Futuremed Healthcare Products Corporation
TSX : FMD

Futuremed Healthcare Products Corporation

March 10, 2011 17:30 ET

Futuremed Announces Improved Fourth Quarter 2010 Results

CONCORD, ONTARIO--(Marketwire - March 10, 2011) - Futuremed Healthcare Products Corporation (TSX:FMD) ("Futuremed" or the "Company") announced today the financial and operating results for Futuremed Healthcare Income Fund (the "Fund"), for the three months and year ended December 31, 2010.

The Fund completed its conversion to a corporation named Futuremed Healthcare Products Corporation pursuant to a plan of arrangement under the Business Corporation Act (Ontario) and all related internal transactions on January 1, 2011.

HIGHLIGHTS:

  • Fourth quarter revenues and gross margin improve from third quarter of year
  • Significant increase in fourth quarter furniture and equipment sales
  • Normalized payout ratio improves to 88% in fourth quarter
  • Management renews focus on growth in profitability and enterprise value
  • Quarterly dividend of $0.16875 per common share announced
  • Ontario Ministry of Long-Term Care announces $18.0 million in one-time funding to support the purchase of new equipment in 2011

"With our conversion to a corporate structure, we have embarked on a new phase at Futuremed," commented Raymond Stone, President and CEO. "Looking ahead our focus is on growing the enterprise value of the Company by expanding our presence in current and new geographic markets, as well as through the introduction of new product lines and entering new synergistic markets that utilize the same products and services we provide to our traditional long-term care customers. We also believe our growth objectives can be achieved through potential strategic and accretive acquisition opportunities that meet our rigorous criteria."

Sales in the fourth quarter of 2010 were $54.7 million compared to $56.6 million in the prior year. The decline in sales is primarily due to one-time spending in the prior year's fourth quarter related to the H1N1 virus. During the third quarter of 2009 the World Health Organization declared the H1N1 virus to be a pandemic, and customers significantly increased their purchases of specific higher-margin nursing supplies to deal with the regulatory requirements for this event. Revenues related to pandemic purchases were approximately $1.0 million in the fourth quarter of 2009. For the year ended December 31, 2010, sales were $200.9 million, down from $204.5 million last year. Not including the $4.3 million one-time H1N1 revenues in 2009, sales rose marginally in 2010 compared to the prior year.

Sales of consumable nursing supplies, not including the one time H1N1 revenues in 2009, declined 2.8% for the three months ended December 31, 2010 compared to the same period last year. For the year ended December 31, 2010 consumable nursing supplies sales, not including the one time H1N1 revenues in 2009, were up 0.1% compared to the prior year. Consumable nursing supplies represented approximately 90.4% of total sales for the year ended December 31, 2010.

Sales of the Company's furniture and equipment rose to $6.1 million in the fourth quarter of 2010 compared to $5.6 million in last year's fourth quarter. During the fourth quarter of 2010, customers focused their year-end spending on upgrading furniture and equipment and decreased spending on their nursing supplies inventories. For the year ended December 31, 2010 furniture and equipment sales were $20.0 million, down marginally from $21.0 million in the prior year. The decrease was due primarily to a lack of general infrastructure spending during the current year, particularly in the Province of Quebec.

"We were generally pleased with our operating and financial results in 2010 as we responded to increased competition in our markets and a slowdown in government investment in our long-term care market sector," Mr. Stone continued. "Competitive pressures began to ease in the fourth quarter, and we remain hopeful that governments will respond in the near future to the demand for long-term care facilities and the waiting lists currently existing across the country."

Mr. Stone added "I am also delighted to note that we have been informed that the Ontario Ministry of Long-Term Care has committed to provide $18.0 million in one-time funding to support the purchase of new equipment in the Province. This funding should result in increased sales of our furniture and equipment over the near term."

For the fourth quarter of 2010, gross profit decreased by 10.2% compared to the prior year period due primarily to the reduced sales levels and a change in sales mix which included lower sales of higher margin nursing supplies as a result of the one time sales related to H1N1 spending in the prior year's fourth quarter, combined with an increase in revenues of lower margin incontinence products. For the year ended December 30, 2010 gross profit decreased by 5.7% compared to the prior year due to the same sales mix issues and increased competitive pressures.

