Today, COGECO Inc. (TSX:CGO) ("COGECO" or the "Corporation") announced its
financial results for the second quarter of fiscal 2012, ended February 29,
2012, in accordance with the International Financial Reporting Standards
("IFRS").
For the second quarter and first six months of fiscal 2012:
-- Revenue increased by 12.4% to reach $345.6 million, and by 14.1% to
reach $691.6 million;
-- Operating income before depreciation and amortization(1) increased by
9.4% to $144.5 million when compared to the second quarter of fiscal
2011, and by 7.4% to $ 284.8 million when compared to the first half of
the prior fiscal year;
-- Operating margin(1) decreased to 41.8% from 43% in the quarter and to
41.2% from 43.8% in the first six months when compared to the same
periods of the prior year;
-- Profit for the period from continuing operations amounted to $29.4
million in the second quarter when compared to $31.7 million for the
same period of the previous fiscal year. For the first half of fiscal
2012, profit for the period from continuing operations amounted $74
million when compared to $79.6 million for the first half of fiscal
2011. This variance is mostly attributable to the increase in
depreciation and amortization expense due to the reduction of
depreciation period for certain property, plant and equipment, partly
offset by the increase in operating income before depreciation and
amortization;
-- On February 29, 2012, Cogeco Cable a subsidiary of the Corporation,
completed the sale of its Portuguese subsidiary, Cabovisao - Televisao
por Cabo, S.A. ("Cabovisao"), for a cash consideration of EUR45 million
or approximately $59.3 million, which is subject to adjustments for
certain contingent claims. Operating results from European operations
have therefore been classified as discontinued operations. For the
second quarter and first six months of fiscal 2012, profit for the
period from discontinued operations amounted to $52 million and $55.4
million, respectively, compared to losses of $9.2 million and $17.4
million, respectively, for the same periods of the prior year. Profit
for the period from discontinued operations in fiscal 2012 include the
gain on disposal of $48.2 million recorded in the second quarter of
fiscal 2012;
-- Profit for the period increased by $59.1 million to reach $81.5 million
in the second quarter when compared to $22.4 million for the same period
of the previous fiscal year. For the first half of fiscal 2012, profit
for the period increased by $67.2 million to reach $129.4 million when
compared to $62.2 million for the first half of fiscal 2011. This
variance is mostly attributable to the gain on disposal of Cabovisao in
the cable sector, partly offset by the increase of depreciation and
amortization expense due to the reduction of depreciation period for
certain property, plant and equipment;
-- Free cash flow(1) reached $18 million for the quarter compared to $40.4
million in the comparable quarter of the prior year. For the first six
months, free cash flow amounted to $44.3 million, compared to $20.2
million in the first half of fiscal 2011. This variance is mostly
attributable to the difference in the recognition of current income tax
expense for both periods combined with the improvement of operating
income before depreciation and amortization, partly offset by the
increase in acquisition of property, plant and equipment;
-- A quarterly dividend of $0.18 per share was paid to the holders of
subordinate and multiple voting shares, an increase of $0.06 per share,
or 50%, when compared to a dividend paid of $0.12 per share in the
second quarter of fiscal 2011. Dividend payments in the first six months
totalled $0.36 per share in fiscal 2012, compared to $0.24 per share in
fiscal 2011;
-- On December 6, 2011, COGECO Inc. concluded an agreement to acquire
Metromedia CMR Plus Inc. ("Metromedia"), subject to customary closing
adjustments and conditions. The transaction was completed on December
26, 2011. On January 19, 2012, the CRTC approved the sale of CJEC-FM and
CFEL-FM which have been completed on January 30, 2012.
-- In the cable sector, primary service units ("PSU")(2) grew by 12,280 net
additions in the quarter and 58,459 net additions in the first six
months, for a total of 1,955,928 PSU at February 29, 2012.
"COGECO Inc. reported very favorable results for the second quarter mainly
because of its cable subsidiaries. We are continuing to grow and our performance
indicators remain on target to our objectives. The results confirm that we have
reached our primary objective of sustained corporate growth and continuous
improvement of our networks and our equipment in spite of the challenges and
issues we face in a highly competitive industries," stated COGECO President and
CEO Louis Audet.
"With regards to our radio operations, we are very satisfied with the recent BBM
surveys which confirm our strong leadership in the Montreal market. We are also
pleased with the integration of Metromedia, acquired on December 26, 2011, which
improves our media offering", added Mr. Audet.
(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.
