Q4 2021 Cogeco Inc & Cogeco Communications Inc Earnings Call
Good day and welcome to the Cogeco incorporated and Cogeco Communications' fourth quarter 2021 earnings Conference call Today's conference is being recorded.
At this time I would like to turn the conference over to senior Vice President and Chief Financial Officer, Mr. Patrice Ouimet. Please go ahead Sir.
Thank you so good morning, everybody and welcome to this quarterly conference call, which was just saying.
I will present.
So as usual before we begin the call I'd like to remind listeners that the call is subject to forward looking statements, which can be found in our press releases issued yesterday I'll turn over the call to finish it.
No feedback.
Good morning, Thank you everyone for joining us to discuss the financial results of Cogeco Communications and Cogeco, Inc.
Let me first note that we are satisfied with cogeco communication overall performance for the fourth quarter of fiscal 2021.
Which is inline with expectations at both our Canadian and American broadband segments.
On the media side, we are pleased with the financial results of our radio business, where revenue has grown by 17, 7% year over year.
All in all these results position us very well to start to our fiscal 2022 on a strong footing.
Let us begin with a reflection on the key fiscal 2021 accomplishment.
Setting down fresh fruits to further expand our horizons.
Cogeco communications.
As pursued its acquisition growth strategy, while maintaining a strong financial position.
In December 2020, Cogeco Connexion completed the acquisition of Daily Telecom.
The third largest cable operator in Quebec announcer.
Now serving approximately 108000 customers.
The integration of the telecom is very advanced and financial results are above expectations.
In late June 2021, we announced an agreement to acquire <unk> networks passing.
689000 homes and businesses in Cleveland and Columbus, Ohio.
Serving some 200000 customers.
We closed this acquisition.
On September one and have already started integrating these assets on Atlantic broadband platform and.
And are preparing to introduce innovative service an instrument.
Two are new customers.
This acquisition allow us to add significant scale to our growing and profitable U S broadband business on.
On reasonable financial terms to pursue our market expansion strategy.
In Canada as we further develop our plans to enter the wireless market we.
<unk> secured 38 spectrum licenses in Quebec, and Ontario.
Which will increase our spectrum coverage to 91% of our national broadband footprint.
Which represents a population of <unk> of $3 6 million Canadians.
These spectrum investments together with the recent CRT see regulatory decision on wholesale wireless services.
And our rhombus and growing regional broadband network position Cogeco to further develop plans to enter the mobile market in the finance and financially disciplined way in our core markets in Canada.
Over the course of the year Cogeco Connexion announced several network expansion projects in underserved and Unserved regions in the province of Quebec and Ontario.
Most of these network expansion projects are being done in collaboration with governments, whereby cogeco will deploy approximately 75000 homes over the next three years.
Cogeco has deep roots in regions and rural communities should continue to contribute to its success and collaborating with governments to help close the gap in digital access between.
Large centers and rural areas.
In the U S. There is in the fortunate the at the moment to accelerate network expansion and in areas with good demographics and growth potential.
We expect to earn an attractive return on these investments.
From these.
Unsubsidized network expansion.
And offer more choice to consumers.
We also plan to leverage upcoming government funding programs for some network expansions in more rural communities in the U S.
To help close the digital divide.
When we looked at our corporate social responsibility agenda.
In 2021, we took great strides to this end.
And we're gratified to be recognized by leading voices in fun and then mentor them.
Social and corporate governance or known as ESG practices.
And reporting such as being named once more amongst the global 100, most sustainable corporations.
Among.
Our recent initiatives.
Cogeco was proud to read the rate its commitment to the environment by announcing its goal of achieving net zero emissions by 2050.
<unk> was the first telecommunications company in Canada to Abbott's targets approved by the science based target initiative.
Which include.
A 65% reduction in emissions from operations by 2030 compared to 2019 levels.
As a further recognition of the importance cogeco gifts to a sustainable future.
I was proud to announce last week that <unk> received the inaugural Tara <unk> seal.
Which recognized global companies that are driving innovation and demonstrating.
Their commitment.
Two and momentum.
Towards the creation of genuinely sustainable markets.
This seal is being awarded to companies with ambition aligned to those of the Tera Carter.
A recovery plan for nature people and the planet.
Launch in January 2021.
On the social front in addition to our strong commitment to digital inclusion.
Through continued investments in broadband networks.
