Cogeco 2012 Annual Report Download - page 37

36 COGECO CABLE INC. 2012 Management’s Discussion and Analysis (MD&A)
FISCAL 2013 FINANCIAL GUIDELINES
Cogeco Cable maintains its fiscal 2013 financial guidelines, as issued on July 11, 2012. Fiscal 2013 financial guidelines will be revised once
the recently announced acquisition of Atlantic is concluded.
For fiscal 2013, Cogeco Cable expects to achieve revenue of $1.350 billion, representing growth of $72 million, or 5.6% when compared to the
fiscal 2012. The guidelines take into consideration the current uncertain global economic environment. In Canada, household debt remains a
concern as credit market debt as a % of personal disposal income continues to rise and average resale price to household income continue to
increase, which should coincide with a contraction in consumer spending. In addition, the high value of the Canadian dollar may generate
further restructuring in the manufacturing sector and additional headwinds from government spending restraints might result in slower 2013
growth.In previous recessionary periods, demand for cable telecommunications services has generally proven to be resilient; however there is
no assurance that demand would remain resilient in a prolonged difficult economic environment. These guidelines also take into consideration
the competitive environment that prevails in Canada, the deployment of new technologies such as FTTH, Fibre to the Node (“FTTN”) and
Internet Protocol Television (“IPTV”) by the incumbent telecommunications providers.
Revenue should increase as a result of PSU growth 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. Revenue will also benefit from the impact of rate increases implemented in
June 2012 in Quebec and July 2012 in Ontario, ranging on average between $2 to $3 per HSI and Telephony service customers. Cogeco
Cable’s strategies include consistently effective marketing to residential and business customers, competitive product offerings and superior
customer service, which combined, lead to the expansion and loyalty of the Basic Cable Service clientele. As the penetration of residential HSI,
Telephony and Digital Television services increase, the new demand for these products should slow, reflecting signs of maturity. However,
growth in the commercial and business sector is expected to continue at a consistent pace.
As a result of increased costs to service additional PSU, inflation and manpower increases, as well as the continuation of the marketing
initiatives and retention strategies, operating expenses are expected to expand by approximately $47 million, or 6.8% in the 2013 fiscal year
when compared to fiscal 2012.
For fiscal 2013, the Corporation expects operating income before depreciation and amortization of $614 million, an increase of $25 million, or
4.2% when compared to fiscal 2012. The operating margin is expected to reach approximately 45.5% in fiscal 2013, compared to 46.1% for the
2012 fiscal year, reflecting operating expenses growth slightly higher than the revenue growth.
Cogeco Cable expects the depreciation and amortization of property, plant and equipment and intangible assets to increase by $15 million for
fiscal 2013, mainly from acquisition of capital expenditures and the increase in intangible assets related to PSU growth and other initiatives and
by the full year impact of those of fiscal 2012. In addition, the depreciation and amortization expense for fiscal 2012 included the impact from
the reduction of the depreciation period for certain home terminal devices. Cash flows from operations should finance capital expenditures and
the increase in intangible assets amounting to $350 million, a decrease of $25 million when compared to fiscal 2012. Capital expenditures
projected for the 2013 fiscal year are mainly due to customer premise equipment required to support PSU growth, scalable infrastructure for
product enhancements and the deployment of new technologies, line extensions to expand existing territories, support capital to improve
business information systems and support facility requirements and expansion for the Enterprise services segment.
Fiscal 2013 free cash flow is expected to amount to $105 million, an increase of $39 million, or 59.1% when compared to the free cash flow of
$66 million for fiscal 2012, resulting from the growth in operating income before depreciation and amortization and by a reduction in capital
expenditures. Generated free cash flow will result in reduced Indebtedness net of cash and cash equivalent, thus improving the Corporation’s
net leverage ratios. Financial expense should amount to $64 million, essentially the same when compared to the 2012 fiscal year, as a result of
a slight increase in the Corporation’s cost of debt reflecting current market conditions, partly offset by the reduction in Indebtedness level. As a
result, profit for the year of approximately $190 million should be achieved compared to $225 million for the fiscal 2012. The 2012 profit for the
year include $55 million profit from discontinued operations resulting from the disposal of the Portuguese subsidiary. Excluding this item, the
fiscal 2013 projected profit for the year represents an increase of $20 million, or 11.8%, when compared to the fiscal 2012 profit for the year.