|By Marketwired .||
|May 15, 2014 08:57 PM EDT||
CALGARY, ALBERTA -- (Marketwired) -- 05/16/14 -- Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three months ended March 31, 2014.
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.
Q1 FINANCIAL RESULTS:
The key elements from Q1 2014 are:
-- Revenue decrease of 27% when comparing quarter over quarter. The Fund experienced the results of a general slowdown in oilfield equipment demand. Ongoing market and political concerns regarding transportation of product to foreign markets, and market price discrepancies led to depressed outlooks and product demand by key oilfield producers. Further information on the decrease in revenue by segment, and product line, can be found in the segmented information section of the MD&A. -- Q1 2014 gross profit dropped to 11% from 16% in Q1 2013. This is a result of lower customer demand driving lower quoted margins and margin adjustments made to specific long lead jobs, including field projects discussed in previous MD&A's. Further information by product can be found in the segmented information section of the MD&A. -- Administrative expenses have decreased 11%, from $5.5 million in Q1 2013 to $4.9 million in Q1 2014. This is a result of an increased focus on lowering discretionary spending. -- Included in the foreign exchange loss of $133,000, and net against the exchange gains, are unrealized losses on forward contracts for $457,000. -- EBITDA for Q1 2014 dropped to $10,000, from $4.6 million in 2013. This is a reflection of lower gross profit, due to industry conditions and adjustments made to margins on field work. SUMMARY OF QUARTERLY INFORMATION (000's, except per Trust Unit amount) 2014 Q1 Q2 Q3 Q4 Total ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Revenue $ 46,439 $ 46,439 Gross profit ($) $ 5,029 $ 5,029 Gross profit (%) 11% 11% Admin. expenses ($) $ 4,886 $ 4,886 Admin. expenses (% of total revenue) 11% 11% Exchange rate (loss) $ (133) $ (133) EBITDA $ 10 $ 10 Income from operations $ (1,141) $ (1,141) Comprehensive (loss) $ (1,541) $ (1,541) Trust units redeemed 21,123 21,123 Redemption payouts $ 160 $ 160 Basic and diluted (loss) per trust unit $ (0.08) $ (0.08) 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 (%) 16% 8% 14% 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 $ 4,679 $ (1,375) $ 1,595 $ 2,630 $ 7,530 Income 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 Redemption payouts $ 70 $ 107 $ 627 $ 229 $ 1,033 Basic and diluted gain/(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 (loss)/gain $ (32) $ 41 $ (273) $ 34 $ (230) EBITDA $ 9,345 $ 7,063 $ 8,686 $ 3,132 $ 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 Redemption payouts $ 62 $ 60 $ 19 $ 84 $ 225 Basic and diluted gain per trust unit $ 0.41 $ 0.27 $ 0.30 $ 0.07 $ 1.05
MANAGEMENT ACTION IN RESPONSE TO PERFORMANCE WEAKNESS
The financial results of the first quarter have been disappointing and continue to reflect a slowdown in demand in a number of our major product lines. Management has embarked on an aggressive plan designed to return the Fund to overall profitability in 2014. Further, we have already engaged in a significant strategic review of the business and established the following areas of focus:
a. Connection with the Customer
We are reviewing the business to ensure we and our product offerings align with customer needs. This will ensure product lines carry features and costs that our customers value, delivering improved and more predictable margins.
b. Cost Discipline
We are driving renewed cost disciplines across every department and function. We are reducing the amount of money tied up in working capital and are reviewing all supply arrangements. A broad workforce reduction has already been implemented affecting approximately 12% of overhead positions. These initial steps combined will contribute to an estimated $4 million in annual savings. Additional savings will follow. Cost discipline will not be a one-time project, but rather will form the basis of a new strategic priority to define Foremost as a quality, low-cost producer.
c. Engaging the Intelligence and Commitment of our People
Senior management is leading a process whereby we create the environment where our people volunteer their full engagement, capabilities, and intelligence that results in Foremost achieving results in excess of the sum of our parts. We are creating a clear vision and direction for the business and are clearly communicating our objectives. We are also looking at ways to realign compensation packages to be more results orientated.
Clearly the Fund is at a point where change is important. Changes will be implemented in a manner that minimizes disruption and leverages our strengths. We have an established, quality brand with long-term and stable relationships with our customers. We also have an outstanding team of intelligent, capable, committed, and loyal employees. We have worked through challenging business environments in the past, and will continue to do so in 2014. Further, we have a general sense of optimism with respect to the team's response to these early changes and general market conditions which show healthy signs of improvement in many of our markets. We look forward with confidence to reporting more favorable results to Unitholders in future periods.
TRUST UNIT REDEMPTIONS AND DISTRIBUTIONS
The Fund redeemed 21,123 Trust Units during the quarter through its normal redemption program resulting in cash payments of $159,367. During Q1 2013 the Fund redeemed 8,560 Trust Units for $72,000. No options were exercised during the first quarter.
The Trustees have determined that, as of the date of May 15, 2014 the Fund will redeem tendered Trust Units at a value of $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 Trust 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 Trust 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 and/or payable in the month of May 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 will review the revised monthly limit in respect of the month of June 2014 no later than June 13, 2014.
In accordance with the Deed of Trust, Unitholders that submit or have submitted notices of redemption on or after May 1, 2014 or in respect of whose Trust Units the Fund is obligated pay the redemption price on or before May 31, 2014, will be 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 Trust Units by unsecured promissory notes.
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 is 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, Interim President/CEO and Trustee
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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