Cogeco 2013 Annual Report Download - page 47

46 COGECO CABLE INC. 2013 Management's discussion and analysis (“MD&A”)
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 increase 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 the 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 approximately $230 million should be achieved compared to $185 million for fiscal 2013.
Fiscal 2014 financial guidelines are as follows:
Revised
projections
October 30, 2013
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 property, plant and equipment, intangible and other assets 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, financial expense,
current income tax expense and acquisitions of property, plant and equipment, intangible and other assets.
NON-IFRS FINANCIAL MEASURES
This section describes non-IFRS financial measures used by Cogeco Cable 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 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.