Morneau Sobeco Income Fund
TSX : MSI.UN

Morneau Sobeco Income Fund

November 11, 2010 08:43 ET

Morneau Sobeco Reports Third Quarter 2010 Results

TORONTO, ONTARIO--(Marketwire - Nov. 11, 2010) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

Morneau Sobeco Income Fund (the "Fund" or "Morneau Sobeco") (TSX:MSI.UN) today reported its financial results for the three- and nine-month periods ended September 30, 2010 (all amounts are in Canadian dollars, unless noted otherwise).

Highlights:

  • Revenue of $83.1 million and $248.2 million for the three- and nine-month periods ended September 30, 2010, respectively, consistent with the prior year.
  • Adjusted EBITDA(1) of $17.6 million for the third quarter and $47.5 million for the nine-month period ended September 30, 2010. Adjusted EBITDA margin was 21.2 percent and 19.1 percent, respectively.

"Our results for the third quarter showed continued growth in our pension and benefits consulting and outsourcing practices, as well as improved results from our EAP business compared to earlier in the year, as employee populations stabilized," said Bill Morneau, Executive Chairman of the Fund. "A number of recent outsourcing wins help to position us well heading into 2011, and we are seeing positive indicators from current and prospective clients which bodes well for the continued growth of our sales pipeline."

"Our leadership in pension consulting was underscored with our appointment as Administrator for the wind-up of Nortel's pension plan – a significant, multi-year contract," added Alan Torrie, President and CEO of the Fund. "In addition, our cross-selling efforts continue to yield results, demonstrating the significant opportunity in our current customer base."

Q3 2010 Financial Review

  Third
quarter
ended
September 30,
2010
(Unaudited)
Third
quarter
ended
September 30,
2009
(Unaudited)
Nine
months
ended
September 30,
2010
(Unaudited)
Nine
months
ended
September 30,
2009
(Unaudited)
Revenue $ 83,083 $ 81,728 $ 248,176 $ 248,387
Standardized EBITDA(2) $ 17,096 $ 17,253 $ 46,967 $ 45,576
Adjusted EBITDA(1) $ 17,636 $ 17,631 $ 47,507 $ 45,954
Standardized EBITDA(2) margin 20.6% 21.1% 18.9% 18.3%
Adjusted EBITDA(1) margin 21.2% 21.6% 19.1% 18.5%

For the three months ended September 30, 2010 ("Q3 2010"), the Fund reported $83.1 million in revenue, a 1.7 percent increase from $81.7 million for the three months ended September 30, 2009 ("Q3 2009"). Operating and administrative expenses (including salary, benefit and contractor expenses) totaled $66.0 million in Q3 2010, compared with $65.1 million in Q3 2009. Net income in Q3 2010 was $7.4 million, compared with $3.9 million in Q3 2009.

Standardized EBITDA(2) of $17.1 million decreased slightly from Q3 2009. Standardized EBITDA(2) margin was 20.6 percent, compared with 21.1 percent in Q3 2009. Adjusted EBITDA(1) of $17.6 million remained consistent with Q3 2009. Adjusted EBITDA(1) margin was 21.2% compared to 21.6% in Q3 2009.

Distributable Cash

For Q3 2010, the Fund generated cash from operating activities of $15.8 million compared to $20.7 million in Q3 2009. Standardized Distributable Cash(3) for Q3 2010 decreased to $11.1 million, or $0.26 per Unit (basic), compared to $15.2 million, or $0.36 per Unit (basic) in Q3 2009. Adjusted Consolidated Distributable Cash(4) grew by $0.3 million to $12.0 million, or $0.25 per Unit (basic), in Q3 2010, compared with $11.7 million, or $0.25 per Unit (basic), for Q3 2009. The Adjusted Payout Ratio(5) for Q3 2010 was 94.2 percent compared to 96.2 percent for Q3 2009 and the Standardized Payout Ratio(6) for Q3 2010 is 90.9 percent compared to 65.4 percent in Q3 2009.

Trust Conversion Update

As announced on March 10th of this year, in response to legislation changing the taxation of income trusts, the Fund intends to convert to a corporation on December 31, 2010. The Fund's current distribution level of $0.94 per unit annualized will remain unchanged for 2010. Starting in January 2011, the monthly dividend level is expected to be $0.065 per share (or $0.78 per share annualized) with a targeted payout ratio of 65 to 80 percent of cash flow. For unitholders at the highest marginal tax rate, the Fund's proposed 2011 dividend level could represent an effective after-tax increase of 10.6 percent in dividend income from 2010. To obtain unitholder approval of the conversion, a Special Meeting of Unitholders has been called for Monday, November 29, 2010. A Notice of Meeting and Management Circular has been sent to all unitholders of record.