In regional and rural areas.
We have sustained our efforts.
Around the workforce diversity and inclusion.
We are proud to have achieved our goal of having at least 35% of women in management positions.
In June we were pleased to announce further action plans to drive diversity and inclusion.
With the rollout of training and education initiatives DST.
The establishment of a DNI leadership Committee.
And increased philanthropic investments aimed at promoting DNI and supporting under represented groups.
When looking ahead at some of our priorities for fiscal 2022.
At Cogeco Connexion, we will continue to seek market expansion opportunities.
And further develop plans to enter the mobile services market.
Under the right conditions.
Our network expansion plans include actively seeking and participating in government programs to provide broadband access and underserved and unserved areas.
Including the upcoming Ontario government program.
We have already secured nine I speed Internet network expansion projects.
<unk> close to 10000.
Household in several communities in Ontario.
In collaboration with the Ontario.
And Canadian governments.
We are progressing well with the 39 feet Internet network expansion projects. We were awarded last March in several regions of Quebec.
Which should be completed by <unk>.
By September 2022.
Including this large Quebec project, we are planning to increase the number of homes passed by 3% by fiscal year end through network expansions and organic growth.
And on the customer experience side, we will continue to leverage and brought in our new IP TV Entertainment services.
Typical <unk>.
Expanding into new customer segments, and increasing availability in our footprint.
And the ice speed Internet is our cornerstone service, we will continue to expand our one gigabit per second coverage on our Quebec footprint.
To better understand and serve our customer we will continue to enhance our data and analytics capabilities and.
And we'll introduce new marketing automation and our contact centers leveraging artificial intelligence.
As we will continue to deploy operational excellence.
And ensign customer service.
Cost efficiency initiative will include among others the pursuit of our digital transformation, mainly through engaging customers to use self care.
Virtual connect and diagnostic tools.
Priorities for fiscal 2022 at Atlantic broadband.
With the integration of the <unk> acquisition, when where we were where we welcome new colleagues into the ABB and <unk> family.
<unk> initiated.
The integration of technical and operational systems.
In addition, we are pursuing network expansions into a adjacent cities with attractive growth potential where we plan to increase <unk> by approximately 4% pro forma deal, Ohio acquisition by the end of the current fiscal year.
Planning.
And the initial construction is underway in some areas of new and cheer and West Virginia.
<unk> commercial launch scheduled to start early in the 2022 calendar year.
On the customer experience front, we will continue to implement and refine our new Internet first offer.
Strategy, while we plan to launch an IP TV service by the end of this calendar year.
With a gradual rollout during the year.
As we accomplish all of this we will continue our digital transformation, mainly through engaging customers to use self self care virtual connect and through advanced customer communication and diagnostic tools.
As for Cogeco media.
We are optimistic about the radio outlook as the Quebec economy is recovering and.
And we continue to enjoy the commitment of our listeners.
Many of our station.
Then at the top of the numerous ranking.
For our Montreal talk station 98 five.
It is rank once again, the most listened to radio station in Canada.
I will now discuss our financial results.
Thank you for that so revenue at Cogeco Communications is up eight 1% and adjusted EBITDA up one 7% in constant currency when compared to the same quarter last year. This.
This was driven by EBITDA growth of one 7% of our surgical connection and four 6% at Atlantic broadband.
Free cash flow declined by $42 million or 37, 7% in constant currency, mainly as a result of capital expenditures increasing by $56 million.
Partially offset by reduced financial expense and higher EBITDA.
The significant increase in capital expenditures in the fourth quarter is mostly due to Atlantic broadband accelerated purchases of customer premise equipment.
And networking equipment in order to avoid supply supply chain disruptions, which are impacting many industries. These days.
As well as the strong customer additions that we've had in past years.
Sorry past quarters that had an impact on our inventories.
These capital expenditures are expected to be used to support growth driven by the recent Ohio acquisition as well as network expansion projects.
We announced an increase in our quarterly dividend from <unk> 64 to <unk> 75 per share representing a 10, 2% increase over last year.
Our track record of generating free cash flow and strong free cash flows.
Has enabled us to grow our dividend at an annual rate of at least 10% over the last eight fiscal years.
Communication is all.
<unk> also made meaningful share repurchases since may 2019, and purchased close to 400000 shares during the quarter.
Now, let us look at the individual components.
Physical connection our Canadian broadband business.
