Foremost Income Fund

Foremost Income Fund

November 14, 2014 14:25 ET

Foremost Income Fund Reports Q3 2014 Results

CALGARY, ALBERTA--(Marketwired - Nov. 14, 2014) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three and nine months ended September 30, 2014.

OVERVIEW

The Fund is an unincorporated open end mutual fund trust conducting its business through Foremost Universal LP ("Universal") and Foremost Industries LP ("Foremost"). The Fund derives its operational income from both Universal and Foremost. Universal's overall business is focused on the oil and gas industry and includes activity from eight manufacturing sites throughout Alberta. Foremost manufactures off-highway large wheeled and tracked vehicles, and equipment for custom drilling, construction, water wells, and mining sectors. Foremost also maintains a focus on custom built vehicles for its clientele and is located in Calgary, Alberta.

CORPORATE - RESULTS OF OPERATIONS

The Fund experienced its second strongest financial quarter in the last six reporting periods. Income from operations remains over $3.0M for each of the last two quarters.

The key elements from Q3 2014 are:

  • The Fund realized revenue of $59.6 million for Q3 2014. This represents a $9.4M, or 18.8%, increase from Q3 2013. Further information on the increase can be found in the segmented information section of the MD&A.
  • Gross profit increased quarter over quarter from $7.1 million in 2013 to $8.7 million in 2014. This $1.6 million represents a 21.8% increase. Further information on the increase can be found in the segmented information section of the MD&A.
  • Administration costs decreased by $1.1 million from Q3 2013 to 2014, from $5.5 million to $4.4 million. This 20.3% reduction is a reflection of the Fund's strategic initiative to become a cost leader and drive cost discipline throughout the organization. Areas of impact include decreased discretionary spending, overhead personnel reduction and continuous improvements in the area of supply chain management.
  • EBITDA of $5.4 million for Q3 2014 compared to $1.6 million in Q3 2013 represents a large increase of $3.8 million. This increase is due to stronger gross profit margins and lower administrative expenses.

The key elements for the year to date are:

