Cogeco Inc. · TSX:CGO
Cogeco — Q3 2017 Earnings Presentation
38 slides from Cogeco's earnings presentation, Aug 31, 2017
Slide 1: Investor Update: Results for Quarter-end May 31, 2017
INVESTOR UPDATE Results For Quarter-end May 31, 2017 (disclosed on July 13, 2017 & updated on August 31, 2017)
Slide 2: Table of Contents
TABLE OF CONTENTS OVERVIEW 6 COGECO COMMUNICATIONS 7 Financial Results 21 COGECO 28 COGECO INVESTMENT HIGHLIGHTS 32 APPENDICES 34 Network Maps 35 Customer Profile 37 Acronyms 38 2
Slide 3: Forward-Looking Statement
FORWARD-LOOKING STATEMENT Certain statements contained in this presentation may constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to our future outlook and anticipated events, business, operations, financial performance, financial co
Slide 4: Non-Audited Financial Information and Non-IFRS Measures
NON-AUDITED FINANCIAL INFORMATION AND NON-IFRS MEASURES None of the financial information in this presentation has been audited. Financial information related to MetroCast is based on accounting principles generally accepted in the United States ("U.S. GAAP") which differs from International Account
Slide 5: Simplified Corporate Structure
SIMPLIFIED CORPORATE STRUCTURE GESTION AUDEM (Family of the late Henri Audet) 13.1% Equity 70.8% Voting Rights COGECO Market capitalization: $1.4 billion(1) 82.3% Voting Rights 100% Voting Rights 31.7% Equity 100% Equity COGECO COMMUNICATIONS Market capitalization: $4.6 billion(1) COGECO MEDIA LTM r
Slide 6: Company Overview
COMPANY OVERVIEW COGECO COMMUNICATIONS COGECO COMMUNICATIONS SEGMENTATION(1) COGECO CONNEXION REVENUE • 2nd largest cable system operator in Cogeco Ontario and Québec Peer 1 13% • 764,000 Internet service, 730,000 video service and 432,000 telephony service customers ATLANTIC BROADBAND Atlantic Coge
Slide 7: Cogeco Communications
Cogeco Communications
Slide 8: Cogeco Connexion's Strategy
COGECO CONNEXION’S STRATEGY MEETING CUSTOMERS’ EVOLVING NEEDS WHILE PURSUING PROFITABLE GROWTH GROWING ADJUSTED EBITDA MARGIN IMPROVING MARGINS AS SERVICE OFFERING IS (in millions of dollars) ENHANCED AND EXPANDED $611 $641 $647 $660 • 120 Mbps Internet service offered to 96% of the customer base an
Slide 9: Cogeco Connexion FY2018 Priorities
COGECO CONNEXION FY2018 PRIORITIES – continue solidifying market position through customer relations built on amazing experiences GROWTH 1 • Continue to deploy 1 Gig services within footprint and maintain network expansion intensity • Continue to enhance TiVo product offering • Maintain competitive
Slide 10: Atlantic Broadband's Strategy
ATLANTIC BROADBAND’S STRATEGY STRATEGIC RESIDENTIAL POSITIONING • Fragmented competition – Currently sole triple play provider in about 67% of footprint – Florida commercial market provides stable cash flow VIDEO COMPETITION SUMMARY(1) and growth opportunity • Superior video platform and Internet sp
Slide 11: Atlantic Broadband: FY2018 Priorities
ATLANTIC BROADBAND: FY2018 PRIORITIES DRIVE CUSTOMER GROWTH THROUGH INTERNET SUPERIORITY AND BUNDLE SALES 1 • Build on 1 Gbps service which covers about 33% of footprint • Leverage launch of more flexible bundles which enables customers to right-size their video package and upsize / upsell their Int
Slide 12: Atlantic Broadband: Acquisition of MetroCast
ATLANTIC BROADBAND: ACQUISITION OF METROCAST KEY TRANSACTION TERMS METROCAST OVERVIEW US$1.40 BILLION PURCHASE PRICE, US$1.09 BILLION • MetroCast is an incumbent provider of video, NET OF TAX BENEFITS Internet and telephony services in the five states of • Purchase of assets, creating tax benefits w
