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, Cabovisao - Televisao por Cabo, S.A.
("Cabovisao"), 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 30th;
-- 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.
(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.
"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 effec ts 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 Metromedia. 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
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Quarters ended November 30,
(in thousands of dollars, except PSU
growth, percentages and per share data) 2012 2011 Change
$ $ %
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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)
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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)
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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
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Primary service units ("PSU") growth(4) 15,080 46,179 (67.3)
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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 -
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(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.
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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 Montreal 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.
(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.
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.
OPERATING AND FINANCIAL RESULTS
OPERATING RESULTS
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Quarters ended November 30, 2012 2011 Change
(in thousands of dollars, except
percentages) $ $ %
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Revenue 366,608 346,023 5.9
Operating expenses 210,028 205,762 2.1
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Operating income before depreciation and
amortization 156,580 140,261 11.6
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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 Metromedia CMR Plus Inc.
("Metromedia"), 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 Metromedia, 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 Metromedia, 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
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Quarters ended November 30 2012 2011 Change
(in thousands of dollars, except
percentages) $ $ %
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Depreciation and amortization 66,041 65,619 0.6
Financial expense 17,014 17,778 (4.3)
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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, Cabovisao - Televisao por Cabo, S.A. ("Cabovisao"),
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 t ransaction 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
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CANADA
--------------------------------
Net additions % of
(losses) penetration(1)
Quarters ended November
Consolidated USA CANADA November 30, 30,
November 30, 2012 2012 2011 2012 2011
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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
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(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
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Quarters ended November 30, 2012 2011 Change
(in thousands of dollars, except
percentages) $ $ %
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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)
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Operating income before depreciation and
amortization 147,216 131,823 11.6
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Operating margin 44.9% 41.8%
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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 Cabovisao 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.
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Revised Original
projections projections
January 14, 2013 November 1, 2012
Fiscal 2013 Fiscal 2013
(in millions of dollars) $ $
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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
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(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 Original
projections projections
January 14, 2013 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:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
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
---------------------------------------------------------------------------
---------------------------------------------------------------------------
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
----------------------------------------------------------------------------
----------------------------------------------------------------------------
SUPPLEMENTARY QUARTERLY FINANCIAL INFORMATION
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended November 30, August 31,
(in thousands of dollars,
except percentages and per
share data) 2012 2011 2012 2011
$ $ $ $
----------------------------------------------------------------------------
Revenue 366,608 346,023 356,685 331,045
Operating income before
depreciation and
amortization 156,580 140,261 163,617 152,434
Operating income 83,277 74,642 95,943 101,304
Income taxes 19,168 12,340 33,625 21,804
Profit for the period from
continuing operations 47,095 44,524 44,900 63,870
Profit (loss) for the period
from discontinued
operations - 3,399 - 6,219
Profit (loss) for the period 47,095 47,923 44,900 70,089
Profit (loss) for the period
attributable to owners of
the
Corporation 18,487 18,770 13,889 23,317
Cash flow from operating
activities (6,005) 9,570 203,193 217,792
Cash flow from operations 101,790 104,739 119,612 148,228
Acquisitions of property,
plant and equipment,
intangible
and other assets 83,155 78,404 124,638 122,441
Free cash flow 18,635 26,335 (5,026) 25,787
Earnings (loss) per share(1)
From continuing and
discontinued operations
Basic 1.11 1.12 0.83 1.39
Diluted 1.10 1.11 0.83 1.39
From continuing operations
Basic 1.11 1.06 0.83 1.27
Diluted 1.10 1.05 0.83 1.27
From discontinued
operations
Basic - 0.07 - 0.12
Diluted - 0.06 - 0.12
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
February February
Quarters ended May 31, 29, 28,
(in thousands of dollars,
except percentages and per
share data) 2012 2011 2012 2011
$ $ $ $
----------------------------------------------------------------------------
Revenue 358,032 330,258 345,613 307,532
Operating income before
depreciation and
amortization 158,446 142,025 144,518 132,140
Operating income 95,473 90,242 58,931 68,597
Income taxes 22,278 19,252 13,372 12,465
Profit for the period from
continuing operations 55,373 54,371 29,449 31,656
Profit (loss) for the period
from discontinued
operations - (233,573) 52,047 (9,223)
Profit (loss) for the period 55,373 (179,202) 81,496 22,433
Profit (loss) for the period
attributable to owners of
the
Corporation 19,303 (56,303) 25,089 634
Cash flow from operating
activities 109,546 141,106 126,455 90,891
Cash flow from operations 117,606 129,327 105,153 103,309
Acquisitions of property,
plant and equipment,
intangible
and other assets 88,141 63,807 87,186 62,873
Free cash flow 29,465 65,520 17,967 40,436
Earnings (loss) per share(1)
From continuing and
discontinued operations
Basic 1.15 (3.36) 1.50 0.04
Diluted 1.15 (3.36) 1.49 0.04
From continuing operations
Basic 1.15 1.13 0.50 0.22
Diluted 1.15 1.13 0.50 0.21
From discontinued
operations
Basic - (4.49) 1.00 (0.18)
Diluted - (4.49) 0.99 (0.18)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Per multiple and subordinate voting share.
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 12th 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 Quebec with complementary radio formats serving a wide
range of audiences as well as Cogeco News, its news agency. Cogeco Diffusion
also operates Metromedia, an advertising representation house specialized in the
public transit sector that holds exclusive advertising rights in the Province of
Quebec 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.
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
FOR FURTHER INFORMATION PLEASE CONTACT:
Source: COGECO Inc.
Pierre Gagne
Senior Vice President and Chief Financial Officer
514-764-4700
Information: Media
Rene Guimond
Vice-President, Public Affairs and Communications
514-764-4700
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