Cogeco 2009 Annual Report Download - page 38

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Management’s discussion and analysis COGECO CABLE INC. 2009 37
Fiscal 2009 was marked by a continuing difficult competitive environment in the Iberian Peninsula, recurring intense promotions and
advertising initiatives from competitors for their new respective third leg of the triple-play service in the Portuguese market. These
factors were the main contributors to net customer losses in Basic Cable, HSI and Telephony services compared to the same period
last year. The Digital Television service was launched in the third quarter of 2008, with net additions of 78,301 customers in fiscal
2009 for a total of 102,753 customers since the launch, surpassing management’s expectations. Fiscal 2009 Basic Cable service
decreased by 36,655 customers compared to a growth of 2,132 in 2008, HSI service customers decreased by 15,687 compared to
722 customers in 2008, and Telephony service decreased by 18,550 customers compared to a growth of 1,947 for the same period
of the preceding year.
In addition to the launch of new channels and retention strategies during fiscal 2009 in Portugal, new marketing initiatives were
implemented, the result of which should reduce customer attrition in the upcoming quarters.
OPERATING RESULTS
YEARS ENDED AUGUST 31,
2009
2008
(1)
CHANGE
(in thousands of dollars, except percentages) $
$
%
REVENUE
233,092
243,690
(4.3)
OPERATING COSTS
168,973
155,355
8.8
OPERATING INCOME BEFORE AMORTIZATION
64,119
88,335
(27.4)
OPERATING MARGIN
27.5%
36.2%
(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
For fiscal 2009, revenue amounted to $233.1 million compared to $243.7 million, a decrease of 4.3% due to the impact of retention
strategies implemented to reduce customer attrition, partly offset by the favourable impact of the appreciation of the Euro over the
Canadian dollar and monthly rate increases implemented by Cabovisão averaging $2.00 (€1.30) per Basic Cable customer during
the 2008 fiscal year. Fiscal 2009 revenue from the European operations in the local currency amounted to €146.7 million, a
decrease of €14.6 million or 9.1% over the prior year.
OPERATING COSTS
For fiscal 2009, European operations’ operating costs increased by $13.6 million to reach $169 million, an increase of 8.8%
compared to the prior year. Operating costs increased mainly due to the unfavourable impact of the appreciation of the Euro over
the Canadian dollar and an increase in the amount of bad debts. During the second half of the 2009 fiscal year, Cabovisão
implemented initiatives to improve its accounts receivable collection processes which management expects will have a favourable
impact on the level of bad debts in fiscal 2010. Operating costs from the European operations in the local currency amounted to
€106.3 million, an increase of €3.7 million or 3.6% over fiscal 2008.
OPERATING INCOME BEFORE AMORTIZATION
Operating income before amortization decreased by 27.4% to $64.1 million from $88.3 million. Fiscal 2009 operating income before
amortization from the European operations in the local currency amounted to €40.4 million, a decrease of €18.3 million or 31.2%
due to increases in operating costs and decreases in revenue. Fiscal 2009 operating margin decreased to 27.5% from 36.2%.
NON-GAAP FINANCIAL MEASURES
This section describes non-GAAP financial measures used by Cogeco Cable throughout this MD&A. It also provides reconciliations
between these non-GAAP measures and the most comparable GAAP financial measures. These financial measures do not have
standard definitions prescribed by Canadian GAAP and may not be comparable with similar measures presented by other
companies. These measures include “cash flow from operations”, “free cash flow”, “operating income before amortization”,
“operating margin”, “adjusted net income” and “adjusted earnings per share”.