Slide 13: Atlantic Broadband: Acquisition Rationale
ATLANTIC BROADBAND: ACQUISITION RATIONALE • Further establishes ABB as a strategic platform in the U.S. with a diversified geographical footprint from Maine to Florida • Adds scale in the American Broadband segment which continues to exhibit steady growth and is Strategic expected to keep generating
Slide 14: MetroCast Benefits from Superior Demographics and Favorable Competitive Landscape
ATLANTIC BROADBAND: METROCAST BENEFITS FROM SUPERIOR DEMOGRAPHICS AND A FAVORABLE COMPETITIVE LANDSCAPE ATTRACTIVE DEMOGRAPHICS(1) MetroCast ABB U.S. AVG. • MetroCast’s footprint covers markets with a higher than average income growth and MEDIAN INCOME $59.3K $50.4K $55.2K household formation and lo
Slide 15: Atlantic Broadband: Increasing Mix of High Growth U.S. Cable
ATLANTIC BROADBAND: INCREASING MIX OF HIGH GROWTH U.S. CABLE (CND$ IN MILLIONS) CANADIAN AMERICAN Unaudited BROADBAND AND PRO FORMA BROADBAND COGECO BUSINESS ICT METROCAST(2) COGECO CONSOLIDATED(1) COGECO COGECO ATLANTIC CONSOLIDATED CONNEXION PEER I BROADBAND Revenue $1,292 $295 $636 $2,219 $306 $2
Slide 16: Pro Forma MetroCast: Tax Assets Support Cash Flow Growth
ATLANTIC BROADBAND PRO FORMA METROCAST: TAX ASSETS WILL SUPPORT SUPERIOR CASH FLOW GROWTH OVER SEVERAL YEARS • It is estimated that ABB will not pay cash taxes before FY2022, primarily as a result of the 15-year amortization of acquired intangible assets and its tax losses carried forward • Starting
Slide 17: Cogeco Peer 1
COGECO PEER 1 16 DATA CENTRES 50+ POINTS OF PRESENCE 48k KILOMETERS OF FIBRE 1,800 ON NET BUILDINGS 17
Slide 18: Cogeco Peer 1: Core Service Offerings
COGECO PEER 1: CORE SERVICE OFFERINGS PROVIDING A COMPLETE RANGE OF BUSINESS INFORMATION AND COMMUNICATIONS TECHNOLOGY APPLICATION COMPREHENSIVE WORLD HIGH BEST IN CLASS DRIVEN CLOUD HOSTING CLASS PERFORMANCE MANAGED PLATFORMS COLOCATION CONNECTIVITY SERVICES Flexible Cloud Complete IT infra- Best-i
Slide 19: Cogeco Peer 1: FY2018 Priorities
COGECO PEER 1: FY2018 PRIORITIES FOCUS ON SUSTAINABLE REVENUE GROWTH 1 • Hosting and Cloud Solutions -Market the advantages of dealing with a full service provider -Greater go-to-market emphasis on hybrid cloud offerings -Leverage current partnership with Microsoft Azure and other cloud partners -Am
Slide 20: Cogeco Peer 1: FY2018 Priorities
COGECO PEER 1: FY2018 PRIORITIES FINANCIAL AND SYSTEMS IMPROVEMENT INITIATIVES 2 • Achieve savings from infrastructure consolidation initiative undertaken in 2nd half of FY2017 • Complete the integration of key internal Business Support Systems • Establish a consistent operating model across all reg
Slide 21: Financial Results
FINANCIAL RESULTS (All financials in this section exclude the impact of the MetroCast acquisition (1)) (1) Expected to close in January 2018
Slide 22: Financial Highlights – Years Ended August 31
FINANCIAL HIGHLIGHTS – YEARS ENDED AUGUST 31 • Superior revenue and Adjusted EBITDA growth was achieved in FY2016 mainly as a result of Atlantic Broadband’s Connecticut acquisition on August 20, 2015, organic growth and favorable FX(1) • Introducing FY2018 financial guidelines with revenue and Adjus
Slide 23: Financial Highlights – Years Ended August 31
FINANCIAL HIGHLIGHTS – YEARS ENDED AUGUST 31 Fiscal 2017 • Capex intensity at Cogeco Peer 1 should significantly decline to the low 20% level compared to FY2016, when about $50 million was invested to secure a large colocation contract • Overall capex intensity in the broadband segments should remai
