Foremost Income Fund Reports 2018 Results and Reviews Unit Redemption Monthly Limit for March 2019

Foremost Income Fund Reports 2018 Results and Reviews Unit Redemption Monthly Limit for March 2019

CALGARY, Alberta, March 15, 2019 (GLOBE NEWSWIRE) -- Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the year ended December 31, 2018 and reviews unit redemption monthly limit for March 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, 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

Overall for the year, our results improved significantly over 2017 with gains in most key metrics.

Better market penetration in the vacuum truck and mining tooling product lines led to improved revenue, but price gyration in Western Canadian commodities had the opposite effect on energy equipment revenues. We ended the year with a softer fourth quarter due to lower than expected sales in Mobile Equipment.

The overview: key measurements
Revenue is $149.8 million, an increase of 13% from the 2017 revenue of $132.5 million.
Gross margin increased from 10% in 2017 to 13% for 2018 as margins in both FME and FEE improved.
SG&A expenses are 9% of revenue, consistent with the previous year.
Adjusted EBIDTA is $5.9 million, a substantial improvement over the 2017 value of $1.3 million.

Sales momentum
Overall for the year, the business has moved towards higher margins and increased market share by:

  • healthy vacuum truck sales, which strengthened year over year.
  • increased dual rotary sales in the US and South America.
  • improved mining tool sales as global mining activity increased and companies replaced and repaired capital equipment.
  • improved shop tank sales, as drilling activity in Western Canada increased somewhat.

A positive outlook
Foremost remains in a strong cash position and maintains a conservative but forward-looking approach to new investments in automation and strategic projects. The outlook remains muted, but generally stable, for all Foremost product lines. The impact of trade disruptions, commodity prices, and political changes will be some of the key determinants for 2019 results. I am satisfied we are progressing in key areas while we diligently work to improve in others.

New product lines
Foremost was excited to announce two completely new product lines through asset acquisitions in the last quarter of 2018. Agricultural grain bins and ULC fuel storage tanks will augment our already wide product offering and will provide access to markets we do not currently serve. Both product lines give us robust platforms to launch new products and services, adding to our current focus on energy, mining, and construction markets.

In October, we closed the acquisition of the operating assets and all intellectual property from Steelcraft Clemmer’s Alberta operations in Edmonton and Innisfail. Steelcraft has been a market force for over 50 years selling ULC tanks. The addition of these products and services into Foremost’s already extensive energy-focused storage and process equipment lines is truly exciting. Our new capabilities include Steel Aboveground Liquid storage tanks for the Downstream, Upstream, Agriculture, Commercial, Industrial, Aviation, Petrochemical, Municipal, Mining, and Pulp and Paper markets. Some of these new product capabilities include:

  • Products that have been marketed under both the Steelcraft and Clemmer brands in Western Canada.
  • ULC certified tanks for storing flammable combustible liquids in sizes ranging from 454 to 200,000 litres.
  • All tanks will meet or exceed current industry and environmental guidelines, codes, regulations and standards.
  • Turn-key pumping/dispensing systems, custom skid, piping, stair and catwalk packages.
  • Other ancillary tank equipment and products.

The Steelcraft assets acquired included factory equipment and inventory that was relocated to Lloydminster in December. Production line set-up was completed in January and production commenced in February of 2019 with first articles to be completed in March. Further, Foremost closed the acquisition of a suite of patents and all associated intellectual property for an innovative line of smooth wall grain aeration bins and aeration hoppers from JTL Industries. This acquisition will form the basis for a completely new Foremost business platform serving the agricultural sector based out of Foremost’s Lloydminster location with additional manufacturing taking place at Foremost’s existing Grande Prairie facility.

JTL was a young and innovative company that developed a differentiated product that includes a patented aeration system that gives the bins an advantage in the marketplace.  Foremost will bring the ability to scale this business to compete with the major players in the industry.

Subsequent to the 2018 year end, Foremost has also successfully acquired the majority of JTL’s operating assets and is in the process of moving these assets to our Lloydminster facilities. Production line set-up will commence in March with first articles produced in April 2019, aligning well with farm storage needs for the 2019 growing season.