Revenue has increased by 10, 1% in constant currency relative to the same quarter last year.
<unk> the impact of any telecom acquisition revenue in constant currency grew at one 2%.
Organic revenue growth was related to a higher internet service customer base and higher.
Higher value product mix.
Physical connects challenge.
<unk> increased by one 7% in constant currency relative to the same quarter last year.
Which is a better than expected considering that we had planned.
For no growth in EBITDA during the quarter as highlighted during the third quarter conference call.
Excluding the impact of the DNA Telecom acquisition EBITDA in the quarter declined by five 5%. This decline is mainly related to an unusual $4 million reduction in expenses last year, lower marketing and sales activities last year in the context of the pandemic and.
And the impact of delaying delaying certain annual rate increases from June to November this year.
Overall physical connects all delivered the expected mid to high single digit growth in revenue and EBITDA for the full year.
The broadband customer additions in the fourth quarter were lower compared to last year, which benefited from the positive impact of the pandemic, but were strong from a historic perspective, the video product losses were lower than last year, mainly resulting from the IP TVA introduction and from Nomura.
Targeted sales and marketing approach by region and by market.
Finally, the phone losses were in line with historical trends.
Turning to Atlantic broadband revenue in constant currency increased by five 8% in the fourth quarter compared to last year.
EBITDA increased by four 6%.
Organic revenue growth.
It kind of is it mainly from a higher internet customer base, and our higher value product mix.
EBITDAR growth was slightly lower than revenue growth due to higher marketing and advertising expenses to support overall customer customer base growth.
This shift in expenses during the pandemic was planned and explained during our last earnings call.
Broadband customer additions were more muted during the quarter and lower than last year's unusual editions in the context of the pandemic.
The video and phone customer declines are mainly related to the broadband first approach and the fact that we generally do not offer video video only services anymore.
Now, let's take a look at Cogeco, Inc. The fourth quarter.
<unk> revenue increased by eight 4% and EBITDA increased by 9% in constant currency.
Revenue related to the radio operations increased by 18% in the fourth quarter compared to the prior year.
Which had been impacted by the pandemic.
And we announced an increase of 14, 7% in the quarterly dividend so going from 54 to 62 five cents per share.
I'll now discuss our revised financial guidelines.
Because you've got communication revised its 2022, our financial guidelines issued last quarter to include the impact of the Ohio acquisition, which was completed on September one.
On a constant currency and consolidated basis, because you are co communication and expect the growth to grow revenue in the range of 15% to 17% and EBITDA in the range of 14% to 16%.
Ohio acquisition should contribute 11, 5% of their revenue growth and 11% of the EBITDA growth.
Expectations, excluding the Ohio acquisition are generally in line with the previous financial guidelines for when factoring a slightly better than expected fiscal 2021, comparative year and slightly higher capital expenditures due to increasing equipment costs.
At Cogeco Connexion, we forecast in fiscal 'twenty, two close to mid single digit growth in revenue and EBITDA, resulting from organic growth.
And also the impact of the acquisition, which still has an impact next year as we don't have a full year.
In the comparative year.
The organic growth should stem primarily from demand for the residential internet product.
The upselling of customers to higher tiers of service and the recent launch of the IP TV product.
At Atlantic Broadband, we do expect a mid single digit organic revenue and EBITDA growth.
The expected continued demand for the residential internet product and growth in our business sector.
As for our quarterly results, we expect that organic year over year EBITDA growth will gradually improve during the year as we will be comparing our more normal post pandemic operation. This year to an unusually strong first half in fiscal 2021.
Let's remember that during the first half.
Of last year, both Cogeco connexion and Atlantic broadband generated very strong year over year organic growth.
At critical connection we expect a small year over year increase in EBITDA in the first quarter, when including the impact of the theory.
<unk> acquisition and.
An exclusive excluding any telecom impact we expect the first quarter to generate the decline in EBITDA since we delayed some rate increases until November of this year and the level of operating expenditures with unusually low last year.
Overall, the first quarter in our Canadian operation should be a similar story as the fourth quarter, we are reporting on today.
We then however expect organic growth in the next three quarters of the year.
At Atlantic broadband, we expect the first half of the year, especially the second quarter to generate lower year over year organic EBITA growth followed by strong growth in the second half of the year, resulting as mentioned in mid single digit revenue and EBITDA growth for the full year in constant dollars.
