Solid financial results for COGECO Inc.’s first quarter of fiscal 2013
PRESS RELEASE
For immediate release
Solid financial results for COGECO Inc.’s first quarter of fiscal 2013
11.6% growth of its operating income before depreciation and amortization
(1)
5.9% increase in revenue
Continued leading position in the Montreal radio market
Montréal, January 14, 2013 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Corporation”) announced its financial
results for the first quarter of fiscal 2013, ended November 30, 2012, in accordance with the International Financial Reporting
Standards (“IFRS”).
For the first quarter of fiscal 2013:
Revenue increased by 5.9% to reach $366.6 million;
Operating income before depreciation and amortization increased by 11.6% to $156.6 million when compared to the
first quarter of fiscal 2012;
Profit for the period from continuing operations amounted to $47.1 million in the first quarter when compared to
$44.5 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 in the Cable segment;
Profit for the period amounted to $47.1 million in the first quarter when compared to $47.9 million for the same
period of the previous fiscal year. This variation is mostly attributable to the Cable segment and due to an increase
in income taxes, the 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 $18.6 million for the quarter compared to $26.3 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, the defined benefit pension plans contributions 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 $0.19 per share was paid to the holders of subordinate and multiple voting shares, an
increase of $0.01 per share, or 5.6%, when compared to a dividend of $0.18 per share paid in the first quarter of
fiscal 2012;
In the Cable segment, primary service units (“PSU”)
(2)
grew by 15,080 in the quarter. 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, the Corporation’s subsidiary, Cogeco Cable Inc, 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 Cogeco Cable expects the transaction to be
completed in the second quarter of fiscal 2013;
On November 30, 2012, the Corporation’s subsidiary, Cogeco Cable Inc., completed the acquisition of Atlantic
Broadband ("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 its 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.
“COGECO Inc. reported very good financial results for its first quarter. Our Cable segment’s growth on both revenue and
operating income before amortization clearly demonstrates 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.”
Louis Audet continued by saying, “As for our entrance into the American market, it is with great enthusiasm that we concluded
the acquisition of ABB on November 30, 2012. ABB and Cogeco Cable have much in common thanks to the combined
expertise of both our management teams; we foresee an excellent potential for growth.”
“In addition, I am pleased to report that we have completed the integration of Cogeco Métromédia. As for the radio activities,
the most recent surveys confirm our continuing strong leadership position in the Montreal market, as well as solid
performances by most of our stations in our regional markets.”
FINANCIAL HIGHLIGHTS
Quarters ended November 30,
(in thousands of dollars, except PSU growth, percentages and per share
data)
2012
2011
Change
$
$
%
Operations
Revenue
366,608
346,023
5.9
Operating income before depreciation and amortization
(1)
156,580
140,261
11.6
Operating income
83,277
74,642
11.6
Profit for the period from continuing operations
47,095
44,524
5.8
Profit for the period from discontinued operations
–
3,399
–
Profit for the period
47,095
47,923
(1.7
)
Profit for the period attributable to owners of the Corporation
18,487
18,770
(1.5
)
Cash Flow
Cash flow from operating activities
(6,005
)
9,570
–
Cash flow from operations
(1)
101,790
104,739
(2.8
)
Acquisitions of property, plant and equipment, intangible and other assets
83,155
78,404
6.1
Free cash flow
(1)
18,635
26,335
(29.2
)
Financial Condition
(2)
Property, plant and equipment
1,565,872
1,343,904
16.5
Total assets
4,531,151
3,103,919
46.0
Indebtedness
(3)
2,451,921
1,180,971
–
Equity attributable to owners of the Corporation
411,061
397,799
3.3
Primary service units (“PSU”) growth
(4)
15,080
46,179
(67.3
)
Per Share Data
(5)
Earnings per share attributable to owners of the Corporation
From continuing and discontinued operations
Basic
1.11
1.12
(0.09
)
Diluted
1.10
1.11
(0.09
)
From continuing operations
Basic
1.11
1.06
4.7
Diluted
1.10
1.05
4.8
From discontinued operations
Basic
–
0.07
–
Diluted
–
0.06
–
(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 business acquisitions 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’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 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 2012 annual MD&A) that
could cause actual results to differ materially from what COGECO 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’s objectives are to provide outstanding service to its customers and maximize shareholder value by increasing profitability and
ensuring continued revenue growth. The strategies employed to reach these objectives, supported by tight controls over costs and business
processes, are specific to each segment. The main strategies used to reach COGECO’s objectives in the Cable segment focus on sustained
corporate growth and continuous improvement of networks and equipment. The radio activities focus on continuous improvement of its
programming in order to increase its market share and thereby its profitability. The Corporation measures its performance, with regard to these
objectives by monitoring operating income before depreciation and amortization
(1)
, PSU
(2)
growth and free cash flow
(1)
.