FINANCIAL HIGHLIGHTS
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Quarters ended
February 29, February 28,
($000, except percentages and per 2012 2011 Change
share data) $ $ %
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(unaudited) (unaudited)
Operations
Revenue 345,613 307,532 12.4
Operating income before
depreciation and
amortization(1) 144,518 132,140 9.4
Operating margin(1) 41.8% 43.0% -
Operating income 58,931 68,597 (14.1)
Profit for the period from
continuing operations 29,449 31,656 (7.0)
Profit (loss) for the period
from discontinued operations 52,047 (9,223) -
Profit for the period 81,496 22,433 -
Profit for the period
attributable to owners of the
Corporation 25,089 634 -
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Cash Flow
Cash flow from operating
activities from continuing
operations 126,455 90,891 39.1
Cash flow from operations(1) 105,153 103,309 1.8
Acquisitions of property, plant
and equipment and intangible
assets 87,186 62,873 38.7
Free cash flow(1) 17,967 40,436 (55.6)
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Financial condition(2)
Property, plant and equipment - - -
Total assets - - -
Indebtedness(3) - - -
Shareholders' Equity - - -
Equity attributable to owners of
the Corporation - - -
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Primary service units(4) growth 12,280 26,490 (53.6)
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Per Share Data(5)
Earnings (loss) per share
attributable to owners of the
Corporation
From continuing and
discontinued operations
Basic 1.50 0.04 -
Diluted 1.49 0.04 -
From continuing operations
Basic 0.50 0.22 -
Diluted 0.50 0.21 -
From discontinued operations
Basic 1.00 (0.18) -
Diluted 0.99 (0.18) -
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Six months ended
February 29, February 28,
($000, except percentages and per 2012 2011 Change
share data) $ $ %
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(unaudited) (unaudited)
Operations
Revenue 691,636 605,983 14.1
Operating income before
depreciation and
amortization(1) 284,779 265,136 7.4
Operating margin(1) 41.2% 43.8% -
Operating income 133,573 151,925 (12.1)
Profit for the period from
continuing operations 73,973 79,623 (7.1)
Profit (loss) for the period
from discontinued operations 55,446 (17,382) -
Profit for the period 129,419 62,241 -
Profit for the period
attributable to owners of the
Corporation 43,859 17,025 -
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Cash Flow
Cash flow from operating
activities from continuing
operations 136,025 143,269 (5.1)
Cash flow from operations(1) 209,892 141,428 48.4
Acquisitions of property, plant
and equipment and intangible
assets 165,590 121,242 36.6
Free cash flow(1) 44,302 20,186 -
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Financial condition(2)
Property, plant and equipment 1,259,712 1,272,251 (0.1)
Total assets 2,954,998 2,871,648 2.9
Indebtedness(3) 1,184,142 1,056,214 12.1
Shareholders' Equity 1,125,467 1,040,680 8.1
Equity attributable to owners of
the Corporation 370,508 342,525 8.2
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Primary service units(4) growth 58,459 68,266 (14.4)
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Per Share Data(5)
Earnings (loss) per share
attributable to owners of the
Corporation
From continuing and
discontinued operations
Basic 2.62 1.02 -
Diluted 2.61 1.01 -
From continuing operations
Basic 1.56 1.35 15.6
Diluted 1.55 1.35 14.8
From discontinued operations
Basic 1.07 (0.33) -
Diluted 1.06 (0.33) -
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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.
(2) At February 29, 2012 and August 31, 2011.
(3) Indebtedness is defined as the total of bank indebtedness, promissory
note payable, principal on long-term debt, balance due on business
acquisitions and obligations under derivative financial instruments.
(4) Represents the sum of Television, High Speed Internet ("HSI") and
Telephony service customers.
(5) Per multiple and subordinate voting share.
FORWARD-LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis ("MD&A") may
constitute forward-looking information within the meaning of securities laws.
Forward-looking information may relate to COGECO's future outlook and
anticipated events, business, operations, financial performance, financial
condition or results and, in some cases, can be identified by terminology such
as "may"; "will"; "should"; "expect"; "plan"; "anticipate"; "believe"; "intend";
"estimate"; "predict"; "potential"; "continue"; "foresee", "ensure" or other
similar expressions concerning matters that are not historical facts. In
particular, statements regarding the Corporation's future operating results and
economic performance and its objectives and strategies are forward-looking
statements. These statements are based on certain factors and assumptions
including expected growth, results of operations, performance and business
prospects and opportunities, which COGECO believes are reasonable as of the
current date. While management considers these assumptions to be reasonable
based on information currently available to the Corporation, they may prove to
be incorrect. The Corporation cautions the reader that the economic downturn
experienced over the past few years makes forward-looking information and the
underlying assumptions subject to greater uncertainty and that, consequently,
they may not materialize, or the results may significantly differ from the
Corporation's expectations. It is impossible for COGECO to predict with
certainty the impact that the current economic uncertainties may have on future
results. Forward-looking information is also subject to certain factors,
including risks and uncertainties (described in the "Uncertainties and main risk
factors" section of the Corporation's 2011 annual MD&A) that could cause actual
results to differ materially from what COGECO currently expects. These factors
include technological changes, changes in market and competition, governmental
or regulatory developments, general economic conditions, the development of new
products and services, the enhancement of existing products and services, and
the introduction of competing products having technological or other advantages,
many of which are beyond the Corporation's control. Therefore, future events and
results may vary significantly from what management currently foresees. The
reader should not place undue importance on forward-looking information and
should not rely upon this information as of any other date. While management may
elect to, the Corporation is under no obligation (and expressly disclaims any
such obligation), and does not undertake to update or alter this information
before the next quarter.
As described in note 1 to the condensed interim consolidated financial
statements for the three and six-month periods ended February 29, 2012, Canadian
Generally Accepted Accounting Principles ("GAAP"), which were previously used in
preparing the consolidated financial statements, were replaced on the adoption
of International Financial Reporting Standards ("IFRS") on January 1, 2011. The
Corporation's condensed interim consolidated financial statements for the three
and six-month periods ended February 29, 2012 have therefore been prepared in
accordance with IFRS. Comparative figures for 2011 have also been restated.
