Strong second quarter results for COGECO Inc. in line with 2012 objectives
PRESS RELEASE
For immediate release
Strong second quarter results for COGECO Inc.
in line with 2012 objectives
Montréal, April 12, 2012 – Today, COGECO Inc. (TSX: CGO) (“COGECO” or the “Corporation”) announced its financial
results for the second quarter of fiscal 2012, ended February 29, 2012, in accordance with the International Financial
Reporting Standards (“IFRS”).
For the second quarter and first six months of fiscal 2012:
• Revenue increased by 12.4% to reach $3 45.6 million, and by 14.1% to reach $691.6 million;
• Operating income before depreciation and amortization
(1)
increased by 9.4% to $144.5 million when compared to
the second quarter of fiscal 2011, and by 7.4% to $ 284.8 million when compared to the first half of the prior fiscal
year;
• Operating margin
(1)
decreased to 41.8% from 43% in the quarter and to 41.2% from 43.8% in the first six months
when compared to the same periods of the prior year;
• Profit for the period from continuing oper ations amounted to $29.4 million in the second quarter when compar ed to
$31.7 million for the same period of the prev ious fiscal year. For the first half of fiscal 2012, profit for the period from
continuing operations amounted $74 million when compared to $79.6 million for the first half of fiscal 2011. This
variance is mostly attributable to the increase in depreciation and amortization expense due to the reduction of
depreciation period for certain property, plant and equipment, partly offset by the increase in operating income
before depreciation and amortization;
• On February 29, 2012, Cogeco Cable a subsidiary of the Corporation, completed the sale of its Portuguese
subsidiary, Cabovisão – Televisão por Cabo, S.A. (“Cabovisão”), for a cash consideration of €45 million or
approximately $59.3 million, which is subject to adjustments for certain contingent claims. Operating results from
European operations have the refore been c lassified as di sco ntinued oper ations. For the se cond quart er and first six
months of fiscal 2012, profit for the period from discontinue d operations amounted to $52 million a nd $55.4 million,
respectively, compared to losses of $9.2 million and $17.4 million, respectively, for the same periods of the prior
year. Profit for the period from discontinued operations in fiscal 2012 include the gain on disposal of $48.2 million
recorded in the second quarter of fiscal 2012;
• Profit for the period increased by $59.1 million to reach $81.5 million in the second quarter when compared to
$22.4 million for the same period of the previous fiscal year. For the first half of fiscal 2012, profit for the period
increased by $67.2 million to reach $129.4 million when compared to $62.2 million for the first half of fiscal 2011.
This variance is mostly attributable to the gain on disposal of Cabovisão in the cable sector, partly offset by the
increase of depreciation and amortization expense due to the reduction of depreciation period for certain property,
plant and equipment;
• Free cash flow
(1)
reached $18 million for th e quarter compared to $40.4 million in the comparable quarter of the prior
year. For the first six months, free cash flow amounted to $44.3 million, compared to $20.2 million in the first half of
fiscal 2011. This variance is mostly attribut abl e to the differe nce in the recogniti on of current incom e tax e xpens e for
both periods combined with t he im provem ent of oper atin g in com e befor e depr eciati on and am ortizatio n, partly offset
by the increase in acquisition of property, pla nt and e quipment;
(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.
• A quarterly dividend of $0.18 per share was paid to the holders of subordinate and multiple voting shares, an
increase of $0.06 per share, or 50%, when compared to a dividend pai d of $0.12 per share in the second quarter of
fiscal 2011. Dividend pa yments in the first six months totalle d $0.36 per share in fisc al 20 12, compared t o $0.24 per
share in fiscal 2011;
• On December 6, 2011, COGECO Inc. concluded an agreement to acquire Métromédia CMR Plus Inc.
(“Métromédia”), subject to customary closing adjustments and conditions. The transaction was completed on
December 26, 2011. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM which have
been completed on January 30, 2012.
• In the cable sector, primary service units (“PSU”)
(2)
grew by 12,280 net additions in the quarter and 58,459 net
additions in the first six months, for a total of 1,955,928 PSU at February 29, 2012.
“COGECO Inc. reported very favorable results for the second quarter mainly because of its cable subsidiaries. We are
continuing to grow and our performance indicators remain on target to our objectives. The results confirm that we have
reached our primar y objective of sustained co rporate growth and continuo us improvement of our networks and our equ ipment
in spite of the challenges and issues we face in a highly competitive industries,” stated COGECO President and CEO Louis
Audet.