  • Revenue of $174.4 million in 2014, an increase of $3.5 million when compared to the 2013 balance of $170.8 million. This 2.1% increase is attributed to higher volumes in the vehicle, vessel and gas separation product lines. For the tank and drill product line there was a decrease in revenue when comparing year to date 2013 to 2014.
  • Gross profit remains steady, year over year, at 12 - 13% as the Fund's strategic initiatives and cost control measures begin to be implemented throughout the company.
  • A substantial drop in administrative costs of $16.9 million in 2013 to $14.1 million in 2014. This decrease of $2.8 million is consistent with reasons discussed above.
  • EBITDA increased by 87%, up from $5.1 million in 2013 to $9.6 million in 2014. This is reflective of the increase in profit margin and reduced discretionary spending.
  • During 2014 the Fund entered into forward currency exchange contracts on contracts denominated in the Russian Ruble. The Fund believes that the risk mitigation provided by these activities continues to be consistent with the strategic goals and appropriate given ongoing European tension. During 2014 the Fund recorded an unrecognized gain of $91,000 on these forward looking contracts, nil was recorded in 2013.
SUMMARY OF QUARTERLY INFORMATION
(000's, except per Trust Unit amount)
2014 Q1 Q2 Q3 Q4 Total
Revenue $ 46,439 $ 68,314 $ 59,654 $ 174,407
Gross profit ($) $ 5,029 $ 9,336 $ 8,735 $ 23,100
Gross profit (%) 11% 14% 15% 13%
Admin. expenses ($) $ 4,886 $ 4,828 $ 4,400 $ 14,114
Admin. expenses (% of total revenue) 11% 7% 7% 8%
Exchange rate gain/(loss) $ (134 ) $ (394 ) $ 1,129 $ 601
EBITDA $ 9 $ 4,162 $ 5,459 $ 9,630
Income/(loss) from operations $ (1,140 ) $ 3,207 $ 3,039 $ 5,106
Comprehensive income/(loss) $ (1,541 ) $ 1,950 $ 3,513 $ 3,922
Trust units redeemed 21,123 66,527 - 87,650
Redemptions $ 151 $ 474 $ - $ 625
Basic and diluted (loss)/earnings per trust unit $ (0.08 ) $ 0.10 0.19 $ 0.21
2013 Q1 Q2 Q3 Q4 Total
Revenue $ 64,001 $ 56,602 $ 50,232 $ 59,094 $ 229,929
Gross profit ($) $ 10,149 $ 4,770 $ 7,169 $ 7,763 $ 29,850
Gross profit (%) 15.9% 8.4% 14.3% 13% 13%
Admin. expenses ($) $ 5,517 $ 5,920 $ 5,519 $ 5,171 $ 22,127
Admin. expenses (% of total revenue) 9% 10% 11% 9% 10%
Exchange rate gain/(loss) $ (48 ) $ 225 $ 54 $ (38 ) $ 193
EBITDA $ 4,631 $ (1,150 ) $ 1,649 $ 2,592 $ 7,723
Income/(loss) from operations $ 3,484 $ (2,334 ) $ 423 $ 1,325 $ 2,898
Comprehensive income/(loss) $ 2,810 $ (1,504 ) $ (2,890 ) $ 1,031 $ (553 )
Trust units redeemed 8,560 13,326 76,451 30,394 128,731
Redemptions $ 70 $ 107 $ 627 $ 229 $ 1,033
Basic and diluted earnings/(loss) per trust unit $ 0.15 $ (0.08 ) $ (0.15 ) $ 0.05 $ (0.03 )
2012 Q1 Q2 Q3 Q4 Total
Revenue $ 70,822 $ 62,499 $ 64,746 $ 63,363 $ 261,430
Gross profit ($) $ 15,393 $ 13,081 $ 14,236 $ 9,389 $ 52,099
Gross profit (%) 22% 21% 22% 15% 20%
Admin. expenses ($) $ 6,080 $ 5,977 $ 5,823 $ 6,222 $ 24,102
Admin. expenses (% of total revenue) 9% 10% 9% 10% 9%
Exchange rate gain/(loss) $ (32 ) $ 41 $ (273 ) $ 34 $ (230 )
EBITDA $ 9,313 $ 7,104 $ 8,413 $ 3,166 $ 27,996
Income from operations $ 8,328 $ 6,096 $ 7,384 $ 2,092 $ 23,900
Comprehensive income $ 7,653 $ 5,078 $ 5,625 $ 1,371 $ 19,727
Trust units redeemed 8,486 7,709 2,500 10,090 28,785
Redemptions $ 62 $ 60 $ 19 $ 84 $ 225
Basic and diluted earnings/(loss) per trust unit $ 0.41 $ 0.27 $ 0.30 $ 0.07 $ 1.05

TRUST UNIT REDEMPTIONS AND DISTRIBUTIONS

For the period ending September 30, 2014 the Fund redeemed 87,650 Trust Units through its redemption program resulting in cash payments of $200,103 and notes payable of $424,589.

The Trustees have determined that, as of November 12, 2014, the Fund will redeem tendered Trust Units at $6.50 per unit.

TEMPORARY REDUCTION OF MONTHLY LIMIT FOR FUND UNIT REDEMPTIONS PURSUANT TO SECTION 6.4(ii)(B) OF THE DEED OF TRUST

Pursuant to section 6.4(ii)(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 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.

Effective May 1, 2014 and applying to all notices of redemption received up to October 31, 2014 and payable from May 1, 2014 to November 30, 2014, the Trustees of the Fund have 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. The Trustees undertook to review the revised monthly limit in respect of notices of redemption received in the month of November 2014 no later than November 15, 2014.

With respect to the month of November 2014, the Trustees have determined that the monthly limit for cash redemptions will be set at $500,000.00. The Trustees have undertaken to review the revised monthly limit in respect of the month of December 2014 no later than December 15, 2014.

In accordance with the Deed of Trust, Unitholders that submitted notices of redemption on or after May 1, 2014 and prior to November 1, 2014 have been contacted individually and provided with the opportunity to elect to withdraw all or any part of such notices of redemption. Any Unitholders not electing to withdraw their redemption notices, in whole or in part, will be paid the redemption price in respect of their redeemed units by unsecured promissory notes.

Regarding notices of redemption received in the month of November, the Fund will redeem up to $500,000.00 of units for cash. If notices of redemption received in November exceed $500,000.00, 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 $500,000.00, 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 Trust 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 has 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

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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