Cogeco Cable Inc. reports strong fiscal 2013 financial results – detailed press release
PRESS RELEASE
For immediate release
Cogeco Cable Inc. reports strong fiscal 2013 financial results
• Solid revenue and operating income before depreciation and amortization
(1)
increases in the fourth
quarter and in fiscal year 2013, meeting revised financial guidelines
• On target financial results from our recent acquisitions Atlantic Broadband and Peer 1 Network
Enterprises Inc. ("PEER 1");
and
• Quarterly dividend increase of 15.4%.
Montréal, October 30, 2013 – Today, Cogeco Cable Inc. (TSX: CCA) (“Cogeco Cable” or the “Corporation”) announced its
financial results for the fourth quarter and fiscal year 2013, ended August 31, 2013, in accordance with International Financial
Reporting Standards (“IFRS”).
For the fourth quarter and fiscal 2013, which include nine months operating results of Atlantic Broadband and seven months
operating results of PEER 1:
• Fourth quarter revenue increased by 44.8% to reach $470.4 million and by 32.5% for fiscal 2013 to close at $1.7 billion
compared to the same periods of the prior year;
• Operating income before depreciation and amortization increased by 38.3% to $222.5 million when compared to the
fourth quarter of fiscal 2012, and by 32.5% to $780.5 million compared to the prior year. Operating income before
depreciation and amortization increased for both periods mainly due to the acquisitions of Atlantic Broadband and
PEER 1 (the "recent acquisitions") as well as the improvement in the financial results of the Canadian cable services
segment;
•
Operating margin
(1)
decreased to 47.3% from 49.5% in the quarter and remained the same at 46.1% in fiscal 2013
when compared to the same periods of the prior year as a result of lower margins from the business activities of
PEER 1;
• Profit for the period from continuing operations amounted to $43.9 million in the fourth quarter compared to $45.7
million for the same period of the previous fiscal year. The decrease is mostly attributable to additional depreciation
and amortization and financial expense both related to the recent acquisitions. It is partly offset by the operating income
before depreciation and amortization improvement stemming from the Canadian cable services segment as well as
the recent acquisitions combined with lower income tax expenses resulting from the recent acquisitions tax structure.
For fiscal 2013, profit for the year from continuing operations amounted to $185.1 million compared to $169.5 million
for fiscal 2012. Profit progression for the year is mostly attributable to the improvement in the operating income before
depreciation and amortization generated by the Canadian cable services segment as well as the recent acquisitions,
partly offset by additional depreciation and amortization, financial expense and acquisition costs all related to these
acquisitions;
• Profit for the period amounted to $43.9 million in the fourth quarter when compared to $45.7 million for the same period
of the previous fiscal year due to the factors previously described. For the year ended August 31, 2013, profit for the
year amounted to $185.1 million when compared to $225.0 million for the same period of fiscal 2012. The decline for
the year is attributable to the factors previously described and also due to last year's profit of $55.4 million from the
sale of the Portuguese subsidiary, Cabovisão - Televisão por Cabo, S.A. (“Cabovisão”), reported as discontinued
operations in 2012;
(1) The indicated terms do not have standardized definitions prescribed by International Financial Reporting Standards (“IFRS”) and, therefore, may not be
comparable to similar measures presented by other companies. For more details, please consult the “Non-IFRS financial measures” section of the Management’s
discuss ion and analysis (“ MD &A ”) .
• Free cash flow
(1)
reached $53.6 million for the fourth quarter compared to $2.6 million in the comparable quarter of
the prior year. The increase for the period is mostly attributable to the improvement of operating income before
depreciation and amortization as well as the decrease in acquisition of property, plant and equipment and current
income taxes, partly offset by the increase in financial expense. Fiscal 2013 free cash flow amounted to $149.8 million,
compared to $66.3 million in the same period of fiscal 2012. The increase for the year is mostly attributable to the
improvement of operating income before depreciation and amortization and the decrease in current income taxes,
partly
offset
by the increase in financial expense, the recent acquisition
costs
and the increase in acquisition of property,
plant and equipment;
• A quarterly dividend of $0.26 per share was paid to the holders of subordinate and multiple voting shares, an increase
of $0.01 per share, or 4%, compared to a dividend of $0.25 per share paid in the fourth quarter of fiscal 2012. Dividends
paid in fiscal 2013 totaled $1.04 per share compared to $1.00 per share in fiscal 2012;
• Fiscal 2013 fourth-quarter primary service units (“PSU”)
(2)
decreased by 15,237 and increased by 5,546 for fiscal 2013.
At August 31, 2013, consolidated PSU amounted to 2,465,780 of which 1,980,122 come from the Canadian cable
services segment and 485,658 from the American cable services segment;
• On October 30 2013, Cogeco Cable declared an eligible dividend of $0.30 per share, an increase of 15.4% when
compared to the $0.26 dividend per share paid in the fourth quarter of fiscal 2013;
• On June 27, 2013, Cogeco Cable completed, pursuant to a private placement, the issuance of US$215 million Senior
Secured Notes bearing interest at 4.30% payable semi-annually and maturing on June 16, 2025. The net proceeds
from this offering along with drawings under the Corporation's credit facilities were used to repay, on July 29, 2013,
all the outstanding amo unt of $300 million Senior Secured Debentures Series 1, due on June 9, 2014;
• On July 22, 2013, the Corporation entered into interest rate swap agreements to fix the interest rate on US$200 million
of its LIBOR based loans. These agreements have the effect of converting the floating US LIBOR base rate at an
average fixed rate of 0.39625% under its Term Revolving Facility until July 25, 2015; and
• On July 5, 2013, Cogeco Cable reduced its Term Revolving Facility from $750 million to $600 million and its Revolving
Facility of its Secured Credit Facilities from $240 million to $190 mil lion .