“With regards to our radio ope rations, we are very satisfied with the recent BBM surveys which confirm our strong leadership i n
the Montreal market. We are also pleased with the integration of Métromédia, acquired on December 26, 2011, which
improves our media offering”, added Mr. Audet.
(2)
Represents the sum of Television, High Speed Internet (“HSI”) and Telephony service customers.
COGECO INC. Q2 2012
FINANCIAL HIGHLIGHTS
Quarters ended Six months ended
February 29, February 28, February 29, February 28,
2012 2011 Change 2012 2011 Change
($000, except percentages an
d
p
er share data) $
$
%
$ $
%
(unaudited)
(unaudited)
(unaudited) (unaudited)
O
perations
Revenue 345,613 307,532 12.4 691,636 605,983 14.1
Operating income before depreciation and amortizat i on
(1)
144,518 132,140 9.4 284,779 265,136 7.4
Operating margin
(1)
41.8% 43.0% – 41.2% 43.8% –
Operating income 58,931 68,597 (14.1) 133,573 151,925 (12.1)
Profit for the period from continuing operations 29,449 31,656 (7.0) 73,973 79,623 (7.1)
Profit (loss) for the period f rom discontinued operations 52,047 (9,223) – 55,446 (17,382) –
Profit for the period 81,496 22,433 – 129,419 62,241 –
Profit for the period attributabl e to owners of the Corporation 25,089 634 – 43,859 17,025 –
C
ash Flow
Cash flow from operating activities from continuing operations 126,455 90,891 39.1 136,025 143,269 (5.1)
Cash flow from operations
(1)
105,153 103,309 1.8 209,892 141,428 48.4
Acquisitions of property, plant and equipment and intangible asset s 87,186 62,873 38.7 165,590 121,242 36.6
Free cash flow
(1)
17,967 40,436 (55.6) 44,302 20,186 –
Financial condition
(2)
Property, plant and equipment – – – 1,259,712 1,272,251 (0.1)
Total assets – – – 2,954,998 2,871,648 2.9
Indebtedness
(3)
– – – 1,184,142 1,056,214 12.1
Shareholders’ Equity – – – 1,125,467 1,040,680 8.1
Equity attributable to owners of the Corporation – – – 370,508 342,525 8.2
Primary service units
(4)
growth 12,280 26,490 (53.6) 58,459 68,266 (14.4)
Per Share Data
(5)
Earnings (loss) per share attributable to owners of the Corporation
From continuing and discontinued operations
Basic 1.50 0.04 – 2.62 1.02 –
Diluted 1.49 0.04 – 2.61 1.01 –
From continuing operations
Basic 0.50 0.22 – 1.56 1.35 15.6
Diluted 0.50 0.21 – 1.55 1.35 14.8
From discontinued operations
Basic 1.00 (0.18) – 1.07 (0.33) –
Diluted 0.99 (0.18) – 1.06 (0.33) –
(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.
(2)
At February 29, 2012 and August 31, 2011.
(3)
Indebtedness is defined as the total of bank indebtedness, promissory note payable, 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 2011 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 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 expressly disclaims any such obligation), and does not undertake
to update or alter this information before the next quarter.
As described in note 1 to the condensed interim consolidated financial statements for the three and six-month periods ended
February 29, 2012, Canadian Generally Accepted Accounting Principles (“GAAP”), which were previously used in preparing the
consolidated financial statements, were replaced on the adoption of International Financial Reporting Standards (“IFRS”) on January 1,
2011. The Corporation’s condensed interim consolidated financial statements for the three and six-month periods ended February 29,
2012 have therefore been prepared in accordance with IFRS. Comparative figures for 2011 have also been restated.
All amounts are stated in Canadian dollars unless otherwise indicated. This report should be read in conjunction with the Corporation’s
consolidated financial statements and MD&A for the fiscal year ended August 31, 2011 included in the Corporation’s 2011 Annual Report.
It should also be read in conjunction with the Corporation’s condensed interim consolidated financial statements and MD&A for the first
quarter of fiscal 2012 as well as the information on the adjustments to the fiscal 2011 financial figures upon adoption of IFRS, expl ai ne d i n
Note 18 of the condensed interim consolidated financial statements for the three and six-month periods ended February 29, 2012.
