Cogeco 2012 Annual Report Download - page 9

8 COGECO CABLE INC. 2012 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 and
Québec. In fiscal 2012, the Corporation reported its operating results in two operating segments: Cable services and Enterprise services. The
Cable services segment provides a wide range of Analogue and Digital Television, HSI and Telephony services primarily to residential
customers. It also provides business solutions, including data networking, Ethernet, hosting, HSI access and VoIP services, to small and
medium sized businesses. As at August 31, 2012, the Corporation provides Television service to 863,115 customers, Digital Television service
to 771,503 customers, HSI service to 634,534 customers and Telephony service to 471,484 customers. The Enterprise services segment
provides data centre, managed IT and connectivity services for medium and large enterprises and public sector customers. It also provides
high-performance Ethernet broadband connectivity services to carriers. This segment offers the provision of physical space and power within
its high security data centres and a new suite of managed IT and infrastructure services, as well as a full suite of connectivity services
provisioned over its wholly-owned optical networks. The reporting structure reflects how the Corporation manages the business activities to
make decision about resources to be allocated to the segment and to assess its performance. For further details on the Corporation’s operating
results, please refer to the “Cable services” and “Enterprise services” sections on page 29 and 30 respectively.
On July 18, 2012, the Corporation announced an agreement to acquire all of the shares of Atlantic Broadband ("Atlantic") an independent cable
system operator formed in 2003 which, at August 31, 2012, was serving about 251,000 Television service customers providing Analogue and
Digital Television, as well as HSI and Telephony services. Ranked the 13th-largest cable television system operator in the United States,
Atlantic operates cable systems in Pennsylvania, Florida, Maryland, Delaware and South Carolina. The transaction is valued at US$1.36 billion
and expected to be financed through a combination of cash on hand, a draw-down on its existing Term Revolving Facility of approximately
US$550 million and US$660 million of borrowings under a new committed non-recourse debt financing at Atlantic. The transaction is subject to
usual closing conditions, including Hart-Scott-Rodino Antitrust Improvements Act approval, Federal Communications Commission (“FCC”)
approval, state and local regulatory approvals and other customary conditions. The Corporation expects the transaction to close by the end of
calendar 2012.
On February 29, 2012, the Corporation completed the sale of its Portuguese subsidiary, Cabovisão – Televisão por Cabo, S.A. (“Cabovisão”)
for a cash consideration of €45 million or approximately $59.3 million. Operating results from European operations have therefore been
classified as discontinued operations. For further details, please refer to the “Disposal of subsidiary and discontinued operations” section on
page 31.
CORPORATE OBJECTIVES AND STRATEGIES
Cogeco Cable’s objectives are to improve profitability and create shareholder value. 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. The Corporation measures its performance, with regard to these objectives by monitoring operating income before depreciation and
amortization(1), operating margin(1), PSU growth and free cash flow(1).
ANTICIPATED RESULTS OF THESE STRATEGIES
The successful implementation of the above-described strategies should result in increased revenue through PSU growth, and slower
increases in operating expenses 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 36 in “Fiscal 2013 financial guidelines”):
 Cogeco Cable expects to achieve operating income before depreciation and amortization of $614 million in fiscal 2013 as a result of PSU
growth as well as rate increases;
 The Corporation expects to generate free cash flow of $105 million resulting from the growth in operating income before depreciation and
amortization and by a reduction in acquisitions of property, plant and equipment and intangible assets. Generated free cash flow should
be used primarily to reduce Indebtedness, thus improving the Corporation’s leverage ratios;
 PSU are expected to grow by approximately 50,000 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. 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.
Please refer to the “Key performance indicators” section on page 10 for further details on the fiscal 2012 results and achievements.
(1) The indicated terms do not have standardized definitions prescribed by IFRS and therefore, may not be comparable to similar measures presented by other
companies. For more details, please consult the “Non-IFRS financial measures” section.