May 14, 2018 - 8:09 PM EDT
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Foremost Income Fund Reports Q1 2018 Results and Reviews Unit Redemption Monthly Limit for May 2018

CALGARY, Alberta, May 14, 2018 (GLOBE NEWSWIRE) -- Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three-month period ended March 31, 2018. 

Overview

The Fund is an unincorporated open end mutual fund trust conducting its business through two operating segments, Foremost Energy Equipment (“FEE”) and Foremost Mobile Equipment (“FME”). FEE’s overall business is focused on the oil and gas industry and includes activity from three active manufacturing sites throughout Alberta. FME manufactures off-highway large wheeled and tracked vehicles, hydrovac and vacuum trucks, equipment for custom drilling, construction, water wells, and mining sectors. FME has three manufacturing facilities located in Alberta.

Message to Unitholders

2018 has started well for Foremost; the Western Canadian energy markets and worldwide mining markets are starting to show recovery and strength and the US economy continues to do well. Foremost had the best revenue quarter in over two years and showed some sales momentum from Q4 2017 into 2018. 

The fund generated $37.4 million in revenue, a 3.4% increase over Q4 2017 and a 17.4% increase over the same quarter in 2017, adjusted for the $1.0 million increase in revenue recognition due to the initial adoption of IFRS 15. Both Foremost Mobile Equipment and Foremost Energy Equipment produced revenue increases over the previous quarter. Most of this increase was due to increased sales volume in trucks and drills. Gross profit was also healthy at 12%, the highest since Q2 2016. The Fund generated a net income of $0.4 million and an EBIDTA of $1.3 million in Q1 2018.

Foremost Energy Equipment continues to present the biggest challenge in terms of margin and profitability. The company has been working hard to consolidate product lines, add automation, and improve process flow through its plants. This work will continue in 2018, as the supply of fabricated products for the Western Canadian Energy markets remains very competitive.  

Foremost Mobile Equipment is producing consistent revenue growth and margin. While margin dipped slightly due to variability in parts sales, revenue increased by $3.4 million (adjusted for IFRS 15), a 19.5% increase over Q1 2017. These results were driven by increased sales of vacuum trucks in Ontario and Western Canada, interest in Dual Rotary rigs within mining markets, and continued strength in the US.

Overall, it has been a strong start to the year. The focus of the company is maintaining sales momentum and continuing to increase operational efficiency. Foremost also continues its focus on reducing fixed costs by lowering or eliminating non-essential spend. In the past year, significant work has been put into removing underperforming business units from its operations; this work will continue through 2018. 

Kevin Johnson
President

Q1 2018 Highlights

  • Revenue increased by $6.4 million quarter over quarter. The FME segment increased revenue by $4.4 million. This was a result of increased sales volumes ($3.3 million) and an adjustment as part of the adoption of IFRS 15 - the new revenue recognition standard ($1.1 million). The FEE segment increased by $2.0 million. More information can be found in the Segmented Results of Operations section of the MD&A.
  • Gross profit increased from $3.3 million in the first quarter of 2017 to $4.5 million in 2018. More information can be found in the Segmented Results of Operations section of the MD&A.   
  • Administration costs remained consistent at 9% of revenues. Within this category of spend, the personnel costs increased slightly from $1.6 million in 2017 to $1.9 million in 2018.
  • During the three months ended March 31, 2018 the Fund recognized a $0.06 million foreign exchange gain (2017 - $0.2 million loss). The foreign exchange gain is mainly reflective of changes in the value of the Fund’s U.S. dollar-denominated net monetary assets and liabilities along with the change in value for forward contracts.                 
      
SUMMARY OF QUARTERLY INFORMATION 
(000's, except per Trust Unit amount)
 
2018Q1Q2Q3Q4Total
Revenue$   37,393    -     -     -  $   37,393
      
Gross profit ($)$   4,455    -     -     -  $   4,455
Gross profit (%) 12%    12%
      
Admin. expenses ($)$   3,236    -     -     -  $   3,236
Admin. expenses (% of total revenue) 9%    9%
Exchange rate gain$   (63)   -     -     -  $   (63)
EBITDA$   1,282    -     -     -  $   1,282
Income from operations$   312    -     -     -  $   312
Comprehensive income$   417    -     -     -  $   417
      
Trust units redeemed   10,863    -     -     -     10,863
Redemptions$   65    -     -     -  $   65
Basic and diluted earnings per trust unit$   0.02    -     -     -  $   0
      
      
2017Q1Q2Q3Q4Total
Revenue$   31,009 $   34,067 $   32,320 $   35,134 $   132,530
      
Gross profit ($)$   3,344 $   4,109 $   2,665 $   3,739 $   13,857
Gross profit (%) 11% 12% 8% 11% 10%
      
