Cogeco 2011 Annual Report Download - page 39

38 COGECO CABLE INC. 2011 Management’s Discussion and Analysis (MD&A)
Canadian operations
Customer statistics
Net additions % of penetration
(1)
August 31, Years ended August 31, August 31,
2011 2011 2010 2011 2010
RGU 2,575,795 225,218 190,714
Basic Cable service customers 877,985 3,480 9,700
HSI service customers 601,214 42,157 44,005 70.6 66.2
Digital Television service customers 678,326 118,908 61,020 78.2 64.8
Telephony service customers 418,270 60,673 75,989 51.3 44.4
(1) As a percentage of Basic Cable service in areas served.
During fiscal 2011, the number of RGU grew by 225,218, or 9.6%, to reach 2,575,795, compared to a growth of 190,714, or 8.8% in the prior
year. The Canadian operations continue to generate RGU growth despite higher penetration rates, category maturity and aggressive
competition. Basic Cable service customer net additions stood at 3,480 for fiscal 2011, compared to 9,700 in the prior year. Basic Cable
service net additions in fiscal 2011 were mainly due to expansions in the network and the bundling effect of continued growth in HSI and
Telephony services. In fiscal 2011, Telephony service customers grew by 60,673 compared to 75,989 in fiscal 2010, and the number of net
additions to the HSI service stood at 42,157 customers compared to 44,005 customers in the prior year. HSI and Telephony net additions
continue to stem from the enhancement of the product offering, the impact of the bundled offer (Cogeco Complete Connection) of Television,
HSI and Telephony services, and promotional activities. For the 2011 fiscal year, additions to the Digital Television service stood at 118,908
customers, compared to 61,020 for the prior fiscal year. Digital Television service net additions are due to targeted marketing initiatives to
improve penetration, the launch of new HD channels, the continuing interest for HD television service and the deployment of the DTA
technology in most of the Corporation’s markets.
Operating results
Years ended August 31, 2011 2010 Change
(in thousands of dollars, except percentages) $ $ %
Revenue 1,188,889 1,093,620 8.7
Operating costs 634,749 607,072 4.6
Management fees — COGECO Inc. 9,172 9,019 1.7
Operating income before amortization 544,968 477,529 14.1
Operating margin 45.8% 43.7%
Revenue
Driven by RGU growth combined with an increase in rentals of home terminal devices stemming from the strong growth in Digital Television
services and rate increases implemented in April 2011 and in the second half of fiscal 2010, revenue rose by $95.3 million, or 8.7%, at
$1,188.9 million. The revenue related to the levy amounting to 1.5% of gross Cable Television service revenue imposed by the Canadian
Radio-television and Telecommunications Commission (“CRTC”) in order to finance the Local Programming Improvement Fund (“LPIF”) also
contributed to the revenue growth in fiscal 2011.
Operating costs
For the year ended August 31, 2011, operating costs increased by $27.7 million, or 4.6%, at $634.7 million. The increase in operating costs is
mainly attributable to servicing additional RGU, the launch of new HD channels and additional marketing initiatives.
Operating income before amortization and operating margin
As a result of revenue growth exceeding the increase in operating costs, fiscal 2011 operating income before amortization amounted to
$545 million, $67.4 million, or 14.1%, higher than in the prior year. The operating margin increased to 45.8% from 43.7% when compared to
fiscal 2010. The growth in the operating margin stems from rate increases and RGU growth.