Corporate strategies and objectives
COGECO Inc.’s (“COGECO” or the “Corporation”) objectives are to maximize shareholder value by increasing profitability and ensuring
continued growth. The strategies employed to reach these objectives, supported by tight controls over costs and business processes, are
specific to each sector. For the cable sector, sustained corporate growth and the continuous improvement of networks and equipment are
the mai n strategi es used. The radio a ctivities f ocus on cont inuous i mprovement o f progra mming in or der to incr ease mark et share, and,
thereby, profitability. COGECO uses operating income before depreciation and amortization
(1)
, operating margin
(1)
, free cash flow
(1)
and
primary service units (“PSU ”)
(2)
growth in order to measure its performance against these objectives for the cable sector.
Cable sector
During the first six months of fiscal 2012, the Corporation’s subsidiary, Cogeco Cable Inc. (“Cogeco Cable” or the “Cable subsidiary”),
invested approximately $84.4 million in its network infrastructure and equipment to upgrade its capacity, improve its robustness and
extend its territories in order to better serve and increase its service offerings for new and existing clientele.
PSU grow th and penetration of service offerings in the cable sector
During the six-month period ended February 29, 2012, the number of PSU in the Cable subsidiary increased by 58,459 or 3.1%, to reach
1,955,928, mainly as a result of targeted marketing initiatives and of the continuing interest for high definition (“HD”) television service. As
of fiscal 2012, Cogeco Cable has modified its key performance indicator for growth to a PSU concept instead of a revenue-generating
units (“RGU”) concept. As a result of the sale of its Portuguese subsidiary as described below in the second quarter of fiscal 2012,
Cogeco Cable has reduced its guidelines for PSU progression to 80,000 from the 90,000 for the fiscal 2012 year. The 90,000 original
projections were presented in terms of RGU of 225,000 net additions in the Fiscal 2012 financial guidelines of the 2011 Annual Report.
For further details, please consult the fiscal 2012 revised projections in the “Fiscal 2012 financial guidelines” section.
Operating income before depreciation and amortization and operating margin
First six months operating income before depreciation and amortization increased by 7.4% when compared to the same period of fiscal
2011 to reach $ 284.8 million and operating margin decreased to 41.2% from 43.8%. The operating margin reduction is mostly
attributable to the incremental deployment and support costs related to the migration of Television service customers from analog to
digital in the cable sector and from the growth in the radio activities and the acquisition of Métromédia CMR Plus Inc. (“Métromédia”) for
which the operating margin are generally lower than the cable sector.
Free cash flow
For the six-month period ended February 29, 2012, COGECO reports positive free cash flow of $44.3 million, compared to $20.2 million
for the first half of the previous fiscal year, representing an increase of $24.1 million. This variance is mostly attributable to the difference
in the recognition of current income tax expense for both periods combined with the improvement of operating income before depreciation
and amortization, partly offset by the increase in acquisition of property, plant and equipment.
Disposal of subsidiary and disc ontinued o perations
On February 29, 2012, a subsidiary of the Corporation, Cogeco Cable, completed the sale of its Portuguese subsidiary, Cabovisão –
Televisão por Cabo, S.A. (“Cabovisão”) for a cash consideration of €45 million or approximately $59.3 million, which is subject to
adjustments for certain contingent claims. Operating results from European operations have therefore been classified as discontinued
operations. For further details on the European’s operating results, please refer to the “Disposal of a subsidiary and discontinued
operations” section.
Other
BBM Canada’s winter 2012 survey in the Montréal region, conducted with the Portable People Meter (“PPM”), shows that 98.5 FM is the
leading radio station in the Montreal francophone market with listeners and men two years old and over (“2+”), while Rythme FM has
maintained its leadership position in the female 2+ segment. In the other Quebec regions, our radio stations registered good ratings.
On December 6, 2011, COGECO Inc. concluded an agreement to acquire Métromédia CMR Plus Inc. (“Métromédia”), subject to
customary closing adjustments and conditions. Métromédia is a Québec company that operates an advertising representation house in
the public transit sector. Métromédia represents over 100 public transit markets notably in Montréal, in other Québec regions as well as in
major cities and numerous markets in the rest of Canada. The transaction was completed on December 26, 2011.
On Februa ry 1, 2011, a subsidi ary of the Cor poration, Cogeco Diff usion Acqu isitions I nc. (“Cog eco Diffusi on”), com pleted the ac quisition
of 11 radio stations in the province of Québec (“Quebec Radio Stations Acquisition”), which was originally announced on April 30, 2010
and then subject to t he Canadian Radio-tel evis ion and Telec ommunicati ons Commissi on (“CRTC”) appr oval. Wh en the CRTC appro ved
the Québec Radio Stations Acquisition, there was an order to divest three radio stations to comply with the common ownership policy in
the Québec City and Sherbrooke markets.
