Futuremed Healthcare Income Fund
TSX : FMD.UN

Futuremed Healthcare Income Fund

November 11, 2010 17:30 ET

Futuremed Announces Third Quarter 2010 Results

CONCORD, ONTARIO--(Marketwire - Nov. 11, 2010) - Futuremed Healthcare Income Fund (TSX:FMD.UN) ("Futuremed" or the "Fund") announced today its financial and operating results for the three and nine months ended September 30, 2010.

Sales in the third quarter of 2010 were $48.5 million compared to $51.5 million in the prior year. The decline in sales is primarily the result of one-time spending in the prior year's third 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 nursing supplies to deal with the regulatory requirements for this event. Revenues related to pandemic purchases were approximately $1.8 million in the third quarter of 2009. For the nine months ended September 30, 2010, sales were $146.2 million, down marginally from $147.9 million in the same period last year. Not including the $3.3 million in one-time H1N1 revenues in 2009, sales rose 1.1% through the first nine months of 2010 compared to the same period last year. The increased sales in 2009 related to the H1N1 pandemic were primarily in the acute care sector of the Fund's business, and as a result, more positively impacted sales in the Company's Quebec-based Dismed operation than in the Fund's other operations.

Sales of the Fund's consumable nursing supplies, not including the one time H1N1 revenues in 2009, were stable at $44.9 million for the three months ended September 30, 2010 compared to $45.1 million in the same period last year. For the first nine months of 2010, consumable nursing supplies sales, not including the one time H1N1 revenues in 2009, were up 2.4% to $132.3 million compared to $129.1 million for the same period last year. Consumable nursing supplies represented approximately 90.5% of the Fund's total sales for the first nine months of 2010.

Sales of the Company's furniture and equipment decreased by 19.5% in the third quarter of 2010 compared to last year's third quarter. For the nine months ended September 30, 2010 furniture and equipment sales were down approximately 9.6% compared to the same period last year. The decrease was due primarily to a lack of general infrastructure spending during the current year, particularly in the Province of Quebec.

"While our markets currently remain competitive, we are confident our highly effective sales and marketing programs should generate new business and the exclusive supply contracts recently awarded by three of the country's largest owners and operators of long-term care facilities will contribute to our revenues," commented Raymond Stone, President and CEO. "Looking ahead, we also believe government funding for the long-term care sector should rise significantly over the longer term, driven by strong demographic trends and the significant waiting lists for long-term care facilities currently existing in all regions across the country."

For the third quarter of 2010, gross profit decreased by 12.7% compared to the prior year period due primarily to the reduced sales levels and a change in sales mix which included reduced sales of higher margin nursing supplies as a result of the one time sales related to H1N1 spending in the prior year's second quarter, combined with an increase in revenues of lower margin incontinence products. For the first nine months of 2010, gross profit decreased by 4.2% compared to the same period last year.

Selling, general and administrative (SG&A) expenses for the three and nine months ended September 30, 2010 increased 4.6% and 7.9% respectively compared to the same prior year periods. The increases are due primarily to increased head count and associated costs. Delivery costs, the majority of which are not recoverable from customers, have stabilized as a result of lower fuel prices and delivery surcharges and represented 3.7% of total revenues in the both the third quarter and first nine months of 2010, in-line with the same periods last year.

During the second quarter of 2010, Futuremed substantially completed the regulatory and legal requirements to convert to a corporation, which will be effective on January 1, 2011. The one-time costs associated with this conversion amounted to approximately $0.9 million through the first nine months of 2010.

For the three and nine months ended September 30, 2010 Futuremed generated distributable cash of $2.9 million or $0.19 per Unit and $9.0 million or $0.59 per Unit respectively, compared to $4.7 million or $0.31 per Unit and $12.1 million or $0.79 per Unit for the same respective periods in 2009.

Futuremed's business is generally not capital intensive and maintenance capital expenditure requirements have traditionally been relatively low. However, the Fund is continuing to invest in its supply chain infrastructure, and will continue to do so until the systems and processes employed by all warehouses are aligned. It is anticipated that this project will be completed within the next two years and will involve approximately $1.4 million in excess of normal maintenance capital expenditure over this period. During the third quarter and first nine months of 2010 approximately $37,000 and $0.1 million respectively were deployed towards this project. It is expected that the project will be funded by normal operating cash flows.

The payout ratio for the third quarter of 2010 was 123% compared to 75% in last year's third quarter. Not including the one-time costs associated with the conversion and capital expenditures associated with the supply chain improvement project, the normalized payout ratio was 120%. For the first nine months of 2010, the payout ratio was 117% compared to 87% for the same period in the prior year. Not including the conversion costs and supply chain investments, the normalized payout ratio was 106%. The calculations of distributable cash and payout ratio are included in the table below.