Admin. expenses ($)$   2,866 $   3,049 $   2,944 $   3,050 $   11,909
Admin. expenses (% of total revenue) 9% 9% 9% 9% 9%
Exchange rate loss (gain)$   199 $   337 $   132 $   (38)$   630
Adjusted EBITDA *$   284 $   723 $   (416)$   727 $   1,318
Gain (loss) from operations$   (502)$   93 $   (1,225)$   (238)$   (1,872)
Comprehensive (loss) gain$   (600)$   (157)$   (1,268)$   4,442 $   2,417
      
Trust units redeemed   27,160    -     -     267    27,427
Redemptions$   160 $   -  $   -  $   1 $   161
Basic and diluted loss per trust unit$   (0.03)$   (0.01)   (0.07)   0.24 $   0.13
      

Temporary Reduction of Monthly Limit for Fund Unit Redemptions Pursuant to Section 6.4(ii)(A) and (B) of the Deed of Trust

Pursuant to section 6.4(ii)(A) and (B) of the Deed of Trust of the Fund dated November 12, 2005 as amended (the “Deed of Trust”), the Trustees of the Fund have discretion, in any calendar month, to reduce the monthly limit for cash redemptions of units of the Fund due to a material change, or concerns as to the current working capital or debt of the Fund. The exercise of such discretion may result in all or a portion (on a pro rata basis, depending on notices of redemption received) of the amount payable for units redeemed being paid by unsecured promissory notes in accordance with section 6.5 of the Deed of Trust.

As disclosed by prior press releases, effective May 1, 2014 and applying to all notices of redemption received in the months of May through October 2014, inclusive, and February 2015 through March 2018, inclusive, the Trustees of the Fund exercised their discretion pursuant to section 6.4(ii)(B) to reduce the monthly limit for cash redemptions from $1,500,000.00 to $0.00, to $500,000.00 for the months of November and December 2014 and January 2015, and to $250,000 for the month of April 2018 (in each case the subject redemptions being payable by the end of the following month).  The Trustees undertook to review the revised monthly limit in respect of the month of May 2018 no later than May 15, 2018.

With respect to the month of May 2018, the Trustees have determined that the monthly limit for cash redemptions will be set at $250,000.00. The Trustees have undertaken to review the revised monthly limit in respect of the month of June 2018 no later than June 15, 2018. In accordance with the Deed of Trust, unitholders that submit or have submitted notices of redemption during the month of May 2018, such that the Fund is obligated to pay the redemption price in respect of the subject units on or before June 29, 2018. 

Regarding notices of redemption received in the month of May, the Fund will redeem up to $250,000.00 of units for cash. If notices of redemption received in May exceed $250,000.00, then the unitholders that have submitted notices of redemption in May will be contacted and provided with an opportunity to withdraw all or any part of such notices of redemption. Thereafter, to the extent notices of redemption remain in excess of $250,000.00, the subject units will be redeemed in part for cash and in part for unsecured promissory notes on a pro rata basis.      

This discussion is intended for summary purposes only and is subject in all respects to the Deed of Trust. The income and other tax consequences of holding, redeeming or disposing of units and acquiring promissory notes will vary depending on the unitholder’s particular circumstances, including the jurisdiction(s) in which the unitholder resides or carries on business, and whether the unitholder is an RRSP, RESP, RRIF, PPSP or TFSA. Accordingly, this summary is of a general nature only and is not intended to be legal or tax advice to any prospective purchaser or any unitholder. All unitholders should consult their own legal and tax advisors prior to redeeming units of the Fund.

On behalf of the Trustees
Foremost Income Fund

[signed:  Bevan May]                             
Bevan May, Trustee

FORWARD-LOOKING STATEMENT
Certain statements in this news release may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this news release, such statements use words such as "may", "will", "expect", "believe", "plan" and other similar terminology. These statements include statements the Fund's intention to proceed with a Unitholders' meeting and information regarding the Trustees' views of the future prospects and tax treatment of the Fund and tax treatment of the Special Redemption, the Fund's expectations regarding the future availability of cash to meet redemption requests and the Trustee's expectations for redemption prices in December 2011 and January 2012.  These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this news release.  These forward-looking statements involve a number of risks and uncertainties, including: the impact of general economic conditions, industry conditions, changes in laws and regulations, increased competition, fluctuations in commodity prices and foreign exchange, and interest rates and stock market volatility.

For further Investor Relations information please contact:
Jackie Schenn, CA
Tel: (403) 295-5800 or toll free 1-800-661-9190 (Canada/US) - Fax: (403) 295-5832     E-mail: [email protected] - Website: www.foremost.ca


Source: GlobeNewswire (May 14, 2018 - 8:09 PM EDT)

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