This is due to the timing of expenses during the pandemic last year.
Higher political advertising revenue during the presidential campaign last year, and also higher marketing and advertising expenses this year.
We are planning for capital expenditures in the $815 million to $845 million range, resulting in an expected capital intensity of approximately 28%.
Excluding the network expansions.
It would be 20%.
The capital expenditure budget includes $230 million to $240 million in network expansion projects, which is the same as mentioned last quarter.
Approximately $95 million related to the <unk> acquisition.
Of which close to half is linked to the integration and Densification of the network as.
As mentioned last quarter the <unk>.
Network expansions will result in higher capital intensity in both countries, but are necessary to seize a unique window of opportunity for growth.
These expansion should add approximately 3% to our homes passed in Canada, and 4% in the U S, but 4% pro forma the number of homes passed we have added with the Ohio acquisition.
Since these projects will take most of the fiscal year to build both business segments expect the growth in homes passed towards the end of the year.
At least for the bulk of what we are building.
And the impact on the revenues and EBITDA will be in future years not this year.
Free cash flow on a constant currency and consolidated basis should decrease between 33 and 43% due to the higher capital intensity.
Higher financial expenses, and about $35 million in transaction and integration costs related to the <unk> acquisition.
Excluding the network expansion projects mentioned earlier free cash flow and constant currency with otherwise increase between 5% and 15%.
The recently closed, Ohio acquisition, and the announced spectrum purchases resulted in a pro forma leverage of three four times EBITDA at Cogeco Communications, Inc.
It is a level that allows us to pursue our dividend payment strategy as well as our share buyback program.
At Cogeco, Inc.
Our guidelines have been revised to take into account the Ohio acquisition, and we also expect revenue growth of 15% to 17%.
EBITDA growth of 14% to 16% and cash flow decline of 33% to 43%.
Turn the I will turn it over now to Filipe to provide concluding remarks.
Thank you Patrick.
As we can see fiscal 2022 looks very promising.
We will actively pursue organic growth opportunities and continue to be on the lookout for acquisition within our leverage target.
In areas, where we are positioned as a consolidator of regional cable operators.
We are actively investing in our operations and networks to continue to offer ever faster internet speeds and high performance products.
While expanding our network in two areas to help address the digital divide between large urban centers and regional and rural areas.
We also continuously innovate through automation in both the U S and Canada to deliver exceptional digital experience for our customers.
Through our digital transformation, we are putting our customers first.
And also aim to gain agility, while further increasing our efficiency.
As an inclusive leader, we placed social commitment and corporate social responsibility.
The heart of our priorities.
We strive to drive inclusive growth support to our communities and continue fostering a highly collaborative engaging and inclusive work environment.
And now we will be very happy to answer your questions. Thank.
Thank you.
Remind everyone that if you would like to ask a question. Please press Star then one on your telephone keypad once again Thats star one to come into the question queue.
And our first question is going to come from the line of Sharon do you Brian with Desjardin.
Okay, well, thanks for taking my question.
Two questions on Capex.
Your capex guidance seems a bit higher than what the street's anticipated I understand it's probably a good time to do it.
So I'm looking to see a bit.
Where this higher number might come from are there more projects than what was expected in July is it our understanding that it wasn't good or.
Maybe if there's some some cost inflation.
That might be included in there and then the second question on Capex.
Just wanted to clarify.
What do you mean by growth oriented network expansion projects.
Just to be clear, the 20% kind of normalized <unk>.
Capex.
I mean, what percentage growth on past would that would that be.
Thank you.
Okay great.
So yes.
Yes, Theres a couple of reasons why we have increased the cap the capex guidance.
First of all obviously, we have the Ohio acquisition.
As I mentioned is about $95 million Canadian.
And that is a mix of just business as usual and also the integration Capex and Densification of the network. So youll recall, when we announced the transaction. We said there would be in addition to running the business there'd be $82 million in additional Capex, we would put through over a period of two years.
So there is a portion of that about half I would say the increase related to Ohio is related to this on the rest of your business as usual.
We've also we also have some.
Densification costs that we were planning to do last year in 2021 related to the acquisition that we're going to do next year, just delayed a little bit by a by a quarter or two so that explains a bit of the shift of our capex in Canada and.
There is also a bit of inflation as you know there is some inflation coming in the equipment from transportation and also the electronics.
