Cogeco 2015 Annual Report Download - page 43

42 COGECO CABLE INC. 2015 MD&A
ENTERPRISE DATA SERVICES SEGMENT
• Fiscal 2015 fourth-quarter acquisition of property, plant and equipment in the Enterprise data services segment, amounted to $23.2
million compared to $50.4 million in fiscal 2014. The decrease is mainly due to the completion in the third quarter of fiscal 2015 of the
remaining pods at the Barrie, Ontario data centre which was initiated during fiscal 2014, partly offset by the construction of pod 1 at a
new data centre in Montréal, Québec; and
• Acquisitions of intangible and other assets amounted to $1.2 million compared to $0.1 million for fiscal 2014 as a result of higher
customer acquisition costs.
FREE CASH FLOW AND FINANCING ACTIVITIES
Fourth-quarter 2015 free cash flow amounted to $72.0 million, an increase of $49.9 million compared to fourth-quarter of fiscal 2014, mainly as
a result of the following:
• the improvement of $9.8 million of adjusted EBITDA;
• the settlement of a claim with a supplier of $27.4 million; and
• the decrease of $35.2 million in acquisitions of property, plant and equipment, intangible and other assets; partly offset by
• the increase of $14.6 million in current income taxes; and
• the increase of $6.0 million in integration, restructuring and acquisition costs.
In the fourth quarter of fiscal 2015, higher Indebtedness level resulted in a cash increase of $226.5 million, mainly as a result of the following:
• the increase of $117.0 million under the revolving facilities mainly as a result of a draw-down of $117.7 million (US$90 million) to finance
a portion of the acquisition of MetroCast Connecticut; and
• the issuance, on August 20, 2015, of an incremental Term Loan A-2 Facility of $130.8 million (US$100 million) in connection with the
acquisition of MetroCast Connecticut, for net proceeds of $128.6 million, net of transaction costs of $2.2 million (US$1.7 million); partly
offset by
• the decrease of $11.7 million in bank indebtedness; and
• the repayment of $7.5 million of Term Loan A Facility.
In the fourth quarter of fiscal 2014, Indebtedness level resulted in a cash decrease of $118.2 million, mainly as a result of the following:
• the repayments of $240.2 million under the revolving facilities and of $58.0 million of long-term debt; and
• the decrease of $9.4 million in bank indebtedness; party offset by
• the issuance, on August 27, 2014, of a private placement of $27.2 million (US$25 million) Senior Secured Notes Series A for net
proceeds of $27.1 million, net of transaction costs of $0.1 million; and
• the issuance, on August 27, 2014, of a private placement of $163.4 million (US$150 million) Senior Secured Notes Series B for net
proceeds of $162.5 million, net of transaction costs of $0.9 million.
During the fourth quarter of fiscal 2015, a quarterly eligible dividend of $0.35 per share was paid to the holders of subordinate and multiple voting
shares, totaling $17.1 million, compared to an eligible dividend paid of $0.30 per share, or $14.6 million in the fourth quarter of fiscal 2014.
10. FISCAL 2016 FINANCIAL GUIDELINES
Cogeco Cable revised its fiscal 2016 preliminary financial guidelines, as issued on July 14, 2015, to take into consideration the expected operating
results from the acquisition of MetroCast Connecticut by the Corporation's wholly-owned subsidiary, Atlantic Broadband, on August 20, 2015 as
well as the appreciation of the US dollar and British Pound currency against the Canadian dollar.
Cogeco Cable expects fiscal 2016 revenue growth to be driven by all its operating segments. In the Canadian and American cable services
segments, revenue growth should stem primarily from targeted marketing initiatives to improve penetration rates of Internet services in the residential
and business sectors and telephony services in the business sector while the penetration of residential telephony and video services should
decrease in Canada, reflecting service category maturity and intense competition. We expect the penetration of digital video and Internet services
to continue to benefit from customers' ongoing interest in TiVo's digital advanced video services in Canada and the United States. The Canadian
and American cable services segments should also benefit from the impact of rate increases in most of its services in Canada and the United
States and from PSU growth in the United States. In the Enterprise data services segment, revenue growth should stem primarily from network
connectivity, colocation services, managed hosting, cloud services and managed IT services due to the increasing market demand, the completion
of the remaining pods of the Barrie, Ontario data centre facility as well as the construction of the first pod in fiscal 2015 of a new data centre facility
in Montréal, Québec as well as network expansions and new customer installations. Furthermore, we believe the recent operational, financial and
organizational restructuring of this segment brings greater efficiencies in our operational and sales structures, and the development of a new, more
focused go-to-market strategy targeting our customers’ needs and will favourably position the Enterprise data services segment.
Adjusted EBITDA progression should stem from revenue growth exceeding operating expenses as a result of cost reduction initiatives from improved
systems and processes and costs reductions resulting from the operational, financial and organizational restructuring in the Enterprise data services
segment in fiscal 2015, partly offset by marketing initiatives and retention strategies to support the revenue growth. Operating margin should remain
in the same range as in fiscal 2015 due to the improvement in the Canadian cable services segment, offset by the higher proportion on the
consolidated results of the American cable services and Enterprise data services segments.
Free cash flow should increase compared to fiscal 2015 projections as a result of the improvement of the adjusted EBITDA, partly offset by additional
capital expenditures. Accordingly, generated free cash flow should reduce Indebtedness, net of cash and cash equivalents, thus improving the
Corporation's net leverage ratios. The capital intensity ratio should decrease compared to fiscal 2015.