Cogeco 2009 Annual Report Download - page 9

8 COGECO CABLE INC. 2009 Management’s discussion and analysis
OVERVIEW OF THE BUSINESS
Cogeco Cable is the second largest cable system operator in Ontario, Québec and Portugal in terms of the number of Basic Cable
service customers served. The Corporation’s operations are supported by hybrid fibre and co-axial cable broadband networks. The
Corporation provides its residential customers with Audio, Analogue and Digital Television as well as HSI and Telephony services.
In Canada, the Corporation provides, as at August 31, 2009, Basic Cable service to 864,805 customers, Digital Television service to
498,398 customers, HSI service to 515,052 customers and Telephony service to 281,608 customers. In Portugal, through its indirect
subsidiary Cabovisão — Televisão por Cabo, S.A. (“Cabovisão”), Cogeco Cable provides, as at August 31, 2009, Basic Cable
service to 259,480 customers, Digital Television service to 102,753 customers, HSI service to 143,614 customers and Telephony
service to 226,528 customers. The Corporation provides its Canadian business customers with data networking, e-business
applications, video conferencing, hosting services, Ethernet, private line, VoIP, HSI access, dark fibre, data storage, data security
and co-location services and other advanced communications services.
CORPORATE OBJECTIVES AND STRATEGIES
Cogeco Cable’s business objectives are to ensure corporate growth through the expansion of its service offering and its customer
base while maximizing shareholder value through profitability, notably operating income before amortization.
To achieve these objectives, the Corporation has developed strategies that focus on expanding its service offering, enhancing its
existing services and bundles, improving customer experience and business processes as well as keeping a sound capital
management and a strict control over spending. These strategies will be supported by developing continuously the infrastructure
network in accordance with sound capital expenditures management. Genuine customer service will arise by focusing on customer
needs with services at attractive prices while taking into account the competitive landscape and the market economic conditions,
using a variety of sales channels, simplifying and tightening customer-related processes thus providing better cost controls.
ANTICIPATED RESULTS FROM THESE STRATEGIES
The successful implementation of the above-described strategies should result in increased revenue through RGU growth, and
lower increases in operating costs which combined, should lead to heightened profitability and reduced Indebtedness that will be
measured based on the following criteria (these criteria are described in greater detail on page 44 in “Fiscal 2010 Financial
Guidelines”):
• Cogeco Cable expects to achieve operating income before amortization
(1)
of $481 million in fiscal 2010 as a result of increases
in penetration of the various services offered, the rate increases implemented in fiscal 2009 and the further development of its
business telecommunications activities from the acquisitions of MaXess Networx®, FibreWired Burlington Hydro
Communications and Cogeco Data Services Inc. (“CDS”) (together, the “recent acquisitions”) completed in fiscal 2008.
• The Corporation expects to generate a free cash flow
(1)
of $125 million as a result of the operating income before amortization
described above and a recovery in current income taxes stemming from modifications to the corporate structure, partly offset
by an increase in capital expenditures. The majority of the free cash flow will be used to reduce Indebtedness.
• RGU are expected to grow by approximately 125,000 in the coming year. This growth will stem from expanded penetration of
Telephony, HSI and Digital Television services, while taking into account the maturation of our services in the Canadian
operations and the difficult economic and competitive environment in Portugal.
Please refer to the “Key performance indicators” section on page 9 for further details on the fiscal 2009 results and achievements.
CABLE NETWORKS
CANADA
Cogeco Cable provides its residential and business customers cable, data and telecommunication services in Canada through state-
of-the-art fibre optic and broadband distribution networks. It is the Corporation’s general policy to fully own its distribution networks,
head-ends and data centres as well as its transmission equipment and access facilities. As at August 31, 2009, Digital Television
and VOD services were available to approximately 99% and 92% of homes passed, respectively, and approximately 96% of homes
passed were served by a two-way cable plant. Including all acquisitions, the Corporation’s inter-city optical fibre network extends
over 9,849 kilometres and includes 101,142 kilometres of optical fibre. The Corporation has deployed optical fibre to nodes serving
clusters of typically at or below 1,000 homes passed, with multiple fibres per node in most cases, which allows the Corporation to
further extend the capacity of the fibre plant to clusters of 500 homes or less rapidly if and when necessary. This process, known as
“Node Splitting”, leads to further improvement in the quality and reliability and an increase in the capacity of two-way services such
as HSI, VOD and Telephony.
(1) THE INDICATED TERMS DO NOT HAVE STANDARDIZED DEFINITIONS PRESCRIBED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”) AND THEREFORE, MAY
NOT BE COMPARABLE TO SIMILAR MEASURES PRESENTED BY OTHER COMPANIES. FOR FURTHER DETAILS, PLEASE CONSULT THE “NON-GAAP FINANCIAL MEASURES”
SECTION ON PAGE 37.