All amounts are stated in Canadian dollars unless otherwise indicated. This
report should be read in conjunction with the Corporation's consolidated
financial statements and MD&A for the fiscal year ended August 31, 2011 included
in the Corporation's 2011 Annual Report. It should also be read in conjunction
with the Corporation's condensed interim consolidated financial statements and
MD&A for the first quarter of fiscal 2012 as well as the information on the
adjustments to the fiscal 2011 financial figures upon adoption of IFRS,
explained in Note 18 of the condensed interim consolidated financial statements
for the three and six-month periods ended February 29, 2012.
Corporate strategies and objectives
COGECO Inc.'s ("COGECO" or the "Corporation") objectives are to maximize
shareholder value by increasing profitability and ensuring continued growth. The
strategies employed to reach these objectives, supported by tight controls over
costs and business processes, are specific to each sector. For the cable sector,
sustained corporate growth and the continuous improvement of networks and
equipment are the main strategies used. The radio activities focus on continuous
improvement of programming in order to increase market share, and, thereby,
profitability. COGECO uses operating income before depreciation and
amortization(1), operating margin(1), free cash flow(1) and primary service
units ("PSU")(2) growth in order to measure its performance against these
objectives for the cable sector.
(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.
Cable sector
During the first six months of fiscal 2012, the Corporation's subsidiary, Cogeco
Cable Inc. ("Cogeco Cable" or the "Cable subsidiary"), invested approximately
$84.4 million in its network infrastructure and equipment to upgrade its
capacity, improve its robustness and extend its territories in order to better
serve and increase its service offerings for new and existing clientele.
PSU growth and penetration of service offerings in the cable sector
During the six-month period ended February 29, 2012, the number of PSU in the
Cable subsidiary increased by 58,459 or 3.1%, to reach 1,955,928, mainly as a
result of targeted marketing initiatives and of the continuing interest for high
definition ("HD") television service. As of fiscal 2012, Cogeco Cable has
modified its key performance indicator for growth to a PSU concept instead of a
revenue-generating units ("RGU") concept. As a result of the sale of its
Portuguese subsidiary as described below in the second quarter of fiscal 2012,
Cogeco Cable has reduced its guidelines for PSU progression to 80,000 from the
90,000 for the fiscal 2012 year. The 90,000 original projections were presented
in terms of RGU of 225,000 net additions in the Fiscal 2012 financial guidelines
of the 2011 Annual Report. For further details, please consult the fiscal 2012
revised projections in the "Fiscal 2012 financial guidelines" section.
Operating income before depreciation and amortization and operating margin
First six months operating income before depreciation and amortization increased
by 7.4% when compared to the same period of fiscal 2011 to reach $ 284.8 million
and operating margin decreased to 41.2% from 43.8%. The operating margin
reduction is mostly attributable to the incremental deployment and support costs
related to the migration of Television service customers from analog to digital
in the cable sector and from the growth in the radio activities and the
acquisition of Metromedia CMR Plus Inc. ("Metromedia") for which the operating
margin are generally lower than the cable sector.
Free cash flow
For the six-month period ended February 29, 2012, COGECO reports positive free
cash flow of $44.3 million, compared to $20.2 million for the first half of the
previous fiscal year, representing an increase of $24.1 million. This variance
is mostly attributable to the difference in the recognition of current income
tax expense for both periods combined with the improvement of operating income
before depreciation and amortization, partly offset by the increase in
acquisition of property, plant and equipment.
Disposal of subsidiary and discontinued operations
On February 29, 2012, a subsidiary of the Corporation, Cogeco Cable, completed
the sale of its Portuguese subsidiary, Cabovisao - Televisao por Cabo, S.A.
("Cabovisao") for a cash consideration of EUR45 million or approximately $59.3
million, which is subject to adjustments for certain contingent claims.
Operating results from European operations have therefore been classified as
discontinued operations. For further details on the European's operating
results, please refer to the "Disposal of a subsidiary and discontinued
operations" section.
Other
BBM Canada's winter 2012 survey in the Montreal region, conducted with the
Portable People Meter ("PPM"), shows that 98.5 FM is the leading radio station
in the Montreal francophone market with listeners and men two years old and over
("2+"), while Rythme FM has maintained its leadership position in the female 2+
segment. In the other Quebec regions, our radio stations registered good
ratings.
On December 6, 2011, COGECO Inc. concluded an agreement to acquire Metromedia
CMR Plus Inc. ("Metromedia"), subject to customary closing adjustments and
conditions. Metromedia is a Quebec company that operates an advertising
representation house in the public transit sector. Metromedia represents over
100 public transit markets notably in Montreal, in other Quebec regions as well
as in major cities and numerous markets in the rest of Canada. The transaction
was completed on December 26, 2011.
On February 1, 2011, a subsidiary of the Corporation, Cogeco Diffusion
Acquisitions Inc. ("Cogeco Diffusion"), completed the acquisition of 11 radio
stations in the province of Quebec ("Quebec Radio Stations Acquisition"), which
was originally announced on April 30, 2010 and then subject to the Canadian
Radio-television and Telecommunications Commission ("CRTC") approval. When the
CRTC approved the Quebec Radio Stations Acquisition, there was an order to
divest three radio stations to comply with the common ownership policy in the
Quebec City and Sherbrooke markets.
