquired on January 31, 2013.
Cogeco Cable expects the depreciation and amortization of property, plant and equipment and intangible assets to increase by $87 million for
fiscal 2014, mainly from the full year impact of the recent acquisitions. Cash flows from operations should finance capital expenditures and the
increase in intangible assets amounting to $425 million, an increase of $17 million when compared to fiscal 2013. Capital expenditures projected
for the 2014 fiscal year are stemming from scalable infrastructure for product enhancements and the deployment of new technologies, line
extensions to expand existing territories, support capital to improve business information
systems
and support facility requirements and expansion
for the Enterprise services activities in order to fulfi l l orders from new customers.
Fiscal 2014 free cash flow is expected to amount to $230 million, an increase of $80 million, or 53.3% compared to t he free cash flow of $150
million for fiscal 2013, resulting from the growth in operating income before depreciation and amortization, partly offset by additional capital
expenditures and financial expense from the full year impact of the recent acquisitions of Atlantic Broadband and PEER 1 and by an increase in
current income taxes. Generated free cash flow will reduce Indebtedness net of cash and cash equivalents, thus improving Cogeco Cable's net
leverage ratios. Financial expense should amount to $130 million an increase of $2 million related
to
Atlantic Broadband's and PEER 1's acquisition
financing. As a result, profit for the year of approximatel y $230 mill i on should be achi eved compared to $185 million for fiscal 2013.
Fiscal 2014 financial gui delines are as fol l ows:
Revised
projections
October 30, 201 3
Preliminary
projections
July 10, 2013 Actuals
Fiscal 2014 Fiscal 2014 Fiscal 2013
(in millions of dollars, except operating margin) $ $ $
Financial guidelines
Revenue 1,935 1,935 1,692
Operating income before depreciation and amortization 885 885 781
Operating margin 45.7% 45.7% 46.1%
Integration, restructuring and acquisition costs — —
22
Depreciation and amortization 470 435 383
Financial expense 130 130 128
Current income tax expense 100 105 85
Profit for the year 230 245 185
Acquisitions of pro pe rty, plant and equipment, int an gibl e and oth er ass e ts 425 425 408
Free cash flow
(1)
230 225 150
Capital intensity 22.0% 22.0% 24.1%
(1) Free cash flow is calculated as operating income before depreciation and amortization less integration, restructuring and acquisition costs, financial e x pen se,
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 COG ECO throughout this MD&A. It also provides reconciliations between these
non-IFRS measures and t he most com parable IFRS financial measures. These financial measures do not have st andard definiti ons prescribed
by I FRS and therefore, may not be comparable to similar measures presented by other companies. These measures include “cash flow from
operations”, “free cash flow” and “operating income before depreciation and amortization”.
CASH FLOW FROM OPERATIONS AND FREE CASH FLOW
Cash flow from operations is used by COGECO’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’s managem ent 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 calculat ed as foll ows:
Quarte rs end ed Years ended
August 31,
2013
August 31,
2012
August 31,
2013
August 31,
2012
(in thousands of dollars)
$
$
$
$
Cash flow from operating activities
233,464
203,193
552,195
448,764
Changes in non-cash operating activities
(58,644)
(81,809)
21,550
3,479
Amorti zati on of deferred transaction costs and discounts on long-term debt
4,255
6
11,492
3,363
Income taxes paid
24,066
15,700
103,556
83,411
Current income tax expense
(11,583)
(15,798)
(87,810)
(88,104)
Financial expense paid
20,850
15,738
96,121
65,325
Financial expense
(49,981)
(17,418)
(134,013)
(69,128)
Cash flow from operations 162,427
119,612
563,091
447,110
Free cash flow is calculated as follows:
(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.
Quarte rs end ed Years ended
August 31,
2013
August 31,
2012
August 31,
2013
August 31,
2012
(in thousands of dollars)
$
$
$
$
Cash flow from operations
162,427
119,612
563,091
447,110
Acquisition of property, plant and equipment
(102,902)
(119,421)
(391,918)
(362,582)
Acquisition of int an gible and other assets
(4,917)
(5,217)
(18,567)
(15,787)
Assets acquired under finance leases (937) — (937) —
Free cash flow (deficit) 53,671
(5,026)
151,669
68,741
OPERATING INCOME BEF O RE DEPRECIATION AND AMORTIZATION
Operating income before depreciation and amortization is used by COGECO’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 c ash 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 t he business and its financial st rengt h.