On November 30, 2011, Cogeco Diffusion concluded an agreement for the sale of two of its four Québec City FM radio stations, CJEC-
FM and CFEL-FM, subject to CRTC approval and customary closing adjustments and conditions. On December 6, 2011, Cogeco
Diffusion closed its Sherbrooke radio station, CJTS-FM. On January 19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM
which have been completed on January 30, 2012 and marked the end of the process established with the CRTC for the divestiture of
these three radio stations.
(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 RE S ULTS FR OM CONTI NU IN G OP E R ATIONS
Quarters ended Six months ended
February 29, February 28, February 29, February 28,
2012 2011 Change 2012 2011 Change
($000, except percentages) $ $ % $ $ %
(unaudited)
(unaudited)
(unaudited) (unaudited)
Revenue 345,613
307,532
12.4
691,636 605,983
14.1
Operating costs
(1)
201,095 175,392 14.7 406,857 340,847 19.4
Operating income before depreciation and amortization 144,518 132,140 9.4 284,779 265,136 7.4
Operating margin 41.8% 43.0% 41.2% 43.8%
(1) Represents th e sum of salaries, employee benefits and outsource d services as well as other external purchases included in the interim consolidated statements
of prof i t o r l oss.
Revenue
Fiscal 2012 second-quarter revenue rose by $38.1 million, or 12.4%, to reach $345.6 million, when compared to the prior year. For the
first six months, revenue amounted to $691.6 million, an increase of $85.7 million, or 14.1% when compared to the first six months of
fiscal 2011. The increases are primarily due to the cable sector, the results of the Québec Radio Stations Acquisition and the recent
acquisition of Métromédia.
Cable revenue increased by $24.3 million, or 8.3%, for the second quarter and by $52.5 million, or 9%, in the first half of fiscal 2012 when
compar ed to the sa me periods of fiscal 2011. For further de tails on Cog eco Cable’ s operatin g results , please re fer to the “ Cable sector”
section.
Revenue from the radio and advertising representation house activities improved by $13.8 million in the second quarter and by
$33.2 million in the first six months, mainly as a result of the Québec Radio Stations Acquisition and the recent acquisition of Métromédia.
Operating costs
For the second quarter and first half of fiscal 2012, operating costs amounted to $201.1 million and $406.9 million, increases of
$25.7 million, or 14.7%, and of $66 million, or 19.4%, when compared to the prior year. These increases are mainly attributable to the
cable sector as well as the Québec Radio Stations Acquisition and the recent acquisition of Métromédia.
Operating costs in the cable sector increased by $11.1 million, or 6.9%, for the second quarter and by $32.3 million, or 10.2%, in the first
half when compared to the same periods of the prior year. For further details on Cogeco Cable’s operating results, please refer to the
“Cable sector” section.
Operating costs from the radio and advertising representation house activities grew by $15.8 million in the second quarter and by
$33 million in the first six months when compared to the same periods of fiscal 2011 mainly from the Québec Radio Stations Acquisition
and the recent acquisition of Métromédia.
Operating income before depreciation and amortization and operating margin
Mainly as a result of growth in the cable sector and the Québec Radio Stations Acquisition, operating income before amortization grew by
$12.4 million, or 9.4%, in the second quarter to reach $144.5 million, and by $19.6 million, or 7.4%, at $ 284.8 million for the first half of
fiscal 2012, when compared to the same periods of the previous year. COGECO’s second quarter operating margin decreased to 41.8%,
from 43% in the second quarter of the previous year. For the first six months, COGECO’s operating margin decreased to 41.2% from
43.8% in the first half of fiscal 2011. These operating margin reductions are mostly attributable to the incremental deployment and support
costs related to th e migration of Televisi on service cus tomers from analog to di gital in the cable secto r and from th e growth in th e radio
activities and the acquisition of Métromédia for which the operating margin are generally lower than the cable sector. For further details on
Cogeco Cable’s operating results, please refer to the “Cable sector” section.
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS
For the three and six-month periods ended February 29, 2012, profit for the period from continuing operations amounted to $29.4 million,
or $0.50 per share, and $74 million, or $1.56 per share, respectively. For the comparable periods of fiscal 2011, profit for the period from
continuing operations amounted to $31.7 million, or $0.22 per share in the quarter, and $79.6 million, or $1.35 per share in the first six
months. This varian ce is mostl y attri but able to the inc rea se of d epreci ati on and am orti zati on expe nse du e to the r educ tion o f depreciation
period for certain property, plant and equipment in the cable sector, partly offset by the increase in operating income before depreciation
and amortization and the decrease in financial expense.