On November 30, 2011, Cogeco Diffusion concluded an agreement for the sale of
two of its four Quebec City FM radio stations, CJEC-FM and CFEL-FM, subject to
CRTC approval and customary closing adjustments and conditions. On December 6,
2011, Cogeco Diffusion closed its Sherbrooke radio station, CJTS-FM. On January
19, 2012, the CRTC approved the sale of CJEC-FM and CFEL-FM which have been
completed on January 30, 2012 and marked the end of the process established with
the CRTC for the divestiture of these three radio stations.
OPERATING RESULTS FROM CONTINUING OPERATIONS
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Quarters ended Six months ended
February February February February
29, 28, 29, 28,
($000, except 2012 2011 Change 2012 2011 Change
percentages) $ $ % $ $ %
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(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 345,613 307,532 12.4 691,636 605,983 14.1
Operating
costs(1) 201,095 175,392 14.7 406,857 340,847 19.4
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Operating
income before
depreciation
and
amortization 144,518 132,140 9.4 284,779 265,136 7.4
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Operating
margin 41.8% 43.0% 41.2% 43.8%
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(1) Represents the sum of salaries, employee benefits and outsourced
services as well as other external purchases included in the interim
consolidated statements of profit or loss.
Revenue
Fiscal 2012 second-quarter revenue rose by $38.1 million, or 12.4%, to reach
$345.6 million, when compared to the prior year. For the first six months,
revenue amounted to $691.6 million, an increase of $85.7 million, or 14.1% when
compared to the first six months of fiscal 2011. The increases are primarily due
to the cable sector, the results of the Quebec Radio Stations Acquisition and
the recent acquisition of Metromedia.
Cable revenue increased by $24.3 million, or 8.3%, for the second quarter and by
$52.5 million, or 9%, in the first half of fiscal 2012 when compared to the same
periods of fiscal 2011. For further details on Cogeco Cable's operating results,
please refer to the "Cable sector" section.
Revenue from the radio and advertising representation house activities improved
by $13.8 million in the second quarter and by $33.2 million in the first six
months, mainly as a result of the Quebec Radio Stations Acquisition and the
recent acquisition of Metromedia.
Operating costs
For the second quarter and first half of fiscal 2012, operating costs amounted
to $201.1 million and $406.9 million, increases of $25.7 million, or 14.7%, and
of $66 million, or 19.4%, when compared to the prior year. These increases are
mainly attributable to the cable sector as well as the Quebec Radio Stations
Acquisition and the recent acquisition of Metromedia.
Operating costs in the cable sector increased by $11.1 million, or 6.9%, for the
second quarter and by $32.3 million, or 10.2%, in the first half when compared
to the same periods of the prior year. For further details on Cogeco Cable's
operating results, please refer to the "Cable sector" section.
Operating costs from the radio and advertising representation house activities
grew by $15.8 million in the second quarter and by $33 million in the first six
months when compared to the same periods of fiscal 2011 mainly from the Quebec
Radio Stations Acquisition and the recent acquisition of Metromedia.
Operating income before depreciation and amortization and operating margin
Mainly as a result of growth in the cable sector and the Quebec Radio Stations
Acquisition, operating income before amortization grew by $12.4 million, or
9.4%, in the second quarter to reach $144.5 million, and by $19.6 million, or
7.4%, at $ 284.8 million for the first half of fiscal 2012, when compared to the
same periods of the previous year. COGECO's second quarter operating margin
decreased to 41.8%, from 43% in the second quarter of the previous year. For the
first six months, COGECO's operating margin decreased to 41.2% from 43.8% in the
first half of fiscal 2011. These operating margin reductions are mostly
attributable to the incremental deployment and support costs related to the
migration of Television service customers from analog to digital in the cable
sector and from the growth in the radio activities and the acquisition of
Metromedia for which the operating margin are generally lower than the cable
sector. For further details on Cogeco Cable's operating results, please refer to
the "Cable sector" section.
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS
For the three and six-month periods ended February 29, 2012, profit for the
period from continuing operations amounted to $29.4 million, or $0.50 per share,
and $74 million, or $1.56 per share, respectively. For the comparable periods of
fiscal 2011, profit for the period from continuing operations amounted to $31.7
million, or $0.22 per share in the quarter, and $79.6 million, or $1.35 per
share in the first six months. This variance is mostly attributable to the
increase of depreciation and amortization expense due to the reduction of
depreciation period for certain property, plant and equipment in the cable
sector, partly offset by the increase in operating income before depreciation
and amortization and the decrease in financial expense.
PROFIT FOR THE PERIOD FROM DISCONTINUED OPERATIONS
For the three and six-month periods ended February 29, 2012, profit for the
period from discontinued operations amounted to $52 million and $55.4 million,
respectively, compared to losses of $9.2 million and $17.4 million,
respectively, for the same periods of the prior year. Profit for the period from
discontinued operations in fiscal 2012 include the gain on disposal of $48.2
million recorded in the second quarter of fiscal 2012. For further details on
the European operating results, please refer to the "Disposal of subsidiary and
discontinued operations" section.
