Calgary, Alberta--(Newsfile Corp. - November 14, 2019) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three and nine months ended September 30, 2019.
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, fuel tanks, agricultural products 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
Foremost continues to feel pressure in the challenged Western Canadian Energy Markets, but we are actively working to augment declining sales in the Foremost Energy Equipment (FEE) business segment with counter cyclical product lines including Agriculture and Mining products. In Foremost Mobile Equipment (FME) soft sales in the international mining markets for Foremost impacted revenues in the third quarter.
On a positive note, our Vacuum truck market share continues to improve with increased penetration into the key US markets. The recently launched Hydrovac truck models have been very well received by customers and had strong sales for 2019 year to date.
FEE produced revenues consistent with the average revenue for the recent quarters. The Western Canadian Energy markets continue to experience low commodity pricing, and market access issues. The negative factors in this market segment did not improve in Q3 and market sentiment remains poor. Market conditions and production overcapacity continue to impact margins in the markets FEE competes in. The shop tanks, field tanks, and vessel product lines have provided most of the revenues for FEE in 2019.
The Agriculture and the Fuel Tank lines have been launched, with production and sales in both new product lines underway in the Lloydminster plant. The Agriculture markets in Alberta, Saskatchewan, and Manitoba have suffered a poor harvest season in 2019 due to weather conditions. This poor season and excess grain bin inventory have negatively impacted market demand. Foremost continues to focus on fine tuning costs and improving marketing efforts in both segments to properly position itself for long-term sustainable growth.
The overview: key measurements
Revenue is $37.5 million, a decrease of 5% from the previous quarter of $39.6 million.
Gross margin decreased to $3.5 million for Q3 2019, down from $5.3 million in Q2 2019.
SG&A expenses remained at 8% of revenue or $3.0 million in Q3. Q2 was $3.2 million.
Adjusted EBIDTA is $0.5 million, a decrease from the Q2 value of $2.0 million.
2019 outlook
Foremost is well positioned with its innovative product lines to deliver good results in 2019. Management is focused on cost control and production efficiency at each manufacturing plant, with the ongoing goal to be a cost and quality leader in all the markets Foremost serves.
Kevin Johnson, President
| SUMMARY OF QUARTERLY INFORMATION | |||||||||||||||
| (000's, except per Trust Unit amount) | |||||||||||||||
| 2019 | Q1 | Q2 | Q3 | Q4 | Total | ||||||||||
| Revenue | $ | 36,563 | $ | 39,553 | $ | 37,503 | $ | - | $ | 113,619 | |||||
| Gross profit ($) | $ | 3,760 | $ | 5,293 | $ | 3,472 | $ | - | $ | 12,525 | |||||
| Gross profit (%) | 10% | 13% | 9% | 11% | |||||||||||
| Administrative expenses ($) | $ | 3,304 | $ | 3,233 | $ | 3,022 | $ | - | $ | 9,559 | |||||
| Administrative expenses (% of total revenue) | 9% | 8% | 8% | 8% | |||||||||||
| Exchange rate (loss) gain | $ | (52 | ) | $ | (62 | ) | $ | 90 | $ | - | $ | (24 | ) | ||
| (Loss) earnings from operations | $ | (549 | ) | $ | 1,089 | $ | (568 | ) | $ | - | $ | (28 | ) | ||
| Other non-operating income | $ | 1,419 | $ | 438 | $ | 281 | $ | - | $ | 2,138 | |||||
| Income tax expense | $ | (51 | ) | $ | (89 | ) | $ | (14 | ) | $ | - | $ | (154 | ) | |
| Comprehensive income (loss) | $ | 819 | $ | 1,438 | $ | (301 | ) | $ | - | $ | 1,956 | ||||
| EBITDA | $ | 1,683 | $ | 2,300 | $ | 539 | $ | - | $ | 4,522 | |||||
| Gain (loss) on sale of property, plant and equipment | $ | 1,279 | $ | 302 | $ | (1 | ) | $ | - | $ | 1,580 | ||||
| Adjusted EBITDA * | $ | 404 | $ | 1,998 | $ | 540 | $ | - | $ | 2,942 | |||||
| Trust units redeemed | 181,985 | 183,152 | 424,983 | - | 790,120 | ||||||||||
| Redemptions | $ | 1,085 | $ | 1,104 | $ | 1,084 | $ | - | $ | 3,273 | |||||
| Basic and diluted earnings per trust unit | $ | 0.04 | $ | 0.08 | $ | (0.02 | ) | $ | - | $ | 0.10 | ||||
| * Adjusted EBITDA defined on page 10 of the MD&A | |||||||||||||||