KEY PERFORMANCE INDICATORS
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
First-quarter operating income before depreciation and amortization increased by 11.6% when compared to the same period of fiscal 2012 to
reach $156.6 million. As a result of the acquisition of Atlantic Broadband (“ABB”) in the Cable segment, management revised upwards its
November 1, 2012 projections for fiscal 2013. Operating income before depreciation and amortization is now expected to reach $750 million
from $630 million. 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 reports free cash flow of $18.6 million, compared to $26.3 million for the first
three months of the previous fiscal year, representing a decrease of $7.7 million. This variance is mostly attributable to the increase in current
income tax expense, the acquisition costs related to Atlantic Broadband (“ABB”) acquisition, the contributions on defined benefit pension plans
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 in the Cable segment, 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 $115 million to $175 million. For further details, please consult the fiscal 2013 revised projections in the “Fiscal 2013
financial guidelines” section.
CABLE SEGMENT
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 Service 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 AND OTHER
BBM Canada’s fall 2012 survey in the Montréal region, conducted with the Portable People Meter (“PPM”), reported that 98.5 FM is the
leading radio station in the Montreal French market amongst all listeners and men two years old and over (“2+”), while Rythme FM has
maintained its leadership position in the female 2+ segment. Regarding the Montreal English market, The Beat is the leading radio station in
the female 35-64 segment. In the other Quebec regions, our radio stations registered good ratings.
On December 21, 2012, the Corporation’s subsidiary, Cogeco Cable Inc, 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 Cogeco Cable
expects the transaction to be completed in the second quarter of fiscal 2013.
On November 30, 2012, the Corporation’s subsidiary, Cogeco Cable Inc., completed the acquisition of ABB, an independent cable system
operator formed in 2003, serving about 495,000 PSU 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
366,608
346,023
5.9
Operating expenses
210,028
205,762
2.1
Operating income before depreciation and amortization
156,580
140,261
11.6
REVENUE
Fiscal 2013 first-quarter revenue increased by $20.6 million, or 5.9%, to reach $366.6 million, when compared to the same period last year,
primarily due to the Cable segment and the revenue generated by Métromédia CMR Plus Inc. (“Métromédia”), acquired during the second
quarter of fiscal 2012.
In the Cable segment, 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. For further details on the Cable segment’s revenue, please refer to the “Cable segment” section.
In the first quarter of fiscal 2013, revenue from the radio and advertising representation house activities improved by $8.1 million, or 26.5%,
mainly as a result of the revenue generated by Métromédia, acquired during the second quarter of fiscal 2012.
OPERATING EXPENSES
For the first quarter of fiscal 2013, operating expenses amounted to $210 million, an increase of $4.3 million, or 2.1%, when compared to the
prior year.
Operating expenses in the Cable segment decreased by $2.3 million, or 1.3%, when compared to the same period of fiscal 2012. For further
details on the Cable segment’s operating expenses, please refer to the “Cable segment” section.
Operating expenses from the radio, advertising representation house and head office activities grew by $6.5 million, or 22.3%, in the first
quarter mainly as a result of operating expenses generated by Métromédia, acquired in the second quarter of fiscal 2012.
OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
Mainly as a result of higher growth from revenue than operating expenses stemming primarily from the Cable segment, operating income
before depreciation and amortization grew by $16.3 million, or 11.6%, in the first quarter to reach $156.6 million, when compared to the same
period of the previous year. For further details on Cogeco Cable’s operating results, please refer to the “Cable segment” section.
FIXED CHARGES
Quarters ended November 30
2012
2011
Change
(in thousands of dollars, except percentages)
$
$
%
Depreciation and amortization
66,041
65,619
0.6
Financial expense
17,014
17,778
(4.3
)
For the first quarter of fiscal 2013, depreciation and amortization expense was essentially the same at $66 million when compared to
$65.6 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 $0.8 million, or 4.3%, at $17 million, when compared to $17.8 million in the prior year.
Financial expense decrease is primarily attributable to the foreign exchange loss of $1.5 million recorded in fiscal 2012 in the Cable segment.
INCOME TAXES
Fiscal 2013 first-quarter income tax expense amounted to $19.2 million, compared to $12.3 million in the prior year. The increase is mostly
attributable to the improvement in operating income before depreciation and amortization and by a reduction of 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 $47.1 million of which
$18.5 million, or $1.11 per share, is attributable to owners of the Corporation. For the comparable period of fiscal 2012, profit for the period
from continuing operations amounted to $44.5 million of which $17.7 million, or $1.06 per share, is attributable to owners of the Corporation.
The variance for the quarter is mostly attributable to the Cable segment and due to an 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 $47.1 million compared to $47.9 million in fiscal 2012. Fiscal 2013
first-quarter profit for the period attributable to owners of the Corporation amounted to $18.5 million, or $1.11 per share compared to
$18.8 million, or $1.12 per share for the comparable period of prior year. This variation is mostly attributable to the Cable segment and due to
the acquisition costs related to ABB acquisition, the increase in income taxes explained above and the profit from the Portuguese subsidiary,
Cabovisão – Televisão por Cabo, S.A. (“Cabovisão”), reported as discontinued operations, in the Cable segment for fiscal 2012, partly offset
by the improvement in operating income before depreciation and amortization.
The non-controlling interest represents a participation of approximately 67.9% in Cogeco Cable’s results. For fiscal 2013 first-quarter, the profit
for the period attributable to non-controlling interest amounted to $28.6 million compared to $29.2 million in fiscal 2012.
FINANCING ACTIVITIES
In the normal course of business, COGECO has incurred financial obligations, primarily in the form of long-term debt, operating and finance
leases and guarantees. COGECO’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, Cogeco Cable 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 Cogeco Cable 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 Cogeco Cable’s US subsidiaries. The provisions under these facilities provide for restrictions on the operations and activities of the
Cogeco Cable’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 declared a quarterly eligible dividend of $0.19 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.
CABLE SEGMENT
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 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 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
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
147,216
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.
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
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.
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 Cabovisão on February 29, 2012.
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.
FISCAL 2013 FINANCIAL GUIDELINES
As a result of revised projections in the Cable segment described below, the Corporation revised its consolidated projections for the 2013
fiscal year. Revenue is now expected to reach $1.730 billion, an increase of $240 million when compared to the November 1, 2012
projections. Operating income before depreciation and amortization should increase from $630 million to $750 million and financial expense
should increase from $69 million to $102 million. Acquisitions of property, plant and equipment, intangible and other assets should increase by
approximately $24 million and free cash flow should reach $175 million, an increase of $60 million from November 1, 2012 projections. Profit
for the year attributable to the owners of the Corporation should reach $75 million compared to $65 million.