We look forward to the integration of these new product lines in 2019 and believe that both will make a considerable contribution to stabilizing performance of the Lloydminster operations and strengthening Foremost’s results over the long term.

Kevin Johnson
President

2018 Highlights

  • During 2018, Foremost acquired operating and intangible assets of three separate business lines:
    • Agricultural Grain Bins—In the fourth quarter, Foremost announced its entry into the agricultural products market segment by acquiring JTL Industries Ltd.’s Grain Bin patent portfolio. This acquisition is a launchpad to serve the Canadian agricultural and industrial dry-bulk storage market.
    • Painting, Coating and Insulating business—Foremost purchased the operating assets of Christie Corrosion during the second quarter and relocated them to the Lloydminster North facility to complement Foremost’s current facilities there.
    • ULC Fuel Tanks—Foremost purchased these product line assets from Steelcraft Inc. and moved them to the Lloydminster North facility during the fourth quarter. This is a new but complementary product line to Foremost’s existing tank business.
  • Revenue increased by $17.3 million, $10.4 million from the FME segment and $6.9 million from the FEE segment. Year over year, the revenue split for the Fund remained at 60% FME and 40% FEE. More information is in the Segmented Results of Operations section of the MD&A.
  • Gross profit increased from $13.9 million in 2017 to $18.9 million during 2018. More information is in the Segmented Results of Operations section of the MD&A.
  • Administration costs remained consistent at 9% of revenues year over year. Personnel costs represented 60% of the spend in both years, but increased from $6.8 million to $7.6 million. This increase is from higher headcount and retention initiatives.
  • Adjusted EBITDA (defined on page 13) increased to $5.9 million in 2018 compared to $1.3 million in 2017.
  • During the year ended December 31, 2018, the Fund recognized a $0.4 million foreign exchange gain (a $0.6 million loss in 2017). The foreign exchange mainly reflects changes in the value of the Fund’s US dollar-denominated net monetary assets and liabilities, along with the change in value for forward contracts. 
  • The Board of Trustees reviews the stated redemption price quarterly; the stated redemption price was $6.10 at December 31, 2018 and $5.94 at January 1, 2019. Effective March 13, 2019, the redemption price increased to $6.00.


 SUMMARY OF QUARTERLY INFORMATION      
 (000's, except per Trust Unit amount)      
 2018Q1Q2Q3Q4Total 
 Revenue$   37,393  $   35,709  $   42,811  $   33,874  $   149,787   
        
 Gross profit ($)$   4,456  $   4,107  $   6,622  $   3,753  $   18,938   
 Gross profit (%) 12% 12% 15% 11% 13% 
        
 Administrative expense ($)$   3,236  $   3,321  $   3,111  $   3,696  $   13,364   
 Administrative expenses (% of total revenue) 9% 9% 7% 11% 9% 
 Exchange rate (gain) loss$   (63)$   (92)$   99  $   (294)$   (350) 
        
 Income (loss) from operations$   313  $   (130)$   2,615  $   (889)$   1,909   
 Impairment recovery$   -   $   -   $   -   $   2,371  $   2,371   
 Other non-operating income$   200  $   303  $   90  $   379  $   972   
 Income tax expense$   (95)$   (65)$   (106)$   (56)$   (322) 
 Comprehensive income$   418  $   108  $   2,599  $   1,805  $   4,930   
        
 EBITDA$   1,283  $   880  $   3,413  $   2,638  $   8,214   
 Impairment recovery$   -   $   -   $   -   $   (2,371)$   (2,371) 
 Loss (gain) 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   
 * Adjusted EBITDA defined on page 13 of the MD&A      

 


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 February 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 March 2019 no later than March 15, 2019.

With respect to the month of March 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 April 2019 no later than April 15, 2019.  In accordance with the Deed of Trust, unitholders that submit or have submitted notices of redemption during the month of March 2019, such that the Fund is obligated to pay the redemption price in respect of the subject units on or before April 30, 2019.

Regarding notices of redemption received in the month of March, the Fund will redeem up to $350,000.00 of units for cash.  If notices of redemption received in March exceed $350,000.00, then the unitholders that have submitted notices of redemption in March 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