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Cogeco, Inc. (CGO)

F1Q08 Earnings Call

January 10, 2008 11:00 am ET


Pierre Gagne – Vice President, Chief Financial Officer

Louis Audet – President, Chief Executive Officer


Peter McDonald - GMP Securities

Greg McDonald - National Bank Financial

Vince Valentini - TD Newcrest

Rob Goff – Haywood

Bob Bek - CIBC World Markets

Dvai Ghose - Genuity Capital

John Henderson – Scotia Capital



Good day, and welcome to the Cogeco/Cogeco, Inc. Q1 Earnings Conference Call. This conference is being recorded [operator instructions].

At this time I will turn the call over to Mr. Pierre Gagne, Vice President and Chief Financial Officer, go ahead, Sir.

Pierre Gagne

Thank you, good morning, everybody. I have with me Louis Audet, President and CEO, Alex Tessier, our Treasurer, Marie Carrier, Director of Communications, and Éric Simon, Director of Financial Planning.

Of course, this call is subject to theSafe Harbor provision, the usual forward-looking statement provision included in your press release that was released in fact last night. We recommend that the listener read the section in the press release that goes together, of course with this call.

Before we go to our question and answer period, Louis Audet would like to make come comments on the Q1 results.

Louis Audet

Thank you, Pierre, and good morning, ladies and gentlemen. Welcome to this conference call and Happy New Year to you.

The first quarter of fiscal 2008 has been very good. We have continued to growin radio and in cable very nicely, and I will address cable first.

The financial results of Cogeco Cable are among the best in our history. We have recorded very good sales growth of 13.4% compared to last year same period. Excellent EBITDA growth of 17.5%, our EBITDA margin has risen to 39% consolidated. Free cash-flow is at $21.6 million and RGU growth has been a very good 83,000.

We are on track to achieve our guidance, which we maintain unchanged, except of course, for the income tax adjustment to be reflected in the second quarter. This would bring our net profit to $118 million, which will bea record number for this company.

In Canada we have had good RGA growth. We benefit from a rational business environment. We are well exceeding management’s original expectations for Canada, which is more than compensating for the softness that we have witnessed inPortugal.

In Portugal, their pricing environment is evolving into a more rational environment. We are now adjusting to the fact there is one more competitor inthe marketplace, which, of course, was fully anticipated, everyone knew this was coming. Now the adjustment process is underway. Portugal, as you know, was acquired because it was a good source of future growth. It haslow basic penetration, low basic high-speed Internet penetration and is a reservoir of growth for the future for this company. The prospects for Cogeco Cable are extremely good for 2008 and for years to come.

On the broadcasting side now, radio continues to grow nicely on the sales and EBITDA fronts. Audiences continue to grow and we are very satisfied. On the television side, as you know, TQS is currently under the protection of the Law of Arrangement with its creditors. This marks our withdrawal from general interest television, and will be considered as a discontinued operation as of December 17th.

Hence, we’ve revised our Cogeco, Inc, guidance to reflect the disappearance of TQS and include the income tax benefit, as well, in our forecast. Hence if you were to remove the write-off related to TQS, you would find that our net income hasin fact risen 25% in Cogeco, Inc compared to last year.

That complete my comments and we would be delighted to answer your questions.

Question-and-Answer Session


Thank you [operator instructions]. Please stand by for the first question. The first question comes form Peter McDonald, GMP Securities, please go ahead.

Peter McDonald, GMP Securities

Thanks, can you quantify the higher operating costs inPortugal? How much was marketing and how much of that was re-branding versus back to school promos and was there a specific component specifically related to TV Cabo?

Louis Audet

We’re mentioning that we have a higher cost, when you look at that plus the certification it represents roughly close to €1 million. In fact, if I could expand on your question, when you look atthe results inPortugal in euros, our revenue has increased by 4.5%. You see 2.8% on the press release, that's the effects of foreign exchange. Of course that is 14363 last year and 14119 this year. If you look atit in euros the revenue has increased by 4.5%.

When you’re excluding the additional marketing and the C198 which came close to €1 million, you see that the EBITDA in euros denominated increased by about 4% to 5%. That’s what happened roughly during the quarter. I know when you look at itin Canadian currency it looks a bit awkward, but this is what happened in euros.

Peter McDonald, GMP Securities

Last quarter you talked about having optimism that you’d be able to exceed the 37% margin expectations on a full year basis in Portugal. Are you still moving toward that number?

Louis Audet

What you will see, we’ve seen that with the pricing situation in Portugal, we’re starting to see some changes inthe pricing with our main competitor. We think that this change will continue in the quarters to come. It’s a bit early to see if we’ll achieve it. We said we would achieve it by this stage, we haven’t changed our guidance.

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