“Given the very competitive nature of our market, we are pleased with our strong fourth quarter and fiscal 2013 financial results,”
stated Louis Audet, President and Chief Executive Officer of Cogeco Cable Inc. “I am also satisfied to report that our two recent
acquisitions, Atlantic Broadband and PEER 1, have delivered results in line with our expectations. With respect to our refinancing
program, it has been completed during a period of historically low interest rates. With an average cost of indebtedness of 4.1%,
as of August 31, 2013, and average maturities of 6.4 years, our focus going forward will be to reduce our leverage ratio
(Indebtedness on EBITDA
(3)
) to 3 times by August 31, 2015. Continuing on our steady dividend growth history, the Board of
Directors declared a dividend increase of 15.4% or $0.04 per share,” continued Mr. Audet.
“In August 2013, we announced the consolidation of our Canadian cable services operations under one business unit, Cogeco
Cable Canada. This restructuring, which we will pursue in fiscal year 2014, will allow us to optimize efficiency in that very important
business segment. With this restructuring and the continuation of the full integration of our two recent acquisitions, I am very
confident that Cogeco Cable will continue on its growth path and deliver on its 2014 projections,” concluded Louis Audet.
Fiscal 2014 Financial Guidelines
Cogeco Cable revised its fiscal 2014 financial guidelines, as issued on July 10, 2013, as a result of certain adjustments related
to the preliminary allocation of the purchase price of Atlantic Broadband and PEER 1. Please consult the “Fiscal 2014 financial
guidelines” se ctio n of the Corporation’s 2013 Annual Report for further details.
(1) The indicated terms do not have standard definitions prescribed by IFRS and, therefore, may not be comparable to similar measures presented by other
companies. For more details, please consult the "Non-IFRS financial measures" section of the MD&A.
(2) Repr ese nts t h e sum of Television, High Spee d Inte rn et ("H S I") and Telephony service customers.
(3) The ter m E BITDA refers to Operating income before depreciation and amortization (see point 1 for more detai l s ).
FINANCIAL HIGHLIGHTS
Quarte rs end ed Years ended
per share data)
2013 2012 Change 2013 2012 Change
Operations
$ $ % $ $ %
Revenue 470,386 324,768 44.8 1,692,466 1,277,698 32.5
Operating income before depreciation and amortization
(1)
222,489 160,825 38.3 780,523 589,052 32.5
Operating margin
(1)
47.3% 49.5%
— 46.1% 46.1% —
Operating income 103,681 94,709 9.5 376,239 312,180 20.5
Profit for the period from continuing operations 43,917 45,705 (3.9) 185,083 169,517 9.2
Profit for the period from discontinued operations — —
— — 55,446
—
Profit for the period 43,917 45,705 (3.9) 185,083 224,963 (17.7)
Cash Flow
Cash flow from op era ti ng acti viti es 228,230 203,343 12.2 545,010 450,386 21.0
Cash flow from op era ti on s
(1)
161,695 126,946 27.4 558,037 441,686 26.3
Acquisitions of property, plant and equipment, intangible and
other asse ts
(2)
108,095 124,392 (13.1) 408,202 375,368 8.7
Free cash flow
(1)
53,600 2,554 — 149,835 66,318 —
Capital intensity
(1)
23.0% 38.3% — 24.1% 29.4% —
Financial Condition
Property, plant and equipment — — — 1,854,155 1,322,093 40.2
Total assets — — — 5,253,097 2,908,079 80.6
Indebtedness
(3)
— — — 2,944,182 1,069,112 –
Shareh olde r' s eq uity — — — 1,344,092 1,188,431 13.1
Primary service units (“PSU”) gr o wt h (decline)
(4)
(15,237) 7,564 — 5,546 73,645 (92.5)
Per Share Data
(5)
Earnings per share
From continuing and discontinued operations
Basic 0.90 0.94 (4.3) 3.80 4.62 (17.7)
Diluted 0.90 0.93 (3.2) 3.78 4.60 (17.8)
From continuing operations
Basic 0.90 0.94 (4.3) 3.80 3.48 9.2
Diluted 0.90 0.93 (3.2) 3.78 3.46 9.2
From discontinued operations
Basic — — — — 1.14 —
Diluted — — — — 1.13 —
(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) Fiscal 20 13 fourth-quarter and fiscal 2013 acquisitions of property, pla nt and e quipment, intangible and othe r a s set s includ e ass e ts ac quired u nder finance
lease of $0.9 million that are excluded from the statements of cas h flo ws .
(3) Indebtedness is defined as the total
of
bank indebtedness, principal on long-term debt, balance due on a business combination and obligations under derivative
financial instruments.
(4)
Represents the sum of Television, High Speed I nte rn et (“HSI”) an d Telephony service customers.
(5) Per multiple and subordinate voting share.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute forward-looking information within the meaning of securities laws. Forward-looking
information may relate to Cogeco Cable’s future outlook and anticipated events, business, operations, financial performance, financial condition
or results and, in some cases, can be identified by terminology s uch as "may"; "will"; "should"; " expect"; "plan"; " anticipate"; "beli eve"; "intend";
"estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other similar expressions concerning matters t hat are not historical facts. In
particular, statements regarding the Corporation’s future operating results and economic performance and its objectives and strategies are
forward-
looking
statements.
