Cogeco Inc. · TSX:CGO
Cogeco — Q3 2018 Earnings Presentation
35 slides from Cogeco's earnings presentation, Jul 11, 2018
Slide 1: Investor Update: Results for Quarter-end May 31, 2018
INVESTOR UPDATE Results For Quarter-end May 31, 2018 (disclosed on July 11, 2018)
Slide 2: Table of Contents
TABLE OF CONTENTS OVERVIEW 6 COGECO COMMUNICATIONS 7 Financial Results 17 COGECO 24 INVESTMENT HIGHLIGHTS 28 APPENDICES 30 Network Maps 31 Customer Profile 34 Acronyms 35 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-IFRS Measures
NON-IFRS MEASURES THE FOLLOWING NON-IFRS MEASURES ARE USED IN THE PRESENTATION AND A RECONCILIATION TO THE MOST COMPARABLE IFRS FINANCIAL MEASURES IS DESCRIBED ON PAGE 58 OF THE COGECO COMMUNICATIONS 2017 ANNUAL REPORT Free cash flow cash flow from operating activities add amortization of deferred t
Slide 5: Simplified Corporate Structure
SIMPLIFIED CORPORATE STRUCTURE GESTION AUDEM (Family of the late Henri Audet) 11.4% Equity 71.2% Voting Rights COGECO Market capitalization: $954 million(1) 82.2% Voting Rights 100% Voting Rights 31.7% Equity 100% Equity COGECO COMMUNICATIONS Market capitalization: $3.2 billion(1) COGECO MEDIA LTM r
Slide 6: Company Overview
COMPANY OVERVIEW COGECO COMMUNICATIONS COGECO COMMUNICATIONS ADJUSTED EBITDA SEGMENTATION(1) COGECO CONNEXION REPORTED LAST 12 MONTHS ENDED MAY 31, 2018 • 2nd largest cable system operator in Ontario and Québec Cogeco Peer 1 • 787,000 Internet service, 700,000 video service and 414,000 8% telephony
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 ADJUSTED EBITDA MARGINS WHILE (in millions of dollars) EXPANDING SERVICE OFFERING $641 $647 $660 $678 • 120 Mbps Internet service offered in essentially all of the
Slide 9: Cogeco Connexion FY2019 Priorities
COGECO CONNEXION FY2019 PRIORITIES DELIVERING ORGANIC GROWTH BY INTRODUCING VALUE ADDED SERVICES 1 FOR RESIDENTIAL CUSTOMERS • About 60% of footprint is expected to be 1 Gbps Internet speed ready by end of FY2019 • Introduce new intelligent in-home WI-FI features • Enrich video content GROW MARKET P
Slide 10: Atlantic Broadband's Strategy
ATLANTIC BROADBAND’S STRATEGY ENHANCED GROWTH THROUGH PRUDENT ACQUISITIONS • Focus on largely non-metropolitan areas with fragmented competition – In January 2018, US$1.4 billion MetroCast acquisition serving 251,379 PSUs, is expected to generate superior revenue growth and has already led COMPETITI
Slide 11: Atlantic Broadband: Favorable Impact of Tax Reform
ATLANTIC BROADBAND: FAVORABLE IMPACT OF TAX REFORM • Effective January 1, 2018, the combined Federal and State corporate income tax rate has been reduced from 40% to 27% • Limitations on interest deductibility based on EBITDA or EBIT thresholds should not have an impact over the next 4 fiscal years
Slide 12: Atlantic Broadband: FY2019 Priorities
ATLANTIC BROADBAND: FY2019 PRIORITIES FOUNDATION IN PLACE FOR SOLID FY2019 PERFORMANCE 1 • Metrocast: Expand business services offering and capitalize on recently launched new service bundles • Pursue Florida expansion and integrate Fiberlight acquisition to further accelerate growth DRIVE CUSTOMER
Slide 13: Atlantic Broadband: MetroCast Acquisition Rationale
ATLANTIC BROADBAND: METROCAST ACQUISITION RATIONALE A GREAT FIT A scale operator from Maine to Florida covering 11 states and 822,000 homes passed • Adjacent territories in similar non-metropolitan markets • Quality network and plant • Common systems, operations and technical approaches • Compliment
Slide 14: Cogeco Peer 1
COGECO PEER 1 «Gs coseco 16 DATA CENTRES 50+ POINTS OF PRESENCE 48,000 KILOMETRES OF FIBRE 1,800 ON NET BUILDINGS LEGEND Data Centre/ Point of Presence FastFiber® Network TORONTO, ON LONDON CHICAGO, IL MONTREAL, ac AMSTERDAM PORTSMOUTH FRANKFURT VANCOUVER, BC NEW YORK, NY SEATTLE, WA WASHINGTON, DC
Slide 15: Cogeco Peer 1: Core Service Offerings
COGECO PEER 1: CORE SERVICE OFFERINGS COMPREHENSIVE HYBRID IT SOLUTIONS TRUSTED BY CUSTOMERS TO ENABLE ENTERPRISE TRANSFORMATION APPLICATION COMPREHENSIVE WORLD HIGH BEST IN CLASS DRIVEN CLOUD HOSTING CLASS PERFORMANCE MANAGED PLATFORMS COLOCATION CONNECTIVITY SERVICES Flexible Cloud Complete IT inf
Slide 16: Cogeco Peer 1: FY2019 Priorities
COGECO PEER 1: FY2019 PRIORITIES FOCUS ON SUSTAINABLE REVENUE GROWTH 1 • Hosting and Cloud Solutions - Enhance Managed Hosting solutions built on the latest generation of server platforms - Launch enhanced Backup and Disaster Recovery portfolio - Continue to leverage cloud partnerships with Microsof
Slide 17: Financial Results
SULTS FINANCIAL R o?
