Cogeco 2011 Annual Report Download - page 9

8 COGECO CABLE INC. 2011 Management’s Discussion and Analysis (MD&A)
Overview of the business
Cogeco Cable (www.cogeco.ca) is a telecommunications corporation, the second largest hybrid fibre coaxial cable operator in Ontario, Québec
and Portugal. Through its two-way broadband cable networks, Cogeco Cable provides its residential customers with Audio, Analogue and
Digital Television, as well as High Speed Internet (“HSI”) and Telephony services. In Canada, the Corporation provides, as at August 31, 2011,
Basic Cable service to 877,985 customers, Digital Television service to 678,326 customers, HSI service to 601,214 customers and Telephony
service to 418,270 customers. In Portugal, through its indirect subsidiary Cabovisão — Televisão por Cabo, S.A. (“Cabovisão”), Cogeco Cable
provides, as at August 31, 2011, Basic Cable service to 255,777 customers, Digital Television service to 164,580 customers, HSI service to
162,436 customers and Telephony service to 248,872 customers. Cogeco Cable also provides its commercial customers with data networking,
e-business applications, video conferencing, hosting services, Ethernet, private line, Voice over Internet Protocol (“VoIP”), HSI access, data
storage, data security, co-location services, managed IT services, cloud services and other advanced communication solutions.
On June 27, 2011, Cogeco Cable concluded an agreement to acquire all of the shares of Quiettouch Inc. (“Quiettouch”), a leading independent
provider of outsourced managed information technology and infrastructure services to mid-market and larger enterprises in Canada.
Quiettouch offers a full suite of differentiated services that allow customers to outsource their mission-critical information technology
infrastructure and application requirements, including managed infrastructure and hosting, virtualization, firewall services, data backup with
end-to-end monitoring and reporting, and enhanced and traditional co-location services. Quiettouch operates three data centres in Toronto and
Vancouver, as well as a fibre network within key business areas of downtown Toronto. The transaction was completed on August 2, 2011.
On August 31, 2011, Cogeco Cable concluded and completed an agreement to acquire all the shares of MTO Telecom Inc. (“MTO”). With over
1,500 kilometres of network, MTO, the largest private telecommunications provider in the Greater Montréal Area and the Province of Québec,
offers high-performance Ethernet broadband connectivity services to carrier, enterprise and public sector customers.
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 economic environment, using a variety of sales channels, simplifying and tightening
customer-related processes thus providing better cost controls.
Anticipated results of these strategies
The successful implementation of the above-described strategies should result in increased revenue through RGU growth, and slower
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 2012 financial guidelines”):
• Cogeco Cable expects to achieve operating income before amortization(1) of $600 million in fiscal 2012 as a result of RGU growth, the
business acquisitions recently completed and the rate increases implemented in fiscal 2011 and in the beginning of fiscal 2012 in the
Canadian operations. However management anticipates that the decline in the customer base of the European operations, which began
during the second half of fiscal 2011, is likely to continue in the next year. Net losses are expected in Basic Cable and Digital Television
service customers partly offset by net additions coming from HSI and Telephony service customers. Management is expected to maintain
its retention strategies and marketing initiatives implemented over the last few years, but the economic difficulties being experienced by
the European market at large and the competitive environment which has plagued the Portuguese telecommunications industry for the
past years are continuing to negatively impact the financial results of the European operations;
• The Corporation expects to generate a free cash flow(1) of $100 million as a result of increases in capital expenditures and increase in
deferred charges and in current income tax expense, which are expected to offset the growth in operating income before amortization.
Generated free cash flow should be used primarily to reduce Indebtedness, thus improving the Corporation’s leverage ratios;
• RGU are expected to grow by approximately 225,000 in the coming year, stemming from targeted marketing initiatives to improve
penetration rates of the Digital Television, HSI and Telephony services. Furthermore, the Digital Television service should continue to
benefit from the customers’ ongoing strong interest in the Corporation’s growing HD service offerings. Canadian operations revenue will
also benefit from the impact of rate increases implemented in April 2011 in Ontario and Québec, averaging $2 per Basic Cable service
customer, and in October 2011, averaging $1.75 per HSI customer.
Please refer to the “Key performance indicators” section on page 10 for further details on the fiscal 2011 results and achievements.
(1) The indicated terms do not have standardized definitions prescribed by Canadian 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 45.