Futuremed Healthcare Income Fund
TSX : FMD.UN

Futuremed Healthcare Income Fund

March 09, 2010 18:53 ET

Futuremed Announces 2009 Fourth Quarter and Year-End Results

CONCORD, ONTARIO--(Marketwire - March 9, 2010) - Futuremed Healthcare Income Fund (TSX:FMD.UN) ("Futuremed" or the "Fund") announced today strong financial and operating results for the three months and year ended December 31, 2009.

HIGHLIGHTS:

  • 2009 sales rise 34.6% on Dismed Inc.'s contribution and strong organic growth
  • Solid growth in recurring, non-discretionary nursing supplies revenues
  • Distributable cash1 up 18.3% for the year
  • 2009 payout ratio1 improves to 82% from 92% last year
  • Strong balance sheet and financial position
  • Proposed conversion to a corporation announced

1 See "Non-GAAP Measures" at the end of this press release.

Sales in the fourth quarter of 2009 increased to $56.6 million compared to $50.3 million in 2008. The increase was primarily due to organic growth in nursing supplies revenues. For the year ended December 31, 2009, sales increased to $204.5 million compared to $151.9 million in the prior year. The increase is due primarily to the contribution in sales from Dismed Inc. in the period, which was acquired on June 30, 2008, as well as solid increases in nursing supplies sales and furniture and equipment revenues.

Sales of the Fund's consumable nursing supplies increased 15.8% in the fourth quarter of 2009 and 39.2% for the year compared to the same periods in 2008. The increase for the fourth quarter was primarily driven by strong organic growth, increases in incontinence products sales, as well as increases in other nursing supplies revenue stemming from the H1N1 virus amounting to $1.0 million in the quarter. The increases in nursing supplies revenues for the year were driven primarily by the contribution in sales from Dismed Inc., as well as strong increases in sales of incontinence products and other nursing supplies in all of the Fund's other markets. During the third quarter of 2009 the World Health Organization declared the H1N1 virus to be a Pandemic Risk, and customer buying as a result of that declaration resulted in additional revenues of $2.8 million during the year. Consumable nursing supplies represented approximately 90% and 89% of the Fund's total sales in the fourth quarter and year ended December 31, 2009, respectively.

Sales of the Company's furniture and equipment decreased to $5.4 million in the fourth quarter of 2009 compared to $6.0 million in last year's fourth quarter. The decrease was due primarily to a lack of general infrastructure spending during the 2009 fourth quarter. Furniture and equipment sales in 2009 increased 4.3% to $20.9 million compared to last year due primarily to the contribution in furniture and equipment sales from Dismed Inc. in the period, partially offset by a decrease in furniture and equipment sales in provinces other than Quebec due to a lack of replacement spending during the year. Furniture and equipment sales in 2008 included a $1.2 million infrastructure project in Saskatchewan in last year's third quarter.

"We are very pleased with our continued strong organic growth and record operating and financial performance in 2009," commented Raymond Stone, President and CEO. "Our results were a very solid indicator that our business is resilient during challenging economic times, and we look forward to generating further growth in 2010 and beyond as we continue to execute our proven value-enhancing strategies." 

For the fourth quarter of 2009, gross profit increased 6.6% compared to the prior year period due primarily to organic sales growth. For 2009, gross profit increased 22.7% over 2008 due primarily to the margin contribution from Dismed Inc. The impact on gross profit margins of increases in input costs as a result of the higher US dollar exchange rate, higher freight charges on incoming goods, and lower subsidies on goods manufactured in East Asia had less of a negative effect on gross margin during the period, and management believes these inflationary pressures have stabilized, and in some instances, reversed due to current global economic conditions. Change in the product mix and price pressures across various commodities within that mix have contributed to the reduction in achieved margins in the current year.

Selling, general and administrative ("SG&A") expenses for the three months ended December 31, 2009 increased 8.5% compared to the prior year period. The increase is due primarily to increased head count and associated costs due to higher levels of business activity in the quarter. For the year, SG&A expenses increased 25.5% due primarily to the addition of Dismed Inc. and increased infrastructure costs resulting from higher levels of business activity in the current year. Delivery costs have stabilized as a result of lower fuel prices and delivery surcharges, and represented 3.5% of total revenues in the fourth quarter and year compared to 3.6 % and 4.0%, respectively, for the same periods in 2008. As a percentage of revenues, SG&A costs reduced to 13.3% in the fourth quarter and year ended December 31, 2009 from 13.8% and14.3% for the same respective periods in 2008.

For the three months ended December 31, 2009, the Fund generated distributable cash of $5.2 million or $0.34 per Unit compared to $4.6 million or $0.30 per Unit in the fourth quarter of 2008. For 2009, the Fund generated $17.3 million or $1.13 per Unit of distributable cash compared to $14.7 million or $1.02 per Unit in 2008.

Capital expenditures amounted to approximately $0.2 million in the fourth quarter and $1.8 million for the year compared to $0.4 million and $1.1 respectively last year. The increases in 2009 relate primarily to investments aimed at aligning and improving the Fund's supply chain infrastructure in all of its facilities across Canada. The project is expected to be completed within two years and involve approximately $1.5 million in excess of normal capital expenditures over this period.