So we do expect to see some its not extremely material, but that explains a portion of their the reasons, but let's say, Ohio is probably the biggest difference there.
And on your second question, if I understood correctly hopefully feel.
Feel free to tell me if I'm not answering your question.
What were referring to with and without as the 200 to two one.
Sorry, $230 $240 million in Capex related to.
New builds we're doing in the year and that's a mix of Canada and the U S. So this is what adds to homes fast.
In the 20%.
We don't have basically a home's fast growth because it's included in the $2 30 to $2 40.
Yeah, that's a that answers my question. Thank you.
Thank you again.
Again to ask a question press Star one our next question will come from the line of Vincent Valentini with TD Securities.
Thanks, very much Patricia on that $230 million to $240 million Rural Capex should we expect that to pacing evenly through each quarter of 2022 or is it is it somewhat skewed to the back half.
It's a bit difficult to say because it's dependent on a number of things how the construction goes and even before that there is permitting that is not finished as well.
So.
I would say my base assumption thats going to be more second half than first half.
But it's difficult it's very difficult to to plans for this on a quarterly basis.
Fair to say in the first.
If youre almost two months into the first quarter, you haven't spent too much of it yet.
Exactly so we're building right now and Thats Philipp said the U S. We're planning to see some additions early calendar year next year. It's a small portion. So there is construction activity, but I would say.
There is still a lot of permitting activity right now which is not.
Very consuming from a capex standpoint so.
Less so in tier one.
And ramping up over the next three quarters and Quebec. We are we have to be done by September of 2022, which is one month faster are you ran so theres going to be a blitz, there for sure and then Ontario and the U S.
It's more pace.
And some straddle into the next year as well, Okay. I have two other questions I'll throw them both out at June one.
The line for corporate caution intersegment eliminations was $13 million loss in Q4 last year and this year jumped to $17 million just wondering what what caused that and is $17 million run rate or was there something unusual in the final question.
Is there anything you can give us for leap on that.
Hi, I'm frame for negotiations on NV and old terms and rates I assume the process has started and talking to some of the carriers.
No idea how long it might take before we we find out what you might be able to do.
Yeah, well, let me start with your second question Vince.
As.
We've explained before.
There, it's a multi step process to enter the mobile market. We are now with the CRT C framework there was.
Here's a very public open process, where the incumbent <unk>.
Proposed terms and conditions.
We have like.
Likewise on the public record filed an extensive with many others extensive answers now the CRT D. C is really to finalize these terms and conditions.
And.
They have said many times. So I said, then and governments that all all this framework as supposed to encourage.
Competition and creates a framework that is a fair and reasonable.
To bring more choice to the marketplace. So we are still in this process. This is a very obvious step that we need to clear the next one after that.
And sorry to help you on the timing, we're not expecting this CRT C process to be finished before.
This winter.
And it might be prolonged <unk> needs, even more information from from current players.
After that there will once we have a framework.
And it is.
Good terms for new players like us in the marketplace, we will enter.
A rate negotiation of commercial rate negotiation period.
DMA knows and this will take time.
And it could be super fast if we find the rates that we need to.
There are good to support a good business case and the likelihood that we don't there is a backstop arbitration process with the CRT see this obviously will add even more time now we are definitely into spring Summertime next year at the earliest so hope this is helping.
In terms of timing it could be longer.
Depending on.
The intensity of the negotiation as well as the.
The pushback that we're seeing from the incumbent <unk> right now.
That's very helpful.
Make sure to clarify then I assume that none of your Capex guidance for 2022 includes any wireless or build out that given the timeframe that you just said.
Yes.
<unk> said that in the past I'll make it clear again today, we are going to deploy capital in line with market success. So at first means that we will enter the market, we will ramp up and.
And based on success, we will invest capex.
Okay. So on your other questions.
On the corporate costs.
So perhaps I'll refer to the critical communication.
Just trying to see where you are which number you were using the 2017, but if you referred to the critical communications.
Corporate costs in Q4, there were $11 2 million and you're right. It is an increase versus our six three.
Last year and.
There. This comes primarily from our innovation group, which does include wireless activities.
And as Philip said, we're not building a network, but there are some activities obviously in the sector and some.
A group of employees there as well.
So going forward.
For the next year, we don't expect to be at the same level as the Q4 number we expect to be at a lower run rate than this but it's still going to be higher than what we incurred for the full year fiscal 'twenty, one and happy to talk offline if you want to.
