Cogeco 2005 Annual Report Download - page 14

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Cogeco Cable Inc. 2005
OVERVIEW OF OUR BUSINESS
Cogeco Cable is the second largest cable system operator
in Ontario and Québec and ranks fourth in Canada in terms
of the number of basic service customers. The Corporation’s
activities are based on its strong and reliable cable network
which provides basic service to about 821,000 customers,
digital services to about 255,000 customers and HSI services
to about 278,000 customers. Cogeco Cable recently added digital
telephony to its offer, and has nearly 2,500 customers including
pending installations to that service.
Corporate Strategies and Objectives
All of Cogeco Cable’s business objectives are based on the
improvement of profitability and the creation of shareholder
value. The preferred strategies for reaching those objectives are
constant corporate growth through the diversification of products
and services as well as of clientele, effective management of capital,
tight cost control and continual improvement of its business
and control processes.
Sustained Corporate Growth
Cogeco Cable’s primary strategy is based on sustained corporate
growth through continuing diversification of both its product
offer and its clientele. Customer surveys, trend analysis and
developments in the industry, together with constantly improving
customer service, are the building blocks for improving its offer.
Furthermore, Cogeco Cable has a history of integrating many
companies that work towards the same end to fulfill consumers’
telecommunications needs. Since 1972, when it first entered
the cable industry, nearly 35 companies and hundreds of thousands
of customers have joined Cogeco Cable.
Diversification and Improvement of Products and Services
The product and service offer is adjusted regularly to meet
the demands of the Corporation’s various clientele. Accordingly,
the Corporation offers a line of telecommunications products,
i.e. television, which provides, access to analog, digital, HD, VOD
and SVOD; the fastest HSI access in its markets and, just recently,
digital telephony, a service that is comparable to conventional
telephone service but costs less. The offer is supported by
increasingly targeted marketing in order to reach ever more
specific market segments. This strategy generates significant
growth with the existing clientele.
Diversification of Clientele
By diversifying its offer, Cogeco Cable attracts new clientele.
Better informed and more comfortable with technology, customers
are seeking products and services that meet their specific needs.
Cogeco Cable is on the lookout for new developments and product
improvements in order to serve its customers better and to acquire
new ones. The Corporation also remains open to any acquisition
opportunities that may arise, in or outside of Canada, provided
that they bring in a significant number of customers at a fair price
to increase the Corporation’s growth and value.
Effective Capital Management
A capital committee, comprised of the President and Chief
Executive Officer, the Vice President, Finance and Chief Financial
Officer, the Vice President, Engineering and Development as well as
the Vice President, Marketing, establishes the Corporation’s
investment strategy and regularly examines the allocation
of capital. Projects aligned with our strategy and providing
acceptable risk-adjusted return on investment are thus effectively
prioritized. Return on investment is assessed giving consideration
to the expected additional revenue and Operating Income as well as
cost savings. These analyses are carried out on a case-by-case basis
and by individually affected cable systems, if required.
Tight Cost Management
To maximize the Corporation’s profitability and its value
for shareholders, Cogeco Cable continues to exercise strict
control over its spending. This strategy enables the Corporation
to become more efficient while at the same time reducing its
costs, thereby making its offer even more attractive to customers.
The resulting decrease in operating costs has a positive impact
on the profit margin and on the return to shareholders.
Anticipated Results of these Strategies
The above-described strategies should result in increased
profitability and reduced Indebtedness, as measured according
to the following criteria. These criteria are described in greater
detail in “Fiscal 2006 Financial Guidelines” on page 28:
• Cogeco Cable expects to increase its revenue between 6% and 7%,
compared to 5% in 2005, due to increased penetration of HSI
and digital services in 2005 and 2006, the launch of digital
telephony and the rate hikes implemented in June and in August.
• Free Cash Flow in the order of $35 to $40 million should be
generated. It will be used primarily to reduce the debt
and therefore improve the Corporation’s leverage ratios.
• RGUs should grow by 8% to 10% compared to the 7% increase
experienced in fiscal 2005. As penetration of HSI services
increases, the growing demand for this offering should
diminish. However, demand for digital services is expected
to remain stable and demand for digital telephony should
increase significantly.
Management’s Discussion and Analysis