These statements are based on certain
factors
and assumptions including expected growth, results
of
operations, performance
and business prospects and opportunities, which Cogeco Cable believes are reasonable as of the current date. While management considers
these assumptions to be reasonable based on information currently available to the Corporation, they may prove to be incorrect. The Corporation
cautions the reader that the economic downturn experienced over the past few years makes forward-looking information and the underlying
assumptions subject to greater uncertainty and that, consequently, they may not materialize, or the results may significantly differ from the
Corporation’s expectations. It is impossible for Cogeco Cable to predict with certainty the impact that the current economic uncertainties may
have on future results. Forward-looking information is also subject to certain
factors, including risks and uncertainties (described in the
“Uncertainties and main risk
factors”
section of the Corporation's 2013 annual Management's Discussion and Analysis ("MD&A")) that could cause
actual results to differ materially from what Cogeco Cable currently expects. These factors include risks pertaining to markets and competition,
technology, regulatory developments, operating costs, information syst ems, disasters or other contingencies, financial risks related to capital
requirements, human resourc es, control ling s hareholder and holdi ng st ructure, many of which are beyond the Corporati on ’s control. Therefore,
future events and results may vary signific antly from what management currently foresees. The reader should not plac e undue i mportance on
forward-looking information and should not rely upon this information as of any other date. While management may elect to, the Corporation is
under no obligation and does not undertake to updat e or alter this information at any particular time, except as may be required by law.
All amounts are stated in Canadian dollars unless otherwise indicated. This press release should be read in conjunction with the MD&A included
in the Corporation’s 2013 Annual Report, the Corporation's consolidated financial statements and the notes thereto, prepared in accordance with
the International Financ i al Reporting Standards (“IFRS”) for the year ended August 31, 2013
RESULTS OVERVIEW
This analysis should be read in conjunction with the Corporati on’s 2013 A nnual Report avai l abl e on SEDAR a t www.sedar.com. Please refer to
the Corporation’s 2013 Annual Report for more details on the annual results.
FOURTH-QUARTER OPERATING RESULTS
OPERATING RESULTS
Consolidated
Quarte rs en de d August 31, 2013 2012 Change
(in thousands of dollars, except percentages) $ $ %
Revenue 470,386 324,768 44.8
Operati ng e xpenses 247,897 163,943 51.2
Operating income before depreciation and amortization 222,489 160,825 38.3
Operating margin 47.3% 49.5%
Fiscal 2013 fourth-quarter consolidated revenue improved by $145.6 million, or 44.8%, t o reach $470.4 million compared to the prior year. For
the fourth-quarter ended August 31, 2013, consolidated operating expenses increased by $84.0 million, or 51.2%, at $247.9 million. As a result,
consolidated operating income before depreciation and amortization increased by $61.7 million, or 38.3%,
to
reach $222.5 million and consolidated
operating margin decreased to 47.3% compared to 49.5% in the fourth quarter of fiscal 2012.
CANADIAN CABLE SERVICES
Customer statistics
August 31,
Quarte rs end ed Aug ust 31 , 2013
Net additions (losses)
2013 2012
PSU 1,980,122
Television service customers 834,771
HSI service customers
(1)
661,337
Telephony service customers 484,014
(12,021) 7,564
(10,573) (5,758)
159 6,287
(1,607) 7,035
(1) In the fourth quarter of fiscal 2013, HSI customers have been adjusted upwards retroactively to comply with the industry practices and consequently, PSU have
been also adjusted.
Fiscal 2013 fourth-quarter PSU net losses amounted to 12, 021 compared t o net additions of 7,564 in the comparable period of the prior year
mainly as a result of service category maturity, competitive offers and tightening of our customer qualifications. For the fourth quarter of fiscal
2013 net customer losses for Television service customers stood at 10,573 compared to 5,758 f or the same period of the prior year. Television
service customer net losses are mainly due to promotional offers of competitors for the video service combined with the tightening of our customer
credit controls. Fiscal 2013 fourth-quarter HSI service customers grew by 159 compared to 6,287 in the fourth quarter of the prior year. Telephony
service custom ers net losses stood at 1,607 customers compared to net addit i ons of 7,035 customers for the same period of the prior year.
Operating results
Quarters ended August 31, 2013 2012 Change
(in thousands of dollars, except percentages) $ $ %
Revenue 308,886 301,992 2.3
Operati ng e xpenses 149,789 148,725 0.7
Operating income before depreciation and amortization 159,097 153,267 3.8
Operating margin 51.5% 50.8%
Revenue
Fiscal 2013 fourth-quarter revenue increased by $6.9 million, or 2.3%, to reach $308.9 million compared to the same period last year, primarily
due to rate increases implemented in June 2013 in Quebec and Ontario.
Operating expenses
For the period ended August 31, 2013, operating expenses increased by $1.1 million, or 0.7%, to $149.8 million. Operating expenses increased
during the fourth quarter as a result of additional staff to manage the PSU base, programming cost increases and incentive programs such as
bonuses, partl y offset by cost reduction initiatives.
Operating income before depreciation and amortization and operating margin
As a r es u l t of revenue gro wth exceeding operati ng expenses , fiscal 2013 fourth-quart er operating i ncom e before depreciation and amort ization
amounted to $159.1 million, or 3.8% higher than in the same period of t he prior year. Operating margin increased to 51.5% from 50.8% when
compared to fiscal 2012 fourth-quarter.