PROFIT FOR THE PERIOD FROM DISCONTINUED OPERATIONS
For the three and six-month periods ended February 29, 2012, profit for the period from discontinued operations amounted to $52 million
and $55.4 million, respectively, compared to losses of $9.2 million and $17.4 million, respectively, for the same periods of the prior year.
Profit for the period from discontinued operations in fiscal 2012 include the gain on disposal of $48.2 million recorded in the second
quarter of fiscal 2012. For further details on the European operating results, please refer to the “Disposal of subsidiary and discontinued
operations” section.
PROFIT FOR THE PERIOD
For the three and six-month periods ended February 29, 2012, profit for the period amounted to $81.5 million and $129.4 million,
respectively. For the comparable periods of fiscal 2011, profit for the period amounted to $22.4 million and $62.2 million, respectively.
Profit progression for the period has resulted mainly from the gain on disposal of the Portuguese subsidiary in the cable sector and the
operating income before depreciation and amortization improvement, partly offset by the increase of depreciation and amortization
expense described in the “F ixed charges from continuing operations” section.
For the three and six-month periods ended February 29, 2012, profit for the period attributable to owners of the Corporation amounted to
$25.1 million, or $1.50 per share, and $43.9 million, or $2.62 per share, respectively. For the comparable periods of fiscal 2011, profit for
the period attributable to owners of the Corporation amounted to $0.6 million, or $0.04 per share in the quarter, and $17 million, or
$1.02 per share in the first six months. Profit progression for the period has resulted mainly from the gain on disposal of the Portuguese
subsidiary and the operating income before depreciation and amortization improvement, partly offset by the increase of depreciation and
amortization expense described in the “Fixed charges from continuing operations” section.
The non-controlling interest represents a participation of approximately 67.9% in Cogeco Cable’s results. During the second quarter and
the first six months of fiscal 2012, the profit for the period attributable to non-controlling interest amounted to $56.4 million and $85.6
million due to the cable sector’s positive results, compared to $21.8 million and $45.2 million in the same periods of fiscal 2011.
FINANCIN G ACTIVI TIES
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, discussed in the 2011 Annual Report, have not materially changed since August
31, 2011, except as mentioned below.
As a result of the sale of Cogeco Cable’s Portuguese subsidiary, the letters of credits which were issued to guarantee the payment by
Cabovisão of stamp taxes and withholding taxes have been released.
On February 14, 2012, Cogeco Cable completed pursuant to a public debt offering, the issue of $200 million Senior Secured Debentures
Series 3. These Debentures mature on February 14, 2022 and bear interest at 4.925% per annum payable semi-annually. These
debentures are indirectly secured by a first priority fixed and floating charge and a security interest on substantially all present and future
real and personal property and undertaking of every nature and kind of the Corporation.
On November 30, 2011, the Corporation renewed its credit agreement for a $100 million credit facility in the form of a four-year Term
Revolving Facility. The renewed Term Revolving Facility will mature on February 1, 2016, but may be extended by additional one-year
periods on an annual basis, subject to lenders’ approval. The Term Revolving Facility is 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 and certain of its subsidiaries, excluding the capital stock and assets of the Corporation’s subsidiary, Cogeco Cable Inc., and
guaranteed by its subsidiaries, excluding Cogeco Cable.
On November 22, 2011, Cogeco Cable renewed its credit agreement for a $750 million credit facility, with an option to increase to a total
amount of up to $1 billion, subject to lenders’ participation, in the form of a five year Term Revolving Facility. The renewed Term
Revolving Facility was arranged by a group of financial institutions. The renewed Term Revolving Facility will mature on November 22,
2016, but may be extended by additional one-year periods on an annual basis, subject to lenders’ approval. The Term Revolving Facility
is 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 Cogeco Cable and certain of its subsidiaries, and provides for certain permitted encumbrances,
including purchased money obligations, existing funded obligations and charges granted by any subsidiary prior to the date when it
becomes a subsidiary, subject to a maximum amount.
On November 7, 2011, the Corporation completed, pursuant to a private placement, the issue of 6.50 % Unsecured Notes for a total of
$35 million maturing November 7, 2021. Interest on these Notes is payable semi-annually in arrears on November 7 and May 7 of each
year commencing May 7, 2012. Net proceeds of approximately $35 million was used to reduce COGECO Inc.’s bank indebtedness.
DIVIDEND DE CLARATION
At its April 11, 2012 meeting, the Board of Directors of COGECO declared a quarterly eligible dividend of $0.18 per share for multiple
voting and subordinate voting shares, payable on May 9, 2012, to shareholders of record on April 25, 2012. 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, their amount and frequency
may vary.
