Foremost Income Fund

Foremost Income Fund

May 15, 2015 16:52 ET

Foremost Income Fund Reports Q1 2015 Results

CALGARY, ALBERTA--(Marketwired - May 15, 2015) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three months ended March 31, 2015.

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 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 UNITHOLDERS

The theme for the first quarter of 2015 is the fundamental erosion of market demand impacting most significantly our Energy Equipment (FEE) product family driven by lower oil and gas commodity pricing. While this occurred, Foremost's backlog of activity coming from the second half of 2014 has helped sustain most of our work locations to various degrees through this first quarter of 2015. Foremost's diversification strategy has been and will be a key point of strength in the first quarter and beyond as our Mobile Equipment (FME) division has remained relatively strong in the quarter and continues to have a healthy and stable backlog of work activity. FME work activity has been bolstered by a resilient US Hydrovac/Vacuum truck market and by growing demand for Foremost's Dual Rotary drilling rigs from the US driven by a relatively strong US economy and the lower Canadian dollar.

Gross margin rates in the FEE division continue to tighten due to market conditions. While these pressures prevail, Foremost has implemented substantial workforce reductions across all FEE work locations and we continue to address overhead reductions as work activity and revenue continue to soften. In April Foremost instituted a work-hour and pay reduction of 10% for all staff in the FEE devision as a further cost savings measure.

Summarizing performance, the Fund generated a Net Income of $2.8 million on revenue of $56.7 million. This is up from $46.4 million and a net loss of $1.5 million respectively for Q1 2014 in spite of the tougher market conditions in 2015. The cost-control efforts put in place starting in the Q2of 2015 are paying dividends and helped lay the foundation for weathering this period of reduced demand.

Although the impact of a low commodity price environment on Foremost's Energy Equipment customers has been chilling as many capital budgets have been reduced, cancelled or frozen while the industry awaits commodity price increases and stability, an area of continued market demand for FEE is the Oil and Gas Midstream market . For market participants the lower commodity framework does not impact their business models as deeply since they are based on receiving tolls for shipping, transporting, processing, or handling oil and gas products and by-products for the industry. Further, with the surge of demand for oil and liquids storage (oil products storage is at historically high levels), there is an emerging new demand for Foremost's Field tank product line which we anticipate converting into orders in subsequent periods.

An observation we are pleased to share relates to Foremost's relative size and strength in the vast majority of our markets. Across our two divisions, Foremost is one of the best positioned amongst its competitors in terms of its ability to withstand the turmoil of current market conditions. We have no long-term debt, we own our major facilities, and we have extremely deep bench strength in our talented and experienced team. Many Foremost competitors do not share these attributes and we anticipate opportunities to take advantage of this when markets recover and demand re-emerges.

Bevan May, Interim CEO and Board Chairman

Highlights from Q1 2015:

  • Revenue increased by 22.8%, or $10.6 million, when comparing quarter over quarter. This growth was achieved through several product lines and is discussed further in the segmented results of operations section of the MD&A.
  • Gross profit increased to 15% in 2015, compared with 11% in the first quarter of 2014. This remains lower than historical averages for the Fund and is reflective of continued competitive pressures and a general slowdown in the oil and gas market.
  • Administration costs decreased by $0.5 million, from $4.9 million in Q1 2014 to $4.4 million in Q1 2015. These reduced costs continue to reflect the Fund's commitment to cost discipline.
  • A $1.2 million foreign exchange gain was recognized in the first quarter of 2015 as a result of increased U.S. sales contracts, resulting in higher U.S. cash, and fluctuations in this exchange rate.
SUMMARY OF QUARTERLY INFORMATION
(000's, except per Trust Unit amount)
2015 Q1 Q2 Q3 Q4 Total
Revenue $ 56,672
Gross profit ($) $ 8,020
Gross profit (%) 14 %
Admin. expenses ($) $ 4,427
Admin. expenses (% of total revenue) 8 %
Exchange rate gain $ 1,254
EBITDA $ 4,769
Income from operations $ 2,363
Comprehensive income $ 2,775
Trust units redeemed 77,350
Redemptions $ 484
Basic and diluted earnings per trust unit $ 0.15
2014 Q1 Q2 Q3 Q4 Total
Revenue $ 46,439 $ 68,314 $ 59,654 $ 61,617 $ 236,024
Gross profit ($) $ 5,029 $ 9,336 $ 8,735 $ 7,809 $ 30,909
Gross profit (%) 11 % 14 % 15 % 13 % 13 %
Admin. expenses ($) $ 4,886 $ 4,828 $ 4,400 $ 5,646 $ 19,760
Admin. expenses (% of total revenue) 11 % 7 % 7 % 9 % 8 %
Exchange rate gain/(loss) $ (133 ) $ 231 $ 418 $ 123 $ 639
EBITDA $ 9 $ 4,162 $ 5,459 $ 1,737 $ 11,367
Income/(loss) from operations $ (1,140 ) $ 3,207 $ 3,039 $ 491 $ 5,597
Comprehensive income/(loss) $ (1,541 ) $ 1,950 $ 3,513 $ (15,223 ) $ (11,301 )
Trust units redeemed 21,123 66,527 37,353 125,003
Redemptions $ 151 $ 474 $ 246 $ 871
Basic and diluted (loss)/earnings per trust unit $ (0.08 ) $ 0.10 $ 0.19 $ (0.82 ) $ (0.61 )

TRUST UNIT REDEMPTIONS AND DISTRIBUTIONS

The Fund redeemed 77,350 Trust Units during the quarter through its normal redemption program resulting in cash payments of $400,000 and promissory notes payable equal to $83,438. During Q1 2014 the Fund redeemed 21,123 Trust Units for $159,367. No options were exercised during the first quarter.

The Trustees have determined that, as of the date of May 15, 2015 the Fund will redeem tendered Trust Units at tangible book value of $5.65 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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