Cogeco 2007 Annual Report Download - page 23

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Management’s Discussion and Analysis COGECO CABLE INC. 2007 21
HUMAN RESOURCES
Cogeco Cable maintains appropriate labour relations both in Canada and in Portugal, but there is no assurance that requisite
collective agreements will be established or renewed without confl ict or disruption to the provision of its services. Cogeco
Cable maintains, as well, appropriate relations with its key personnel. The Corporation’s success depends to a signifi cant
extent on its ability to attract and retain its managers and skilled employees in an increasingly competitive market. The
Corporation’s inability or failure to recruit, retain or adequately train its human resources may have a materially adverse effect
on the Corporation’s business and future prospects.
CONTROLLING SHAREHOLDER AND HOLDING STRUCTURE
Cogeco Cable is controlled by COGECO Inc. through the holding of multiple voting shares of Cogeco Cable, and
COGECO Inc. is in turn controlled by Gestion Audem Inc., a company controlled by Mr. Henri Audet and members of his
family (the Audet Family), through the holding of multiple and subordinate voting shares of COGECO Inc. Both Cogeco Cable
and COGECO Inc. are reporting issuers with subordinate voting shares listed on the Toronto Stock Exchange. Pursuant to the
Confl icts Agreement in effect between Cogeco Cable and COGECO Inc., all cable properties must be owned or controlled
by Cogeco Cable.
COGECO
Inc. is otherwise free to own and operate any other business or invest as it deems appropriate.
It is possible that situations could arise where the respective interests of the controlling shareholder COGECO Inc. and
other shareholders of Cogeco Cable, or the respective interests of the Audet Family and other shareholders of COGECO Inc.,
could differ.
PERFORMANCE HIGHLIGHTS
FINANCIAL RESULTS AND CASH FLOW
For the 2007 fi scal year, Cogeco Cable achieved revenue growth of 51.4%. The Canadian operations revenue rose by 18.4%,
surpassing the initial 10% to 12% target. Revenue growth for the Canadian operations resulted primarily from various rate
increases and higher penetration of HSI, Telephony, Basic Cable and Digital Television services. Revenue from the Portuguese
operations amounted to $224.8 million for its fi rst full year of operations as a subsidiary of Cogeco Cable, which is slightly
below the 2007 original guidelines, due to a lower growth in RGUs. The average foreign exchange conversion rate prevailing
during fi scal 2007 was $1.4803 per euro compared to a guideline of $1.40 per euro. Operating income before amortization
rose by 46.6%. The Canadian operations’ operating income before amortization increased by 18.1%, thus exceeding the initial
objective of 6% to 8%, and the Portuguese operations’ operating income before amortization amounted to $77.9 million,
exceeding its initial objective of $69 million to $71 million. This result is attributable to higher revenue per Basic Cable service
customer, cost controls and process improvement measures.
Financial expense increased by $27.2 million, in line with management’s guideline, as a higher level of Indebtedness was
required to fi nance the acquisition of the Portuguese subsidiary, Cabovisão. Furthermore, a one-time charge of $2.6 million
related to the early repayment of the Second Secured Debentures Series A, was also a factor contributing to this increase.
Amortization increased by $68.5 million, which is $7.3 million higher than expected, due to the completion of the purchase
price allocation of the Cabovisão acquisition that reevaluated the fair market value of tangible assets and intangible assets.
Cogeco Cable reports net income higher than its initial forecasts, standing at $84.7 million, mainly due to higher than
expected operating income before amortization outpacing the fi xed charges and to non-cash adjustments of about
$16.2 million in the Canadian income taxes attributable to the recognition of benefi ts related to prior year’s income tax losses,
to minimum income tax paid and to a reduction of Canadian federal enacted income tax rate effective in January 2011.
Capital expenditures, including assets acquired under capital leases, and the increase in deferred charges amounted to
$254 million, $25 million more than initially expected. This variance is primarily due to an increase in purchases of customer
premise equipment, resulting from the greater number of additional RGUs served and to the acceleration of upgrade and
reconstruction activities. The deferred charges increase resulted from reconnect costs due to the higher-than-anticipated
RGU growth in Canada. Free cash fl ow of $30.6 million was generated, higher than the $20 million to $25 million target
initially expected. The variance in free cash fl ow is the result of an increase in operating income before amortization, partly
offset by increased capital expenditures and deferred charges to support the overall RGU growth, including improved service
penetration of Telephony.