Q4 2007 Cogeco, Inc. Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day and welcome to COGECO Inc. and Cogeco Cable Inc. Q4 earnings conference call. Today's conference is being recorded. (OPERATOR INSTRUCTIONS) At this time, I would like to turn the conference over to Mr. Pierre Gagne, Vice President and Chief Financial Officer. Please go ahead, sir.

PIERRE GAGNE, VP FINANCES & CFO, COGECO INC.: Thank you very much. I have with me this morning Louis Audet, our President and CEO; Alex Tessier, our Treasurer; Marie Carrier, our Director of Communications; and Eric Simon, our Director of Financial Planning.

Just want to outline briefly that this call is subject to the Safe Harbor provision with the usual forward-looking statement provision that is included in the press release. I recommend that listeners of this call read this section in the press release.

Before we go to question and answer period, Louis Audet would like to make some comments on the Q4 results as well as the 2008 outlook. Louis?

LOUIS AUDET, PRESIDENT, CEO, COGECO INC.: Thank you, Pierre. Good morning, ladies and gentlemen. The fourth quarter and all of fiscal 2007 have been extremely satisfactory, particularly on the cable side, which we will discuss first.

Cogeco Cable continues on its growth trajectory with revenue, EBITDA, net income, and free cash flow either in line or largely exceeding our revised July 10 guideline. RGU growth for the year for all of Cogeco Cable has been 301,000, which is our strongest ever, including strong growth in Canada alone and strong growth in Portugal as well.

Fourth quarter. If we now focus on the fourth-quarter RGU growth, it has been a bit slower compared to prior years, and I will explain the reasons. First with Canada. This past summer, we have been a bit less generous on promotions in an attempt to better balance churn, operating expenditures, and EBITDA. This may have had a slight effect on RGU acquisition. But overall, we are very pleased with the balance we have achieved.

Turning to Portugal now, concomitant with the beginning of the spinoff of Portugal Telecom Multimedia -- which began in July of this year and will be completed on November 7 with the actual distribution of shares from PT to its shareholders of shares of PTM -- PTM adopted a very aggressive, high-discount, introductory offer strategy in July, August, and September. We were faced with this strategy, and in the interest of good market competitive dynamics, refrained. Refrained from the following them.

We eventually did in the early part of October, and we were particularly pleased to see that on October 16 they changed their strategy and came back to more realistic long-term pricing strategy for their promotions. So I think on a balance here, we acted in a responsible way, trying to sustain the market, and indeed achieved what we think is a proper balance in favor of EBITDA.

Having said that about the fourth quarter for both Canada and Portugal, we are extremely pleased with the fact that this is our strongest RGU growth year ever in our history.

You will have noted as well that our other services have continued to grow, are highly penetrated, and still to lots of room to grow. So for example, High Speed Internet penetrated in Canada at the level of 52% of Basic customers and Portugal to a level of 54%.

You will have noted that Telephony after just two years is now penetrated to 22% of our Basic customers to which the service is offered in Canada. This is with a 78% rollout to homes passed. As you know, we're aiming to achieve 90% to 95% of homes passed availability by December 2008.

Our digital service is available to 46% of Canadian homes passed. Sorry -- used by 46% of our Basic customers in Canada. As you know, we just started rolling it out this summer to our Basic customers in Portugal; and here it is a bit early to comment on results. The rollout is occurring as we speak, and we are extremely pleased with the rhythm at which it is advancing.

Portugal continues to grow and deliver profitable results that are indeed well above the base case on which we had made our investment decision in the first place. Our first year of operations has been cash flow neutral, as announced earlier in our guidance. We are extremely pleased with the past and future growth prospects in Portugal.

You will have noted that we also announced a new management structure in Canada. All promotions were from within, which is always nice. Louise St-Pierre was promoted to Vice President Customer Service in the Ontario operations; Jacques Gravel to Vice President Network Services in the QuA[c]bec operations; and Francois Beaulieu to Vice President and Chief Information Officer. These promotions are intended to further our objective of optimizing operations with a view to achieving better synergy and, of course, ultimately higher EBITDA margins to sales.

You will have noted that we have increased our dividend 25% from C$0.08 per share per quarter to C$0.10 per share per quarter. We are entering this new fiscal 2008 year with strong products and services, strong analog, digital, high definition, video on demand, video services, the fastest and most secure high speed internet service at comparable prices, and a fully featured economical telephone service. This, both in Portugal and in Canada.

Hence the guidance we are providing for fiscal 2008 -- revenues C$1.05 billion; EBITDA of C$425 million; net income of C$95 million; and free cash flow of C$65 million -- all of which rest on healthy RGU growth of 259,000 units, which is our way of balancing profitability with customer acquisition.

You also will have noted that in the year, we issued 8 million subordinate voting shares, with the result that our debt-to-EBITDA ratio is now down at 2.6 times. And with the Cabovisao integration now completed, we are considering acquisitions in other markets, in Canada if possible, if not outside, along the parameters that have already been amply discussed in these conference calls on numerous occasions already.

Let us now turn to the broadcasting side of our business. The performance of our radio sector continues to increase, with the RYTHME FM network now occupying a lead position both …