Foremost Income Fund Reports Q1 2019 Results and Reviews Unit Redemption Monthly Limit for May 2019
May 13, 2019 - 7:51 PM EDT
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Foremost Income Fund Reports Q1 2019 Results and Reviews Unit Redemption Monthly Limit for May 2019
CALGARY, Alberta, May 13, 2019 (GLOBE NEWSWIRE) -- Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three months ended March 31, 2019.
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, 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, compression equipment, oil and gas process-treating equipment, ULC tanks, agricultural products 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
Both the continued weakness in commodity prices and the oil production cuts mandated by the Alberta Government contributed to a muted 2019 first quarter for Foremost. While sales were higher than the previous quarter, they lagged Q1 2018 results. Sales of energy equipment and drills were down, while vacuum trucks and parts sales strengthened.
Activity levels in the Western Canadian Energy markets were down significantly as customers reduced investment spending in response to the production curtailments. This weighed on revenue and margins for Foremost Energy Equipment (FEE) products in Q1. The lower activity environment is expected to continue through 2019, maintaining pressure on our FEE product lines pricing and margins for 2019.
We now have resources devoted to setting up and launching the product lines of ULC tanks and Agriculture equipment we acquired. We have completed significant work in integrating both of these businesses.
In Foremost Mobile Equipment (FME), drill sales were down significantly from Q1 2018. Fewer sales of delivery ready stock Dual Rotary units impacted revenue and margin in our Calgary business unit. In contrast, vacuum truck (hydrovac) sales continued to increase as sales in both the United States and Canada strengthened. Market penetration in the US continued to grow through our US Distributor, Transwest, and the Canadian demand remained robust. Margin was down for FME as a whole, as Calgary contributed less margin this quarter.
The overview: key measurements Revenue is $36.6 million, an increase of 8% from the previous quarter of $33.8 million.
Gross margin remained consistent at $3.7 million in both Q1 2019 and Q4 2018, but dropped to 10% from 11% of revenue.
SG&A expenses are 9% of revenue, a drop from the 11% from Q4 of 2018
Adjusted EBIDTA is $0.4 million, similar to the Q4 2018 value of $0.3 million.
2019 outlook We remain cautiously optimistic that the key market segments for Foremost – Construction, Mining, and Western Canadian Oil & Gas remain stable or slightly improve as 2019 progresses. Work on improving production efficiency and automation remains a priority for Foremost. The goal is to be a best-in-class manufacturer of products with worldwide reach. Kevin Johnson, President
Gain (loss) on sale of property, plant and equipment
$
-
$
2
$
-
$
(83
)
$
(81
)
Adjusted EBITDA *
$
1,283
$
878
$
3,413
$
350
$
5,924
Trust units redeemed
10,863
16,179
55,707
131,195
213,944
Redemptions
$
65
$
96
$
125
$
1,003
$
1,289
Basic and diluted earnings per trust unit
$
0.02
$
0.01
$
0.14
$
0.10
$
0.27
2019 Highlights
Revenue decreased by $0.8 million when comparing Q1 2019 to Q1 2018. The drop occurred in both segments: FEE’s revenue decreased by $0.3 million and FME’s by $0.5 million. More information is in the Segmented Results of Operations section of the MD&A.
Gross profit for Q1 2019 was $3.8 million and 10% of revenue. More information is in the Segmented Results of Operations section of the MD&A.
Administration costs remained consistent at 9% of revenues. Dollar spend increased slightly from $3.2 million in Q1 2018 to $3.3 million in Q1 2019. The majority of spend in this category is related to personnel costs.
Adjusted EBITDA (defined on page 10 of the MD&A) increased to $0.4 million in Q1 2019 compared to $0.3 million in Q1 2018.
During Q1 2019, the Fund recognized a $0.05 million foreign exchange loss (Q1 2018 $0.06 million loss). The foreign exchange gain mainly reflects changes in the value of the Fund’s U.S. dollar-denominated net monetary assets and liabilities along with the change in value for forward contracts.
Trust Unit Redemptions and Distributions
The Fund redeemed 181,985 Trust Units during the three months ended March 31, 2018, through its normal redemption program resulting in promissory notes payable of $0.03 million and cash payments of $1.05.
The Trustees have determined that, as of May 9, 2019, the Fund will redeem tendered Trust Units at tangible book value of $6.05 per unit.
Temporary Reduction of Monthly Limit for Fund Unit Redemptions Pursuant to Section 6.4(ii)(A) and (B) of the Deed of Trust
Pursuant to section 6.4(ii)(A) and (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 a material change, or 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.
As disclosed by prior press releases, effective May 1, 2014 and applying to all notices of redemption received in the months of May through October 2014, inclusive, and February 2015 through March 2018, inclusive, the Trustees of the Fund 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, to $500,000.00 for the months of November and December 2014 and January 2015, to $250,000 for the months of April to September 2018, and to $350,000.00 for the months of October 2018 to April 2019 (in each case the subject redemptions being payable by the end of the following month). The Trustees undertook to review the revised monthly limit in respect of the month of May 2019 no later than May 15, 2019.
With respect to the month of May 2019, the Trustees have determined that the monthly limit for cash redemptions will be set at $350,000.00. The Trustees have undertaken to review the revised monthly limit in respect of the month of June 2019 no later than June 14, 2019. In accordance with the Deed of Trust, unitholders that submit or have submitted notices of redemption during the month of May 2019, such that the Fund is obligated to pay the redemption price in respect of the subject units on or before June 28, 2019.
Regarding notices of redemption received in the month of May, the Fund will redeem up to $350,000.00 of units for cash. If notices of redemption received in May exceed $350,000.00, then the unitholders that have submitted notices of redemption in May 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 $350,000.00, 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 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 is an RRSP, RESP, RRIF, DPSP 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
[signed: Bevan May]
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.
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
