Futuremed Healthcare Income Fund
TSX : FMD.UN

Futuremed Healthcare Income Fund

August 12, 2008 17:30 ET

Futuremed Announces Second Quarter 2008 Results

CONCORD, ONTARIO--(Marketwire - Aug. 12, 2008) - Futuremed Healthcare Income Fund (TSX:FMD.UN) ("Futuremed" or the "Fund") announced today its financial and operating results for the three and six months ended June 30, 2008.

Sales in the second quarter of 2008 increased 6.6% to $26.9 million compared to $25.2 million for the same period in 2007. Sales of the Fund's consumable nursing supplies rose 8.7% to $24.2 million compared to $22.3 million last year, driven primarily by a 5.7% increase in sales of incontinence products. Consumable nursing supplies represented approximately 90.0% of the Fund's total sales in the second quarter of 2008.

For the first half of 2008, sales increased 3.0% to $54.4 million compared to $52.8 million for the same period in 2007. Sales of the Fund's consumable nursing supplies rose 4.7% to $46.9 million in the first six months of 2008 compared to $44.8 million for the same period last year, driven primarily by a 3.8% increase in sales of incontinence products. Consumable nursing supplies represented approximately 86.2% of the Fund's total sales in the first six months of 2008.

Sales of the Company's furniture and equipment were $2.7 million in the quarter compared to $3.0 million last year. For the first six months of 2008, sales of furniture and equipment were $7.5 million compared to $8.0 million for the same period last year. The Fund experienced reduced replacement spending in its Ontario and Western Canadian markets during the first half of 2008 compared to the prior year.

"We were recently awarded a new $1.4 million contract by the Saskatoon Health Region to supply and install our specialized furniture and equipment at certain long-term care facilities in Saskatchewan. The contract will be completed in the third quarter of 2008, and we are confident we will continue to win additional contract awards as and when they are announced by Provincial governments across the country," commented Raymond Stone, President and Chief Executive Officer.

On a geographic basis, sales in Ontario increased 5.8% in the second quarter of 2008 compared to the same period last year. Sales in British Columbia decreased by 5.3%, as a result of reduced furniture and equipment spending in the province compared with the prior year. Sales of consumable nursing supplies were up in British Columbia by 9.0% while sales of incontinence products in the province increased by 12.1%. Sales in the other Western Canada provinces of Alberta, Saskatchewan and Manitoba increased by 20.3% in the second quarter of 2008 compared with the same prior year period.

For the six months ended June 30, 2008, sales in Ontario increased 2.0% compared to the same period last year, while sales in B.C. rose 3.5%. Sales in the other Western Canadian provinces increased 7.4% in the first half of 2008 compared to the same period in 2007. The increases were primarily the result of higher sales of consumable nursing supplies, partially offset by lower specialized furniture and equipment sales in 2008.

For the second quarter of 2008, gross profit increased 2.2% compared to the prior year due to increases in sales volumes and changes in sales mix. A proportionately smaller increase in lower margin revenue from incontinence products was offset by a proportionately larger increase in higher margin revenue from other nursing supplies as well as increased discounts and rebates from suppliers as a result of higher product volumes. For the first half of 2008, gross profit decreased by 3.1%, due primarily to increases in input costs.

Selling, general and administrative (SG&A) expenses for the three months ended June 30, 2008 increased 18.4% compared to last year, due primarily to the hiring of additional staff required to support the anticipated higher level of sales, increased logistics and delivery costs, as well as the opening of a new showroom in Kitchener/Waterloo to help further service the Ontario market. For the first six months of 2008, SG&A expenses rose 13.2% compared to the prior year period.

"We are very pleased to have opened our new showroom in the Kitchener/Waterloo Region. This is central in the province of Ontario, and will allow us to showcase our furniture and equipment offering in a location that is convenient for our customers in this region," Mr. Stone continued.

For the three months ended June 30, 2008 the Fund generated distributable cash of $2.9 million or $0.21 per Unit compared to $3.3 million or $0.25 per Unit in the second quarter of 2007. For the first six months of 2008, the Fund generated $5.9 million or $0.44 per Unit in distributable cash compared to $7.1 million or $0.53 per Unit for the same period in 2007. The payout ratios for the second quarter and first half of 2008 were 113% and 108% respectively. The payout ratios in 2008 were adversely affected by two factors:

1. The Fund's investment in its new Kitchener/Waterloo showroom accounted for $131,000 of the $146,000 of capital expenditures in the second quarter of 2008. On a year to date basis, capital expenditures of $217,000 included $201,000 for this facility. These compare to amounts of $60,000 and $121,000 in total capital expenditures in the second quarter and first six months of 2007, respectively. Capital expenditures are included in the Fund's calculation of distributable cash.

