CST: 06/12/2016 13:49:08   

Foremost Income Fund Reports 2015 Results

251 Days ago

CALGARY, ALBERTA--(Marketwired - Mar 29, 2016) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the twelve months ended December 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

At this stage in the economic cycle, it is clear to us that we were fortunate to have acted much earlier than others in the energy marketplace by beginning a very comprehensive review of our cost structure and strategic positioning in the 2nd Quarter of 2014. Our 2015 full‐year results continue to show cost performance improvements in the face of substantial softening of demand driven by the current energy market swoon.

The work over the last two years, combined with the strength of our balance sheet, has put us in a position to weather significant storms that may lie ahead. Today we are sitting on a strong cash position, have no material debt, and own all of our major facilities. We believe it is necessary and prudent to maintain this defensive posture while we continue to navigate an extremely low commodity‐price cycle. We have taken steps to diversify our reliance on energy‐focused products with our work in the Hydrovac truck market. Our US distributor of Hydrovac trucks has been developing the markets in a very positive manner, and this relationship will continue to bear fruit for Foremost in the years ahead. Our work in manufacturing Hydrovac trucks is helping achieve a goal for Foremost to broaden into other markets that will help us stabilize revenue and profit streams into the future. This will be particularly important in 2016 and 2017 as the entire energy marketplace struggles.

As we look to the future, we will continue to adjust Foremost's size to match customer demand in all product categories while keeping an eye to our core offerings, capabilities, and talents essential to our long‐term health. We also will use this downturn to assess where and how we can push forward with new offerings and drive efficiency projects and investments to help us strengthen operating performance now and for when markets improve.

As the board announced in September 2015, Kevin Johnson moved into his new role as President on January 1, 2016. I look forward to continuing to work with Kevin as I return to my role as Chairman of the Board of Trustees of the Fund. Kevin is a very talented manager with a good history at Foremost, and we look forward to great things from him and his management team in the years ahead.

Bevan May, Board Chairman

ANNUAL RESULTS OF OPERATIONS
(000's, except per Trust Unit amount and earnings per share)
2015 2014 2013
Revenue $ 192,207 $ 236,024 $ 229,929
Change in revenue (%) ‐19 % 3 % ‐12 %
Gross profit ($) $ 28,202 $ 30,909 $ 29,850
Gross profit (%) 15 % 13 % 13 %
Admin. expenses ($) $ 16,716 $ 19,760 $ 22,127
Admin. expenses (% of total revenue) 9 % 8 % 10 %
Amortization $ 4,890 $ 5,552 $ 4,825
Exchange rate gain/(loss) $ 1,379 $ (639 ) $ 193
EBITDA (1) $ 12,809 $ 11,367 $ 7,723
Income from operating activities $ 6,596 $ 5,597 $ 2,898
Comprehensive income/(loss) $ 9,904 $ (11,301 ) $ (553 )
Trust units redeemed 78,996 125,003 128,731
Redemption payouts $ 493 $ 871 $ 1,033
Annual cash distribution $ 5,954 $ 5,990
Basic and diluted earnings/(loss) per trust unit $ 0.53 $ (0.61 ) $ (0.03 )
(1) Non GAAP measure - refer to page 5 of the MD&A

2015 Highlights:

  • The Fund continues to adapt in an environment of depressed commodity prices and lower activity levels, which is reflected in the income from operating activities of $6.6 million compared to $5.6 million in 2014.
  • Revenue decreased by $43.8 million, or 19%, due to ongoing weak demand for certain product lines in response to low commodity prices. Field tank and drill revenue experienced revenue growth compared to 2014, while all other product lines fell. More information can be found in the Segmented Results of Operations section of the MD&A.
  • Gross profit as a percentage of revenue increased slightly by 2% primarily due to multiple cancellation charges on customer contracts recognized as revenue during the period. FEE continues to experience downward margin pressure and decreased sales due to current market conditions.
  • Headcount decreased from approximately 770 at December 31, 2014 to approximately 550 at December 31, 2015 as demand for most product lines dropped. This accounted for $19.8 million in personnel cost savings. Refer to note 6 of the 2015 Consolidated Financial Statements for more details.
  • Reviewing and optimizing the Fund's cost structure was a primary focus during 2015 and has resulted in a drop in administration costs of $3.0 million. Personnel expenses included in this category decreased by $1.5 million, from $10.9 million in 2014 to $9.4 million in 2015. Refer to note 6 of the 2015 Consolidated Financial Statements for more details.
  • Amortization decreased as a result of minimal capital additions, along with impairment to certain fixed assets in 2014.
  • The $1.4 million foreign exchange gain is mainly attributable to changes in the value of the Fund's U.S. dollar‐denominated net monetary assets and liabilities. The monetary assets consist of cash and accounts receivable, which have increased as the difference in exchange rates boosted the volume of U.S. based sales contracts.
  • As a result of low commodity prices and decreasing customer backlog, the Fund reviewed opportunities to consolidate manufacturing capacity. A wind‐down of activity occurred at both the Calgary South and Edmonton Service facilities, allowing the Fund to continue to reduce overhead and operating costs. The Edmonton facility is currently not being used in Foremost's operations, while the wind‐down of the Calgary South facility is expected to be completed by Spring of 2016.
  • In September, the Board of Trustees announced that effective January 1, 2016, Kevin Johnson, VP Foremost Mobile Equipment, would become President, and Bevan May, Interim CEO, would return to his role as Chairman of the Board.

TRUST UNIT REDEMPTIONS AND DISTRIBUTIONS

The Fund redeemed 78,996 (2014 ‐ 125,003) Trust Units during the year through its redemption program resulting in cash payments of $400 (2014 ‐ $443) and notes payable of $93 (2014 ‐ $428).

On December 31, 2015 the Fund made a special non‐cash distribution of $0.54 per unit, resulting in a distribution of 1.6 million units. Immediately following the distribution the number of outstanding trust units were consolidated, such that each unitholder held the same number of trust units as before the distribution. In 2014 the Fund distributed taxable income of $0.32 per unit, resulting in a cash payment of $5.9 million.

The Trustees have determined that, as of the date of March 24, 2016 the Fund will redeem tendered Trust Units $6.05 per unit.

On behalf of the Trustees Foremost Income Fund

Bevan May, Board Chairman

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.

Investor Relations
Jackie Schenn, CA
(403) 295-5800 or toll free 1-800-661-9190 (Canada/US)
(403) 295-5832
investorrelations@foremost.ca
www.foremost.ca