MONTREAL – A $450 million writedown of its Business ICT services segment contributed to third quarter losses at Cogeco Inc., the company announced Thursday.
For the period ended May 31, 2016, losses amounted to $381.9 million of which $117.7 millionwas attributable to owners of the corporation, compared to a $66.3 million profit in the same period last year of which $22.6 million was attributable to the owners of the corporation. According to the news release, the decrease is mainly due to the non- cash pre-tax impairment of goodwill and intangible assets of $450.0 million and from $10.5 million related to the claims and litigations which both occurred in its communications segment. The remaining variation is explained by the improvement of adjusted EBITDA combined with the decreases in financial expense, income taxes and integration, restructuring and acquisition costs, partly offset by the increase in depreciation and amortization.
Cogeco said the losses in its Business ICT services segment, which includes subsidiary Cogeco Peer 1, resulted from changing industry dynamics and related valuations, and lower expectations for future revenue, profitability and cash flow growth.
Revenue for the third quarter increased 2.9% to $574.0 million driven by growth in the communications segment mainly through the improvement of its American broadband services operations combined with favorable foreign exchange rate for the U.S. dollar over the Canadian dollar compared to the same period of the prior year, partly offset by lower revenue in the media activities attributable to the sale of Métromédia CMR Plus earlier this year.
Adjusted EBITDA increased by 2.5% to reach $253.2 million year-over-year, and free cash flow reached $91.9 million compared to $77.9 million, an increase of 18.0%, compared to the same quarter of the prior year.
Cogeco revised its financial guidelines for the 2016 fiscal year mainly as a result of lower than expected operating results from the Business ICT services segment combined with the appreciation of the Canadian dollar over the US dollar and higher capital expenditures related to a large colocation contract.
"We are seeing increased competition in the Business ICT sector from large cloud-based offerings competing with traditional managed hosting providers," said president and CEO Louis Audet, in the release. "Cogeco Communications remains committed to investing in and growing the Business ICT sector with its subsidiary, Cogeco Peer 1, at the forefront of this strategy, positioned as a trusted partner to its customers. Our integration is now complete and we are confident that with a solid, seasoned management team in place and a competitive product portfolio, our subsidiary can serve the market, continuing to adapt to the significant capacity and price pressure originating from cloud providers."
