Futuremed Healthcare Income Fund
TSX : FMD.UN

Futuremed Healthcare Income Fund

November 11, 2009 18:30 ET

Futuremed Announces Strong Organic Growth in Third Quarter 2009

CONCORD, ONTARIO--(Marketwire - Nov. 11, 2009) - Futuremed Healthcare Income Fund (TSX:FMD.UN) ("Futuremed" or the "Fund") announced today strong financial and operating results for the three and nine months ended September 30, 2009.

Q3 HIGHLIGHTS:

- Sales rise 9.0% on strong organic growth

- Solid growth in recurring, non-discretionary nursing supplies revenues

- One-time investments in supply chain infrastructure continue

- Normalized payout ratio improves to 73%

- Credit facility unutilized in quarter

Sales in the third quarter of 2009 increased to $51.5 million compared to $47.2 million for the same period in 2008. The increase was primarily due to organic growth in nursing supplies revenues. For the first nine months of 2009, sales increased to $147.9 million compared to $101.6 million in the prior year. The increase is due primarily to the contribution in sales from Dismed in the period, which was acquired on June 30, 2008, as well as solid increases across most of the Fund's revenue streams.

Sales of the Fund's consumable nursing supplies increased 15.2% in the third quarter of 2009 and 51.0% for the nine months ended September 30, 2009 compared to the same periods last year. The increase for the third quarter was primarily driven by strong organic growth as well as increases in other nursing supplies revenue stemming from the H1N1 virus amounting to $1.8 million in the quarter. During the third quarter of 2009 the World Health Organization declared the H1N1 virus to be a Pandemic Risk, and buying as a result of that declaration resulted in additional revenues during the quarter. The increases in nursing supplies revenues through the first nine months of the year were driven primarily by the contribution in sales from Dismed, as well as strong increases in sales of incontinence products and other nursing supplies in the Fund's other markets. Consumable nursing supplies represented approximately 91% and 89% of the Fund's total sales in the third quarter and first nine months of 2009, respectively.

Sales of the Company's furniture and equipment decreased to $4.5 million in the third quarter of 2009 compared to $6.5 million in last year's third quarter. The decrease was due primarily to a $1.4 million infrastructure project in Saskatchewan recorded in last year's third quarter, as well as a lack of general infrastructure spending during the current year's quarter. Furniture and equipment sales through the first nine months of 2009 increased 10.7% to $15.5 million compared to the same period last year due primarily to the contribution in furniture and equipment sales from Dismed 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 period.

"Our results through the first nine months of the year reflect the fact that our business is very resilient in tough economic times," commented Raymond Stone, President and CEO, "While last year's acquisition of Dismed has made a significant contribution to our results this year, we are pleased to see continued strong organic growth in the majority of our markets and product lines."

For the third quarter of 2009, gross profit increased 5.5% compared to the prior year period due primarily to the sales growth and an increase in sales of higher margin products in the quarter compared to the prior year. For the first nine months of 2009, gross profit increased 30.8% over the same period in 2008 due primarily to the margin contribution from Dismed. 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 the Orient 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.

Selling, general and administrative (SG&A) expenses for the three months ended September 30, 2009 increased 0.5% compared to the prior year period. For the first nine months of 2009, SG&A expenses increased 33.6% due primarily to the addition of Dismed 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 third quarter and first nine months of 2009 compared to 3.9 % and 4.1%, respectively, in the prior year periods. As a percentage of revenues, SG&A costs reduced to 12.7% in the third quarter of 2009 from 13.8% last year and 13.3% for the first nine months of 2009 from 14.4% for the first nine months of 2008.

For the three months ended September 30, 2009 the Fund generated distributable cash of $4.0 million or $0.26 per Unit compared to $4.2 million or $0.28 per Unit in the third quarter of 2008. For the first nine months of 2009, the Fund generated $10.7 million or $0.70 per Unit of distributable cash compared to $10.1 million or $0.72 per Unit for the same nine month period in the prior year. Capital expenditures amounted to approximately $179,000 in the third quarter and $1.0 million for the first nine months of 2009 compared to $89,000 and $306,000 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. Excluding the impact of these one-time capital investments, as well as non-cash changes in the fair value of financial instruments included in working capital, normalized distributable cash flow would have been $4.8 million in the third quarter, and $12.5 million for the first nine months of 2009.