CABLE SECTOR
CUSTOMER STATISTIC
Net additions (losses) % of Pene tration
(1)
Quarters ended Six months ended
February 29, February 29,
February 28,
February 29,
February 28, February 29,
February 28 ,
2012 2012
2011
2012
2011 2012
2011
PSU 1,955,928 12,280 26,490 58,459 68,266
Television service customers
(2)
873,326 (9,111) (788) (4,659) 6,250 53.5 54.9
HSI servic e cu stomers 626,017 7,518 10,550 24,803 27,422 38.3 36.5
Telephony service customers 456,585 13,873 16,728 38,315 34,594 27.9 24.4
(1) As a percentage of Homes Passed.
(2)
The number of Television service customers includes 752,642 Digital Television service customers
Fiscal 2012 second-quarter and first six months, PSU net additions were lower than in the comparable period of the prior year mainly as a
result of category maturity, competitive offers and tightening of our credit controls and processes. For the second quarter and the first si x
months net customer losses for Television service customers stood at 9,111 and 4,659, respectively, compared to 788 and net additions
of 6,250 for the same periods of the prior year. Television service customer net losses in the second quarter and the first six months of
fiscal 2012 are mainly due to the competitive promotional offers for the video service combined with the tightening of our credit controls
and processes. In the quarter, Telephony service customers grew by 13,873 compared to 16,728 for the same period last year, and the
number of net additions to the HSI service stood at 7,518 customers compared to 10,550 customers in the second quarter 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. For the three and six-month
periods ended February 29, 2012, additions to the Digital Television service which are included in the Television service customers, stood
at 25,423 and 74,316 compared to 26,450 and 55,364 for the comparable periods of the prior year. Digital Television service net additions
are due to targeted marketing initiatives to improve penetration, the launch of new HD channels, the continuing interest for HD television
service and the deployment of Digital Terminal Adapters technology to migrate customers from analog to digital services.
OPERATING RE S ULTS FR OM CONTI NU IN G OP E R ATIONS
Quarters ended Six months ended
February 29, February 28, February 29, February 28,
2012 2011 Change 2012 2011 Change
($000, except percentages) $ $ % $ $ %
(unaudited)
(unaudited)
(unaudited) (unaudited)
Revenue 317,735
293,457
8.3
633,159 580,661
9.0
Operating costs
(1)
171,649 160,530 6.9 348,108 315,854 10.2
Management fees - COGECO Inc. 2,343 2,528 (7.3)
9,485 9,172 3.4
Operating income before depreciation and amortization 143,743 130,399 10.2 275,566 255,635 7.8
Operating margin 45.2% 44.4% 43.5% 44.0%
(1) Represents th e sum of salaries, employee benefits and outsource d services as well as other external purchases included in the interim consolidated statements
of prof i t o r l oss.
Revenue
Fiscal 2012 second-quarter revenue rose by $24.3 million, or 8.3%, to reach $317.7 million, when compared to the prior year. For the first
six months, revenue amounted to $633.2 million, an increase of $52.5 million, or 9% when compared to the first six months of fiscal 2011.
The increase in revenue was driven by PSU growth, rate increases implemented in April and October 2011 combined with the
acquisitions of MTO Telecom Inc. (“MTO”) and Quiettouch Inc. (“QTI”) during the second half of fiscal 2011.
Operating costs
For the second quarter of fiscal 2012, operating costs, excluding management fees payable to COGECO Inc., increased by $11.1 million,
to reach $171.6 million, an increase of 6.9% compared to prior year. For the first half of the fiscal year, operating costs, excluding
management fees payable to COGECO Inc., amounted to $348.1 million, an increase of $32.3 million, or 10.2%, when compared to the
same period of fiscal 2011. The increase in operating costs is mainly attributable to servicing additional PSU, the launch of new HD
channels, additional programming costs, deployment and support costs related to the migration of Television service customers from
analog to digital and the acquisitions of MTO and QTI.
Operating income before depreciation and amortization and operating margin
Fiscal 2012 second-quarter operating income before depreciation and amortization increased by $13.3 million, or 10.2% to reach
$143.7 million, and by $19.9 million, or 7.8%, in the first six months to reach $275.6 million. Cogeco Cable’s second-quarter operating
margin increased to 45.2% from 44.4% in the comparable period of the prior year. For the first six months, the operating margin
decreased to 43.5% from 44% in the first half of fiscal 2011.
