MONTREAL – While its Canadian operations are clipping along just fine, competitive pressures are hammering its Cabovisao unit in Portugal, Cogeco Inc. announced today.
While consolidated revenue increased by 14.7% to $311.8 million in the second quarter of 2009, ended February 28th, as compared to Q2 of fiscal 2008, and by 16.5% to $620.2 million, in the first half – and consolidated operating income from continuing operations before amortization grew by 15.6% to reach $126.7 million, and by 19.9% to reach $251.4 million, the quarter was particularly unkind across the Atlantic.
“In the second quarter of fiscal 2009, the cable subsidiary recorded a non-cash impairment loss of its investment in Cabovisao in the amount of $399.6 million as a result of recurring competitive pressure resulting in subscriber losses that are significantly more important than originally anticipated. Net of related income taxes and non- controlling interest, the impairment loss amounted to $124 million,” reads the press release.
Consolidated net loss amounted to $115.3 million in the second quarter, compared to net income of $15.9 million for the same period of the prior year. Excluding the impairment loss described above, and the $7.9 million income tax adjustment related to the reduction of federal enacted income tax rates, net of non- controlling interest, and a loss from discontinued operations of $400,000 in the second quarter of the prior year, consolidated net income would have amounted to $8.7 million for the second quarter of 2009, compared to $8.4 million in the prior year.
Free cash flow reached $32.1 million for the quarter and $53.9 million for the first six months, increases of 65.6% and 27.2% over the same periods of the prior year.
In the cable sector, revenue-generating units (basic cable + digital cable + internet + phone subscribers = 4 RGUs) grew by 25,626 and 78,340 net additions in the quarter and first six months, for a total of 2.79 million RGU at February 28, 2009.
"Our results in the second quarter rest on the solid performance of our Canadian operations both in radio and cable. We are very pleased with the performance of the radio activities of Cogeco. Rythme FM continues to lead in the Montreal market in the winter BBM survey and to grow in its other markets. In the Canadian cable operations, we have maintained our focus and increased the number of RGU by 47,577 units in the quarter, for total net additions of 113,040 RGU so far this year,” said company president and CEO Louis Audet, in the press release.
“Our commercial activities, the results of which are in line with our expectations, continue to constitute a wonderful growth opportunity for Cogeco Cable as shown by the 10-year, $39 million deal with the Toronto District School Board announced in December by Cogeco Data Services.”
However, Cabovisao’s competitive position continued to crumble in the second quarter “due to the unfavourable economic climate and recurring intense customer promotions and advertising initiatives from competitors in the Portuguese market during the latter part of the second quarter,” reads the release.
“In accordance with current accounting standards, management considers that this situation, as evidenced by the RGU and revenue decline, is more significant and persistent than expected… Cogeco Cable is in the process of implementing new marketing and other operating initiatives to improve the results of the European operations", added Audet.
While some analysts openly questioned Cogeco’s ongoing presence in Portugal and asked for subscriber numbers and financial metrics specific to Portugal, Audet resisted on both fronts in today’s conference call with those analysts.
Due to competitive reasons, Audet said the Portuguese-specific numbers would not be made public and that the company, despite this dismal last quarter, still sees plenty of upside in Cabovisao.
“It’s a great business… a state of the art network that passes 900,000 homes,” said the CEO, who insisted more investment there will come.
He speculated that perhaps the company sat on its hands too long as the pair of larger competitors in the market, Portugal Telecom (4.3 million customers) and Zon (2.8 million subs) took aim at Cabovisao’s TV and telephony subscribers, respectively.
As those two companies hammered the market with lower prices, Audet suggested that his Portuguese leadership was hoping that its competition might take their foot off the gas a little. They did not. “We went just a bit too far in our level of tolerance and this gives cause for a vigorous adjustment,” said Audet of what went wrong across the pond.
And since only about 55% of Portuguese households have a TV provider and only 40% or so have a PC, much growth remains to be captured, insisted the CEO.