AMERICAN CABLE SERVICES
Customer statistics
Quarte rs end ed Aug ust 31 ,
Net additions (losses)
Quarte rs end ed Aug ust 31 ,
August 31,
2013
2013
2012
PSU
485,658
(3,216)
—
Television service customers
230,304 (3,637)
—
HSI service customers
177,108 938
—
Telephony service customers
78,246
(517)
—
Fiscal 2013 fourth-quarter, PSU net losses stood at 3,216. The decrease in PSU for the quarter is mainly attributable to seasonal variations
resulting from the end of the school year for college and university students and residents returning home from the Miami region for the summer,
partly offset by the increases in residential HSI customers through additional marketing focus on bundle package offerings and increased overall
demand given the higher speed offerings with the rollout of DOCSIS 3. 0 capabilities in 2012 to a majority of Atlantic Broadband's markets, as
well as increased commercial HSI.
Operating results
August 31,
2013
Quarte rs end ed
August 31,
2012 Change
(in thousands of dollars, except percentages) $ $ %
Revenue 91,411 — —
Operating expenses 51,629 — —
Operating income before depreciation and amortization 39,782 — —
Operating margin 43.5% —
Fiscal 2013 fourth-quarter revenue reached $91.4 million mainly as a result of (i) a n increase in HSI revenue from continued marketing focus
driving HSI subscriber growth; (ii) an increase in Telephony revenue and an increase in commercial revenue as Atlantic Broadband continues to
expand its non-residential customer base through targeted marketing efforts. Fiscal 2013 fourth-quarter operating expenses amounted to $51.6
million and operating income before depreciation and amortization reached $39.8 million, and consequently, operating margin stood at 43.5%.
Atlantic Broadband's operat i ng results are in line with managem ent's expectations.
ENTERPRISE SERVICES
Operating results
August 31,
2013
Quarte rs end ed
August 31,
2012 Change
(in thousands of dollars, except percentages) $ $ %
Revenue 70,548 23,133 —
Operati ng e xpenses 43,649 11,876 —
Operating income before depreciation and amortization 26,899 11,257 —
Operating margin 38.1% 48.7%
Revenue
Fiscal 2013 fourth-quarter revenue reached $70.5 million compared to $23.1 million for the same period last year. Revenue increased for the
period primarily due t o the three month results of PEER 1 recently acquired as well as Cogeco Data Service's organic growth.
Operating expenses
For the fourth quarter of fiscal 2013, operating expenses increased by $31.8 million to $43.6 million. Operating expenses increased for the period,
primari l y due to PEER 1 recent acquisition as well as Cogeco Data Service's organic growth.
Operating income before depreciation and amortization and operating margin
As a result of revenue growth exceeding the increase in operating expenses, fiscal 2013 fourth-quarter operating income before depreciation
and amorti zat i on i ncreas ed by $15.6 mil l i on to reach $26.9 million compared to the s ame period of the prior year. Oper at i ng margin decreased
to 38.1% from 48.7% in the fourth quarter as a result of lower margin business acti vities f rom PEE R 1.
CASH FLOW ANALYSIS
Quarte rs end ed Aug ust 31 ,
(in thousands of dollars)
2013
$
2012
$
Operating activities
Cash flow from operations
161,695 126,946
Changes in non-cash operating activities
55,377
75,065
Amorti zati on of deferred transaction costs and discounts on long-term debt
(4,190)
(747)
Income taxes paid
(23,208)
(15,090)
Current income tax expense
10,769
15,476
Financial expense paid
(20,801)
(14,324)
Financial expense
48,588
16,017
228,230
203,343
Investing activities (104,319)
(124,480)
Financing activities (123,534)
(12,803)
Effect of exchange rate changes on cas h and cash equival e nts denominated in foreign currencies
1,304
—
Net change in cash and cash equivalents from continuing operations
1,681
66,060
Cash and cas h equi valents from continuing and discontinued operations, beginning of period 37,894 149,331
Cash and cas h equi valents from continuing and discontinued operations, end of period
39,575
215,391
For fiscal 2013 fourth quarter, cash flow from operations reached $161.7 million compared to $126.9 million last year, an increase of $34.7 million,
or 27.4%, primarily due to the improvement of operating income before depreciation and amortization, partly offset by financial expense increase
and by the recent acquisition costs. In the fourth quarter of fiscal 2013, changes in non-cash operating activities generated cash inflows of $55.4
million compared t o $75.1 million in the comparable period of fiscal 2012, mainly as a result of a lower decrease in trade and other payables,
partly offset by an increase in provisions compared to a decrease in the prior year.
ACQUISITIONS OF PROPERTY, PLANT AND EQUIPM ENT, INTANGIBLE AN D O T HER ASSETS
Investing activities, including acquisition of property, plant and equipment segmented according to the National Cable Television Association
(“NCTA”) st andard report i ng categories , are as follows:
Quarte rs end ed Aug ust 31 ,
(in thousands of dollars)
2013
$
2012
$
Customer premise equipment
(1)
16,459
17,563
Scalable infrastructure
(2)
23,141
37,997
Line extensions
8,858
5,750
Upgrade / Rebuild
17,595
15,106
Support capital
8,376
15,202
Acquisition of pro per t y, plan t and eq ui p m ent - Canadian and American cable services
74,429
91,618
Acquisition of property, plant and equipment - Enterprise services
(3)
28,749
27,557
Acquisitions of pro pe rty, plant and equi pment
103,178
119,175
Acquisition of int an gible and other assets - Canadian and American cable services
3,655
3,174
Acquisition of int an gible and other assets - Enterprise services
1,262
2,043
Acquisitions of intangible and other assets
4,917
5,217
108,095
124,392
(1) Inclu des mainl y home term in al de vi ces as w ell as new and re pl ac em ent dro ps .
(2) Includes mainly head-end equipment, digital video and telephony transport as well as HSI equipment.
(3) Includes assets acquired under finance lease of $0.9 million that are excluded from the statement of cash flo ws .