Revised
projections
January 14, 2013
Original
projections
November 1, 2012
Fiscal 2013
Fiscal 2013
(in millions of dollars)
$
$
Financial guidelines
Revenue
1,730
1,490
Operating income before depreciation and amortization
750
630
Financial expense
101
69
Current income tax expense
94
96
Profit for the year
227
195
Profit for the year attributable to owners of the Corporation
75
65
Acquisitions of property, plant and equipment, intangible and other assets
373
350
Free cash flow
(1)
175
115
(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
Giving effect to the recent acquisition of ABB on November 30, 2012, Cogeco Cable 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 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’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 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
101,790
104,739
Acquisition of property, plant and equipment
(78,514
)
(74,460
)
Acquisition of intangible and other assets
(4,641
)
(3,944
)
Free cash flow
18,635
26,335
OPERATING INCOME BEFORE 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 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.
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
83,277
74,642
Depreciation and amortization
66,041
65,619
Integration, restructuring and acquisitions costs
7,262
–
Operating income before depreciation and amortization
156,580
140,261
Quarters ended November 30,
2012
2011
(in thousands of dollars)
$
$
Cash flow from operating activities
(6,005
)
9,570
Changes in non-cash operating activities
87,508
74,686
Amortization of deferred transaction costs and discounts on long-term debt
856
762
Income taxes paid
44,248
37,984
Current income tax expense
(26,112
)
(21,319
)
Financial expense paid
18,309
20,834
Financial expense
(17,014
)
(17,778
)
Cash flow from operations
101,790
104,739
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
ABOUT COGECO
COGECO is a diversified communications corporation. Through its Cogeco Cable subsidiary, COGECO 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, co-location services, managed IT services, cloud services and other advanced communication solutions. 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. Cogeco Diffusion also operates Métromédia, 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).
ADDITIONAL INFORMATION
For additional information relating to the Corporation, including its Annual Information Form, and for a detailed analysis of COGECO's results
for the first quarter of 2013, please refer to the Management Discussion and Analysis and condensed consolidated financial statements of
COGECO, 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
366,608
346,023
356,685
331,045
358,032
330,258
345,613
307,532
Operating income before depreciation and amortization
156,580
140,261
163,617
152,434
158,446
142,025
144,518
132,140
Operating income
83,277
74,642
95,943
101,304
95,473
90,242
58,931
68,597
Income taxes
19,168
12,340
33,625
21,804
22,278
19,252
13,372
12,465
Profit for the period from continuing operations
47,095
44,524
44,900
63,870
55,373
54,371
29,449
31,656
Profit (loss) for the period from discontinued operations
–
3,399
–
6,219
–
(233,573
)
52,047
(9,223
)
Profit (loss) for the period
47,095
47,923
44,900
70,089
55,373
(179,202
)
81,496
22,433
Profit (loss) for the period attributable to owners of the
Corporation
18,487
18,770
13,889
23,317
19,303
(56,303
)
25,089
634
Cash flow from operating activities
(6,005
)
9,570
203,193
217,792
109,546
141,106
126,455
90,891
Cash flow from operations
101,790
104,739
119,612
148,228
117,606
129,327
105,153
103,309
Acquisitions of property, plant and equipment, intangible
and other assets
83,155
78,404
124,638
122,441
88,141
63,807
87,186
62,873
Free cash flow
18,635
26,335
(5,026
)
25,787
29,465
65,520
17,967
40,436
Earnings (loss) per share
(1)
From continuing and discontinued operations
Basic
1.11
1.12
0.83
1.39
1.15
(3.36
)
1.50
0.04
Diluted
1.10
1.11
0.83
1.39
1.15
(3.36
)
1.49
0.04
From continuing operations
Basic
1.11
1.06
0.83
1.27
1.15
1.13
0.50
0.22
Diluted
1.10
1.05
0.83
1.27
1.15
1.13
0.50
0.21
From discontinued operations
Basic
–
0.07
–
0.12
–
(4.49
)
1.00
(0.18
)
Diluted
–
0.06
–
0.12
–
(4.49
)
0.99
(0.18
)
(1) Per multiple and subordinate voting share.
– 30 –
Source: COGECO 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