Selling, general and administrative (SG&A) expenses decreased 2.7% in the fourth quarter as investments in infrastructure reduced and Futuremed consolidated its position as the leader in quality, service and product offerings in its markets. For the year ended December 31, 2010 SG&A costs rose 5.0% compared to 2009 due primarily to increased head count and associated costs through the first nine months of the year.

During 2010 Futuremed completed the regulatory and legal requirements to convert to a corporation effective on January 1, 2011. The one-time costs associated with this conversion amounted to approximately $0.2 million and $1.1 million for the three months and year ended December 31, 2010 respectively.

Management is continuing to invest in the supply chain infrastructure until the systems and processes employed by all warehouses are aligned. It is anticipated that this project will be completed within the next twenty months and will involve approximately $1.3 million in additional investment over this period. During the three months and year ended December 31, 2010 approximately $40,000 and $0.2 million respectively were deployed towards this project.

For the three months and year ended December 31, 2010 the Fund generated distributable cash of $3.8 million and $12.8 million respectively, compared to $4.5 million and $16.6 million for the same respective periods in 2009. Excluding the none-cash changes in the fair value of financial instruments included in working capital, as well as one-time capital expenditure, conversion and other costs, the Fund generated normalized distributable cash of $4.0 million ($0.26 per Unit) and $14.0 million ($0.92 per Unit) for the three months and year ended December 31, 2010 respectively. The normalized payout ratios for the fourth quarter and year ended December 31, 2010 were 88% and 101% respectively.

Working capital was $19.8 million at December 31, 2010 compared to $21.2 million at December 31, 2009. During the fourth quarter of 2010, as a result of the conversion to a corporation on December 31, 2010, both the November and December cash distributions were paid to unitholders prior to the wind up of the fund. As at December 31, 2010 the Fund was in compliance with all financial and non-financial covenants on its credit facilities.

Futuremed is pleased to announce that it has renewed the existing financing arrangements with its banking syndicate for a further 4 years, on terms and conditions that are slightly more favorable than under the current agreement.

The board of directors of Futuremed has declared a quarterly dividend of $0.16875 per common share to be paid on April 20, 2011 to shareholders of record on March 31, 2011. Futuremed designates this dividend to be an "eligible dividend" pursuant to subsection 89(14) of the Income Tax Act (Canada) and similar provincial and territorial legislation. The board continues to monitor the trends that impact the business (including growth prospects, increased competition, government long-term care funding, and sales mix) and future quarterly dividend decisions will be based on its views as to, among other things, the earnings, prospects, and financial requirements of the business.

Financial Highlights
($,000 except per Unit amounts - unaudited) Three months ended
Dec. 31,
  Year ended
Dec. 31,
 
  2010   2009   2010   2009  
Sales:                        
  Nursing supplies $ 48,632   $ 53,154   $ 180,894   $ 183,455  
  Furniture & Equipment   6,092     3,483     20,021     21,037  
Total Sales   54,724     56,637     200,915     204,492  
Gross profit   12,197     13,583     45,192     47,945  
Selling, general & administrative expenses   7,342     7,545     28,552     27,196  
Conversion costs   232     -     1,102     -  
Interest, net   531     741     2,260     2,761  
Amortization   1,574     1,546     6,238     6,166  
Foreign exchange (Gain)/Loss   105     (131 )   (458 )   1,495  
Net earnings   2,563     4,913     8,492     11,403  
                         
Distributable Cash:                        
  Cash flow from operating activities   (98 )   4,884     11,187     16,613  
  (Less) capital expenditures   (266 )   (117 )   (664 )   (1,153 )
  (Less) payments under capital lease   (21 )   (7 )   (48 )   (30 )
  Add/(Less) changes in working capital (excluding changes in fair value of derivative interest rate swap contracts and foreign currency forward contracts)  
4,138
   