Notice of Conference Call

Management of Morneau Sobeco will host a conference call today, Thursday, November 11, 2010, at 2:15 p.m. EDT. Please note that the time of the call has been revised from our previous announcement to allow Western Canadian participants the opportunity to observe Remembrance Day ceremonies and honour the men and women who have made so many sacrifices to protect our country and our freedoms. 

The conference call is open to all those wishing to attend, with a Question & Answer period to follow the presentation. In order to participate in the live conference call, please call 416-695-7806 (participant code 8122527) in the Toronto area, or 1-888-789-9572 (participant code 8122527) throughout the rest of Canada. A replay of the call will be available via the Morneau Sobeco Web site at www.morneausobeco.com.

About Morneau Sobeco Income Fund

Morneau Sobeco Income Fund, Canada's largest human resource consulting and outsourcing firm, focused on pensions, benefits, employee assistance program (EAP) and workplace health management and productivity solutions. We offer business solutions that help our clients reduce costs, increase employee productivity and improve their competitive positions by supporting their employees' financial security, health and well-being.

Non-GAAP Financial Measures

To assist investors in assessing the Fund's financial performance, this news release also makes reference to certain non-GAAP measures such as Standardized EBITDA, Adjusted EBITDA, Standardized Distributable Cash and Adjusted Consolidated Distributable Cash. The Fund also believes that Standardized Distributable Cash and Adjusted Consolidated Distributable Cash and their respective payout ratios are useful supplemental measures of performance as they are generally used by Canadian open-ended business income funds as indicators of financial performance. See the footnotes to the "Results of Operations" chart in the firm's MD&A for more details. Non-GAAP measures do not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers.

  1. "Adjusted EBITDA" is defined as Standardized EBITDA adjusted for significant non-recurring expenditures related to the integration of Shepell-fgi operations and Morneau Sobeco, as well as conversion and strategic planning .
  2. "Standardized EBITDA" is defined as income before interest, depreciation, income taxes (recovery) amortization, impairment changes and non-controlling interest. The Fund believes that Standardized EBITDA is a useful measure in evaluating performance of the Fund. It is used to monitor compliance with debt covenants and to make decisions related to distributions to Unitholders rather than net income due to the significant amount of amortization expense related to the firm's intangible assets.
  3. "Standardized Distributable Cash" is defined as cash from operating activities, including the effects of changes in non-cash operating working capital, less capital expenditures and Consolidated Distributable Cash available to non-controlling interest.
  4. "Adjusted Consolidated Distributable Cash" is defined as cash from operating activities adjusted for capital expenditures excluding changes in non-cash operating working capital and payment related to non-recurring expenditures.
  5. "Adjusted Payout Ratio" is defined as declared distributions divided by Adjusted Consolidated Distributable Cash.
  6. "Standardized Payout Ratio" is defined as declared distributions divided by Standardized Distributable Cash.

Forward-Looking Statements

This news release contains "forward-looking statements" within the meaning of applicable securities laws, such as statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts. Use of words such as "may", "will", "expect", "believe", or other words of similar effect may indicate a "forward-looking" statement. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties, including those described in the Fund's publicly filed documents (available on SEDAR at www.sedar.com) and in the firm's MD&A under the heading "Risks and Uncertainties". Those risks and uncertainties include current economic conditions, income tax matters, ability to maintain profitability and manage growth, reliance on information systems and technology, reputational risk, dependence on key clients, and reliance on key professionals. Additional risks and uncertainties will also arise in connection with the acquisition and Shepell•fgi's business, including without limitation: increased leverage and restrictive covenants; potential undisclosed liabilities associated with the acquisition and the Fund's limited indemnification from the vendor of Shepell•fgi; the integration of the combined business; Shepell•fgi's agreements with its customers; relationships with channel partners; competition; dependence on key customers; relationships with service providers; reliance on key personnel; regulatory risks; timing of revenue collection; fixed price contracts; currency fluctuations; confidentiality of client information; risks of future legal proceedings; and certain tax risks associated with the acquisition. Many of these risks and uncertainties can affect the firm's actual results and could cause the Fund's actual results to differ materially from those expressed or implied in any forward-looking statement made by the Fund or on the firm's behalf. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements in this news release are qualified by these cautionary statements. These statements are made as of the date of this news release and, except as required by applicable law, the Fund undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, the Fund undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of the Fund, its financial or operating results or its securities.

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