For the three month period ended August 31, 2013, acquisition of property, plant and equipment amounted to $103.2 million compared to $119.2
million for the comparable period of fiscal 2012. In the Canadian cable services, fiscal 2013 fourth-quarter, acquisition of property, plant and
equipment amounted to $52.7 million, a decrease of 42.5% when compared to the prior year. Fiscal 2013 fourth-quarter acquisition of property,
plant and equipment in the American cable services segment amounted to $21.8 million. The decreases in the Canadian cable services segment
are mainly attribut abl e to the foll owing factors:
• A decrease in scalable infrastructure capital expenditures due to the timing of initiatives to improve network capacity in existing areas
served; and
• A decrease in customer premise equipment capital expenditures, mainly due to the achievement in fiscal 2012 of the first phase in the
conversion of Television service customers from analogue to digital and the lower PSU growth during fiscal 2013 as a result of service
maturity.
Fiscal 2013 fourth-quarter acquisition of property, plant and equipment in the Enterprise services segment, including the capital expenditures of
the recent acquisition of PEER 1, am ounted t o $28.7 mi l lion compared to $27. 6 million in the comparable period of fisc al 2012. The increase is
mainly due to the recent acquisition of PEER 1 and the construction of a new data centre facility in Barrie (north of Toronto), Canada, opened
last June, and by the expansion of data centre facilities in Toronto, Canada and in Portsmouth, England as well as the fibre expansion in the
Toronto area i n order to fulfil l orders from new custom ers demand.
Acquisition of intangible and other assets is mainly attributable to reconnect and additional service activation costs as well as other customer
acquisition costs. Fiscal 2013 fourth-quarter acquisition of intangible and other assets amounted to $4.9 million compared to $5.2 million for the
fourth-quarter of f iscal 2012.
FREE CASH FLOW AND FINANCING ACTIVITIES
Fourth quarter 2013 free cash flow amounted to $53.6 million, an increase of $51.0 million compared to fourth-quarter of fi scal 2012, mainly as
a result of the improvement of operati ng income before depreciation and amortization in the Canadian cable services segment and the recent
acquisitions as well as the decrease in acquisition of property plant and equipment and current income taxes, partly offset by the increase in
financi al expense.
In the fourth quarter of fiscal 2013, Indebtedness level resulted in a cash decrease of $110.5 million, mainly due to the issuance on June 27,
2013, of $225.3 million (US$215 million) Senior Secured Notes for net proceeds of $223.8 million, net of transaction costs of $1.5 million, offset
by the repaym ent of the S eni or Secured Debentures S eries 1 of $300 million. In t he f ourth quarter of fiscal 2012, Indebtedness level remained
essentially the same.
During the fourth quarter of fiscal 2013, a quarterly dividend of $0.26 per share was paid to the holders of subordinate and multiple voting shares,
totali ng $12.6 milli on, when compared to a dividend paid of $0.25 per share, or $12.2 million in the fourth quarter of fiscal 2012.
FISCAL 2014 FINANCIAL GUIDELINES
Cogeco Cable revised its fiscal 2014 financial guidelines, as issued on July 10, 2013, as a result of certain adjustments made to the preliminary
allocat i on of the purchase price of Atlantic Broadband and PEER 1.
Fiscal 2014 financial guidelines take into consideration the current uncertain global economic environment as well as the competitive environment
that prevails in Canada, the deployment of new technologies such as Fibre to the Home
("FTTH"),
Fibre to the Node
(“FTTN”)
and Internet Protocol
Television (“IPTV”) by the incumbent telecommunications providers.
For fiscal 2014, Cogeco Cable expects to achieve revenue of $1.935 billion, representing growth of $243 million, or 14.4% compared to fiscal
2013. Revenue should primarily increase as a result of the full year impact from the recent acquisitions. In the Cable services segment, revenue
increase should stem primarily from targeted marketing initiatives to improve penetration rates of the Digital Television, HSI and Telephony
services. Furthermore, the Digital Televis ion service should continue to benefit from the customers' ongoing strong interest in the Corporation's
growing HD service offerings. Revenue will also benefit, in the Canadian cable services, from the impact of rate increases implemented in June
2013 in Quebec and Ontario, ranging on average between $2 to $3 per HSI and Telephony service customers. Cogeco Cable's strategies include
consistently effective marketing to residential and business customers, competitive product offerings and superior customer service, which
combined, lead to the expansion and loyalty of the Television service cli entele. As the penetration of residential HSI, Telephony and Digital
Television services increase, the new demand for these products should slow in the Canadian cable services, reflecting service category maturity.
However, growth in the commercial and business sector is expected to continue at a consistent pace in the Cable services segment. In the
Enterprise services segment, in addition to PEER 1's acquisition full year impact, revenue should increase from the hosting services and the data
transport.
As a result of the full year impact from the recent acquisitions, the increased costs to service additional customers, inflation and manpower
increases, as well as the continuation of the marketing initiatives and retention strategies, operating expenses are expected to expand by
approximat el y $138 million, or 15.1% in the 2014 fiscal year compared to fiscal 2013.
For fiscal 2014, the Corporation expects operating income before depreciation and amortization of $885 million, an increase of $104 million, or
13.3% when compared to fiscal 2013. The operating margin is expected to reach approximately 45.7% in fiscal 2014, compared to 46.1% for
fiscal 2013, reflecting operating expenses growth slightly higher than the revenue growth as well as lower margins business activities from PEER
1 acquired on January 31, 2013.