| 2018 | Q1 | Q2 | Q3 | Q4 | Total | ||||||||||
| Revenue | $ | 37,393 | $ | 35,709 | $ | 42,811 | $ | 33,874 | $ | 149,787 | |||||
| Gross profit ($) | $ | 4,456 | $ | 4,107 | $ | 6,622 | $ | 3,753 | $ | 18,938 | |||||
| Gross profit (%) | 12% | 12% | 15% | 11% | 13% | ||||||||||
| Administrative expenses ($) | $ | 3,236 | $ | 3,321 | $ | 3,111 | $ | 3,696 | $ | 13,364 | |||||
| Administrative expenses (% of total revenue) | 9% | 9% | 7% | 11% | 9% | ||||||||||
| Exchange rate (loss) gain | $ | 63 | $ | 92 | $ | (99 | ) | $ | 294 | $ | 350 | ||||
| Income (loss) from operations | $ | 313 | $ | (130 | ) | $ | 2,615 | $ | (889 | ) | $ | 1,909 | |||
| Impairment recovery | $ | - | $ | - | $ | - | $ | 2,371 | $ | 2,371 | |||||
| Other non-operating income | $ | 200 | $ | 303 | $ | 90 | $ | 379 | $ | 972 | |||||
| Income tax expense | $ | (95 | ) | $ | (65 | ) | $ | (106 | ) | $ | (56 | ) | $ | (322 | ) |
| Comprehensive income (loss) | $ | 418 | $ | 108 | $ | 2,599 | $ | 1,805 | $ | 4,930 | |||||
| EBITDA | $ | 1,283 | $ | 880 | $ | 3,413 | $ | 2,638 | $ | 8,214 | |||||
| Impairment recovery | $ | - | $ | - | $ | - | $ | 2,371 | $ | 2,371 | |||||
| Gain (loss) on sale of property, plant and equipment | $ | - | $ | 2 | $ | - | $ | (83 | ) | $ | (81 | ) | |||
| Adjusted EBITDA * | $ | 1,283 | $ | 878 | $ | 3,413 | $ | 350 | $ | 5,924 | |||||
| Trust units redeemed | 10,863 | 16,179 | 55,707 | 131,195 | 213,944 | ||||||||||
| Redemptions | $ | 65 | $ | 96 | $ | 125 | $ | 1,003 | $ | 1,289 | |||||
| Basic and diluted earnings per trust unit | $ | 0.02 | $ | 0.01 | $ | 0.14 | $ | 0.10 | $ | 0.27 |
2019 YTD Highlights
- Revenue decreased by $2.3 million when comparing the first nine months of 2019 to 2018. The FME segment recognized $0.7 million more revenue in 2019 over 2018, which was offset by the $3.0 million decrease in revenue recognized by the FEE segment. More information is in the Segmented Results of Operations section of the MD&A.
- Gross profit for 2019 was $12.5 million and 11% of revenue. More information is in the Segmented Results of Operations section of the MD&A.
- Administration costs remained consistent at $9.6 million or 8% of revenue. The majority of spend in this category is related to personnel costs.
- Adjusted EBITDA (defined on page 10 of the MD&A) was $2.9 million for the nine months ended in 2019 compared to $5.6 million in 2018.
- During 2019, the Fund sold two properties: one located in Calgary and the other in Indianapolis, USA. This resulted in a gain of $1.6 million.
Trust Unit Redemptions and Distributions
The Fund redeemed 424,983 Trust Units during the nine months ended September 30, 2019, through its normal redemption program resulting in promissory notes payable of $0.07 million and cash payments of $2.48 million.
The Trustees have determined that, as of November 14, 2019, the Fund will redeem tendered Trust Units at tangible book value of $6.15 per unit.
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, to $250,000 for the months of April to September 2018, and to $350,000.00 for the months of October 2018 to November 2019 (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 November 2019 no later than November 14, 2019.
With respect to the month of November 2019, the Trustees have determined that the monthly limit for cash redemptions will be set at $350,000.00. The Trustees have undertaken to review the revised monthly limit in respect of the month of December 2019 no later than December 15, 2019. In accordance with the Deed of Trust, unitholders that submit or have submitted notices of redemption during the month of November 2019, such that the Fund is obligated to pay the redemption price in respect of the subject units on or before December 31, 2019.
Regarding notices of redemption received in the month of November, the Fund will redeem up to $350,000.00 of units for cash. If notices of redemption received in November exceed $350,000.00, then the unitholders that have submitted notices of redemption in November 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 $350,000.00, 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, DPSP 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: investorrelations@foremost.ca - Website: www.foremost.ca
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/49768