The most comparable IFRS financial measure is operating income. Operating income before depreciation and amortization is calculated as
follows:
Quarte rs end ed Years ended
August 31,
2013
August 31,
2012
August 31,
2013
August 31,
2012
(in thousands of dollars)
$
$
$
$
Operating income
104,110
95,943
387,489
324,989
Depreciation and amortization
115,444
65,699
388,275
279,770
Integration, restructuring and acquisitions costs
4,750
1,975
21,662
2,083
Operating income before depreciation and amortization
224,304
163,617
797,426
606,842
FISCAL 2014 FINANCIAL GUIDELINES
As a result of revised projections in the Cable segment described below, the Corporation revised its consolidated projections for the 2014 fiscal
year as issued on July 10, 2013, and consequently current income taxes, profit for the year and free cash flow have been adjusted.
Revised
projections
October 30,
2013
Preliminary
projections
July 10, 2013 Actuals
Fiscal 2014 Fiscal 2014 Fiscal 2013
(in millions of dollars) $ $ $
Financial guidelines
Revenue
2,075
2,075
1,834
Operating income before depreciation and amortization
900
900
797
Integration, restructuring and acquisition costs
—
—
22
Financial expense
134
134
134
Current income tax expense
101
106
88
Profit for the year
233
250
190
Profit for the year attrib uta bl e to owners of the Corporation
75
82
64
Acquisitions of pro pe rty, plant and equi pment, int an gibl e and oth er assets
430
430
411
Free cash flow
(1)
235
230
152
CABLE SEGMENT
Cogeco Cable revised its fiscal 2014 financial guidelines, as issued on July 10, 2013, as a result of certain adjustments made to the preliminary
allocat i on of the purchase price of Atlantic Broadband and PEER 1.
Fiscal 2014 financial guidelines take into consideration the current uncertain global economic environment as well as the competitive environment
that prevails in Canada, the deployment of new technologies such as Fibre to the Home
("FTTH"),
Fibre to the Node
(“FTTN”)
and Internet Protocol
Television (“IPTV”) by the incumbent telecommunications providers.
For fiscal 2014, Cogeco Cable expects to achieve revenue of $1.935 billion, representing growth of $243 million, or 14.4% compared to fiscal
2013. Revenue should increase primarily as a result of the full year impact from the recent acquisitions. In the Cable segment, revenue increase
should stem primarily from targeted marketing initiatives to improve penetration rates of the Digital Television, HSI and Telephony services.
Furthermore, the Digital Television service should continue to benefit from the customers' ongoing strong interest in the Corporation's growing
HD service offerings. Revenue will also benefit, in Canada, from the impact of rate increases implemented in June 2013 in Quebec and Ontario,
ranging on average between $2
to
$3 per
HSI
and
Telephony service customers. Cogeco Cable's strategies include consistently effective
marketing
to residential and business customers, competitive product offerings and superior customer service, which combined, lead to the expansion and
loyalty of the Television service clientele. As the penetration of residential
HSI,
Telephony and Digital Television services increase, the new demand
for these products should slow in Canada, reflecting service category maturity. However, growth in the commercial and business sector is expected
to continue at a consistent pace in the Cable segment. Finally, revenue shoul d increase from the hosting services and the data transport.
As a result of the full year impact from the recent acquisitions, the increased costs to service additional customers, inflation and manpower
increases, as well as the continuation of the marketing initiatives and retention strategies, operating expenses are expected to expand by
approximat el y $138 million, or 15.1% in the 2014 fiscal year compared to fiscal 2013.
