Cogeco 2009 Annual Report Download - page 26

Management’s discussion and analysis COGECO CABLE INC. 2009 25
OPERATING AND FINANCIAL RESULTS
OPERATING RESULTS
YEARS ENDED AUGUST 31, 2009 2008
(1)
CHANGE
(in thousands of dollars, except percentages) $ $ %
REVENUE 1,217,837 1,076,787 13.1
OPERATING COSTS 684,423 622,621 9.9
MANAGEMENT FEES — COGECO INC. 9,019 8,714 3.5
OPERATING INCOME BEFORE AMORTIZATION 524,395 445,452 17.7
OPERATING MARGIN 43.1% 41.4%
(1) CERTAIN COMPARATIVE FIGURES HAVE BEEN RECLASSIFIED TO CONFORM TO THE CURRENT YEAR’S PRESENTATION. FINANCIAL INFORMATION FOR THE PREVIOUS
YEAR HAS BEEN RESTATED TO REFLECT THE PRESENTATION OF FOREIGN EXCHANGE GAINS OR LOSSES AS FINANCIAL EXPENSE INSTEAD OF OPERATING COSTS.
REVENUE
Fiscal 2009 consolidated revenue increased by $141.1 million, or 13.1%, compared to the same period last year to reach
$1,217.8 million.
The Canadian operations contributed to an increase of $151.6 million, or 18.2% mainly due to various rate increases, RGU growth
and the recent acquisitions. Despite an increase in RGU for the European operations and the favourable impact of the appreciation
of the Euro over the Canadian dollar, revenue decreased by $10.6 million as a result of the difficult competitive environment and
recurring intense promotions and advertising initiatives from competitors in the Portuguese market.
OPERATING COSTS AND MANAGEMENT FEES
Fiscal 2009 consolidated operating costs increased by $61.8 million, or 9.9%, to reach $684.4 million.
The Canadian operations’ operating costs, excluding management fees payable to COGECO Inc., rose by $48.2 million, or 10.3%,
to reach $515.5 million, to service additional RGU and as a result of the recent acquisitions, partly offset by the favourable impact of
$19.8 million from the Part II licence fee settlement agreement described below. European operations’ operating costs amounted to
$169 million for fiscal 2009 compared to $155.4 million for 2008, an increase of $13.6 million, or 8.8%, primarily due to additional
costs to service increased RGU, an increase in the level of uncollectible customer accounts and the unfavourable impact of the
appreciation of the Euro over the Canadian dollar. Operating initiatives, such as a headcount reduction plan, have been deployed by
Cabovisão in order to curtail the increase in operating costs.
Part II licence fees payable to the CRTC have been the subject of litigation between the members of the Canadian Association of
Broadcasters (“CAB”), Videotron and CF Cable TV Inc. as plaintiffs and the Crown as the defendant. Cogeco Cable sought and
obtained intervener status in this proceeding with a view of supporting the position of the plaintiffs and protecting its rights to recover
past payments of Part II licence fees. On October 7, 2009, the parties reached an out-of-court settlement in the matter whereby the
Part II licence fees for the 2007 through 2009 fiscal years have been waived by the federal government and all pending proceedings
discontinued. Accordingly, the Corporation has reversed its $19.8 million provision for the Part II licence fees payable for the 2007
through 2009 fiscal years in the current fiscal year. The settlement agreement also provides that the federal government will
recommend that the CRTC develop a new, forward-looking fee regime that would be capped at $100 million per year for the
aggregate Part II licence fee liability of broadcasting licencees, to be indexed annually based on the Consumer price index.
Management fees paid to COGECO Inc. amounted to $9 million, an increase of 3.5% over fiscal 2008, and are discussed in detail in
the “Related Party Transactions” section on page 13.
OPERATING INCOME BEFORE AMORTIZATION
Fiscal 2009 consolidated operating income before amortization increased by $78.9 million, or 17.7%, to reach $524.4 million.
In fiscal 2009, operating income before amortization for the Canadian operations rose by $103.2 million, or 28.9%, compared to
fiscal 2008 as a result of various rate increases and RGU growth generating additional revenues which outpaced operating cost
increases, and due to the favourable impact of $19.8 million from the Part II licence fee settlement agreement. The inclusion of the
recent acquisition results also contributed to the growth in operating income before amortization. Cogeco Cable’s operating margin