The payout ratio for the third quarter of 2009 was 88% compared to 84% last year. For the first nine months of 2009 the payout ratio was 99% compared to 96% in the prior year. Not including the short-term investments in supply chain improvements in the third quarter and first nine months of 2009, as well as non-cash changes in the fair value of financial instruments included in working capital, the normalized payout ratio would have been 73% and 84%, respectively. The calculations of normalized distributable cash and payout ratio are included in the table below.

Since its inception, the Fund has not been subject to income tax to the extent that its taxable income is distributed to unitholders. As a result of legislation proposed by the Minister of Finance (Canada) on October 31, 2006 and substantively enacted on June 12, 2008, the Fund will pay tax on distributions declared subsequent to January 1, 2011, subject to normal growth restrictions in the legislation, which if not adhered to could subject the Fund to tax before 2011. It is management's expectation that, unless there is a compelling reason to the contrary, Futuremed will remain an income fund until the end of 2010 so as to benefit from the tax advantageous nature of the trust structure for as long as possible. Management and the Board will continue to examine various alternatives available to deal with the changing environment in the coming months.

Working capital was $19.4 million at September 30, 2009 compared to $18.6 million at September 30, 2008 and $19.6 million at December 31, 2008. The Fund did not utilize its operating credit facility through the third quarter of 2009. As at June 30, 2009 the Fund was in compliance with all financial and non-financial covenants on its credit facilities.



Financial Highlights
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in $,000 except per Unit Three months ended Nine months ended
amounts) September 30, September 30,
----------------------------------------------------------------------------
2009 2008 2009 2008

Sales:
Nursing supplies $ 46,934 $ 40,758 $ 132,371 $ 87,649
Furniture & Equipment 4,534 6,482 15,484 13,984
------------------------------------------------
Total sales $ 51,468 $ 47,240 $ 147,855 $ 101,633
Gross profit 11,987 11,308 34,362 26,332
Selling, general &
administrative expenses 6,542 6,509 19,651 14,709
Net earnings 2,343 2,914 6,490 6,938

Distributable Cash:
Cash flow from operating
activities 6,273 3,301 11,729 7,078
(Less) capital expenditures (179) (89) (1,036) (306)
(Less) payments under
capital lease (7) 0 (23) 0
Add/(Less) changes in
working capital and
unrealized loss on swap
contract (2,055) 996 19 3,320
------------------------------------------------
Distributable Cash 4,032 4,208 10,689 10,092

Distributable Cash per Unit $ 0.26 $ 0.28 $ 0.70 $ 0.72
Distributions/Declared per
Unit $ 0.23 $ 0.23 $ 0.69 $ 0.69
Payout Ratio 88% 84% 99% 98%
Normalized(i) Payout Ratio 73% 80% 84% 99%

(i) 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.



Distributable Cash and Payout Ratio
----------------------------------------------------------------------------
Three Months ended Nine Months ended
(in $, 000 except per Unit September 30, September 30,
amounts - unaudited)
2009 2008 2009 2008
------------------------------------------
Cash flows from operating
activities 6,273 3,301 11,729 7,078
Less: Capital Expenditures (179) (89) (1,036) (306)
Less payments of obligation under
capital lease (7) 0 (23) 0
------------------------------------------
Distributable cash (including
impact of changes in
working capital) 6,087 3,212 10,670 6,772
Add/(Less): changes in working
capital and unrealized
loss on swap contract (2,055) 996 19 3,320
------------------------------------------
Distributable cash 4,032 4,208 10,689 10,092
Non-cash changes in fair value of
financial instruments
included in working capital 700 (170) 1,430 (487)
Capital expenditures related to
special projects and
other one time expenditures 82 400 466 400
------------------------------------------
Normalized distributable cash 4,814 4,438 12,585 10,005
Distributable cash per unit
(excluding impact of
changes in working capital) $ 0.26 $ 0.28 $ 0.70 $ 0.72


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 Payout Ratio 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.

To view the Balance Sheet, Income Statement and Cash Flow Statement, please visit the following link: http://media3.marketwire.com/docs/FMD1111a.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