PROFIT FOR THE PERIOD
For the three and six-month periods ended February 29, 2012, profit for the
period amounted to $81.5 million and $129.4 million, respectively. For the
comparable periods of fiscal 2011, profit for the period amounted to $22.4
million and $62.2 million, respectively. Profit progression for the period has
resulted mainly from the gain on disposal of the Portuguese subsidiary in the
cable sector and the operating income before depreciation and amortization
improvement, partly offset by the increase of depreciation and amortization
expense described in the "Fixed charges from continuing operations" section.
For the three and six-month periods ended February 29, 2012, profit for the
period attributable to owners of the Corporation amounted to $25.1 million, or
$1.50 per share, and $43.9 million, or $2.62 per share, respectively. For the
comparable periods of fiscal 2011, profit for the period attributable to owners
of the Corporation amounted to $0.6 million, or $0.04 per share in the quarter,
and $17 million, or $1.02 per share in the first six months. Profit progression
for the period has resulted mainly from the gain on disposal of the Portuguese
subsidiary and the operating income before depreciation and amortization
improvement, partly offset by the increase of depreciation and amortization
expense described in the "Fixed charges from continuing operations" section.
The non-controlling interest represents a participation of approximately 67.9%
in Cogeco Cable's results. During the second quarter and the first six months of
fiscal 2012, the profit for the period attributable to non-controlling interest
amounted to $56.4 million and $85.6 million due to the cable sector's positive
results, compared to $21.8 million and $45.2 million in the same periods of
fiscal 2011.
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, discussed in the 2011 Annual Report, have not
materially changed since August 31, 2011, except as mentioned below.
As a result of the sale of Cogeco Cable's Portuguese subsidiary, the letters of
credits which were issued to guarantee the payment by Cabovisao of stamp taxes
and withholding taxes have been released.
On February 14, 2012, Cogeco Cable completed pursuant to a public debt offering,
the issue of $200 million Senior Secured Debentures Series 3. These Debentures
mature on February 14, 2022 and bear interest at 4.925% per annum payable
semi-annually. These debentures are indirectly secured by a first priority fixed
and floating charge and a security interest on substantially all present and
future real and personal property and undertaking of every nature and kind of
the Corporation.
On November 30, 2011, the Corporation renewed its credit agreement for a $100
million credit facility in the form of a four-year Term Revolving Facility. The
renewed Term Revolving Facility will mature on February 1, 2016, but may be
extended by additional one-year periods on an annual basis, subject to lenders'
approval. The Term Revolving Facility is indirectly secured by a first priority
fixed and floating charge on substantially all present and future real and
personal property and undertaking of every nature and kind of the Corporation
and certain of its subsidiaries, excluding the capital stock and assets of the
Corporation's subsidiary, Cogeco Cable Inc., and guaranteed by its subsidiaries,
excluding Cogeco Cable.
On November 22, 2011, Cogeco Cable renewed its credit agreement for a $750
million credit facility, with an option to increase to a total amount of up to
$1 billion, subject to lenders' participation, in the form of a five year Term
Revolving Facility. The renewed Term Revolving Facility was arranged by a group
of financial institutions. The renewed Term Revolving Facility will mature on
November 22, 2016, but may be extended by additional one-year periods on an
annual basis, subject to lenders' approval. The Term Revolving Facility is
indirectly secured by a first priority fixed and floating charge on
substantially all present and future real and personal property and undertaking
of every nature and kind of Cogeco Cable and certain of its subsidiaries, and
provides for certain permitted encumbrances, including purchased money
obligations, existing funded obligations and charges granted by any subsidiary
prior to the date when it becomes a subsidiary, subject to a maximum amount.
On November 7, 2011, the Corporation completed, pursuant to a private placement,
the issue of 6.50 % Unsecured Notes for a total of $35 million maturing November
7, 2021. Interest on these Notes is payable semi-annually in arrears on November
7 and May 7 of each year commencing May 7, 2012. Net proceeds of approximately
$35 million was used to reduce COGECO Inc.'s bank indebtedness.
DIVIDEND DECLARATION
At its April 11, 2012 meeting, the Board of Directors of COGECO declared a
quarterly eligible dividend of $0.18 per share for multiple voting and
subordinate voting shares, payable on May 9, 2012, to shareholders of record on
April 25, 2012. The declaration, amount and date of any future dividend will
continue to be considered and approved by the Board of Directors of the
Corporation based upon the Corporation's financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors, at its sole discretion, deems relevant. There is therefore no
assurance that dividends will be declared, and if declared, their amount and
frequency may vary.
CABLE SECTOR
CUSTOMER STATISTIC
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Net additions (losses)
Quarters ended Six months ended
February February February February February
29, 29, 28, 29, 28,
2012 2012 2011 2012 2011
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PSU 1,955,928 12,280 26,490 58,459 68,266
Television service
customers (2) 873,326 (9,111) (788) (4,659) 6,250
HSI service customers 626,017 7,518 10,550 24,803 27,422
Telephony service
customers 456,585 13,873 16,728 38,315 34,594
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% of Penetration(1)
February 29, February 28,
2012 2011
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PSU
Television service
customers (2) 53.5 54.9
HSI service customers 38.3 36.5
Telephony service
customers 27.9 24.4
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(1) As a percentage of Homes Passed.