Cogeco Cable expects the depreciation and amortization of property, plant and equipment and intangible assets to inc rease by $87 million for
fiscal 2014, mainly from the full year impact of the recent acquisitions. Cash flows from operations should finance capital expenditures and the
increase in intangible assets amounting to $425 million, an increase of $17 million when compared to fiscal 2013. Capital expenditures projected
for the 2014 fiscal year are stemming from scalable infrastructure for product enhancements and the deployment of new technologies, line
extensions to expand existing territories, support capital to improve business information
systems
and support facility requirements and expansion
for the Enterprise services segment in order to fulfill orders from new customers.
Fiscal 2014 free cash flow is expected to amount to $230 million, an increase of $80 million, or 53.3% compared to t he free cash flow of $150
million for fiscal 2013, resulting from the growth in operating income before depreciation and amortization, partly offset by additional capital
expenditures and financial expense from the full year impact of the recent acquisitions of Atlantic Broadband and PEER 1 and by an increase in
current income taxes. Generated free cash flow will reduce Indebtedness net of cash and cash equivalents, thus improving the Corporation's net
leverage ratios. Financial expense should amount to $130 million an increase of $2 million related
to
Atlantic Broadband's and PEER 1's acquisition
financing. As a result, profit for the year of approximatel y $230 mill i on should be achi eved compared to $185 million for fiscal 2013.
Fiscal 2014 financial gui delines are as fol l ows:
Revised
projections
October 30, 201 3
Preliminary
projections
July 10, 2013 Actuals
Fiscal 2014 Fiscal 2014 Fiscal 2013
(in millions of dollars, except operating margin) $ $ $
Financial guidelines
Revenue 1,935 1,935 1,692
Operating income before depreciation and amortization 885 885 781
Operating margin 45.7% 45.7% 46.1%
Integration, restructuring and acquisition costs — — 22
Depreciation and amortization 470 435 383
Financial expense 130 130 128
Current income tax expense 100 105 85
Profit for the year 230 245 185
Acquisitions of pro pe rty, plant and equipment, int an gibl e and oth er ass e ts 425 425 408
Free cash flow
(1)
230 225 150
Capital intensity 22.0% 22.0% 24.1%
(1) Free cash flow is calculated as operating income before depreciation and amortization less integration, restructuring and acquisition costs, financi al e xpense,
current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.
NON-IFRS FINANCIAL MEASURES
This section describes non-IFRS financial measures used by Cogeco Cable throughout this MD&A. It also provides reconciliations between these
non-IFRS measures and t he most com parable IFRS financial measures. These financi al measures do not have standard def initions prescribed
by IFRS and, therefore, may not be comparable to similar measures presented by other c ompanies. Thes e measures include “cash flow from
operations”, “free cash flow”, “operati ng i ncome before deprec i ation and amorti zat i on” and “operating margin”.
CASH FLOW FROM OPERATIONS AND FREE CASH FLOW
Cash flow from operations is used by Cogeco Cable’s management and investors
to
evaluate cash flow generated by operating activities, excluding
the impact of changes in non-cash operating activities, amortization of deferred transaction costs and discounts on long-term debt, income taxes
paid, current income tax expense, financial expense paid and financial expense. This allows the Corporation to isolate the cash flows from
operating activities from the impact of cash management decisions. Cash flow from operations is subsequently used in calculating the non-IFRS
measure, “free cash flow”. Free cash flow is used, by Cogeco Cable’s management and investors, to measure its ability to repay debt, distribute
capital to its shareholders and finance its growth. The most comparable IFRS measure is cash flow from operating activities. Cash flow from
operations is calcul at ed as follows:
Quarte rs end ed Years ended
August 31,
2013
August 31,
2012
August 31,
2013
August 31,
2012
(in thousands of dollars)
$
$
$
$
Cash flow from operating activities
228,230
203,343
545,010
450,386
Changes in non-cash operating activities
(55,377)
(75,065)
23,331
(3,493)
Amorti zati on of deferred transaction costs and discounts on long-term debt
4,190
747
11,233 2,817
Income taxes paid
23,208
15,090
100,110
79,728
Current income tax expense
(10,769)
(15,476)
(84,676)
(85,216)
Financial expense paid
20,801
14,324
91,343
61,471
Financial expense
(48,588)
(16,017)
(128,314)
(64,007)
Cash flow from operations 161,695
126,946
558,037
441,686
Free cash flow is calculated as follows:
Quarte rs end ed Years ended
August 31,
2013
August 31,
2012
August 31,
2013
August 31,
2012
(in thousands of dollars)
$
$
$
$
Cash flow from operations
161,695
126,946
558,037
441,686
Acquisition of property, plant and equipment
(102,241)
(119,175)
(388,698)
(359,581)
Acquisition of int an gible and other assets
(4,917)
(5,217)
(18,567)
(15,787)
Assets acquired under finance leases
(937)
—
(937)
—
Free cash flow 53,600
2,554
149,835
66,318
OPERATING INCOME BEF O RE DEPRECIATION AND
AMORTIZATION
AND
OPERATING MARGIN
Operating income before depreciation and amortization is used by Cogeco Cable’s management and investors to assess the Corporation’s ability
to seize growth opportunities in a cost effective manner, to finance its ongoing operations and to service its debt. Operating income before
depreciation and amortization is a proxy for c ash flows from operations excluding the impact of the capital structure chosen, and is one of the
key metrics used by the financial community to value 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 operat i ng income before depreciation and amortization by revenue.
