Calgary, Alberta--(Newsfile Corp. - May 13, 2021) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three months ended March 31, 2021.
Overview
The Fund is an unincorporated open end mutual fund trust conducting its business through three operating segments, Foremost Energy Equipment (FEE), Foremost Mobile Equipment (FME), and Corporate. 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, agriculture 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
Foremost delivered cash positive results in Q1 despite ongoing challenging market conditions in the Western Canadian Energy markets. The results were driven by continued strength in Foremost Mobile Equipment revenue and gross margin.
Foremost Mobile Equipment (FME) produced revenues of $23.9 million versus $25.3 million in Q1 2020 and gross margin of $4.6 million versus $4.3 million in Q1 2020. Growing demand in the key markets of US, South America and Australia drove improved revenue in the Drills and Parts product lines as compared to both Q1 2020 and Q4 2020. The Drills product line delivered markedly better revenue and gross margin due to rebounds in capital investments in the mining and water well markets across the world.
Foremost Energy Equipment (FEE) revenue remained soft compared to historical averages, producing $5.2 million versus $12.3 million in Q1 2020 and gross margin of negative $1.2 million compared to $0.1 million in Q1 2020. FEE continues to battle tough conditions in the Western Canadian markets. FEE gross margins remain under severe competitive pressures. Sales in the Agriculture and Fuel tank product lines grew compared to Q1 2020 as product acceptance and market share growth continues.
The safety of everyone who works at Foremost remains the highest priority for management. Foremost remains fully compliant with all provincial and municipal mandates and laws related to workplace and public safety instituted due to the Covid-19 pandemic.
The overview: key measurements for Q1 2021
Revenue was $29.0 million, an increase from the previous quarter of 15.8% or $4.0 million and a 22.9% decrease from the Q1 2020 revenue of $37.7 million.
Gross margin increased 16.7% to $3.4 million, up from $2.9 million in Q4 2020 and a 23.9% decrease from Q1 2020.
SG&A expenses decreased from 11% of revenue in Q4 2020 to 10% of revenue in Q1 2021 and was consistent at 10% compared to Q1 2020. Total spend in Q1 2021 in this category was $3.0 million compared to $2.7 million in Q4 2020 and $3.7 million in Q1 2020.
Adjusted EBIDTA is $1.4 million, an increase from the Q4 2020 value of $1.1 million and a decrease from the Q1 2020 value of $1.8 million.
Re-classification - during the first quarter of 2021, certain costs were re-classified to better align with their function. This includes moving depreciation and amortization expense between cost of goods sold (for plant-level assets) and SG&A (for corporate-level assets) and moving office related occupancy costs out of cost of sales and into administrative expenses. This results in reporting lower gross margin and higher SG&A expenses, while removing the Fund-wide amortization and depreciation expense from the statement of net income. The total amortization and depreciation continues to be shown on the statement of cash flows. These changes have been reflected in all comparative data in this quarter's reports and will be followed for future reporting periods. Refer to note 3 of the Financial Statements for more information.
2021 outlook
Markets remain unpredictable as the response to the novel Covid-19 virus continues to evolve. Foremost is actively monitoring the latest developments and assessing the impact of the outbreak and the unprecedented drop in global economic activity. Significant uncertainty remains around the spread of the COVID-19 virus and the impact it will have on the Fund's operations, the demand for the Fund's products, global supply chains, and economic activity in general.
Kevin Johnson
President
Q1 2021 Highlights
- The oil and gas industry continues to experience volatility in commodity prices due to deterioration in oil demand stemming from the global pandemic. For Foremost, this contributed to the decrease in revenue of $8.6 million when comparing Q1 2021 to Q1 2020. The FME segment recognized $1.4 million less revenue in 2021 over 2020, while the FEE segment recognized a $7.2 million decrease in revenue. More information is in the Segmented Results of Operations section of the MD&A.
- Gross profit for Q1 2021 was $3.4 million and 12% of revenue. More information is in the Segmented Results of Operations section of the MD&A.
- Administration costs decreased to $3.0 million or 10% of revenue, down from $3.7 million in Q1 2020. The majority of spend in this category is related to personnel costs. Reductions in headcount and reduced working hours resulted in a decrease of personnel costs. The COVID-19 pandemic also caused a decline in administrative costs related to travel and general office supplies.
- Adjusted EBITDA (defined on page 12 of the MD&A) was $1.4 million for Q1 2021 compared to $1.8 million in Q1 2020.
- During the first quarter of 2021, certain costs were re-classed resulting in a lower gross margin and higher SG&A expenses. Refer to note 3 of the Financial Statements for more information.
- The Trustees have determined that, as of May 12, 2021, the Fund will redeem tendered Trust Units at tangible book value of $6.20 per unit.
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
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