DISPOSAL OF SUBSIDIARY AND DISCONTINUED OPERATIONS
On February 29, 2012, the Corporation completed the sale of its Portuguese subsidiary for a cash consideration of €45 million ($59.3
million). The selling price has been reduced by selling fees of approximately €8.5 million ($11.2 million) and contingent claims assumed
up to a maximum amount of €5 million ($6.6 million).
The carrying value of the net liabilities disposed of on February 29, 2012 was $6.7
million resulting in a gain on disposal of $48.2 million recorded in the interim consolidated statements of profit or loss.
The details of the assets and liabilities disposed of are as follows:
($000) $
(unaudited)
Cash and cash equivalents
13,041
Trade and other receivables 7,693
Income taxes receivable 277
Prepaid expenses and other 2,777
Property, plant and equipment 38,931
Trade and other payables (42,514)
Provisions (6,665)
Deferred and prepaid revenue (411)
Foreign currency translation adjustment (19,817)
(6,688)
As a result of the sale and in accordance with IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations, Cogeco Cable
reclassified the current and prior year results and cash flows of the European operations, up to the date of acquisition, as discontinued
operations
.
Profit (loss) for the pe ri od fr om dis continue d ope r ations
Quarters ended Six months ended
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
($000) $ $ $ $
(unaudited)
(unaudited) (unaudited) (unaudited)
Revenue 39,031 42,061
80,546 85,324
Operating costs
(1)
33,480 37,915 70,247 76,907
Depreciation an d amortization 1,526 14,116 2,814 26,428
Operating income (loss) 4,025 (9,970) 7,485 (18,011)
Financial income 44 52 155 78
Gain on disposal 48,215 – 48,215 –
Profit (loss) before income taxes 52,284 (9,918) 55,855 (17,933)
Income taxes 237 (695) 409 (551)
Profit (loss) for the period 52,047 (9,223) 55,446 (17,382)
(1) Represents th e sum of salaries, employee b enefits and outsource d services as well as other ex ternal purchases as described in Note 16 in the condensed in terim
consoli d ated financial stat ements.
Revenue
Fiscal 2012 second-quarter and first six months revenue decreased by $3 million and $4.8 million, at $39 million and $80.5 million,
respectively, compared to the same periods of prior year as a result of a decreased demand for services. Revenue from the European
operations in the local currency for the 2012 second quarter and the first six months amounted to €29.5 million and €59.4 million,
respectively, compared to €31.5 million and €62.7 million for the same periods of fiscal 2011.
Operating costs
Fiscal 2012 second-quarter and first six months operating costs decreased by $4.4 million and $6.7 million, at $33.5 million and $70.2
million, respectively, compared to the same periods of prior year as a result of PSU losses and lower marketing initiatives. Operating
costs of the European operations for the 2012 second quarter and the first six months in the local currency amounted to €25.3 million and
€51.7 million, respectively, compared to €28.4 million and €56.5 million for the same periods of fiscal 2011.
FISCAL 2012 FINANCIAL GUIDELINES
Consolidated
Giving ef fec t t o the re cen t ac quisiti on o f M ét r om édia in the s ec o nd qu a r te r of f i s ca l 2012 as wel l as s ig ni fi c a nt ch a nges i n t he cable sector
(please refer below), the Corporation revised its guidelines for the 2012 fiscal year. Management currently expects revenue to reach
$1,415 million, a reduction of $152 million from the projections issued on October 25, 2011. Operating income before amortization should
decrease by $20 million to reach $595 million. Financial expense should increase from $67 million to $69 million. Acquisitions of
property, plant and equipment should be reduced by approximately $17 million and projected profit for the year attributable to owners of
the Corporation is expected to stand at approximately $80 million. Free cash flow should decrease by approximately $15 million due to
the impact of the 2011 federal budget measures limiting the tax deferrals resulting in an additional cash outflow for the Corporation.
Revised
projections
Projections
April 11, 2012 Octobe r 25, 2011
Fiscal 2012 Fiscal 20 12
(in millions of do llars) $ $
Financial guidel ines
Revenue 1,415 1,567
Operating income before depreciation and amortization 595 615
Financial expense 69 67
Current income taxes ex pense 90 76
Profit for the year attributable to owners of the Corporation 80 80
Acquisitions of property, plant and equipment and intangible assets 345 362
Free cash flow 95 110
Cable sector
Giving effect to the sale of its Portuguese subsidiary in the second quarter of fiscal 2012 and to the accelerated depreciation of certain
property, plant and equipment, Cogeco Cable revised its guidelines for the 2012 fiscal year. Other Canadian operations guidelines were
essentially maintained as initially projected, except for the free cash flow described below. Management currently expects revenue to
reach $1,285 million, a reduction of $170 million from the projections issued on October 25, 2011. PSU progression should reduce to
80,000 from the 90,000 original projection. Operating income before amortization should decrease by $20 million to reach $580 million.