Working capital was $20.4 million at September 30, 2010 compared to $21.2 million at December 31, 2009, and $19.4 million as at September 30, 2009. As at September 30, 2010 the Fund was in compliance with all financial and non-financial covenants on its credit facilities.

The Board of Directors of Futuremed Healthcare Products Corporation (the "Futuremed Board") are expected to adopt a quarterly dividend policy upon completion of the Conversion. Futuremed has previously indicated that the initial dividend policy would anticipate an annualized dividend level of $0.675 per common share. The Board of Trustees continues to monitor the trends impacting the business and expects to make a final decision regarding the initial dividend policy during the first quarter of 2011 based on its views as to, among other things, the earnings, prospects, and financial requirements of the business. See "Risks and Uncertainties".

Financial Highlights
($, 000 except per Unit amounts - unaudited)   Three months ended Sept. 30,     Nine months ended Sept. 30,  
    2010     2009     2010     2009  
                                 
Sales:                                
  Nursing supplies   $ 44,873     $ 46,913     $ 132,261     $ 132,438  
  Furniture & Equipment     3,665       4,555       13,930       15,417  
Total Sales     48,538       51,468       146,191       147,855  
Gross profit     10,459       11,987       32,995       34,362  
Selling, general & administrative expenses     6,842       6,542       21,210       19,651  
Conversion costs     27       -       870       -  
Interest, net     558       813       1,729       2,020  
Amortization     1,563       1,560       4,664       4,620  
Foreign exchange (Gain)/Loss     95       659       (563 )     1,626  
Net earnings     1,614       2,343       5,929       6,490  
                                 
Distributable Cash:                                
  Cash flow from operating activities     4,711       6,273       11,285       11,729  
  (Less) capital expenditures     (183 )     (179 )     (398 )     (1,036 )
  (Less) payments under capital lease     (10 )     (7 )     (27 )     (23 )
  Add/(Less) changes in working capital (excluding changes in fair value of derivative interest rate swap contracts and foreign currency forward contracts)     (1,645 )     (1,355 )     (1,810 )     1,459  
  Distributable Cash   $ 2,873     $ 4,732     $ 9,042     $ 12,129  
                                 
Distributable Cash per Unit   $ 0.19     $ 0.31     $ 0.59     $ 0.79  
Distributions/Declared per Unit   $ 0.23     $ 0.23     $ 0.69     $ 0.69  
Payout Ratio     123 %     75 %     117 %     87 %
 
 
Calculation of Normalized Payout Ratio
($, 000 except per Unit amounts – unaudited)   Three months ended Sept 30,     Nine months ended Sept 30,  
    2010     2009     2010     2009  
Cash flows from operating activities   $ 4,711     $ 6,273     $ 11,285     $ 11,729  
Less: Capital Expenditures     (183 )     (179 )     (398 )     (1,036 )
Less payments of obligation under capital lease     (10 )     (7 )     (27 )     (23 )
Distributable Cash (including impact of changes in working capital)     4,518       6,087       10,860       10,670  
Add/(Less) changes in working capital (excluding changes in fair value of derivative interest rate swap contracts and foreign currency forward contracts)     (1,645 )     (1,355 )     (1,810 )     1,459  
Distributable Cash   $ 2,873     $ 4,732     $ 9,042     $ 12,129  
Capital Expenditures related to special projects and other one time expenditures     37       82       100       466  
Conversion expenses     27       -       870       -  
Normalized* Distributable Cash   $ 2,937     $ 4,814     $ 10,012     $ 12,595  
Normalized* Distributable Cash per Unit   $ 0.19     $ 0.32     $ 0.66     $ 0.82  
Distributions Declared per Unit (excluding impact of changes in working capital)   $ 0.23     $ 0.23     $ 0.69     $ 0.69  
Normalized Payout Ratio     120 %     73 %     106 %     84 %
   
* 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.

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.

Conference Call

A conference call hosted by Raymond Stone, President and Chief Executive Officer and Daniel Sacks, Chief Financial Officer, will be held Friday, November 12, 2010 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 500788#. 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. 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 contains "forward-looking statements" as defined under applicable Canadian securities laws. These statements include, but are not limited to, statements made regarding the Fund's proposed conversion to a corporation, future government funding levels, the impact on Futuremed's business of current and anticipated economic conditions and expected improvements in Futuremed's infrastructure. When used in this press release such statements use words such as "may", "will", "expect", "believe", "plan", "intend", "anticipate", "future" and other similar terminology. 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/BalSheetIncStatandCflowQ320101.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