Cogeco 2011 Annual Report Download - page 40

Management’s Discussion and Analysis (MD&A) COGECO CABLE INC. 2011 39
European operations
Customer statistics
Net additions (losses) % of penetration
(1)
August 31, Years ended August 31, August 31,
2011 2011 2010 2011 2010
RGU 831,665 2,893 96,397
Basic Cable service customers 255,777 (4,490) 787
HSI service customers 162,436 (751) 19,573 63.5 62.7
Digital Television service customers 164,580 4,728 57,099 64.3 61.4
Telephony service customers 248,872 3,406 18,938 97.3 94.3
(1) As a percentage of Basic Cable service in areas served.
Economic conditions in Portugal continued to be difficult. During the third quarter of fiscal 2011, and as part of the negotiated financial
assistance package, the Portuguese government has committed to financial reforms which include increases in sales and income taxes
combined with reductions in government spending on social programs. Please consult the “Impairment of goodwill and fixed assets” section for
further details. These measures are expected to put further downwards pressure on consumer spending and increase the intensity of the
competitive environment. The rate of growth for our services has diminished in this environment, with net customer losses in Basic Cable and
HSI services in the European operations in fiscal 2011. The number of Basic Cable service customers decreased by 4,490 in fiscal 2011,
compared to growth of 787 customers in the prior year. HSI service customers decreased by 751 compared to an increase of 19,573 in the
prior year. Fiscal 2011 net customer additions to the Digital Television service customers amounted to 4,728 customers, compared to 57,099 in
fiscal 2010. The number of Telephony service customers increased by 3,406 in the 2011 fiscal year, compared to 18,938 customers in the prior
year.
Operating results
Years ended August 31, 2011 2010 Change
(in thousands of dollars, except percentages) $ $ %
Revenue 172,277 187,756 (8.2)
Operating costs 151,262 155,189 (2.5)
Operating income before amortization 21,015 32,567 (35.5)
Operating margin 12.2% 17.3%
Revenue
Fiscal 2011 revenue amounted to $172.3 million, $15.5 million, or 8.2%, less than in the prior year. The decline in revenue was mainly due to
Basic Cable service customer losses combined with the lower value of the Euro in relation to the Canadian dollar. Revenue from the European
operations in the local currency for fiscal 2011 amounted to €125.4 million, representing a decrease of €5.5 million, or 4.2%, when compared to
the prior year.
Operating costs
For fiscal 2011, European operations’ operating costs decreased by $3.9 million, or 2.5%, at $151.3 million, primarily due to the lower value of
the Euro in relation to the Canadian dollar combined with the lower cost of servicing fewer Basic Cable service customers. These decreases in
operating costs offset increases related to additional marketing initiatives and the launch of new HD channels by Cabovisão. Operating costs of
the European operations for fiscal 2011 in the local currency amounted to €110.2 million, €1.8 million, or 1.7% higher when compared to
€108.4 million in the prior year.
Operating income before amortization and operating margin
Operating income before amortization decreased to $21 million in fiscal 2011 from $32.6 million in fiscal 2010, representing a decrease of
$11.6 million, or 35.5%, mainly due to a decrease in revenue which outpaced the decrease in operating costs. European operations’ operating
margin decreased to 12.2% from 17.3% in fiscal 2010. Operating income before amortization in the local currency amounted to €15.3 million
for the year compared to €22.6 million for the previous year, representing a decrease of 32.6%.