If you want to go more into it perhaps you referred to CGM, but because you're growing but we are happy to do it offline.
Thank you.
Again to come into the Cube Starwood. Your next question will come from Matthew Griffiths with Bank of America Merrill Lynch.
Hi, Thanks for taking the question I was going to follow up on the wireless comments quickly if I could I just wanted to clarify you mentioned that you would deploy capital on a success based basis, but if my understanding of like the <unk> model is correct.
You can you can enter the <unk> arrangement for a seven year period, while you build your network. So.
So I'm not sure.
How much leeway there is two.
Deploy success based capital when you have to finish the network. So maybe you could clarify that comment if you could please and then secondly, I wanted to ask about the Ohio subscriber.
Subscriber counts it seems.
At the time of acquisition.
The kind of broadband subscriber numbers that you provided.
<unk>.
Basically didn't change over the six months to the numbers you provided at the beginning of September and so I was just curious what youre seeing in the market.
<unk> in particular, where there didn't seem to be any growth, which seems like an anomaly.
And just generally in the U S. We've had some of the other providers comment about.
Kind of moderating their expectations for net adds referring to an even slower move activity. So just generally what youre seeing.
In the U S market. Thanks.
Okay. Thank you Matthew let me start with your first question.
On the Capex.
Capex need for a mobile operation so.
Yeah.
So thats one component in the second hidden component in your question is the seven year period. So.
To start an operation you, obviously need some equipment to.
To activate customers to be able to set them up.
So there's a there's a small portion of capital that is required for the.
Activation.
Support.
Building. These guys. These kind of elements that we would like obviously app to to put upfront, but they are relatively small now the the network build.
My previous comment is we're going to build a network as we find success remember that the framework is allowing.
Players like us to enter the market leasing capacity on the <unk> network. So this is what we will do our market penetration will raise and we will deploy capital for network.
Equipment based on success.
Two two different <unk>.
Buckets, if you want for a for Capex expenditure now the seven year.
Of course, we are not going to aggressively build a network.
To start.
Before we find success I said it would be the reverse and we would build gradually.
As we find success during the seven year, but the seven year is not a cliff.
Tim.
We have to demonstrate to the CRT C.
That we are investing that.
We're not just leasing capacity as in the wireline.
Framework for <unk>, they can rent networks, but they have no obligation to build we've always at cogeco supported a model where if you do find success in the marketplace you have to invest and this is what we're going to do.
And at the end of the seven year D. There will be.
A public.
A public process with the CRT see monitoring those investments and making sure that.
<unk> that were.
Made by players are in line remember that <unk> taken more than 30 years to build with day after day.
So no one would expect from a new players to build networks in less than seven years, but the principle here is to invest gradually over time and the CRT C to monitor that.
Yeah on the <unk> question.
Specifically we were not.
I would say, we're pretty much in line with.
What we saw when we made the transaction in terms of Internet.
Customers, we were not planning initially and Youll recall, we did discuss this when we made the acquisition to have.
A substantial substantial increase in number of customers. Initially what we said is that for a period of 12 to 18 months, we're going to be in integration mode.
Which means that we need to basically transit certain services to our platform order taking billing for example.
And also at the same time, we are intensifying the network to be able to get new customers and also so higher speeds to customers and introducing IP TV product.
So stability for US is what we were expecting and.
Following that period, then we're planning to be able again to grow.
Grow penetration a bit.
Also grow our mix of higher end business by selling.
Bigger packages the other thing you'll notice as well is the on the video side.
<unk>.
Not that you can necessarily see it separately, but the video on the video side. There is a decline and that was also a plan.
The strategy that's why.
<unk> is a little different than what we do on the video front. So we're all losing some psus on video.
But in terms of our strategy long term, we are planning again to introduce and IP TV platform across our networks in the U S, including and.
The wild territories, so that again was a.
What's the plan.
Okay, great. Thanks, maybe if I can sneak one more in just quickly. There was also mentioned in the MD&A about kind of expansion into you know I think it was Virginia, if I'm not mistaken in new Hampshire.
And that I'm sure is included in the 230 to $2 40, even though I think the majority of that is in Canada is there any.
How much of those expansions in the U S, which are going to continue past this current year.
<unk>.
Are included in that $2 30 to $2 40, just so we can carry it forward.