For fiscal 2014, Cogeco Cable expects operating income before depreciation and amortization of $885 million, an increase of $104 million, or
13.3% compared to fiscal 2013. The operating margin is expected to reach approximately 45.7% in fiscal 2014, compared to 46.1% for fiscal
2013, reflec ting operating expenses growth sl ightly higher than the revenue growth as well as lower margins bus iness acti vities from PEER 1
acquired on January 31, 2013.
Cogeco Cable expects the depreciation and amortization of property, plant and equipment and intangible assets to increase by $87 million for
fiscal 2014, mainly from the full year impact of the recent acquisitions. Cash flows from operations should finance capital expenditures and the
increase in intangible assets amounting to $425 million, an increase of $17 million when compared to fiscal 2013. Capital expenditures projected
for the 2014 fiscal year are stemming from scalable infrastructure for product enhancements and the deployment of new technologies, line
extensions to expand existing territories, support capital to improve business information
systems
and support facility requirements and expansion
for the Enterprise services activi ties in order to fulfi l l orders from new customers.
Fiscal 2014 free cash flow is expected to amount to $230 million, an increase of $80 million, or 53.3% compared to t he free cash flow of $150
million for fiscal 2013, resulting from the growth in operating income before depreciation and amortization, partly offset by additional capital
expenditures and financial expense from the full year impact of the recent acquisitions of Atlantic Broadband and PEER 1 and by an increase in
current income taxes. Generated free cash flow will reduce Indebtedness net of cash and cash equivalents, thus improving Cogeco Cable's net
leverage ratios. Financial expense should amount to $130 million an increase of $2 million related
to
Atlantic Broadband's and PEER 1's acquisition
financing. As a result, profit for the year of approximatel y $230 mill i on should be achi eved compared to $185 million for fiscal 2013.
Fiscal 2014 financial gui delines are as fol l ows:
Revised
projections
October 30, 201 3
Preliminary
projections
July 10, 2013 Actuals
Fiscal 2014 Fiscal 2014 Fiscal 2013
(in millions of dollars , e xcept operating margin ) $ $ $
Financial guidelines
Revenue 1,935 1,935 1,692
Operating income before depreciation and amortization 885 885 781
Operating margin 45.7% 45.7% 46.1%
Integration, restructuring and acquisition costs — — 22
Depreciation and amortization 470 435 383
Financial expense 130 130 128
Current income tax expense 100 105 85
Profit for the year 230 245 185
Acquisitions of pro pe rty, plant and equipment, int an gibl e and oth er ass e ts 425 425 408
Free cash flow
(1)
230 225 150
Capital intensity 22.0% 22.0% 24.1%
(1) Free cash flow is calculated as operating income before depreciation and amortization less integration, restructuring and acquisition costs , fina ncial e xpen se,
current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.
CABLE SEGMENT CUSTOMER STATISTICS
August 31,
May 31,
February 28,
November 30,
August 31, August 31,
2013
2013
2013
2012
2012
2011
Primary service units
(1)
2,465,780 2,481,017 2,482,096 2,476,022 1,975,054 1,901,409
CANADA
1,980,122 1,992,143
(2)
1,993,156
(2)
1,990,842
(2)
1,975,054
(2)
1,901,409
(2)
UNITED STATES
485,658 488,874 488,940 485,180 — —
Television service customers
1,065,075
1,079,285
1,087,692
1,098,352
863,115
877,985
CANADA
834,771 845,344 852,707 861,039
863,115 877,985
Penetra ti on as a percen tage of hom es passed
49.9%
50.7%
51.4%
52.1%
52.4% 54.1%
UNITED STATES
230,304
233,941