(2) The number of Television service customers includes 752,642 Digital
Television service customers
Fiscal 2012 second-quarter and first six months, PSU net additions were lower
than in the comparable period of the prior year mainly as a result of category
maturity, competitive offers and tightening of our credit controls and
processes. For the second quarter and the first six months net customer losses
for Television service customers stood at 9,111 and 4,659, respectively,
compared to 788 and net additions of 6,250 for the same periods of the prior
year. Television service customer net losses in the second quarter and the first
six months of fiscal 2012 are mainly due to the competitive promotional offers
for the video service combined with the tightening of our credit controls and
processes. In the quarter, Telephony service customers grew by 13,873 compared
to 16,728 for the same period last year, and the number of net additions to the
HSI service stood at 7,518 customers compared to 10,550 customers in the second
quarter of the prior year. HSI and Telephony net additions continue to stem from
the enhancement of the product offering, the impact of the bundled offer (Cogeco
Complete Connection) of Television, HSI and Telephony services, and promotional
activities. For the three and six-month periods ended February 29, 2012,
additions to the Digital Television service which are included in the Television
service customers, stood at 25,423 and 74,316 compared to 26,450 and 55,364 for
the comparable periods of the prior year. Digital Television service net
additions are due to targeted marketing initiatives to improve penetration, the
launch of new HD channels, the continuing interest for HD television service and
the deployment of Digital Terminal Adapters technology to migrate customers from
analog to digital services.
OPERATING RESULTS FROM CONTINUING OPERATIONS
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Six months ended
February February February February
29, 28, 29, 28,
($000, except 2012 2011 Change 2012 2011 Change
percentages) $ $ % $ $ %
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 317,735 293,457 8.3 633,159 580,661 9.0
Operating
costs(1) 171,649 160,530 6.9 348,108 315,854 10.2
Management
fees - COGECO
Inc. 2,343 2,528 (7.3) 9,485 9,172 3.4
----------------------------------------------------------------------------
Operating
income before
depreciation
and
amortization 143,743 130,399 10.2 275,566 255,635 7.8
----------------------------------------------------------------------------
Operating
margin 45.2% 44.4% 43.5% 44.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Represents the sum of salaries, employee benefits and outsourced
services as well as other external purchases included in the interim
consolidated statements of profit or loss.
Revenue
Fiscal 2012 second-quarter revenue rose by $24.3 million, or 8.3%, to reach
$317.7 million, when compared to the prior year. For the first six months,
revenue amounted to $633.2 million, an increase of $52.5 million, or 9% when
compared to the first six months of fiscal 2011. The increase in revenue was
driven by PSU growth, rate increases implemented in April and October 2011
combined with the acquisitions of MTO Telecom Inc. ("MTO") and Quiettouch Inc.
("QTI") during the second half of fiscal 2011.
Operating costs
For the second quarter of fiscal 2012, operating costs, excluding management
fees payable to COGECO Inc., increased by $11.1 million, to reach $171.6
million, an increase of 6.9% compared to prior year. For the first half of the
fiscal year, operating costs, excluding management fees payable to COGECO Inc.,
amounted to $348.1 million, an increase of $32.3 million, or 10.2%, when
compared to the same period of fiscal 2011. The increase in operating costs is
mainly attributable to servicing additional PSU, the launch of new HD channels,
additional programming costs, deployment and support costs related to the
migration of Television service customers from analog to digital and the
acquisitions of MTO and QTI.
Operating income before depreciation and amortization and operating margin
Fiscal 2012 second-quarter operating income before depreciation and amortization
increased by $13.3 million, or 10.2% to reach $143.7 million, and by $19.9
million, or 7.8%, in the first six months to reach $275.6 million. Cogeco
Cable's second-quarter operating margin increased to 45.2% from 44.4% in the
comparable period of the prior year. For the first six months, the operating
margin decreased to 43.5% from 44% in the first half of fiscal 2011.
DISPOSAL OF SUBSIDIARY AND DISCONTINUED OPERATIONS
On February 29, 2012, the Corporation completed the sale of its Portuguese
subsidiary for a cash consideration of EUR45 million ($59.3 million). The
selling price has been reduced by selling fees of approximately EUR8.5 million
($11.2 million) and contingent claims assumed up to a maximum amount of EUR5
million ($6.6 million). The carrying value of the net liabilities disposed of on
February 29, 2012 was $6.7 million resulting in a gain on disposal of $48.2
million recorded in the interim consolidated statements of profit or loss.
The details of the assets and liabilities disposed of are as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
($000) $
----------------------------------------------------------------------------
(unaudited)
Cash and cash equivalents 13,041
Trade and other receivables 7,693
Income taxes receivable 277
Prepaid expenses and other 2,777
Property, plant and equipment 38,931
Trade and other payables (42,514)
Provisions (6,665)
Deferred and prepaid revenue (411)
Foreign currency translation adjustment (19,817)
----------------------------------------------------------------------------
(6,688)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
As a result of the sale and in accordance with IFRS 5 - Non-Current Assets Held
for Sale and Discontinued Operations, Cogeco Cable reclassified the current and
prior year results and cash flows of the European operations, up to the date of
acquisition, as discontinued operations.