Operating margin should increase from 41.2% to 45.2%. Depreciation and amortization expense should increase from $235 million to
$270 million to take into consideration the accelerated depreciation of property, plant and equipment, partly offset by the sale of the
Portuguese subsidiary. Acquisitions of property, plant and equipment should be reduced by approximately $20 million and projected profit
for the year is expected to increase by $10 million to stand at approximately $235 million. Free cash flow should decrease by
approximately $15 million due to the impact of the 2011 federal budget measures limiting the tax deferrals resulting in an additional cash
outflow for the Corporation.
Revised
projections
Projections
April 11, 2012 Octobe r 25, 2011
Fiscal 2012 Fiscal 20 12
(in millions of dollars, except net customer additions and operating margin) $ $
Financial guidel ines
Revenue 1,285 1,455
Operating income before depreciation and amortization 580 600
Operating margin 45.2% 41.2%
Depreciation and amortization 270 235
Financial expense 65 65
Current income taxes ex pense 90 75
Profit for the year 235 225
Acquisitions of property, plant and equipment and intangible assets 340 360
Free cash flow 85 100
Net customer additions guidelines
PSU 80,000 90,000
(1)
(1) The PSU net additions projections amounts in terms of RGU to 225,000 net additions as presented in the Fiscal 2012 financial guidelines of the 2011 Annual
Report.
NON-IFRS FIN ANCI AL ME ASURES
This section describes non-IFRS financial measures from continuing operations 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 or received, 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 financial measure is cash flow from operating activities. Cash flow from operations is calculated as follows:
Quarters ended Six months end ed,
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
($000) $
$
$ $
(unaudited)
(unaudited)
(unaudited) (unaudited)
Cash flow from operating activities 126,455 90,891 136,025 143,269
Changes in non-cash operating activities (9,905) 9,756
64,781 73,454
Amortization of deferred transaction costs and discounts on long-term debt 914 983
1,676 1,761
Income ta xe s pa id (received) 19,093 685
57,077 (1,575)
Current income tax recovery (expense) (25,971) 5,239
(47,290) (74,844)
Financial expense paid 10,677 20,231
31,511 40,727
Financial expense (16,110) (24,476)
(33,888) (41,364)
Cash flow from operations 105,153 103,309 209,892 141,428
Free cash flow is calculated as follows:
Quarters ended Six months end ed
February 29, February 28, February 29, February 28,
2012 2011 2012 2011
($000) $
$
$ $
(unaudited)
(unaudited)
(unaudited) (unaudited)
Cash flow from operations 105,153 103,309 209,892 141,428
Acquisition of property, plant and equipment (84,540)
(60,611)
(159,000) (115,488)
Acquisition of intangible assets (2,646)
(2,262)
(6,590) (5,754)
Free cash flow 17,967 40,436 44,302 20,186
Operating income before depreciation and amortization and operating margin
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. 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 foll ows:
Quarters ended Six months end ed
February 29,
February 28,
February 29, February 28,
2012
2011
2012 2011
($000, except percentages) $
$
$ $
(unaudited)
(unaudited)
(unaudited) (unaudited)
Operating income 58,931 68,597 133,573 151,925
Integration, restructuring and acquisition costs 108 13,222 108 13,222
Depreciation an d amortization 85,479 50,321 151,098 99,989
Operating income before depreciation and amortization 144,518 132,140 284,779 265,136
Revenue 345,613 307,532 691,636 605,983
Operating margin 41.8% 43.0% 41.2% 43.8%
ABOUT CO GECO
COGECO is a diversified communications Corporation. Through its Cogeco Cable subsidiary, COGECO provides its residential
customers with Audio, Analogue and Digital Television, as well as HSI and Telephony services using its two-way broadband cable
networks. Cogeco Cable also provides, 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 acti ve
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 second quarter of 2012, please refer to the Management Discussion and Analysis and condensed consolidated financial
statements of COGECO, available on the SEDAR website at www.sedar.com.
– 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: Thursday, April 12, 2012 at 11:00 a.m. (Eastern Daylight 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: 1-866-321-8231
International Access Number: 1-416-642-5213
Confirmation Code: 4637099
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until July 11, by dialling:
Canada and US access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 4637099