Cogeco 2014 Annual Report Download - page 40

MD&A COGECO CABLE INC. 2014 39
For the three month period ended August 31, 2014, acquisition of property, plant and equipment amounted in the Canadian and American cable
services segments to $113.8 million compared to $74.4 million in fiscal 2013 of which $93.5 million came from the Canadian cable services
segment compared to $52.7 million for the comparable period of the prior year and $20.3 million came from the American cable services segment
compared to $21.8 million for last year. The increases in both operating segments are due to the following factors:
• An increase in customer premise equipment mainly due to the acquisition of additional customer premise equipment occurred in the
fourth quarter of fiscal 2014 in the Canadian cable services segment in view of the launch of TiVo digital advanced television services
planned for November 3, 2014 in Ontario and in Spring of fiscal 2015 in Québec;
• An increase in scalable infrastructure to extend and improve network capacity in the areas served; and
• A decrease in upgrade and rebuild due to the deployment in fiscal 2012 and early fiscal 2013 of advanced technologies such as DOCSIS
3.0 and SDV in existing areas served.
Fiscal 2014 fourth-quarter acquisition of property, plant and equipment in the Enterprise data services segment, including the capital expenditures
of the recent acquisition of Peer 1 Hosting, amounted to $50.4 million compared to $28.7 million in the comparable period of fiscal 2013. The
increase is mainly due to the initial construction by Cogeco Data Services of all remaining pods (pods 2, 3, 4) at the Barrie data centre.
Acquisition of intangible and other assets is mainly attributable to reconnect and additional service activation costs as well as other customer
acquisition costs. Fiscal 2014 fourth-quarter acquisition of intangible and other assets amounted to $1.0 million compared to $4.9 million for the
fourth-quarter of fiscal 2013 mainly due to lower reconnect activities in the Canadian cable segment.
FREE CASH FLOW AND FINANCING ACTIVITIES
Fourth-quarter 2014 free cash flow amounted to $22.2 million, a decrease of $31.3 million compared to fourth-quarter of fiscal 2013, mainly as
a result of the increase of $57.0 million in acquisitions of property, plant and equipment due to the timing of certain initiatives that were delayed
between quarters during fiscal 2014, partly offset by the improvement of $8.3 million of adjusted EBITDA combined with the decreases of $16.0
million in financial expense and of $3.7 million in integration, restructuring and acquisition costs.
In the fourth quarter of fiscal 2014, Indebtedness level resulted in a cash decrease of $118.2 million, mainly due to the following reasons:
• the repayments of $240.2 million under the revolving facilities and of $58.0 million of long-term debt;
• the decrease of $9.4 million in bank indebtedness;
• 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.
In the fourth quarter of fiscal 2013, Indebtedness level resulted in a cash decrease of $110.5 million, mainly due to the issuance on June 27,
2013, of $225.3 million (US$215 million) Senior Secured Notes for net proceeds of $223.8 million, net of transaction costs of $1.5 million, offset
by the repayment of the Senior Secured Debentures Series 1 of $300 million.
During the fourth quarter of fiscal 2014, a quarterly eligible dividend of $0.30 per share was paid to the holders of subordinate and multiple voting
shares, totaling $14.6 million, when compared to an eligible dividend paid of $0.26 per share, or $12.6 million in the fourth quarter of fiscal 2013.
FISCAL 2015 FINANCIAL GUIDELINES
Cogeco Cable revised its fiscal 2015 preliminary financial guidelines with regards to free cash flow, as issued on July 9, 2014, to take into
consideration non-cash items of approximately $10 million to be excluded from the calculation.
Fiscal 2015 financial guidelines take into consideration the current uncertain global economic and the intense competitive environment that
prevails in Canada, the United States and Europe by the incumbent telecommunications or IT infrastructure providers, as the case may be. In
addition, these financial guidelines are supported by Cogeco Cable's objectives which are to improve profitability to create shareholder value.
Cogeco Cable focus on customer's needs by offering services at attractive prices, expanding its offering with respect to geography and by
diversifying its product and services. As the Corporation operates in an industry characterized by rapid technological innovation which requires
substantial capital, Cogeco Cable will continue the expansion and upkeep maintenance of its networks and data centre facilities as well as the
launch and expansion of new or additional services. The Corporation recognizes that customer service is a key brand attribute that has potential
to differentiate its services compared to its competitors and that superior customer service earns their loyalty and retention. As cost containment
is a core element of financial performance and remains a key factor to maintain strong operating margins, Cogeco Cable intends to continue
executing its strategy of tight operating and capital cost controls and rigorous customer-related processes.
For fiscal 2015, Cogeco Cable expects to achieve revenue of $2.03 billion, representing a growth of $82 million or 4.2% compared to fiscal 2014.
In the Cable services segments, revenue should stem primarily from targeted marketing initiatives to improve penetration rates of HSI and
Telephony services in the business sector while the penetration of residential Telephony and Television services should remain sluggish in the
Canadian cable services, reflecting service category maturity and intense competition. Furthermore, the penetration of Digital video and HSI
services should continue to benefit from customers' ongoing interest in TiVo's digital advanced television services in the American cable services
segment as well as the launch of TiVo digital advanced television services in the Canadian cable services segment. Cable services segment will
also benefit from the impact of rate increases in most of its services. In the Enterprise data services segment, revenue growth should stem
primarily from managed and dedicated hosting and colocation services due to the expansion of the Barrie data centre facility as well as from the
migration of services in the business portfolio that generate revenue with higher margins. In addition, the construction of the first pod of a new