Cogeco Inc. · TSX:CGO
Cogeco — Q3 2019 Earnings Presentation
34 slides from Cogeco's earnings presentation, Jul 10, 2019
Slide 1: Investor Update: Results for Quarter-end May 31, 2019
INVESTOR UPDATE Results For Quarter-end May 31, 2019 (disclosed on July 10, 2019) TSX: CGO TSX: CCA
Slide 2: Contents
Contents of contents OVERVIEW 5 COGECO COMMUNICATIONS 7 Financial Results 18 COGECO 26 CORPORATE SOCIAL RESPONSIBILITY 30 APPENDICES 32 Customer Profile 33 Acronyms 34
Slide 3: Forward-looking statement and restatement of financial information
Forward-looking statement and restatement of financial 3 information 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, oper
Slide 4: Non-IFRS measures
4 Non-IFRS measures THE FOLLOWING NON-IFRS MEASURES ARE USED IN THE PRESENTATION AND ARE DESCRIBED ON PAGES 31 AND 32 OF COGECO COMMUNICATIONS’ FY2019 THIRD QUARTER SHAREHOLDERS’ REPORT Free cash flow (“FCF”) cash flow from operating activities add amortization of deferred transaction costs and disc
Slide 5: Cogeco generates over $2.4 B in revenue
5 Cogeco generates over $2.4 B in revenue GESTION AUDEM Family of the late Henri Audet 11.7% Equity 71.7% Voting Rights COGECO $2.43 B LTM(1) Revenue Market capitalization: $1.4 B(2) 82.3% Voting Rights 100% Voting Rights 31.7% Equity 100% Equity COGECO COMMUNICATIONS COGECO MEDIA 2nd largest cable
Slide 6: Investment highlights: Long-term profitable growth
6 Investment highlights: Long-term profitable growth STRONG CANADIAN CABLE OPERATIONS • Leverage superior Internet speeds in a large portion of our footprint • Optimize customer experience through advanced video platforms • Industry leading adjusted EBITDA margin • Strong free cash flow generation S
Slide 7: Cogeco Communications
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Slide 8: Cogeco Communications overview
8 Cogeco Communications overview COGECO CONNEXION Strong revenue growth through • Covers a footprint of 1,760,000 households and US Cable expansion representing 150,000 businesses which provides ample room to 44% of combined revenue grow the Internet and business customer base • Offers services to 7
Slide 9: Disposal of Cogeco Peer 1
9 Disposal of Cogeco Peer 1 • Cogeco Communications sold Cogeco Peer 1 Inc. for $720 million(1) on April 30, 2019 − A gain on disposal of $82.4 million was realized − Consolidated leverage has declined from 3.3x in Q2 to 2.8x net debt/adjusted EBITDA in Q3 • Use of proceeds – Repaid US$288 million d
Slide 10: Strategic vision and mission statement
10 Strategic vision and mission statement CONNECT OUR CUSTOMERS TO THE DIGITAL WORLD AND CREATE OUTSTANDING COMMUNICATION EXPERIENCES DELIVER VALUE TO OUR SHAREHOLDERS BY: • Creating exceptional customer experience • Augmenting our geographic reach in Canada and in the U.S. • Expanding into new tele
Slide 11: Capital allocation priorities
11 Capital allocation priorities VALUE CREATION 1 2 3 RETURN CAPITAL TO SHAREHOLDERS Balance allocation of capital between growing the business organically, making acquisitions and returning capital to investors, while maintaining a prudent level of financial leverage
Slide 12: Cogeco Connexion: Second largest cable operator in Ontario and Quebec
Cogeco Connexion: Second largest cable operator in 12 Ontario and Quebec Serving 427 communities
Slide 13: Cogeco Connexion's highlights
13 Cogeco Connexion’s highlights STRATEGIC RESIDENTIAL POSITIONING • Leveraging superior Internet speeds in a large portion of the footprint − 120 Mbps offered in virtually all of the footprint − 1 Gbps Internet service to be offered in about 60% of the footprint by the end of August 2019 • Offering
Slide 14: Cogeco Connexion FY2020 priorities
14 Cogeco Connexion FY2020 priorities RESIDENTIAL: ORGANIC GROWTH THROUGH ADDED SERVICES & NETWORK EXTENSIONS 1 • Continue to increase 1 Gbps Internet coverage and offer enhanced WiFi services and features • Launch MediaFirst’s IPTV platform: – Customizable video content, WIFI devices and voice acti
Slide 15: Atlantic Broadband: A scale operator from Maine to Florida
15 Atlantic Broadband: A scale operator from Maine to Florida Serving 593 communities
Slide 16: Atlantic Broadband's highlights
16 Atlantic Broadband’s hightlights ENHANCED GROWTH THROUGH PRUDENT ACQUISITIONS • Largely non-metropolitan areas with fragmented competition COMPETITION SUMMARY − US$1.4 B MetroCast acquisition in January 2018 has led EXCLUDING FLORIDA(1) to superior revenue growth and one of the industry- leading
Slide 17: Atlantic Broadband: FY2020 priorities
17 Atlantic Broadband: FY2020 priorities DRIVE CUSTOMER GROWTH THROUGH INTERNET SUPERIORITY AND BUNDLE SALES 1 • Continue to increase 1 Gig Internet coverage • Offer Enhanced Wi-Fi as an integral part of the Internet experience • Continue to build out new TiVo features, including user interface upda
