Foremost Income Fund

Foremost Income Fund

March 31, 2015 18:01 ET

Foremost Income Fund Reports 2014 Results

CALGARY, ALBERTA--(Marketwired - March 31, 2015) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the 12 months ended December 31, 2014.

OVERVIEW

The Fund is an unincorporated open end mutual fund trust conducting its business through two limited partnerships; Foremost Universal LP and Foremost Industries LP. Consistent with the Fund's focus on customer and market responsiveness, the Fund has re-defined, and rebranded its operating segments to clearly reflect the Fund's two distinct operating divisions, Foremost Energy Equipment (FEE) and Foremost Mobile Equipment (FME) from which the Fund derives its operational income. FEE's overall business is focused on the oil and gas industry and includes activity from six 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 UNITHOLDER'S

Present management acknowledges that 2014 was a year of important challenges driven by significant leadership changes across the Fund operations. As 2014 drew to a close it was clear that the organization had successfully navigated these challenges and I can say across the company, a great deal of enthusiasm and energy has been committed to the common goals of improving operating performance and strengthening our market presence.

The four major thrusts of our Strategic Plan released in July 2014 are now bearing fruit and include:

  • Drive Cost Leadership - Improve Financial Performance.
  • Become More Customer Focused and Market Responsive. Drive Growth.
  • Develop our People and Create a Dynamic Environment.
  • Create a Culture Shift - Engage the Minds and Talents of Every Employee.

As is highlighted in more detail on page 8 of the Management's Discussion and Analysis, Foremost's operating performance improved such that excluding the increase in inventory allowance as well as capital asset and goodwill impairments, the Loss before income tax of $7.7 million for 2014 (compared against the nil loss for 2013), adjusted for these items, would have improved to $10.3 million ($4.3 million excluding similar items for 2013). Under this analysis, improvement in the Fund's performance of $6.0 million was mainly achieved by reducing costs that weren't adding value to our business. As an example, Administration Expenses were reduced by over $2 million, or approximately 10% for the year.

We are proud of our achievements in 2014 but we must acknowledge that even so, Foremost under-achieved against past performance at similar revenue.

As we look to the future, the entire Western Canadian marketplace is facing very daunting market conditions, with oil prices sliding to 7-year lows and capital budgets being reduced broadly across many oil and gas markets. Foremost is pleased with the breadth of our product portfolio as we are afforded diversification and we observe that the US markets hold positive demand prospects for significant parts of our Foremost Mobile Equipment (FME) division product portfolio.

Your management team is up to the challenge as we now will navigate proactively and with assertiveness to minimize the negative dimensions of the current situation while being ready to exploit opportunities that become available to us. An example of this proaction and in light of market conditions, the Board of Trustees working in conjunction with management has effective mid-April 2015, implemented an austerity measure whereby Board compensation will be reduced by 50% and CEO/VP compensation will be reduced by 12 - 15%. Further, administration and support positions at FEE locations will see a 10% work schedule and compensation reduction. We will continue to act with prudence as market conditions evolve.

Bevan May

Interim CEO and Board Chairman

RESULTS OF OPERATIONS:
ANNUAL RESULTS OF OPERATIONS
(000's, except per Trust Unit amount and earnings per share)
2014 2013 2012
Revenue $ 236,024 $ 229,929 $ 261,430
Change in revenue (%) 3% -12% 1%
Foreign revenue $ 36,656 $ 48,081 $ 49,900
Foreign revenue (% of total revenue) 16% 21% 19%
Gross profit $ 30,909 $ 29,850 $ 52,099
Gross profit (%) 13% 13% 20%
Administrative expenses $ 19,760 $ 22,127 $ 24,103
Administrative expenses (% of total revenue) 8% 10% 9%
Amortization $ 5,552 $ 4,825 $ 4,096
Exchange rate (loss)/gain 639 $ 193 $ (230)
EBITDA $ 11,367 $ 7,723 $ 27,996
Income from operations $ 5,597 $ 2,898 $ 23,900
Income (loss) before tax $ (7,677) $ (9) $ 24,065
Comprehensive (loss)/income (11,301) $ (553) $ 19,727
Trust units redeemed (number of units) 125,003 128,731 28,785
Redemption payouts $ 871 $ 1,033 $ 225
Annual cash distribution $ 5,954 $ 5,990 $ 13,172
Basic and diluted gain/(loss) per trust unit $ (0.61) $ (0.03) $ 1.05

Highlights from 2014

  • The Fund realized a slight increase in revenue year over year. Overall this is a reflection of different activity occurring within the various product lines. Most notably, tank and drill revenue has seen the largest decrease in revenue relative to previous years, which was offset to a degree by an increase in the truck, vessel and gas separation revenue. More detail can be found in the operating segment section, starting on page 9.
  • Gross profit held steady at 13%. This remains lower than historical averages for the Fund and is reflective of continued competitive pressures. Consistent with 2013, an in depth review of inventory allowances were performed in 2014. This resulted in an additional approx. $5.1 million booked against profit margin in 2014, 2013 was approximately $1.2 million.
  • Administration costs decreased by $2.4 million as the Fund focused on cost discipline throughout 2014. Areas of impact include decreased discretionary spending, overhead personnel reduction and continuous improvements in the area of supply chain management.
  • Impairment tests were performed on the Fund's long lived assets, including goodwill, during the fourth quarter of 2014. This has resulted in a goodwill impairment of $1.1 million and an asset impairment of $11.8 million. For the year ended December 31, 2013 the Fund recognized goodwill impairment of $3.2 million.
  • Consistent with the Fund's strategy of driving sustainable growth, the Fund expanded its capacity to manufacture and service its truck product lines. Foremost leased a second facility in Edmonton for that purpose.
  • As a result of continued losses at the Bonnyville facility the Fund decided to cease operations in late 2014 and list the property for sale.
  • An annual cash distribution of $0.32 per unit was paid in December of 2014, which is consistent with the amount paid in 2013.

TRUST UNIT REDEMPTIONS AND DISTRIBUTIONS

The Fund redeemed 125,003 Trust Units during the year through its redemption program resulting in cash payments of $442,295 and notes payable of $428,346. During 2014, 20,000 options were exercised at a price of $8.75.

An annual Trust Unit cash distribution was made on December 30, 2014, at $0.32 per unit. This resulted in a cash payment of $5.9 million for 2014. In 2013 the Fund paid a cash distribution equal to $0.32 per unit for a total of $6.0 million.

The Trustees have determined that, as of the date of March 31, 2015 the Fund will redeem tendered Trust Units $5.75 per unit.

On behalf of the Trustees

Foremost Income Fund

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.

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