Slide 24: Sustained Dividend Growth
SUSTAINED DIVIDEND GROWTH ANNUAL DIVIDEND DECLARED PER SHARE +10% CAGR 17% $1.72 $1.56 $1.40 $1.20 $1.00 $1.04 $0.71 $0.56 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017(1) • Sustained free cash flow generation has allowed us to pursue growth objectives while returning capital to shareholde
Slide 25: Solid Balance Sheet and Liquidity Position
SOLID BALANCE SHEET AND LIQUIDITY POSITION • History of deleveraging following acquisitions • Following a change in notching methodology for BB+ corporate issuers in December 2016, S&P assigned a secured rating of BBB-. S&P’s secured rating is now aligned with DBRS and Fitch’s ratings. CONSOLIDATED
Slide 26: Manageable Maturities and Low Cost of Capital
MANAGEABLE MATURITIES AND LOW COST OF CAPITAL ($ MILLIONS) August 31 LONG-TERM DEBT MATURITIES(1) 2015 2016 Average Cost of Debt 4.1% 4.1% Average Life 5.2Y 4.8Y COGECO COMMUNICATIONS ATLANTIC BROADBAND (Excluding credit facility) (Non-recourse financing) $540(2) $300 $825(2) $290(2) $200 $200 $202(
Slide 27: US$ Debt Reduces Free Cash Flow FX Exposure
US$ DEBT REDUCES FREE CASH FLOW FX EXPOSURE AND HEDGES NET INVESTMENTS IN US SUBSIDIARIES • Cogeco Communications is naturally hedged from a free cash flow perspective as US$ EBITDA exposure is offset by interest expense on US denominated debt and capex Estimated Impact of a 10% depreciation of the
Slide 28: Cogeco
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Slide 29: Cogeco
COGECO COGECO Public market value of equity $1,374M (16.7M shares at $82.51(1)) 15.7M shares of CCA Investment in COGECO COMMUNICATIONS COGECO MEDIA $1,466M (Radio broadcasting) ($88.07 per CGO share(1)(2)) (1) As of August 31, 2017 (2) Based on a CCA share price of $93.45 multiplied by a ratio of 0
Slide 30: Media Profile: Cogeco Media
MEDIA PROFILE: COGECO MEDIA • 29 years as a radio operator • Second most important radio player in Québec – 13 radio stations covering most demographics – No. 1 in share of hours tuned in Montréal and in Québec City • Radio is an important media for Quebecers – 87% tune in every week – Time spent li
Slide 31: Strong Network of Radio Stations
STRONG NETWORK OF RADIO STATIONS 31
Slide 32: Investment Highlights
INVESTMENT HIGHLIGHTS coceco (C;, coGeco (55
Slide 33: Investment Highlights
INVESTMENT HIGHLIGHTS • Strong Canadian Cable Franchises ̶ Stable growth with strong operating margin ̶ Leveraging superior Internet speeds in most of our footprint • Successful U.S. Cable Expansion Strategy ̶ Robust organic growth in our largely non-metropolitan markets with fragmented competition
Slide 34: Appendices
APPENDICES
Slide 35: Cogeco Connexion: Inter-City Fiber Network
COGECO CONNEXION: INTER-CITY FIBER NETWORK 35
Slide 36: Atlantic Broadband: Pro Forma MetroCast Acquisition
ATLANTIC BROADBAND: PRO FORMA METROCAST ACQUISITION 36
Slide 37: Customer Profile
CUSTOMER PROFILE Cogeco Atlantic May 31, 2017 Connexion Broadband Total MetroCast (1) Homes passed 1,725,769 592,138 2,317,907 236,454 Primary service units(2) 1,926,537 608,388 2,534,925 232,761 Video service customers 729,701 237,319 967,020 76,325 Internet service customers 764,350 270,336 1,034,
Slide 38: Acronyms
ACRONYMS CAGR Compound Average Growth Rate DOCSIS Data Over Cable Service Interface Specifications Gbps Gigabits per second Mbps Megabits per second 38