Slide 18: Financial Highlights
FINANCIAL HIGHLIGHTS • FY2018(1) revenue and adjusted EBITDA expected to grow 11-13% and 10-12%, respectively, in constant currency • Introducing FY2019 financial guidelines with revenue and adjusted EBITDA growing 6-8% and 8-10%, respectively, in constant currency ADJUSTED EBITDA PROFIT (LOSS) FOR
Slide 19: Financial Highlights
FINANCIAL HIGHLIGHTS • Capex is expected to modestly increase in FY2019 as a result of the expansion of the Kirkland/Montreal data center for an estimated amount of about $30 million. Capital intensity in FY2019 is expected to be at a similar level to FY2018 • In FY2018, free cash flow in constant c
Slide 20: Sustained Dividend Growth
SUSTAINED DIVIDEND GROWTH ANNUAL DIVIDEND DECLARED PER SHARE +10.5% CAGR 12% $1.90 $1.72 $1.56 $1.40 $1.20 FY2014 FY2015 FY2016 FY2017 FY2018(1) • Sustained free cash flow generation has allowed us to pursue growth objectives while returning capital to shareholders • Conservative dividend payout rat
Slide 21: Solid Balance Sheet and Liquidity Position
SOLID BALANCE SHEET AND LIQUIDITY POSITION • History of de-leveraging following acquisitions • Following a change in notching methodology for BB+ corporate issuers in December 2016, S&P assigned a secured rating of BBB-. S&P’s secured rating is now aligned with DBRS and Fitch’s ratings CONSOLIDATED
Slide 22: Manageable Maturities and Low Cost of Capital
MANAGEABLE MATURITIES AND LOW COST OF CAPITAL ($ MILLIONS) August May LONG-TERM DEBT MATURITIES(1) 2017 2018 • With the Atlantic Broadband refinancing, Average Cost of Debt (4) 4.4% 4.3% the Term loan B’s maturity was extended to FY2025 Average Life 4.0Y 5.9Y COGECO COMMUNICATIONS ATLANTIC BROADBAND
Slide 23: 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 mostly naturally hedged from a free cash flow perspective as US$ EBITDA exposure is offset by interest expense on US denominated debt and capex • The following table(1) highlights in
Slide 24: Cogeco
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Slide 25: Cogeco
COGECO COGECO Public market value of equity $954M (16.5M shares at $57.86(1)) 15.7M shares of CCA Investment in COGECO COMMUNICATIONS COGECO MEDIA $1,027M (Radio broadcasting) ($62.29 per CGO share(1)(2)) (1) As of July 9, 2018 (2) Based on a CCA share price of $65.46 multiplied by a ratio of 0.95.
Slide 26: Media Profile: Cogeco Media
MEDIA PROFILE: COGECO MEDIA • More than 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 No. 2 in Québec City • Radio is an important media for Quebecers – 86% tune in every week
Slide 27: Strong Network of Radio Stations
STRONG NETWORK OF RADIO STATIONS 27
Slide 28: Investment Highlights
INVESTMENT HIGHLIGHTS coceco (C;, coGeco (55
Slide 29: Investment Highlights
INVESTMENT HIGHLIGHTS • Strong Canadian Cable Franchises ̶ Leveraging superior Internet speeds in most of our footprint ̶ Stable growth with strong adjusted EBITDA margin ̶ Strong free cash flow generation • Successful U.S. Cable Expansion Strategy ̶ Strong organic growth opportunity in our largely
Slide 30: Appendices
APPENDICES
Slide 31: Cogeco Connexion: Inter-City Fiber Network
COGECO CONNEXION: INTER-CITY FIBER NETWORK 31
Slide 32: Cogeco Has Dense Fibre Network in Toronto
COGECO HAS DENSE FIBRE NETWORK IN TORONTO TORONTO 32
Slide 33: Cogeco Has Dense Fibre Network in Montreal
COGECO HAS DENSE FIBRE NETWORK IN MONTREAL MONTREAL 33
Slide 34: Customer Profile
CUSTOMER PROFILE May 31, 2018 Cogeco Atlantic Connexion Broadband Total Homes passed 1,749,020 822,511 2,571,531 Primary service units(1) 1,901,037 881,668 2,782,705 Internet service customers 787,007 420,255 1,207,262 Video service customers 699,554 320,298 1,019,852 Telephony service customers 414
Slide 35: Acronyms
ACRONYMS CAGR Compound Average Growth Rate DOCSIS Data Over Cable Service Interface Specifications CRTC Canadian Radio-television and Telecommunications Commission FTTH Fibre To The Home FTTN Fibre To The Node Gbps Gigabits per second HD High Definition HPBX Hosted Private Branch Exchange IP Interne