(283
)  
2,320
   
1,176
 
  Distributable Cash $ 3,753   $ 4,477   $ 12,795   $ 16,606  
                         
Distributable Cash per Unit $ 0.25   $ 0.29   $ 0.84   $ 1.09  
Distributions/ Declared per Unit $ 0.23   $ 0.23   $ 0.93   $ 0.93  
Payout Ratio   94 %   79 %   110 %   85 %
 
 
Calculation of Normalized Payout Ratio
($,000 except per Unit amounts – unaudited) Three months ended
Dec 31,
  Year ended
Dec 31,
 
  2010   2009   2010   2009  
Cash flows from operating activities $ (98 ) $ 4,884   $ 11,187   $ 16,613  
Less: Capital Expenditures   (266 )   (117 )   (664 )   (1,153 )
Less payments of obligation under capital lease   (21 )   (7 )   (48 )   (30 )
Standardized Distributable Cash (including impact of changes in working capital)   (385 )   4,760     10,475     15,430  
Add/(Less) changes in working capital (excluding changes in fair value of derivative interest rate swap contracts and foreign currency forward contracts)  
4,138
   
(283
)  
2,320
   
1,176
 
Distributable Cash $ 3,753   $ 4,477   $ 12,795   $ 16,606  
Capital Expenditures related to special projects and other one time expenditures  
41
   
81
   
141
   
645
 
                         
Conversion expenses   232     -     1,102     -  
Normalized* Distributable Cash $ 4,026   $ 4,558   $ 14,038   $ 17,251  
Normalized* Distributable Cash per Unit $ 0.26   $ 0.30   $ 0.92   $ 1.13  
                         
Distributions Declared per Unit (excluding impact of changes in working capital) $
0.23
  $
0.23
  $
0.93
  $
0.93
 
                         
Normalized Payout Ratio   88 %   78 %   101 %   82 %
* Excluding infrastructure capital expenditures that are outside the definition of maintenance capital expenditures, conversion costs and non-cash changes in the fair value of financial instruments included in working capital.

About Futuremed

Futuremed 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 common shares trade on the Toronto Stock Exchange under the symbol FMD. More information can be found at www.futuremed.ca.

Conference Call

A conference call hosted by Raymond Stone, President and Chief Executive Officer and Daniel Sacks, Chief Financial Officer, will be held Friday, March 11, 2011 at 11.00 am ET. The telephone numbers for the conference call are: Local: (416) 915-8110, North American Toll Free: (866) 838-1265. The telephone numbers to listen to the call after it is completed (Instant Replay) are local (416) 915-1035 or toll free (866) 245-6755. The Passcode for the Instant Replay is 43037#. The call will also be archived on the Futuremed website at www.futuremed.ca.

Readers are cautioned that Payout Ratio, Normalized Payout Ratio, Distributable cash, Normalized Distributable cash, Distributable cash per unit, and Normalized 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. Futuremeds' methods of calculating these measures may differ from other issuers' methods and accordingly, they may not be comparable to measures used by other issuers.

Certain statements in this press release may be considered "forward-looking statements" as defined under applicable Canadian securities laws. These statements include, but are not limited to, statements regarding the ability to grow by expanding in current and new geographic markets, as well as through the introduction of new product lines and entering new synergistic markets that utilize the same products and services, the ability to grow through strategic and accretive acquisitions, future government funding levels, the impact on Futuremed's business of current and anticipated economic conditions, Futuremed's ability to pay dividends to shareholders and expected improvements in Futuremed's infrastructure. When used in this press release, such statements use words, including but not limited to, "should" "may", "will", "expect", "believe", "plan", "intend", "anticipate", "future" and other similar terminology. These forward-looking statements reflect the current expectations of management regarding future events and operating performance, but involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Futuremed 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, future market conditions being different than anticipated by management and the risks described in Futuremed 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 views of management regarding current and anticipated market condition and the successful attainment of certain goals. 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, Futuremed 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 Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, and Consolidated Statements of Cash Flows, please visit the following link: http://media3.marketwire.com/docs/fmdq4ye2010statements.pdf.

Contact Information

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