The payout ratio for the fourth quarter of 2009 was 68% compared to 76% in last year's fourth quarter. For 2009, the payout ratio was 82% compared to 92% in the prior year. Not including the short-term investments in supply chain improvements in the fourth quarter and year ended December 31, 2009, as well as non-cash changes in the fair value of financial instruments included in working capital, the normalized payout ratio(1) would have been 67% and 79%, respectively, compared to 76% and 89% for the same respective periods in 2008. The calculations of normalized distributable cash1 and payout ratio are included in the table that follows.

Working capital was $21.2 million at December 31, 2009 compared to $19.6 million at December 31, 2008. The Fund did not utilize its operating credit facility through the fourth quarter of 2009. As at December 31, 2009 the Fund was in compliance with all financial and non-financial covenants on its credit facilities.

Proposed Conversion to a Corporation

In a separate press release issued today, the Fund announced its plans to seek unitholder approval to convert from an income trust into a corporation effective January 1, 2011. Futuremed intends to maintain its current distributions at $0.925 per Unit annualized ($0.0771 per Unit monthly) for the remainder of 2010. It intends to pay quarterly dividends commencing in 2011 at an initial annualized rate of $0.675 per share. The reduced level of distributions reflects the approximate level of taxes that the business will be subject to commencing in 2011.

Unitholders of record as at April 12, 2010 will be asked to approve the proposed conversion at the Fund's annual and special meeting scheduled for May 13, 2010. The conversion is expected to occur by way of plan of arrangement and will be subject to approval by not less than two-thirds of the votes cast at the meeting and other customary conditions, including the receipt of applicable regulatory, court and Toronto Stock Exchange approvals. It is expected that the conversion will be completed on a tax-free rollover basis (subject to filing any required tax elections) with unitholders receiving one share of the resulting public corporation for each Fund Unit held. Details of the proposed conversion will be included in an information circular expected to be prepared, mailed and filed by Futuremed by April 21, 2010 for use at the annual and special meeting. 

"The Board of Trustees and management have unanimously approved the proposed conversion, which we expect to bring a number of benefits to our unitholders. We expect to have enhanced access to the capital markets, a structure that should attract new investors and provide enhanced trading liquidity, and a simplified tax and legal structure that should generate reduced costs. In addition, our cash distributions will be characterized as dividends which, for qualifying investors, provides the benefit of dividend tax credits that would reduce the after tax impact of the lower distributions" Mr. Stone commented.

Financial Highlights

($,000 except per Unit amounts - unaudited) Three months ended December 31,   Year ended December 31,  
  2009   2008   2009   2008  
Sales:                
  Nursing supplies $ 51,255   $ 44,254   $ 183,626   $ 131,902  
  Furniture & Equipment 5,382   6,012   20,866   19,997  
Total sales $ 56,637   $ 50,266   $ 204,492   $ 151,899  
Gross profit 13,583   12,735   47,945   39,067  
Selling, general & administrative expenses 7,545   6,956   27,196   21,665  
Net earnings 4,913   4,520   11,403   11,458  
                 
Distributable Cash:                
  Cash flow from operating activities 4,884   5,924   16,613   13,002  
  (Less) capital expenditures (117 ) (392 ) (1,153 ) (698 )
  (Less) payments under capital lease (7 ) 0   (30 ) 0  
  Add/(Less) changes in working capital (excluding changes in fair value of derivative interest rate swap contracts and foreign currency forward contracts) 459   (898 ) 1,913   2,354  
  Distributable Cash 5,219   4,634   17,343   14,658  
                 
Distributable Cash per Unit1 $ 0.34   $ 0.30   $ 1.13   $ 1.02  
Distributions/Declared per Unit $ 0.23   $ 0.23   $ 0.93   $ 0.93  
Payout Ratio 68 % 76 % 82 % 92 %

1 See "Non-GAAP Measures" at the end of this press release.

Calculation of Normalized Payout Ratio

($,000 except per Unit amounts – unaudited) Three months ended December 31,   Year ended December 31,  
Distributable Cash $ 5,219   $ 4,634   $ 17,343   $ 14,658  
Capital Expenditures related to special projects and other one time expenditures 81   0   645   400  
Normalized* Distributable Cash $ 5,300   $ 4,634   $ 17,988   $ 15,058  
Normalized* Distributable Cash per Unit1 $ 0.35   $ 0.30   $ 1.18   $ 1.04  
Normalized Payout Ratio1 67 % 76 % 79 % 89 %

* Excluding infrastructure capital expenditures that are outside the definition of maintenance capital expenditures and non-cash changes in the fair value of financial instruments included in working capital.

1 See "Non-GAAP Measures" at the end of this press release.

About Futuremed Healthcare Income Fund

Futuremed Healthcare Income Fund, through its operating entities, is Canada's leading value-added distributor of consumable nursing home supplies and specialized furniture and equipment to the growing long-term care facilities sector. Futuremed's Units trade on the Toronto Stock Exchange under the symbol FMD.UN. More information can be found at www.futuremed.ca.