The most comparable IFRS financial measure is operating income. Operating income before depreciation and amortization and operating margin
are calculated as follows:
Quarte rs end ed Years ended
August 31,
2013
August 31,
2012
August 31,
2013
August 31,
2012
(in thousands of dollars, except percentages)
$
$
$
$
Operating income
103,681
94,709
376,239
312,180
Depreciation and amortization
114,103
64,247
382,714
275,003
Integration, restructuring and acquisitions costs
4,705
1,869
21,570
1,869
Operating income before depreciation and amortization
222,489
160,825
780,523
589,052
Revenue
470,386
324,768
1,692,466
1,277,698
Operating margin
47.3%
49.5%
46.1%
46.1%
CAPITAL INTENSITY
Capital intensity is used by Cogeco Cable’s management and investors t o as s es s the Corporation’s investment in capital expenditures in order
to support a certain level of revenue. Capital intensity is defined as acquisitions of property, plant and equipment, intangible and other assets
divided by revenue.
Capital intensity is calcul at ed as follows:
Quarte rs end ed Years ended
August 31,
2013
August 31,
2012
August 31,
2013
August 31,
2012
(in thousands of dollars, except percentages)
$
$
$
$
Acquisition of property, plant and equipment
102,241
119,175
388,698
359,581
Acquisition of int an gible and other assets
4,917
5,217
18,567
15,787
Assets acquired under finance leases 937
—
937
—
Total capital expenditures
108,095
124,392
408,202
375,368
Revenue
470,386
324,768
1,692,466
1,277,698
Capital intensity
23.0%
38.3%
24.1%
29.4%
QUARTERLY FINANCIAL HIGHLIGHTS
Quarte rs end ed
(1)
Nov. 30
Feb. 28
(3)
May. 31
(3)
Fiscal 2013
Aug. 31
Nov. 30
Feb. 29
May. 31
Fiscal 2012
Aug. 31
(in thousands of dolla rs, except pe rce nt age s and
per share data)
$
$
$
$
$
$
$
$
Revenue
327,911
429,672
464,497
470,386
315,424
317,735
319,771
324,768
Operating income before de pr eci ati on and
amortization
147,126 195,776 215,132 222,489
131,823 143,743 152,661 160,825
Operating margin
44.9%
45.6%
46.3%
47.3%
41.8% 45.2% 47.7% 49.5%
Operating income
75,160 95,812 101,586 103,681
66,999 59,491 90,981 94,709
Income taxes
17,400 15,838 18,428 11,176
10,603 13,617 21,449 32,987
Profit for the period from continuing operations
42,160 50,880 48,126 43,917
39,567 31,086 53,159 45,705
Profit for the period from discontinued operations
— — — —
3,399 52,047 — —
Profit for the period
42,160 50,880 48,126 43,917
42,966 83,133 53,159 45,705
Profit for the period attributable to owners of the
Corporation
42,160
51,082
47,924
43,917
42,966
83,133
53,159
45,705
Cash flow from op era ti ng acti viti es
(280) 150,084 166,976 228,230
13,807 120,961 112,275 203,343
Cash flow from op era ti on s
99,845 140,515 155,982 161,695
97,043 104,622 113,075 126,946
Acquisitions of pro pe rty, plant and equipment,
intangible and other assets
82,833
104,433
112,841
108,095
77,283
86,234
87,459
124,392
Free cash flow
17,012
36,082
43,141
53,600
19,760 18,388 25,616 2,554
Capital intensity
25.3%
24.3%
24.3%
23.0%
24.5%
27.1%
27.4%
38.3%
Earnings per share
(2)
From continuing and discontinued operations
Basic
0.87 1.05 0.99
0.90
0.88 1.71 1.09 0.94
Diluted
0.86
1.04
0.98
0.90
0.88
1.70
1.09
0.93
From continuing operations
Basic
0.87 1.05 0.99
0.90
0.81 0.64 1.09 0.94
Diluted
0.86
1.04
0.98
0.90
0.81
0.63
1.09
0.93
From discontinued operations
Basic
— — —
—
0.07 1.07 — —
Diluted
— — —
—
0.07 1.06 — —
(1) The addition of quarterly information may not correspond to the annual total due to rounding.
(2) Per multiple and subordinate voting share.
(3) During the fourth quarter of fiscal 2013, Cogeco Cable adjusted the preliminary allocation of the purchase price of Atlantic Broadband and retroactively adjusted
the second and third quarters of fiscal 2013 to reflect new information obtained about facts and circumstances that existed as at the acquisition date and, if they
had been known, would have impacted the amounts recognized at that date. The impact on the previous quarters are as follows:
Quarte rs end ed
(In thousands of Canadi an dollars)
February 28, 2013
Three months
$
May 31, 2013
Three months
$
Increase in depreciation of property, pla nt and eq ui pm e nt
5,059
5,126
Increase in amortization of intangible assets
2,850 2,936
Decrease in deferred income taxes (331)
(2,930)
Net decrea se on pr of it for the period 7,578 5,132
SEASONAL VARIATIONS
Cogeco Cable’s operating results are not generally subject to material seasonal fluctuations except as follows. In the Canadian and American
cable services segment customer growth in the Television service and HSI service are generally lower in the second half of the fiscal year as a
result of a decrease in economic activity due to the beginning of the vacation period, the end of the television season, and students leaving their
campuses at the end of the school year. Cogeco Cable offers its services in several university and college towns such as Kingston, Windsor,
St.Catharines, Hamilton, Peterborough, Trois-Rivières and Rimouski in Canada and in the Pennsylvania region, and to a lesser extent in South
Carolina, Maryland and Delaware in United States. In the American cable services segment, Miami region is also subject to seasonal fluctuations
due to the winter season residents returning home from late Spring through the Fall. Furthermore, the third and fourth quarter’s operating margin
is usually higher as no management fees are paid to COGECO Inc. Under the Management Agreement, Cogeco Cable pays a fee equal to 2%
of its total revenue subject to a maximum amount. As the maximum amount has been reached in the second quarters of fiscal 2013 and 2012,
Cogeco Cable did not pay management fees in the second halves of either year.
