Foremost Income Fund

Foremost Income Fund

November 14, 2013 12:51 ET

Foremost Income Fund Reports Q3 Results

CALGARY, ALBERTA--(Marketwired - Nov. 14, 2013) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the period ended September 30, 2013.

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 contains the business units located at:

  • Lloydminster, Alberta - manufacturer of oil treating systems, shop and field storage tanks;
  • Bonnyville, Alberta - shop tank manufacturer
  • Calgary, Alberta - one manufacturing facility of medium- to large-scale oil and gas process treating equipment and another location which manufacturers sub-200 horsepower compressors
  • Stettler, Alberta - gas separator and hydrovac manufacturer;
  • Hythe, Alberta - shop tank manufacturer

Foremost is comprised of the Calgary, Alberta based business unit of Foremost Industries, a manufacturer of custom equipment used for the oil and gas, construction, water-well and mining industries.

CORPORATE - RESULTS OF OPERATIONS

The September 30, 2013 condensed consolidated interim financial statements are prepared in accordance with IFRS. The effects of the business conditions and operational responses by the Fund are found by comparing the 2013 and 2012 statements of comprehensive income. The 2013 results reflect weakened commodity prices, which have lowered product demands and margins for the following product lines; shop and field tanks, gas separation and compression equipment, along with slight decreases in both rental and part sales. Hydrovac products seen an increase in both sales and margin as Foremost continues to grow this product line. Although revenue for the vessel and drilling products decreased during 2013, due to customer demand, Foremost was able to strengthen the margins on these products as efficiencies in manufacturing were gained.

During the third quarter of 2013 the Fund completed an in depth re-assessment of the allowances, accruals and goodwill as a response to recent financial performance, industry conditions and future income projections. This resulted in an increase in the inventory obsolesce provision of $1.0 million and an impairment of goodwill for $3.1 million. These one-time, non-cash adjustments have been reflected in the results of the third quarter.

FINANCIAL RESULTS:

The key elements from Q3 2013 are:

  • Revenues have dropped when comparing Q3 2013 and 2012, with a decrease of 22.4%. Consolidated revenues were $50.2 million in 2013 versus $64.7 million for 2012.
  • Revenues outside of Canada have decreased to 13.0% in 2013 from 20.5% of total revenues in 2012.
  • Operating activities generated a gross profit percentage of 14.3% as compared with 22.0% in 2012. Gross profits were $7.1 million as compared with $14.2 million for 2012. This is a result of lower quoted products due to demand, along with the increase in inventory allowance provision booked during quarter three.
  • Administrative increased to 11.0% of revenue in 2013 from 9.0% of revenue in 2012. Administrative expenses were $5.5 million in 2013 and $5.8 million for 2012.
  • Fluctuations in the exchange rates between the Canadian dollars against the U.S. dollar resulted in a $54,000 exchange gain compared to a $273,000 loss in 2012.
  • Income from operations was $0.6 million for 2013, a reduction from the $7.4 million in 2012.
  • Comprehensive loss was $2.9 million in 2013 compared to income of $5.6 million in 2012. 2013 comprehensive income includes a goodwill impairment of $3.1 million and an increase in inventory allowance provision for $1.0 million, all of which were nil in 2012.
  • The Fund redeemed 76,451 Trust Units during the quarter through its normal redemption program resulting in payments of $626,898.
  • Basic and diluted loss per Trust Unit was $0.15 per Trust Unit in 2013 compared with earnings of $0.30 in 2012.
  • Quarter to date cash flow provided from operations for 2013, calculated as comprehensive income adjusted for items not involving cash such as amortization, gains on disposals of property, plant and equipment, Trust Units based compensation and changes in non-cash working capital totaled $13.0 million versus cash generated of $9.0 million in 2012.

