MONTREAL - Cogeco Inc. (TSX:CGO) reported a profit increase of 20 per cent in the first quarter as the cable television distributor and media company improved its revenues and dealt with costs from the shift of some consumers to its digital TV packages.

The Montreal-based company said its profits for the three-month period were $47.9 million, or $1.11, which missed analyst expectations by seven cents. The results marked an increase from $39.8 million, or 97 cents per share, in the first quarter of fiscal 2011.

Overall revenue rose 13.4 per cent to $387.5 million, up from $341.7 million.

Cogeco's cable and Internet division contributed the biggest share of revenue, which rose by $26.5 million or eight per cent to $356.9 million.

The radio division improved revenue by $19.4 million to reach $30.6 million, mostly as a result of Cogeco's acquisition of the former Corus stations in Quebec.

In Canada, revenue increased 9.8 per cent to $315.4 million, but margins were affected by various factors, including the support costs incurred to help consumers switch from analog TV to digital services, a process known in the industry as digital migration.

"Overall, we believe the decent subscriber results reinforce our thesis that Cogeco Cable remains relatively shielded from price competition in large urban areas given its geographic footprint," said Desjardin analyst Maher Yaghi in a note.

"However, the negative financial impact from digital migration could persist over the next few quarters."

In Portugal, where the company owns the struggling Cabovisao operations, revenue was $42 million.

In July, Cogeco wrote off the remaining investment in Cabovisao by taking a non-cash impairment charge of $225.9 million due to the weak economic environment in Portugal. The company had already booked a $400-million writedown in 2009, three years after it entered the market with the C$465 million purchase of the Portuguese operations.

For several quarters, analysts have questioned whether the company would sell the operations, but speculation mounted further late last year when the vice-president and general manager of Cabovisao told local media that he saw consolidation in the Portuguese market.

Cogeco president and CEO Louis Audet downplayed the remarks in a conference call.

"He's entitled to his own opinion," Audet told analysts.

"People should not draw conclusions one way or another. In the interim, things appear to be turning around."

Cogeco is the fourth-largest cable operator in Canada and has the second-largest cable system in Ontario, after Rogers Communications Inc. (TSX:RCI.B), and is No. 2 in Quebec after Quebecor's Videotron (TSX:QBR.B) in terms of the number of basic cable service customers.

Cogeco Inc. and the cable subsidiary are controlled by the Audet family through multiple voting shares, which make a hostile takeover unlikely.

Shares of Cogeco Inc. were up 44 cents to $47.69 near midday on the Toronto Stock Exchange.

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