Foremost Income Fund Reports Q3 2020 Results

Calgary, Alberta–(Newsfile Corp. – November 10, 2020) – Foremost Income Fund (“Foremost” or the “Fund“) announces the financial results for the three and nine months ended September 30, 2020.

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, agriculture 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

The Foremost Income Fund continues to navigate unprecedented times as the severe effects of energy market uncertainty and of the pandemic have reduced demand for both Foremost Mobile Equipment (FME) and Foremost Energy Equipment (FEE) product lines.

FME revenue was lower on reduced vacuum truck sales in the North American energy markets and from lower parts sales in the mining markets worldwide. Offsetting this negative impact, sales for Dual Rotary drills rose over 2019 driven by demand in North and South American markets.

FEE product lines saw dramatically weaker sales from spending reductions in new projects in Western Canada driven by weak commodity prices. Management is prepared for a prolonged slump in the Western Canadian energy markets due to the pricing outlook. This outlook supports the continued push into new markets with the Agriculture bins and ULC tanks product lines.

At the start of the pandemic, management responded quickly by cutting costs and reducing the size of the organization to match demand. This cost-cutting and rationalization initiative continued this quarter and is reflected in the reduced SG&A spend and relatively stable product margins.

Foremost’s workforce thankfully has not been directly impacted materially by COVID-19 having only a single case in our ranks so far in 2020. That said, Foremost fully complies with all municipal requirements in relation to practices and procedures for mitigating risks of spreading the virus. Being deemed an essential service, Foremost has been in full operation at all locations throughout 2020.

The overview: key measurements

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Revenue was $25.6 million, an increase of 8.3% from the previous quarter of $23.6 million, and a 31.8% decrease over Q3 2019.

Gross margin decreased to 13% and $3.3 million in Q3 2020, down from $3.7 million and 16% in Q2 2020. Q3 2019 margin was 9% and $3.5 million.

SG&A expenses are 9% of revenue. Total spend in Q3 2020 in this category was $2.4 million compared to $2.4 million in Q2 2020 and $3.0 million in Q3 2019.

Adjusted EBIDTA is $0.9 million, a decrease from the Q2 2020 value of $1.2 million and an increase from the Q3 2019 value of $0.5 million.

2020 outlook

Markets remain unpredictable as the response to the novel COVID-19 virus continues to evolve. Foremost is actively monitoring the latest developments and assessing the impact of the outbreak and the unprecedented drop in global economic activity. Significant uncertainty remains around the spread of the COVID-19 virus and the impact it will have on the Fund’s operations, the demand for the Fund’s products, global supply chains, and economic activity in general.

Kevin Johnson
President

Q3 2020 Highlights

• During 2020, the oil and gas industry experienced an unprecedented decline in commodity prices due to significant deterioration in oil demand stemming from the global pandemic. For Foremost, this contributed to the decrease in revenue of $11.9 million when comparing Q3 2020 to Q3 2019. The FME segment recognized $2.1 million less revenue in 2020 over 2019, while the FEE segment recognized a $9.8 million decrease in revenue. More information is in the Segmented Results of Operations section of the MD&A.
• Gross profit for Q3 2020 was $3.3 million and 13% of revenue. More information is in the Segmented Results of Operations section of the MD&A.
• Administration costs decreased to $2.4 million or 9% of revenue, down from $3.0 million in Q3 2019. The majority of spend in this category is related to personnel costs. Reductions in headcount and reduced working hours resulted in a decrease of personnel costs of $0.5 million. The COVID-19 pandemic also caused a decline in administration costs related to travel and general office supplies.
• Adjusted EBITDA (defined on page 12 of the MD&A) was $0.9 million for Q3 2020 compared to $0.5 million in Q3 2019.
• The Board of Trustees reviews the stated redemption price quarterly; the stated redemption price was $6.20 at September 30, 2020. Effective November 5, 2020, the redemption price increased to $6.35.

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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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