August 2, 2018 - 8:00 PM EDT
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Foremost Income Fund Reports Q2 2018 Results and Reviews Unit Redemption Monthly Limit for August 2018

CALGARY, Alberta, Aug. 02, 2018 (GLOBE NEWSWIRE) -- Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the six-month period ended June 30, 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, with its focus on the oil and gas industry in Western Canada, consists of three active manufacturing and service locations across Alberta. The locations manufacture oil-treating systems, shop tanks, field tanks, compression equipment, oil and gas process-treating equipment, and gas separators. FME manufactures and services hydrovac and vacuum trucks and equipment; off-highway, large-wheeled and tracked vehicles; and equipment for the custom drilling, construction, water well, and mining sectors. FME focuses on custom-built vehicles for its global clientele whom it serves through two manufacturing and service locations across Alberta.

Message to Unitholders

A Positive Second Quarter for 2018
While conditions remained challenging in the Western Canadian Energy Sector, Foremost saw positive net income in the second quarter of 2018. In particular, the Mobile Equipment division’s strength offset margin challenges in the Energy Equipment side.

The overview: key measurements
Revenue—is $35.7 million. Though a 4.5% dip from last quarter ($37.4 million), it’s a 4.7% rise over the same quarter last year ($34.1 million).

Gross margin—stayed relatively flat at 12% year-to-date, 2% higher than the 2017 full year.

SG&A expenses—remain at 9% of revenue but are slowly rising because of:

  • province-wide wage increases
  • judicious additions of overhead manpower to anticipate a pick up in the energy sector

EBIDTA—is $0.9 million ($2.2 million for the year).

A strong sales direction
Overall, the business is moving towards higher profits and increasing market share in the energy sector from:

  • healthy vacuum truck sales, which are increasing marginally over last year’s average sales.
  • dual rotary sales in the US, which remained steady and provided healthy margins.
  • mining tool sales worldwide, which have grown from higher global mining activity and companies replacing capital equipment.

A positive outlook
Foremost remains in a strong cash position and is maintaining a conservative but forward-looking approach to new investments in automation and strategic projects. I am satisfied we are progressing in key areas while we diligently work to improve others.

Kevin Johnson
President

Q2 2018 Highlights

  • Revenue increased by $1.6 million quarter over quarter. The revenue within the FME segment dropped by $1.3 million as drill volumes decreased. The FEE segment increased by $3.0 million from increased demand in the vessel product line. For the second quarter of 2018, the FME segment accounted for 59% of the revenue, a drop from 65% in the same quarter of 2017. You can find more information in the Segmented Results of Operations section of the MD&A.
  • Gross profit remained steady at $4.1 million in both second quarters. You can find more information in the Segmented Results of Operations section of the MD&A.
  • Administration costs remained consistent at 9% of revenues, but increased by $0.3 million. This increase is from marketing efforts, HR initiatives and personnel costs.
  • During the three months ended June 30, 2018, the Fund recognized a $0.1 million foreign exchange gain (2017 - $0.3 million loss). This gain mainly reflects 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  $   35,709     -      -   $   73,102   
        
 Gross profit ($)$   4,456  $   4,107     -      -   $   8,563   
 Gross profit (%) 12%  12%    12%  
        
 Admin. expenses ($)$   3,236  $   3,321     -      -   $   6,557   
 Admin. expenses (% of total revenue) 9%  9%    9%  
 Exchange rate gain$   (63) $   (92)    -      -   $   (155)  
 Adjusted EBITDA *$   1,283  $   878     -      -   $   2,161   
 Income from operations$   313  $   (130)    -      -   $   183   
 Comprehensive income$   419  $   108     -      -   $   527   
        
 Trust units redeemed   10,863     16,179     -      -      27,042   
 Redemptions$   65  $   96     -      -   $   161   
 Basic and diluted earnings per trust unit$   0.02  $   0.01     -      -   $   0.03   
 * Adjusted EBITDA defined on page 14 of the MD&A      
 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 months of April to July 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 August 2018 no later than August 15, 2018.

With respect to the month of August 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 September 2018 no later than September 14, 2018. In accordance with the Deed of Trust, unitholders that submit or have submitted notices of redemption during the month of August 2018, such that the Fund is obligated to pay the redemption price in respect of the subject units on or before September 28, 2018. Regarding notices of redemption received in the month of August, the Fund will redeem up to $250,000.00 of units for cash. If notices of redemption received in August exceed $250,000.00, then the unitholders that have submitted notices of redemption in August 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

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Source: GlobeNewswire (August 2, 2018 - 8:00 PM EDT)

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