Cogeco 2003 Annual Report Download - page 21

Cogeco Cable has entered into foreign exchange
forward contracts to hedge a portion of anticipated purchases
in US dollars. At August 31, 2003, the forward contracts had a
nominal value of US$13.3 million and mature at different dates
until August 16, 2004.
Commitments
Cogeco Cable’s contractual obligations as of August 31,
2003, are shown in the table above.
(7) Fiscal 2004
Financial Guidelines
Effective marketing and customer service combined with
the continued success of bundling services should further improve
customer retention and make cable services a more competitive
offering as a whole. However, the strength of the competition
in the regions served by Cogeco Cable could partly compromise
the attainment of this objective. Based on the current competitive
environment, the Corporation anticipates basic service customer
losses of 11,000 to 13,000; this is less than the 15,711 loss in
fiscal 2003. Based on current demand, the Corporation forecasts
that it will add 35,000 to 40,000 HSI customers and 33,000 to
38,000 digital terminals by August 31, 2004.
The Corporation expects to achieve revenue growth
between 5% and 6%. About half of the growth should stem from
rate increases implemented last January and during the fourth
quarter of fiscal 2003. Increased penetration of HSI services
and other services should contribute to the balance of the rise
in revenue. Operating costs, including management fees, are
expected to increase by a moderate 3% to 4% as tight cost
controls and improvements in processes will continue. For
example, IP transport costs are expected to remain flat despite
an anticipated 18% expansion of the HSI customer base. Cogeco
Cable should further benefit from savings achieved through
various contract renegotiations. Operating Income should grow
by 8% to 10% as a result of the above forecasts resulting in
amargin between 39% and 40%.
Cogeco Cable forecasts that depreciation of fixed assets
and amortization of deferred charges will increase by 8%. The
rate of growth in depreciation and amortization is foreseen to
decline, as the level of capital expenditures and deferred charges
continues to remain stable or be reduced. Expected Cash Flow
of $132 million to $137 million should finance the capital
expenditures and deferred charges program of $117 million.
See section on “Investing Activities” for a detailed discussion on
these guidelines. As a result, the Corporation plans to generate
Free Cash Flow of $15 million to $20 million arising essentially
from Operating Income growth. Generated Free Cash Flow should
be applied to reduce Indebtedness while improving Cogeco Cable’s
leverage ratios. Based on the expected decrease in Indebtedness,
financial expense should decline by 1%. See section on “Capital
Structure” for leverage ratios guidelines. Net income of about
$11 million should be realized given Operating Income growth
outpacing fixed charges increases.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Cogeco Cable Inc. 2003 19
(1) Includes principal repayments and the impact of cross-currency swap agreements
but excludes capital leases.
(2) Includes principal repayments and financial expense.
(in thousands of dollars)
Years ended August 31, 2004 2005 2006 2007 2008 Thereafter Total
Commitments
Long-term debt (1) $1,400 $ 1,400 $ 16,520 $ 220,000 $ — $ 563,650 $ 802,970
Capital leases (2) 789 533 301 109 — — 1,732
Operating leases and others 18,830 16,196 15,684 13,472 12,640 15,381 92,203