234,985
237,313
— —
Penetra ti on as a percen tage of hom es passed
44.5%
45.3%
45.5%
46.0%
— –
Digital Television service customers
923,812
924,155
922,703
922,576
771,503
678,326
CANADA
781,386
779,950
778,728
780,724
771,503 678,326
Penetra ti on as a percen tage of hom es passed
46.7% 46.8% 46.9% 47.2%
46.8% 41.8%
UNITED STATES
142,426 144,205 143,975 141,852
— –
Penetra ti on as a percen tage of hom es passed
27.5% 27.9% 27.9% 27.5%
— –
Analogue Television service cu st omers
141,263
155,130
164,989
175,776
91,612
199,659
CANADA
53,385 65,394 73,979 80,315
91,612 199,659
Penetra ti on as a percen tage of hom es passed
3.2% 3.9% 4.5% 4.9%
5.6% 12.3%
UNITED STATES
87,878 89,736 91,010 95,461
— –
Penetra ti on as a percen tage of hom es passed
17.0%
17.4%
17.6%
18.5%
— –
High Speed Internet service customers
838,445
837,348
832,745
821,561
640,455
605,154
CANADA
661,337 661,178
(2)
657,766
(2)
652,008
(2)
640,455
(2)
605,154
(2)
Penetra ti on as a percen tage of hom es passed
39.5%
39.7%
(2)
39.6%
(2)
39.4%
(2)
38.8%
(2)
37.3%
(2)
UNITED STATES
177,108 176,170 174,979 169,553
— –
Penetra ti on as a percen tage of hom es passed
34.3% 34.1% 33.9% 32.9%
— –
Telephony ser vi ce customers
562,260
564,384
561,659
556,109
471,484
418,270
CANADA
484,014
485,621
482,683
477,795
471,484 418,270
Penetration as a per cen ta ge of h om es pass ed
28.9% 29.1% 29.1% 28.9%
28.6% 25.8%
UNITED STATES
78,246 78,763 78,976 78,314
— –
Penetra ti on as a percen tage of hom es passed
15.1% 15.2% 15.3% 15.2%
— –
(1) Represents the sum of Television, High Speed Internet (“HSI”) and Telephony service customers.
(2) In the fourth quarter of fiscal 2013, HSI service customers have been adjusted upwards retroactively to comply with the industry practices and consequently,
PSU and penetration rates have been also adjusted
QUARTERLY FINANCIAL HIGHLIGHTS
Quarte rs end ed
(1)
Nov. 30
Feb. 28
May . 31
Fiscal 2013
Aug. 31
Nov. 30
Feb. 29
May. 31
Fiscal 2012
Aug. 31
(in thousands of dolla rs, except pe rce nt age s and per
share dat a)
$
$
$
$
$
$
$
$
Revenue
366,608
458,501
504,434
504,714
346,023
345,613
358,032
356,685
Operating income before depreciation and
amortization
156,580 195,968 220,574
224,304
140,261 144,518 158,446 163,617
Operating income
83,277
94,555
105,547
104,110
74,642 58,931 95,473 95,943
Income taxes
19,168 13,591
18,504
10,370
12,340 13,372 22,278 33,625
Profit for the period from continuing operations
47,095 50,433
50,556
43,759
44,524 29,449 55,373 44,900
Profit for the period from discontinued operations
— —
—
—
3,399 52,047
—
—
Profit for the period
47,095
50,433
50,556
43,759
47,923 81,496 55,373 44,900
Profit for the period attributable to owners of the
Corporation
18,487 15,080
17,338
13,826
18,770 25,089 19,303 13,889
Cash flo w from op era ti ng activ iti es
(6,005)
157,095
167,641
233,464
9,570 126,455 109,546 203,193
Cash flow from op era ti on s
101,790 140,413
158,461
162,427
104,739 105,153
117,606 119,612
Acquisitions of pro pe rty, plant and equipment,
intangible and other assets
83,155
106,019
113,492
108,756
78,404
87,186
88,141
124,638
Free cash flow (deficit)
18,635
34,394
44,969
53,671
26,335
17,967
29,465
(5,026)
Earnings per share
(2)
attributable to owners of the
Corporation
From continuing and discontinued operations
Basic 1.11 0.90 1.04 0.83 1.12 1.50 1.15 0.83
Diluted 1.10 0.90 1.03 0.82 1.11 1.49 1.15 0.83
From continuing operations
Basic 1.11 0.90 1.04 0.83 1.06 0.50 1.15 0.83
Diluted 1.10 0.90 1.03 0.82 1.05 0.50 1.15 0.83
From discontinued operations
Basic
— — — —
0.07 1.00 —
—
Diluted
— — — —
0.06 0.99 — —
(1) The addition of quarterly information may not correspond to the annual total due to rounding.
