Cogeco 2014 Annual Report Download - page 41

40 COGECO CABLE INC. 2014 MD&A
data centre facility in Kirkland, Montréal, is expected to be completed in the Spring of fiscal 2015 and should begin generating revenue. The
revenue growth should also be driven by connectivity services as a result of network expansions and new customer installations.
Fiscal 2015 operating expenses are expected to expand by approximately $50 million, or 4.7%, compared to fiscal 2014 mainly due to additional
expenditures to support the Enterprise data services segment growth, salary increases as well as the continuation of the marketing initiatives
and retention strategies. These increases should be partly offset by cost reduction initiatives from improved systems and processes and by the
restructuring activities that were completed in fiscal 2014.
For fiscal 2015, the Corporation expects adjusted EBITDA of $925 million, an increase of $32 million, or 3.6%, compared to fiscal 2014. The
operating margin is expected to reach approximately 45.6% in fiscal 2015, compared to 45.9% for fiscal 2014, reflecting lower margins business
activities from the Enterprise data services segment as well as operating expenses increasing slightly faster than the revenue.
Cogeco Cable expects the depreciation and amortization of property, plant and equipment and intangible assets to increase by $5 million for
fiscal 2015, mainly from the increase in capital expenditures in fiscal 2015. Cash flows from operations should finance capital expenditures which
are expected to reach $430 million compared to $415 million for fiscal 2014. Fiscal 2015 capital expenditures should increase mainly due to the
completion of the expansion of the Barrie data centre facility and the construction of the first pod of a new data centre in Kirkland in the Enterprise
data services segment.
Fiscal 2015 free cash flow is expected to amount to $280 million compared to fiscal 2014 free cash flow of $275 million due to the adjusted
EBITDA growth, partly offset by additional capital expenditures. As a result, generated free cash flow will reduce Indebtedness net of cash and
cash equivalent, thus improving the Corporation's net leverage ratios. Financial expense should amount to $125 million, a decrease of $5 million,
or 3.8%, from lower Indebtedness level. Finally, profit for the year should reach approximately $260 million compared to $209 million for fiscal
2014.
Fiscal 2015 financial guidelines are as follows:
Projections
October 31, 2014
Preliminary
projections
July 9, 2014 Actuals
Fiscal 2015 Fiscal 2015 Fiscal 2014
(in millions of dollars, except percentages) $$ $
Financial guidelines
Revenue 2,030 2,030 1,948
Adjusted EBITDA 925 925 893
Operating margin 45.6% 45.6% 45.9%
Integration, restructuring and acquisition costs —— 5
Depreciation and amortization 465 465 460
Financial expense 125 125 130
Current income taxes 100 100 83
Profit for the year 260 260 209
Acquisitions of property, plant and equipment, intangible and other assets 430 430 415
Free cash flow(1) 280 270 275 (2)
Capital intensity 21.2% 21.2% 21.3%
(1) Free cash flow is calculated as adjusted EBITDA plus non-cash items of approximately $10 million and less, integration, restructuring and acquisition costs,
financial expense, current income taxes and acquisitions of property, plant and equipment, intangible and other assets.
(2) Fiscal 2014 free cash flow excludes non-cash items of approximately $15 million, mainly related to share-based payment and amortization of deferred transaction
costs and discounts on long-term debt.
UNCERTAINTIES AND MAIN RISK FACTORS
This section outlines general as well as more specific risks faced by Cogeco Cable and its subsidiaries that could significantly affect the financial
condition, operating results or business of the Corporation. It does not purport to cover all contingencies, or to describe all possible factors that
might have an influence on the Corporation or its activities at any point in time. Furthermore, the risks and uncertainties outlined in this section
may or may not materialize in the end, may evolve differently than expected or may have different consequences than those that are currently
anticipated.
Cogeco Cable applies an on-going risk management process that includes a quarterly assessment of risks for the Corporation and its subsidiaries,
under the oversight of the Audit Committee. As part of this process, the Corporation endeavors to identify the principal business risks that are
liable to have a major impact on the Corporation’s financial situation, revenue or activities, and to mitigate such risks proactively as may be
reasonable and appropriate in the circumstances. This section reflects management’s current views on uncertainties and main risk factors.
We conduct our business activities in highly competitive industries that are experiencing rapid technological developments. Our ability
to compete successfully within one or more of our market segments may thus decline in the future.
The industries in which we operate are very competitive, and we expect competition to increase and intensify from a number of sources in the
future. There are now several terrestrial and satellite transmission technologies available to deliver a range of electronic communications services
to homes and to commercial establishments with varying degrees of flexibility and efficiencies, and thus compete with cable telecommunications.