Profit (loss) for the period from discontinued operations
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Six months ended
February 29,February 28, February 29,February 28,
2012 2011 2012 2011
($000) $ $ $ $
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue 39,031 42,061 80,546 85,324
Operating costs(1) 33,480 37,915 70,247 76,907
Depreciation and
amortization 1,526 14,116 2,814 26,428
----------------------------------------------------------------------------
Operating income (loss) 4,025 (9,970) 7,485 (18,011)
Financial income 44 52 155 78
Gain on disposal 48,215 - 48,215 -
----------------------------------------------------------------------------
Profit (loss) before
income taxes 52,284 (9,918) 55,855 (17,933)
Income taxes 237 (695) 409 (551)
----------------------------------------------------------------------------
Profit (loss) for the
period 52,047 (9,223) 55,446 (17,382)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Represents the sum of salaries, employee benefits and outsourced
services as well as other external purchases as described in Note 16 in
the condensed interim consolidated financial statements.
Revenue
Fiscal 2012 second-quarter and first six months revenue decreased by $3 million
and $4.8 million, at $39 million and $80.5 million, respectively, compared to
the same periods of prior year as a result of a decreased demand for services.
Revenue from the European operations in the local currency for the 2012 second
quarter and the first six months amounted to EUR29.5 million and EUR59.4
million, respectively, compared to EUR31.5 million and EUR62.7 million for the
same periods of fiscal 2011.
Operating costs
Fiscal 2012 second-quarter and first six months operating costs decreased by
$4.4 million and $6.7 million, at $33.5 million and $70.2 million, respectively,
compared to the same periods of prior year as a result of PSU losses and lower
marketing initiatives. Operating costs of the European operations for the 2012
second quarter and the first six months in the local currency amounted to
EUR25.3 million and EUR51.7 million, respectively, compared to EUR28.4 million
and EUR56.5 million for the same periods of fiscal 2011.
FISCAL 2012 FINANCIAL GUIDELINES
Consolidated
Giving effect to the recent acquisition of Metromedia in the second quarter of
fiscal 2012 as well as significant changes in the cable sector (please refer
below), the Corporation revised its guidelines for the 2012 fiscal year.
Management currently expects revenue to reach $1,415 million, a reduction of
$152 million from the projections issued on October 25, 2011. Operating income
before amortization should decrease by $20 million to reach $595 million.
Financial expense should increase from $67 million to $69 million. Acquisitions
of property, plant and equipment should be reduced by approximately $17 million
and projected profit for the year attributable to owners of the Corporation is
expected to stand at approximately $80 million. Free cash flow should decrease
by approximately $15 million due to the impact of the 2011 federal budget
measures limiting the tax deferrals resulting in an additional cash outflow for
the Corporation.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revised
projections Projections
April 11, 2012 October 25, 2011
Fiscal 2012 Fiscal 2012
(in millions of dollars) $ $
----------------------------------------------------------------------------
Financial guidelines
Revenue 1,415 1,567
Operating income before depreciation
and amortization 595 615
Financial expense 69 67
Current income taxes expense 90 76
Profit for the year attributable to
owners of the Corporation 80 80
Acquisitions of property, plant and
equipment and intangible assets 345 362
Free cash flow 95 110
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cable sector
Giving effect to the sale of its Portuguese subsidiary in the second quarter of
fiscal 2012 and to the accelerated depreciation of certain property, plant and
equipment, Cogeco Cable revised its guidelines for the 2012 fiscal year. Other
Canadian operations guidelines were essentially maintained as initially
projected, except for the free cash flow described below. Management currently
expects revenue to reach $1,285 million, a reduction of $170 million from the
projections issued on October 25, 2011. PSU progression should reduce to 80,000
from the 90,000 original projection. Operating income before amortization should
decrease by $20 million to reach $580 million. Operating margin should increase
from 41.2% to 45.2%. Depreciation and amortization expense should increase from
$235 million to $270 million to take into consideration the accelerated
depreciation of property, plant and equipment, partly offset by the sale of the
Portuguese subsidiary. Acquisitions of property, plant and equipment should be
reduced by approximately $20 million and projected profit for the year is
expected to increase by $10 million to stand at approximately $235 million. Free
cash flow should decrease by approximately $15 million due to the impact of the
2011 federal budget measures limiting the tax deferrals resulting in an
additional cash outflow for the Corporation.
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Revised
projections Projections
(in millions of dollars, except net April 11, 2012 October 25, 2011
customer additions and operating Fiscal 2012 Fiscal 2012
margin) $ $
----------------------------------------------------------------------------
Financial guidelines
Revenue 1,285 1,455
Operating income before depreciation
and amortization 580 600
Operating margin 45.2% 41.2%
Depreciation and amortization 270 235
Financial expense 65 65
Current income taxes expense 90 75
Profit for the year 235 225
Acquisitions of property, plant and
equipment and intangible assets 340 360
Free cash flow 85 100
Net customer additions guidelines
PSU 80,000 90,000(1)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) The PSU net additions projections amounts in terms of RGU to 225,000
net additions as presented in the Fiscal 2012 financial guidelines of
the 2011 Annual Report.
