Calgary, Alberta–(Newsfile Corp. – March 22, 2021) – Foremost Income Fund (“Foremost” or the “Fund“) announces the financial results for the year ended December 31, 2020.
The Fund is an unincorporated open end mutual fund trust conducting its business through three operating segments, Foremost Energy Equipment (FEE), Foremost Mobile Equipment (FME), and Corporate. 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
Foremost delivered cash positive results in 2020 despite challenging market conditions caused by uncertainty in the energy markets and the worldwide Covid-19 pandemic. Strong cost management and government support programs allowed Foremost to deliver better than expected results.
Foremost Mobile Equipment (FME) produced revenues of $84.4 million versus $93.6 million in 2019, and gross margin of $15.9 million, which was consistent with 2019. Demand for the key Hydrovac and Mining tools product lines was negatively impacted by reduced economic activity in our markets. Steady sales in the dual rotary drill line helped offset some of this weakness, as equipment purchases in North and South America were strong in 2020. Despite lower FME revenue, gross margin rates were higher from hydrovacs, dual rotary water-well drills, and the mining product lines.
Foremost Energy Equipment (FEE) recognized material revenue decline to $27.5 million versus $56.5M million in 2019, and gross margin of negative $0.2 million compared to $0.1 million in 2019. Despite this very negative market context, Foremost was able to significantly reduce the losses in FEE compared with 2019 through careful cost containment. Sales of Oil and Gas production and processing equipment in Western Canada were affected by the continued restrained drilling and production activity in this sector in 2020. The ramp-up of the Agriculture and Fuel tank businesses continues with sales in both categories showing increases over 2019.
Foremost received $8.9 million in government assistance in 2020 through the Canada Emergency Wage Subsidy (CEWS), and the Canada Emergency Rent Subsidy (CERS) programs. This allowed Foremost to retain staffing and mitigate some of the impact of the business downturn.
The safety of everyone who works at Foremost remains the highest priority for management. We are fortunate to only have had a single positive Covid-19 case among our employees in 2020. Foremost remains fully compliant with all provincial and municipal mandates and laws related to workplace and public safety instituted due to the Covid-19 pandemic.
The overview: key measurements
Revenue is $111.9 million, a decrease of 25.5% from the 2019 revenue of $150.1 million.
Gross margin shows a slight decrease to $15.7 million, down from $16.0 million in 2019.
SG&A expenses are 9% of revenue. Total spend in 2020 in this category was $10.5 million compared to $12.7 million or 8% of revenue in 2019.
Adjusted EBIDTA is $5.0 million, an increase from the 2019 value of $3.4 million.
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.
- 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 $38.2 million when comparing 2020 to 2019. The FME segment recognized $9.2 million less revenue in 2020 over 2019, while the FEE segment recognized a $29.0 million decrease in revenue. More information is in the Segmented Results of Operations section of the MD&A.
- Gross profit for 2020 was $15.7 million and 14% of revenue. More information is in the Segmented Results of Operations section of the MD&A.
- Administration costs decreased to $10.5 million or 9% of revenue, down from $12.7 million in 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 $1.2 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) was $5.0 million for 2020 compared to $3.4 million in 2019.
- The Board of Trustees reviews the stated redemption price quarterly; the stated redemption price was $6.35 at December 31, 2020. Effective January 1, 2021, the redemption price decreased to $6.00.
Trust Unit Redemptions
The Fund redeemed 34,292 Trust Units during the year ended December 31, 2020, through its normal redemption program resulting cash payments of $0.2 million.
The Trustees have determined that, as of March 19, 2021, the Fund will redeem tendered Trust Units at tangible book value of $6.10 per unit.
On December 15, 2020, the Fund announced an estimated $7.1 million distribution, or $0.40 per unit, for the 2020 fiscal year which was paid in early 2021.
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: email@example.com – Website: www.foremost.ca
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