TORONTO – There are two large cable operators based in the province of Quebec, but each have their own different ideas of where growth will come from.
One, Videotron, envisions building itself into an important wireless player. The other, Cogeco Cable, has so far shunned wireless investments in favor of pursuing growth outside of North America.
Its 2006 acquisition of Cabovisao, which now serves over 300,000 customers in Portugal has been nothing but positive for the company as revenue and margins have risen throughout 2007. The integration of the new division is now complete.
The company launched digital cable and is concentrating on organic growth there because while it has those few hundred thousand clients, its network passes over 825,000 homes, over half of which have no TV or Internet service, other than conventional broadcast television.
“It’s like Canada 20 years ago,” said Cogeco president and CEO Louis Audet, who met with reporters prior to the Cogeco Cable annual general meeting in Toronto yesterday.
However, Portugal won’t be the only European division for the company, which is actively exploring other acquisitions across the pond. With a debt to EBITDA ratio now of 2.6x and having done a pair of share issues this year, the company can certainly afford it.
While there have been several opportunities that the company has turned down (“We want to pick something we can add value to,” said Audet), the company is still actively exploring. “There are a few (companies) we would be delighted to acquire,” he added.
But, “with the debt crisis right now, the sellers are very circumspect. It’s a very quiet market,” said Audet.
Cogeco has even been approached by companies well beyond Europe (he wouldn’t say where) that are looking to sell, but Audet doesn’t want to spread himself too far and wide. “We think we should concentrate our management effort in Europe,” said the CEO.
And with that thrust as the company’s primary growth strategy, don’t look for Cogeco to get involved in the advanced wireless spectrum auction in 2008. It just doesn’t interest him, said Audet.
“Our position as of now is that the… startup costs that would accompany any launch of a new cellular company subsequent to the upcoming auction are such that this is not a game that we wish to participate as a company,” he explained. “It’s a very desirable business to be in, I just don’t think we have the strength to play there.”
And there is still a lot of work to be done on its existing customer base anyway, where 22% of its basic customers in Canada are also Cogeco Home Phone customers and 52% are Cogeco High Speed Internet customers, too.
Other Cogeco issues we discussed with the company’s CEO:
* Audet declined comment on the Rogers request for a license to overbuild parts of Cogeco’s territory in southern Ontario saying, interestingly, he doesn’t comment on competitors’ strategy (and this is no ordinary competitor since Rogers owns about 18% of Cogeco). When asked if he planned to file a similar request with the CRTC to expand his company’s cable territory, he said: “It’s an interesting thought, but I never thought about it.”
* On the upcoming BDU and specialty service policy hearings in from of the Commission in April: “We are advocating a uniformization and simplification of the tiering and packaging rules,” he said. “We recognize there’s a need for the continued preponderance for a majority of Canadian services (but) other than that, we’re advocating a simplified definition of must-carry and more freedom in terms of packaging services and the end to supplementary rules that tie cable more stringently than those that tie satellite.”
* On struggling Quebec conventional broadcaster TQS, which Cogeco is the majority shareholder but is looking to potentially sell, Audet said he will be receiving the report mentioned here from CIBC next week and the company will figure out next steps after digesting that report.
* The company’s small radio division (which features the Rythme FM brand) “has done very well and we’re pleased,” said Audet. But that doesn’t mean he’s looking to package it up for sale. “Our predisposition would be to add,” he said.
The company also released some 2007 highlights after the bell, including:
* Consolidated revenue grew 51.4% to $939 million, consolidated operating income before amortization increased 46.6% to $371 million, consolidated net income amounted to $85 million up 29.2% and free cash flow reached $31 million. Strong revenue-generating unit (RGU) growth continued with 301,000 net additions or 13.8% growth to reach 2,485,665 RGUs on August 31, 2007, says the release.