Sure, yes, it isn't it.
<unk>, it's close to half in the U S. Canada in terms of.
Okay.
Network expansions and the and you're right, they're going to extend past this fiscal year, we're going to evaluate other areas as well so we have it.
Team looking at this right now and as long as we find attractive areas.
Again. These are we think attractive financially where we can make.
Mid teens in terms of Unlevered returns.
We're planning to do this for some time, while we can but.
But it's about approximately half of the $2 30 to $2 40, as it relates to the U S expansion.
Okay. Thank you.
Thank you.
Our next question is going to come from the line of Jeff fan with Scotiabank.
Thank you good morning, just to follow up on the previous question.
So it sounds like the Capex expansion lower dollars and hop hop between U S and Canada can you.
Is it the breakdown of the number of homes I think it was 75000 is that.
Bud evenly between U S and Canada as well.
Of the ones in the U S.
Are you, calling still into overbuild markets I E are you competing against fiber and another M. S O in somebody's edge out.
Expansions.
Okay.
So it's about a <unk>.
Actually.
The 75000 refers to something else, it's a Canada.
It's multi year and it relates to the government's subsidized areas. So when you look at what we're planning to do this year with the 230% to 40, we're planning to add between 50 and 60000 homes fast in Canada. So that's about 3% increase in the network and in the U S. It's about 70.
<unk> thousand homes fast so that's about 4% of the network and the network does include now, Ohio. So it's a bigger number base that then.
Then we used to report them.
So 50% to 60, plus 70 in the U S. Approximately again the timing of these can straddle another year, depending on how fast we can get permits and get construction ongoing.
The nature of the builds in Canada.
Almost all government subsidize it means we're going into areas, where there is no high speed internet provider.
It's primarily DSL or nothing or fixed wireless.
In the U S. It's primarily we do have a bit of this in the U S as well, but I would say the majority is an overbuild areas.
Where there is a cable player.
And there is a phone company.
Not going into areas that have fiber to the home.
We are growing in areas typically where you'll have a DSO phone company.
And even in diesel overbuild areas, you expect to get a return in the mid teens is that did I hear that correctly.
Right.
And where we're going with fiber to the home in these areas.
So yes, so you have basically us as a fiber to the home provider.
Have a cable player and the phone company.
And there is a bit also of what we've been doing in Florida for many years know, Florida is a different.
Story, obviously, there's more players, but it's a more longer term contracts signed with <unk>.
With associations of residence.
Right. So your penetration assumption in these markets.
I would presume would be pretty hard with fiber to the home.
Yes, so we're assuming 36% over three years.
I know.
Different players will have different assumptions on this but we tried to be conservative.
And yes, with 36% over three years, we can generate mid teens returns in Canada, we are assuming a higher penetration of 50% because again, it's a two player market.
With the other player being not providing high speed Internet at this point.
That makes sense.
Just one follow up on the U S operation operation the margin specifically.
You had some marketing cost this quarter. So your broadband for strategy and deliver the margin expansion, but when should.
Should we start to look at.
Margin expansion as a result of this strategy with being broadband first.
Yeah, well it is going well actually we we've been able to increase the Rev.
Revenue per customer.
Especially for the Internet products, so actually the margins per customer are increasing.
And that should help.
The margins now when we compare to last year for the reasons I explained before there were lower operating expenses and lower sales and marketing because of the pandemic. So I wouldn't say, it's the the necessarily the best reference point.
If we look at the full year.
We did 45, 8% margins.
We should be in a similar place next year.
And as we add these new expansions that we just talked about.
We do expect this will play favorably and are in addition to the broadband first approach so are we.
We should see an uptick what goes against the margin is the video cost increases which are higher than inflation.
But the mix shifts with some reduction in psus in video in those.
PSC is going towards Internet does help the margin so right now it's sort of even evening out.
Expect with the network expansions.
We'll see an improvement overtime.
<unk> is not going to be.
22 story is going to start in 'twenty, three and mostly in 'twenty four we're going to see a bigger impact of these network expansions.
Great. Thanks.
Thank you at this time I see no further questions I would like to turn the call back to Mr. Ouimet and Mr. <unk> for closing comments.
Okay, great well, thanks for being there this morning, and we're going to be back in January with the Q1 results feel free to call us in the meantime.
Good day.
Thank you. This will conclude today's conference call. We appreciate your participation you may now disconnect.
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