(2) Per multiple and subordinate voting share.
(3) During the fourth quarter of fiscal 2013, Cogeco Cable adjusted the preliminary allocation of the purchase price of Atlantic Broadband and retroactively adjusted
the second and third quarters of fiscal 2013 to reflect new information obtained about facts and circumstances that existed as at the acquisition date and, if they
had been known, would have impacted the amounts recognized at that date. The impact on the previous quarters are as follows:
Quarte rs end ed
(In thousands of Canadi an dollars)
February 28, 2013
Three months
$
May 31, 2013
Three months
$
Increase in depreciation of property, plant and equipm e nt
5,059
5,126
Increase in amortization of intangible assets
2,850 2,936
Decrease in deferred income taxes (331)
(2,930)
Net decrease on profit for the period 7,578 5,132
SEASONAL VARIATIONS
Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations except as follows. In the Canadian and American
cable operations customer growth in the Television service customers and HSI service are generally lower in the second half of the fiscal year
as a result of a decrease in economic activity due to the beginning of the vacation period, the end of the television season, and students leaving
their campuses at the end of the school year. Cogeco Cable offers its services in several university and college towns such as Kingston, Windsor,
St.Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski in Canada and Pennsylvania region, to a lesser extent in South Carolina,
Maryland and Delaware in United States. In United States, Miami region is also subject to seasonal fluctuations due to the winter season residents
returning home from late Spring t hrough the Fall.
ADDITIONAL INFORMATION
Additional information relating to the Corporation, including its Annual Information Form, is available on the SEDAR website at
www.sedar.com.
ABOU T COGECO
COGECO is a diversified holding corporation. Through its Cogeco Cable subsidiary, COGECO provides to its residential and business customers
Analogue and Digital Television, High Speed Internet and Telephony services. Cogeco Cable operates in Canada through its subsidiary Cogeco
Cable Canada in Quebec and Ontario, and in the United States through its subsidiary Atlantic Broadband in Western Pennsylvania, South Florida,
Maryland/Delaware and South Carolina. Through its subsidiary Cogeco Enterprise Services, the holding company of Cogeco Data Services and
Peer 1 Network Enterprises, Cogeco Cable provides
to
its commercial customers, a suite
of
IT
hosting, information and communications technology
services (data centre, colocation, managed hosting, cloud infrastructure and connectivity), with 20 data centres, extensive fibre networks in
Montreal and Toronto as well as points-of-presence in North America and Europe. Through its subsidiary Cogeco Diffusion, COGECO owns and
operates 13 radio stations across most of Québec with complementary radio formats serving a wide range of audiences as well as Cogeco News,
its news agency. Through its subsidiary Métromédia, COGECO operat es an advertising representation house specialized in the public transit
sector that holds exclusive advertising rights in the Province of Québec where it also represents its business partners active across other Canadian
markets. COGECO's subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CGO). The
subordinate voting shares of Cogeco
Cable are also listed on the Toronto Stock Exchange (TSX: CCA). For more information about
COGECO
and its subsidiaries visit www.cogeco.ca,
cogecodiffusion.com and cogecometromedia.com.
- 30 -
Source: COGECO Inc.
Pierre Gagné
Senior Vice President and Chief Financial Officer
Tel.: 514-764-4700
Informati o n: Media
René Guimond
Vice-President, Public Affairs and Communications
Tel.: 514-764-4700
Analyst Conference Call: Thursday, October 31, 2013 at 11:00 a.m. (Eastern Daylight Time)
Media representati ves may attend as listeners only.
Please use the following dial-in num ber to have access to the conference call by dialing five minutes
before the start of the conference:
Canada/United Stat es A cc ess Number: 1 866-321-6651
International Acces s Number: + 1 416-642-5212
Confirmati on Code: 7376711
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until November 7, 2013, by dialing:
Canada and United States access number: 1 888-203-1112
Internati onal access number: + 1 647-436-0148
Confirmati on code: 7376711