NON-IFRS FINANCIAL MEASURES
This section describes non-IFRS financial measures from continuing operations
used by COGECO throughout this MD&A. It also provides reconciliations between
these non-IFRS measures and the most comparable IFRS financial measures. These
financial measures do not have standard definitions prescribed by IFRS and
therefore, may not be comparable to similar measures presented by other
companies. These measures include "cash flow from operations", "free cash flow",
"operating income before depreciation and amortization" and "operating margin".
Cash flow from operations and free cash flow
Cash flow from operations is used by COGECO's management and investors to
evaluate cash flows generated by operating activities, excluding the impact of
changes in non-cash operating activities, amortization of deferred transaction
costs and discounts on long-term debt, income taxes paid or received, current
income tax expense, financial expense paid and financial expense. This allows
the Corporation to isolate the cash flows from operating activities from the
impact of cash management decisions. Cash flow from operations is subsequently
used in calculating the non-IFRS measure, "free cash flow". Free cash flow is
used, by COGECO's management and investors, to measure its ability to repay
debt, distribute capital to its shareholders and finance its growth.
The most comparable IFRS financial measure is cash flow from operating
activities. Cash flow from operations is calculated as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Six months ended,
February February February February
29, 28, 29, 28,
2012 2011 2012 2011
($000) $ $ $ $
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash flow from operating
activities 126,455 90,891 136,025 143,269
Changes in non-cash
operating activities (9,905) 9,756 64,781 73,454
Amortization of deferred
transaction costs and
discounts on long-term debt 914 983 1,676 1,761
Income taxes paid (received) 19,093 685 57,077 (1,575)
Current income tax recovery
(expense) (25,971) 5,239 (47,290) (74,844)
Financial expense paid 10,677 20,231 31,511 40,727
Financial expense (16,110) (24,476) (33,888) (41,364)
----------------------------------------------------------------------------
Cash flow from operations 105,153 103,309 209,892 141,428
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Free cash flow is calculated as follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Six months ended
February February February February
29, 28, 29, 28,
2012 2011 2012 2011
($000) $ $ $ $
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Cash flow from operations 105,153 103,309 209,892 141,428
Acquisition of property,
plant and equipment (84,540) (60,611) (159,000) (115,488)
Acquisition of intangible
assets (2,646) (2,262) (6,590) (5,754)
----------------------------------------------------------------------------
Free cash flow 17,967 40,436 44,302 20,186
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating income before depreciation and amortization and operating margin
Operating income before depreciation and amortization is used by COGECO's
management and investors to assess the Corporation's ability to seize growth
opportunities in a cost effective manner, to finance its ongoing operations and
to service its debt. Operating income before depreciation and amortization is a
proxy for cash flows from operations excluding the impact of the capital
structure chosen, and is one of the key metrics used by the financial community
to value the business and its financial strength. Operating margin is a measure
of the proportion of the Corporation's revenue which is available, before income
taxes, to pay for its fixed costs, such as interest on Indebtedness. Operating
margin is calculated by dividing operating income before depreciation and
amortization by revenue.
The most comparable IFRS financial measure is operating income. Operating income
before depreciation and amortization and operating margin are calculated as
follows:
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarters ended Six months ended
February February February February
29, 28, 29, 28,
2012 2011 2012 2011
($000, except percentages) $ $ $ $
----------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
Operating income 58,931 68,597 133,573 151,925
Integration, restructuring
and acquisition costs 108 13,222 108 13,222
Depreciation and
amortization 85,479 50,321 151,098 99,989
----------------------------------------------------------------------------
Operating income before
depreciation and
amortization 144,518 132,140 284,779 265,136
----------------------------------------------------------------------------
Revenue 345,613 307,532 691,636 605,983
----------------------------------------------------------------------------
Operating margin 41.8% 43.0% 41.2% 43.8%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
ABOUT COGECO
COGECO is a diversified communications Corporation. Through its Cogeco Cable
subsidiary, COGECO provides its residential customers with Audio, Analogue and
Digital Television, as well as HSI and Telephony services using its two-way
broadband cable networks. Cogeco Cable also provides, to its commercial
customers, through its subsidiary Cogeco Data Services, data networking,
e-business applications, video conferencing, hosting services, Ethernet, private
line, VoIP, HSI access, data storage, co-location services, managed IT services,
cloud services and other advanced communication solutions. Through its
subsidiary, Cogeco Diffusion, COGECO owns and operates 13 radio stations across
most of 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 second
quarter of 2012, please refer to the Management Discussion and Analysis and
condensed consolidated financial statements of COGECO, available on the SEDAR
website at www.sedar.com.
Analyst Conference Thursday, April 12, 2012 at 11:00 a.m. (Eastern
Call: Daylight Time)
Media representatives may attend as listeners only.
Please use the following dial-in number to have access
to the conference call by dialling five minutes before
the start of the conference:
Canada/USA Access Number: 1-866-321-8231
International Access Number: 1-416-642-5213
Confirmation Code: 4637099
By Internet at www.cogeco.ca/investors
A rebroadcast of the conference call will be available
until July 11, by dialling:
Canada and US access number: 1 888-203-1112
International access number: + 1 647-436-0148
Confirmation code: 4637099
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