Slide 18: Financial Results
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Slide 19: Revenue and adjusted EBITDA growth
19 Revenue and adjusted EBITDA growth • FY2019 revenue and adjusted EBITDA expected to grow 6-8% and 8-10%, respectively, in constant currency(1) : includes acquisition growth(2) through Metrocast’s additional 4 months contribution and Fiberlight’s 11 months contribution • Introducing FY2020 financi
Slide 20: Strong free cash flow generation
20 Strong free cash flow generation • In FY2019, capital intensity is expected to be slightly lower than FY2018 and free cash flow, in constant currency, is expected to grow by 38-45% mainly as a result of Adjusted EBITDA growth and expected decline in financial expense and current income taxes(1) •
Slide 21: Compensation aligned with economic value creation
21 Compensation aligned with economic value creation (“EVC”) • Between 50% and 75% of senior executives’ compensation is variable and at risk based on long-term creation of Economic Value – Reasonable use of equity compensation to minimize dilution – Stock ownership requirements for senior officers
Slide 22: Sustained dividend growth
22 Sustained dividend growth ANNUAL DIVIDEND DECLARED PER SHARE 24% FY2019E $2.10 Free Cash $1.90 Flow(1) dividend $1.72 $1.56 payout ratio $1.40 FY2015 FY2016 FY2017 FY2018 FY2019 (2) • Sustained free cash flow generation has allowed us to pursue growth objectives while returning capital to shareho
Slide 23: History of de-leveraging following acquisitions
23 History of de-leveraging following acquisitions Evolution of net leverage(1) ratios through acquisitions $1,446 M LIQUIDITY POSITION Atlantic Connecticut MetroCast Pro Forma May 31, 2019 Broadband & system Cogeco Peer Peer 1 Hosting 1 sale Revolving Credit 1,003 Facilities 3.5 (3) 3.4 (3) 3.3 (3)
Slide 24: Low cost of capital and manageable maturities
24 Low cost of capital and manageable maturities August May 2018 2019 Average Cost of Debt (4) 4.4% 4.5% Average Life 5.7Y 5.2Y COGECO COMMUNICATIONS ATLANTIC BROADBAND Excluding credit facility(1) Non-recourse financing $M $M $300 $291 (2) Refinanced in Oct. 2018 $2,156 (2)(3) with the corporate re
Slide 25: US$ debt reduces free cash flow FX exposure
25 US$ debt reduces free cash flow FX exposure • Cogeco Communications is mostly naturally hedged from a free cash flow perspective as US$ EBITDA exposure is offset by interest expense on U.S. denominated debt and U.S. denominated capex • The following table(1) highlights, in Canadian dollars, the i
Slide 26: Cogeco
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Slide 27: Cogeco
27 Cogeco COGECO Public market value of equity $1,351 M (16.2M shares at $83.65(1)) 15.7M shares of CCA Investment in COGECO COMMUNICATIONS COGECO MEDIA $1,490 M (Radio broadcasting) $92.29 per CGO share(1)(2) (1) As of July 5, 2019 (2) Based on a CCA share price of $94.99 multiplied by a ratio of 0
Slide 28: Cogeco Media: Strong network of radio stations
28 Cogeco Media: Strong network of radio stations
Slide 29: Cogeco Media: Most important radio broadcaster in Quebec
29 Cogeco Media: Most important radio broadcaster in Quebec(1) • Broad radio coverage – 23 radio stations covering most demographics – No. 1 in commercial share of hours tuned in Montreal and in Quebec City • Radio is an important media for Quebecers – 86% tune in every week – Time spent listening o
Slide 30: Corporate Social Responsibility
Corporate Social Responsibility
Slide 31: Corporate social responsibility (CSR) at Cogeco
31 Corporate social responsibility (“CSR”) at Cogeco • Customer relationship at the center stage of CSR program: we strive to offer the best customer experience while maintaining strong controls over their data security and privacy • CSR program overseen by a Steering Committee composed of executive
Slide 32: Appendices
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Slide 33: Customer profile
33 Customer profile Cogeco Atlantic May 31, 2019 Connexion Broadband Total Homes passed 1,760,040 875,401 2,635,441 Primary service units(1) 1,813,212 894,015 2,707,227 Internet service customers 785,703 443,696 1,229,399 Internet penetration(2) 44.6% 50.7% 46.6% Video service customer 657,747 307,2
Slide 34: Acronyms
34 Acronyms CAGR Compound Average Growth Rate DOCSIS Data Over Cable Service Interface Specifications FTTH Fibre To The Home FTTN Fibre To The Node Gbps Gigabits per second HPBX Hosted Private Branch Exchange IP Internet Protocol Mbps Megabits per second MVNO Mobile Virtual Network Operator VOD Vide