CUSTOMER STATISTICS
August 31,
May 31,
February 28,
November 30,
August 31, August 31,
2013
2013
2013
2012
2012
2011
Primary service units
(1)
2,465,780 2,481,017 2,482,096 2,476,022 1,975,054 1,901,409
CANADA
1,980,122 1,992,143
(2)
1,993,156
(2)
1,990,842
(2)
1,975,054
(2)
1,901,409
(2)
UNITED STATES
485,658 488,874 488,940 485,180 — —
Television service customers
1,065,075
1,079,285
1,087,692
1,098,352
863,115
877,985
CANADA
834,771 845,344 852,707 861,039
863,115 877,985
Penetra ti on as a percen tage of hom es passed
49.9%
50.7%
51.4%
52.1%
52.4% 54.1%
UNITED STATES
230,304
233,941
234,985
237,313
— —
Penetra ti on as a percen tage of hom es passed
44.5%
45.3%
45.5%
46.0%
— –
Digital Television service customers
923,812
924,155
922,703
922,576
771,503
678,326
CANADA
781,386
779,950
778,728
780,724
771,503 678,326
Penetra ti on as a percen tage of hom es passed
46.7% 46.8% 46.9% 47.2%
46.8% 41.8%
UNITED STATES
142,426 144,205 143,975 141,852
— –
Penetra ti on as a percen tage of hom es passed
27.5% 27.9% 27.9% 27.5%
— –
Analogue Television s ervice cust omers
141,263
155,130
164,989
175,776
91,612
199,659
CANADA
53,385 65,394 73,979 80,315
91,612 199,659
Penetra ti on as a percen tage of hom es passed
3.2% 3.9% 4.5% 4.9%
5.6% 12.3%
UNITED STATES
87,878 89,736 91,010 95,461
— –
Penetra ti on as a percen tage of homes passed
17.0%
17.4%
17.6%
18.5%
— –
High Speed Internet service customers
838,445
837,348
832,745
821,561
640,455
605,154
CANADA
661,337 661,178
(2)
657,766
(2)
652,008
(2)
640,455
(2)
605,154
(2)
Penetra ti on as a percen tage of homes passed
39.5%
39.7%
(2)
39.6%
(2)
39.4%
(2)
38.8%
(2)
37.3%
(2)
UNITED STATES
177,108 176,170 174,979 169,553
— –
Penetra ti on as a percen tage of hom es passed
34.3% 34.1% 33.9% 32.9%
— –
Telephony service cu st om ers
562,260
564,384
561,659
556,109
471,484
418,270
CANADA
484,014
485,621
482,683
477,795
471,484 418,270
Penetra ti on as a percen tage of hom es passed
28.9% 29.1% 29.1% 28.9%
28.6% 25.8%
UNITED STATES
78,246 78,763 78,976 78,314
— –
Penetra ti on as a percen tage of hom es passed
15.1% 15.2% 15.3% 15.2%
— –
(1) Represents the sum of Television, High Spee d I nte rn et (“HSI”) and Telephony service customers.
(2) In the fourth quarter of fiscal 2013, HSI service customers have been adjusted upwards retroactively to comply with the industry practices and consequently,
PSU and penetration rates have been also adjusted
ADDITIONAL INFORMATION
Additional information relating to the Corporation, including its 2013 Annual Report and Annual Information Form, is available on SEDAR at
www.sedar.com.
ABOU T COGECO CABLE
Cogeco Cable is a telecommunications corporation and is the11
th
largest hybrid fibre coaxial cable operator in North America operating in Canada
through its subsidiary Cogeco Cable Canada in Quebec and Ontario, and in the United
States of
America through its subsidiary Atlantic Broadband
in Western Pennsylvania, South Florida, Maryland/Delaware and South Carolina. Its two-way broadband cable networks provide to its residential
and small business customers A nalogue and Digital Television, High Speed Internet and Telephony services. Through its subsidiary Cogeco
Enterprise Services, the holding company of Cogec o Data Services and Peer 1 Network Enterprises, Cogeco Cable provides its commercial
customers a suite of IT hosting, information and communications technology services (data centre, colocation, managed hosting, cloud
infrastructure and connectivity), with 20 data centres, extensive fibre networks in Montreal and Toronto as well as points-of-presence in North
America and Europe. Cogeco Cable's subordinate voting shares are listed on the Toronto Stock Exchange (TSX: CCA ). For more information
about Cogeco Cable and its subsidiaries visit www. cogeco.ca, cogecodat a.c om, atl ant ic bb.c om, peer1.c om and peer1hosting.c o.uk.
- 30 -
Source: Cogeco Cable Inc.
Pierre Gagné
Senior Vice President and Chief Financial Officer
Tel.: 514-764-4700
Informati o n: Media
René Guimond
Vice-President, Public Affairs and Communications
Tel.: 514-764-4700
Analyst Conference Call: Thursday, October 31, 2013 at 11:00 a.m. (Eastern Daylight Time)
Media representati ves may attend as l isteners onl y.
Please use the following dial-in num ber to have access to the conference call by dialing five minutes
before the start of the conference:
Canada/United Stat es Access Num ber: 1 866-321-6651
International Acces s Number: + 1 416-642-5212
Confirmati on Code: 7376711
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available until November 7, 2013, by dialing:
Canada and United States access number: 1 888-203-1112
Internati onal access number: + 1 647-436-0148
Confirmati on code: 7376711