2. The cash distribution declared on June 20th, 2008 included an amount of $143,000 accruing to the units sold in the equity offering in connection with the acquisition of Dismed Inc. As the acquisition did not close until June 30, 2008, Dismed did not contribute to distributable cash until July 2008.

If these two factors were normalized, the resulting payout ratios would be 103% for the second quarter of 2008, and 102% for the six months ended June 30, 2008. The fund met all its obligations, including the monthly distributions, without having to utilize its operating credit facility. Management is confident it will continue to meet its distributions at the current levels.

Dismed Acquisition

On June 30, 2008, the Fund completed the acquisition of Dismed Inc., a leading supplier of medical supplies, instruments and equipment in the Province of Quebec, for approximately $24.5 million. To finance part of the acquisition, the Fund completed an offering of 1,875,000 units at a price of $9.10 on a bought-deal basis for net proceeds of approximately $16 million. The balance of the purchase price was paid in cash, most of which was funded by a net increase of approximately $10 million in the existing term loan.

The acquisition provides Futuremed with a leading distribution platform in the Quebec marketplace, a comprehensive range of over 7,500 products from over 200 suppliers, as well as an operating facility in excess of 70,000 square feet located in Quebec. With over 2,500 customers, a highly skilled workforce, including a dedicated sales and marketing team with strong relationships in Quebec, the acquisition of Dismed transforms Futuremed into a truly national supplier of consumable nursing supplies and specialized furniture and equipment from coast-to-coast in Canada. Dismed's sales for its most recently completed financial year were approximately $65.1 million.

"We are very excited to be bringing Dismed's customers, people, products and facilities into the Futuremed family. We will combine our product lines and expertise with Dismed's strong reputation and market presence, to increase our Quebec business and extend into Eastern Canadian markets. Furthermore, the acquisition is expected to be immediately accretive to distributable cash in the range of 8% to 10%," Mr. Stone concluded.



Financial Highlights
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(in $,000 except per Unit amounts) Three months ended Six months ended
June 30, June 30,
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2008 2007 2008 2007
Sales:
Nursing supplies $ 24,217 $ 22,276 $ 46,890 $ 44,785
Furniture &Equipment 2,683 2,967 7,503 8,030
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Total sales 26,900 25,243 54,393 52,815
Gross profit 7,484 7,326 15,024 15,497
Selling, general & administrative
expenses 4,175 3,527 8,200 7,249

Net earnings 1,791 (4,633) 4,024 (2,018)

Distributable Cash 2,881 3,320 5,884 7,143
Distributable Cash per Unit $ 0.21 $ 0.25 $ 0.44 $ 0.53
Distributions/Declared per Unit $ 0.23 $ 0.23 $ 0.46 $ 0.46
Payout Ratio 113% 93% 108% 87%

Sales by Geography:
Ontario 19,650 18,574 40,024 39,225
British Columbia 2,865 3,024 6,057 5,852
Alberta, Saskatchewan, Manitoba 4,385 3,645 8,312 7,738
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26,900 25,243 54,393 52,815


Copies of the Fund's financial statements and Management's Discussion and Analysis for the period can be obtained on the Fund's web site at www.futuremed.ca or www.sedar.com.

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 Trust Units trade on the Toronto Stock Exchange under the symbol FMD.UN. More information can be found at www.futuremed.ca.

Readers are cautioned that EBITDA, distributable cash and distributable cash per unit are not Generally Accepted Accounting Principles ("GAAP") measures and should not be construed as an alternative to net earnings and earnings per share determined in accordance with GAAP as an indicator of the Fund's performance. The Fund's methods of calculating these measures may differ from other issuers' methods and accordingly, they may not be comparable to measures used by other issuers.

This document may contain forward-looking statements relating to Futuremed's operations or to the environment in which it operates, which are based on the Fund's operations, estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict, and/or are beyond the Fund's control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward-looking statements. These factors include those set forth in other public filings. In addition, these forward-looking statements relate to the date on which they are made. The Fund disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. More information about these risks and uncertainties can be found in regulatory filings available at www.sedar.com.

Contact Information

  • Futuremed Healthcare Income Fund
    Daniel Sacks, Chief Financial Officer
    (905) 761-0068, ext. 2222
    Toll-free investor relations: 1-800-387-7025
    (905) 761-9929 (FAX)
    Website: www.futuremed.ca