Canadian performance helps Cogeco to compensate for subscriber losses in Portugal
Published Wednesday January 14th, 2009
MONTREAL - Cogeco Inc. (TSX:CGO) said Wednesday it's cutting costs at its cable business in Portugal where intense competition and a weak economy has caused a hemorrhage of subscribers.
But chief executive Louis Audet said the loss of 21,000 customers at its Portuguese unit over the last three quarters, including nearly 13,000 in the first quarter, must be put into perspective.
"There are losses, we acknowledge that, but when we compare the market movements here I'm quite proud that we have managed to minimize these losses," said during a conference call to discuss Cogeco's first-quarter results.
The Montreal-based company, which owns Canada's fourth-largest cable company as well as radio stations in Quebec, earned $11.1 million or 66 cents a share in the period ended Nov. 30. The profits came a year after Cogeco posted a loss of $10 million or 60 cents a share.
Revenue rose 18.5 per cent to $308.4 million, from a year-earlier $260.3 million, Cogeco said. The top-line increase came as acquisitions in the cable division helped push operating costs up 14.7 per cent to $183.7 million.
Audet, who was criticized by analysts for taking the company into the European market, said he expects Cogeco's results will compare "very favourably" to its competitors in Portugal. But he acknowledged the subscriber trend isn't likely to improve this year.
He added Cogeco's Canadian operations have seen solid customer growth which helped to offset "the worst quarter to date" for its Portuguese operations, which account for approximately 19 per cent of the company's overall earnings.
"We consider ourselves very fortunate to be in a position to have delivered and to be in a position to continue delivering very good results in what is de facto an extremely difficult economy," Audet told analysts.
The company said both the radio and the cable sectors, which includes a controlling stake in Cogeco Cable Inc. (TSX:CCA) reported solid financial performance for the first quarter.
All of Cogeco's key performance indicators increased compared to the prior year except for a decrease in cash flow caused by the increases in capital expenditures required in the cable sector to support demand for HD television service in Canada and digital television in Portugal.
Audet said subscriptions in Canada increased in all of its services - including basic cable, digital cable, pay TV, high-speed Internet, and telephone - but admitted the quarter didn't see a "big influx" of new subscribers.
"What you are seeing from our company is constant regular gain with no home runs, but just chugging along and getting these customers through the door to come in and join us. This is despite what has been a not good economy," Audet said.
Analysts said the results were slightly ahead of expectations but that Portugal remains a drag.
RBC Capital Markets analyst Jonathan Allen said continued weakness in Portugal will overhang Cogeco's shares, although he said cable companies should generally perform well this year.
"Once trends in Portugal improve, then we believe the stock will be poised for a rebound as free cash flow re-accelerates, but the timing could be in 2010 before this happens," Allen said in a report.
Cogeco Cable is Canada's fourth-largest cable company, with a territory stretching from Quebec's Gaspe region to the tip of southwestern Ontario.
It is second-largest cable provider in Quebec, after Quebecor Inc.'s Videotron (TSX:QBR.B) and the second-largest in Ontario after Rogers Cable, a division of Rogers Communications (TSX:RCI.B).
Cogeco shares closed up three cents to $24.51 Wednesday on the Toronto Stock Exchange. Cogeco Cable shares gained 80 cents to $33.
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