Non-GAAP Measures

Readers are cautioned that Distributable Cash, Normalized Distributable Cash, Distributable Cash per Unit, Normalized Distributable Cash per Unit, Payout Ratio and Normalized Payout Ratio are not recognized performance measures under Canadian Generally Accepted Accounting Principles (GAAP). Canadian open-ended trusts, such as the Fund, use these measures as indicators of financial performance, and they may differ from similar computations as reported by other entities and, accordingly, may not be comparable to Distributable Cash, Normalized Distributable Cash, Distributable Cash per Unit, Normalized Distributable Cash per Unit, Payout Ratio and Normalized Payout Ratio as reported by such entities.

Management believes that Distributable Cash, Normalized Distributable Cash, Distributable Cash per Unit, Normalized Distributable Cash per Unit, Payout Ratio and Normalized Payout Ratio are useful supplemental measures that may assist investors in assessing financial performance and the cash generated by the Fund that is available to unitholders for distribution.

Distributable Cash is based on cash flows from operating activities, the GAAP measure reported in the Fund's consolidated statement of cash flow adjusted for cash flows for capital expenditures in the period. Previously, the Fund determined that, to better reflect its performance, the calculation should exclude the impact of changes in working capital, as management believes that these changes in a period should not be considered in a calculation intended to demonstrate the degree to which cash flow from earnings support the financial obligations of the Fund. In previous periods, the adjustment for working capital included changes in fair values of certain derivative instruments. As management believes that volatility in non-cash changes in the fair values of unsettled derivatives recorded in working capital should not be considered in determining distributable cash for a particular quarter, management has excluded these non-cash movements in its working capital adjustment for distributable cash purposes.

Management believes that to the extent that capital expenditures that are one-time in nature are incurred and these do not represent ongoing maintenance the distributable cash calculation as indicated above could portray an inaccurate view of the Fund's performance. As a result, management has included a normalized distributable cash calculation and a normalized pay-out ratio to demonstrate the levels of distributable cash and payout ratio excluding non-recurring capital expenditures that do not represent maintenance capital expenditure.

Forward-Looking Statements

Certain statements in this press release, including, in particular, statements under the heading, "Proposed Conversion to a Corporation", may constitute "forward-looking" statements under applicable Canadian securities laws. When used in this press release, such statements use words, including but not limited to, "may", "will", "expect", "believe", "plan", "intend", "anticipate", "future" and other similar terminology. These forward-looking statements reflect the current expectations of the Fund's management regarding future events and operating performance, but involve known and unknown risks, uncertainties and other factors which may cause the outcome of the proposed conversion or the actual results, performance or achievements of the Fund and/or the corporation that will result from the conversion to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Actual events could differ materially from those projected herein and depend on a number of factors. These factors include, but are not limited to, the Fund's inability to obtain required consents, permits or approvals, including the approval of the court and of the Fund unitholders of the conversion; the resulting public corporation's inability to meet Toronto Stock Exchange listing requirements; the failure to realize the anticipated benefits of the conversion, including anticipated cost savings and tax benefits; actual future market conditions being different than anticipated by management and the board of trustees of the Fund; actual future operating and financial results of the Fund and/or the resulting public corporation being different than anticipated by management and the board of trustees of the Fund; changes in laws and regulations affecting the Fund and its business operations; and changes in taxation of the Fund. There can be no assurance that the conversion will be completed on the terms described in this press release or at all. In addition, there are numerous risks associated with an investment in units of the Fund and the Fund's structure, which are described in the "Risks Related to the Business and Industry" and "Risks Related to the Structure of the Fund" sections in the Fund's management's discussion and analysis of financial condition and results of operations dated March 9, 2010 and the Fund's other public filings on SEDAR at www.sedar.com. Material factors or assumptions that were applied to drawing a conclusion or making an estimate set out in the forward-looking information include: the financial and operating attributes of the Fund as at the date hereof; the anticipated operating and financial results of the Fund from the date hereof to the effective date of the conversion; the successful completion of the proposed conversion of the Fund from an income trust to a corporation; the anticipated operating and financial results of the resulting corporation after the effective date of the conversion; the views of management and the board of trustees of the Fund respecting the benefits associated with the conversion; the realization of tax benefits up completion of the conversion; and the views of management and the board of trustees of the Fund regarding current and anticipated market conditions. Readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although forward-looking information contained in this press release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements.

The forward-looking statements in this press release speak only as of the date of this press release. Except as required by applicable securities laws, the Fund does not undertake, and specifically disclaims, any obligation to update or revise any forward looking information, whether as a result of new information, future developments or otherwise, except as required by applicable law.

To view the Balance Sheet, Income Statement and Cash Flow Statement, please visit the following link: http://media3.marketwire.com/docs/FMDpdf.pdf

Contact Information

  • Futuremed Healthcare Income Fund
    Daniel Sacks
    Chief Financial Officer
    (905) 761-0068, ext. 2222
    Toll-free investor relations: 1-800-387-7025
    www.futuremed.ca