Cogeco Inc. · TSX:CGO
Cogeco — Q4 2017 Earnings Presentation
38 slides from Cogeco's earnings presentation, Nov 2, 2017
Slide 1: Investor Update: Results for Quarter-end August 31, 2017
INVESTOR UPDATE Results For Quarter-end August 31, 2017 (disclosed on November 2, 2017)
Slide 2: Table of Contents
TABLE OF CONTENTS OVERVIEW 6 COGECO COMMUNICATIONS 7 Financial Results 22 COGECO 29 COGECO INVESTMENT HIGHLIGHTS 33 APPENDICES 35 Network Maps 36 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: $1.5 billion(1) 82.3% Voting Rights 100% Voting Rights 31.7% Equity 100% Equity COGECO COMMUNICATIONS Market capitalization: $4.6 billion(1) COGECO MEDIA FY201
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% • 770,000 Internet service, 721,000 video service and 426,000 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 WHILE EXPANDING SERVICE (in millions of dollars) OFFERING $641 $647 $660 $678 • 120 Mbps Internet service offered in essentially all of the footprint and a
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 Gbps 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 COMPETITION SUMMARY(1) and growth opportunity • Superior video platform and Internet speeds –
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 currently covers about 33% of ABB legacy footprint • Leverage launch of more flexible bundles which enables customers to right-size their video package and upsi
Slide 12: Atlantic Broadband: Connecticut Case Study - Results
ATLANTIC BROADBAND: CONNECTICUT CASE STUDY - RESULTS • Atlantic Broadband purchased Harron Communications’ Connecticut system on August 20, 2015. Since its full integration, the Connecticut system has realized superior growth CT System Growth Results FY2017 vs FY2016 Revenue Growth 11% Customer Grow
Slide 13: 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 NET • 95% of homes passed are upgraded (860 MHz or OF TAX BENEFITS FTTH) to provide MetroCast’s full suite of advanced • Purchase of assets from Harron Communications
Slide 14: MetroCast Adds Scale to Atlantic Broadband
METROCAST ADDS SCALE TO ATLANTIC BROADBAND • A scale operator from Maine to Florida covering 11 states • 850,000 homes and businesses passed in secondary markets • Over 450,000 residential and business customers • Over US$715 million in annual revenue (1) • Over 1,250 employees (1) Based on ABB’s FY
Slide 15: Atlantic Broadband: Acquisition Rationale
ATLANTIC BROADBAND: ACQUISITION RATIONALE A GREAT FIT SIGNIFICANT GROWTH POTENTIAL • Adjacent territories in similar tier 2 • Strong demographics markets √ Higher income and higher propensity to • Quality network and plant adopt technology than ABB • Common systems, operations and • Favorable compet
Slide 16: Atlantic Broadband: Increasing Mix of High Growth U.S. Cable
ATLANTIC BROADBAND: INCREASING MIX OF HIGH GROWTH U.S. CABLE (CND$ 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 $1,296 $291 $643 $2,227 $306 $2
Slide 17: Atlantic Broadband 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 18: Cogeco Peer 1
COGECO PEER 1 16 DATA CENTRES 50+ POINTS OF PRESENCE 48,000 KILOMETERS OF FIBRE 1,800 ON NET BUILDINGS 18
Slide 19: 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 20: 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 21: 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 22: 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 23: Financial Highlights – Years Ended August 31
FINANCIAL HIGHLIGHTS – YEARS ENDED AUGUST 31 • Adjusted EBITDA growth of 2.2% was achieved in FY2017 with a stable operating margin • FY2018 revenue and Adjusted EBITDA growing 4.0% and 3.2% respectively, at the mid point of the guidelines • FY2018 guidelines assume a relatively stable CND/USD avera
Slide 24: Financial Highlights – Years Ended August 31
FINANCIAL HIGHLIGHTS – YEARS ENDED AUGUST 31 Fiscal 2017 • Cogeco Peer 1 generated unlevered free cash flow of $34.3(1) million in FY2017 • Capex intensity in the Canadian broadband remained stable while the American broadband increased slightly as a result of greater investment in network infrastru
Slide 25: Sustained Dividend Growth
SUSTAINED DIVIDEND GROWTH ANNUAL DIVIDEND DECLARED PER SHARE +10.5% CAGR 12% $1.90 $1.72 $1.56 $1.40 $1.20 FY2014 FY2015 FY2016 FY2017 FY2018(1) • Sustained free cash flow generation has allowed us to pursue growth objectives while returning capital to shareholders • Conservative dividend payout rat
Slide 26: Solid Balance Sheet and Liquidity Position
SOLID BALANCE SHEET AND LIQUIDITY POSITION • History of deleveraging following acquisitions • Following a change in notching methodology for BB+ corporate issuers in December 2016, S&P assigned a secured rating of BBB-. S&P’s secured rating is now aligned with DBRS and Fitch’s ratings CONSOLIDATED N
Slide 27: Manageable Maturities and Low Cost of Capital
MANAGEABLE MATURITIES AND LOW COST OF CAPITAL ($ MILLIONS) August 31 LONG-TERM DEBT MATURITIES(1) 2016 2017 Average Cost of Debt 4.1% 4.4% Average Life 4.8Y 4.0Y COGECO COMMUNICATIONS ATLANTIC BROADBAND (Excluding credit facility) (Non-recourse financing) $501(2) $300 $749(2) $270(2) $200 $200 $188(
Slide 28: US$ 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 29: Cogeco
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Slide 30: Cogeco
COGECO COGECO Public market value of equity $1,459M (16.6M shares at $87.94(1)) 15.7M shares of CCA Investment in COGECO COMMUNICATIONS COGECO MEDIA $1,455M (Radio broadcasting) ($87.71 per CGO share(1)(2)) (1) As of October 31, 2017 (2) Based on a CCA share price of $92.75 multiplied by a ratio of
Slide 31: Media Profile: Cogeco Media
MEDIA PROFILE: COGECO MEDIA • 30 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 32: Strong Network of Radio Stations
STRONG NETWORK OF RADIO STATIONS 32
Slide 33: Investment Highlights
INVESTMENT HIGHLIGHTS coceco (C;, coGeco (55
Slide 34: 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 35: Appendices
APPENDICES
Slide 36: Cogeco Connexion: Inter-City Fiber Network
COGECO CONNEXION: INTER-CITY FIBER NETWORK 36
Slide 37: Customer Profile
CUSTOMER PROFILE Cogeco Atlantic August 31, 2017 Connexion Broadband Total MetroCast (1) Homes passed 1,730,446 594,514 2,324,960 236,454 Primary service units(2) 1,916,861 611,021 2,527,882 232,761 Internet service customers 769,869 273,127 1,042,996 119,855 Video service customers 720,636 236,139
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