The key elements for the year to date are as follows:

  • Year to date revenue has decreased 13.7%. Year to date consolidated revenues were $170.8 million versus $198.0 million in 2012.
  • Year to date revenues generated outside of Canada have increased to 20.2% from 18.0% of total revenues.
  • Year to date gross margin percentage is 12.9% as compared with 21.6% in 2012. Year to date gross profits were $22.0 million as compared with $42.7 million in 2012. This is a direct result of increased competition resulting in lower quoted margins, a decrease in expected margin on field job work due to increased labour costs and a more aggressive inventory provision being booked against aged inventory.
  • Year to date selling, general and administrative expenses increased to 9.9% of revenue versus 9.0% of revenue in 2012. Selling, general and administrative expenses were $16.9 million in 2013 and $17.8 million for 2012.
  • The fluctuations in the exchange rates between the Canadian dollars against the U.S. dollar resulted in a $232,000 exchange gain in 2013 compared to a loss of $264,000 in 2012.
  • Year to date income from operations decreased to $2.3 million versus $22.4 million in 2012.
  • Year to date comprehensive and net loss was $1.6 million compared to income of $18.3 million in 2012. 2013 year to date comprehensive and net income includes a $1.0 million adjustment to inventory allowance and $3.1 goodwill impairment, none of which occurred in 2012.
  • Year to date basic and diluted loss per Trust Unit was $0.08 as compared with earnings of $0.98 per Trust Unit in 2012.
  • Cash has increased $3.0 million since December 31, 2012. This increase was the result of $7.8 million of funds provided from operations, net capital expenditures of $4.1 million and $687,000 of Trust Unit redemptions. Working capital, defined as current assets less current liabilities increased $0.02 million to $73.4 million since December 31, 2012.
  • Property, plant and equipment at September 30, 2013 amounted to $61.1 million. The $1.3 million increase relative to 2012 reflects $6.1 million in additions, $4.8 million in amortization and disposals.
  • Short-term indebtedness decreased to $11.1 million at September 30, 2013, compared to $14.1 million at December 31, 2012.
  • Unitholders' equity decreased from $163.2 million at December 31, 2012 to $160.0 million at September 30, 2013.
SUMMARY OF QUARTERLY INFORMATION
(000's, except per Trust Unit amounts)
2013 Q1 Q2 Q3 Q4 Total
Revenue $ 64,001 $ 56,602 $ 50,232 $ 170,835
Income from operations $ 3,475 $ (1,819 ) $ 646 $ 2,302
Comprehensive Income $ 2,810 $ (1,504 ) $ (2,890 ) $ (1,584 )
Comprehensive Income
Per trust unit, basic & diluted $ 0.15 $ (0.08 ) $ (0.15 ) $ (0.08 )
2012 Q1 Q2 Q3 Q4 Total
Revenue $ 70,822 $ 62,499 $ 64,746 $ 63,363 $ 261,430
Income from operations $ 8,952 $ 6,102 $ 7,386 $ 1,869 $ 24,309
Comprehensive Income $ 7,653 $ 5,078 $ 5,625 $ 1,371 $ 19,727
Comprehensive Income
Per trust unit, basic and diluted $ 0.41 $ 0.27 $ 0.30 $ 0.07 $ 1.05
2011 Q1 Q2 Q3 Q4 Total
Revenue $ 56,398 $ 65,856 $ 65,631 $ 71,496 $ 259,381
Income from operations $ 4,742 $ 7,535 $ 8,616 $ 10,001 $ 30,894
Comprehensive Income $ 4,717 $ 7,445 $ 8,741 $ 9,268 $ 30,171
Comprehensive Income
Per trust unit, basic and diluted $ 0.23 $ 0.35 $ 0.42 $ 0.45 $ 1.45

TRUST UNIT REDEMPTIONS AND DISTRIBUTIONS

For the nine month period ending September 30, 2013 the Fund redeemed 98,337 Trust Units at an average price of $8.17 through its normal redemption program resulting in cash payments of $803,000. The Trustees have determined that, as of the date of November 14, 2013 the Fund will redeem tendered Trust Units at tangible book value + 3.5% or $7.45 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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