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Foremost Income Fund Reports Q1 2017 Results and Reviews Unit Redemption Monthly Limit for May 2017

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Foremost Income Fund Reports Q1 2017 Results and Reviews Unit Redemption Monthly Limit for May 2017

Foremost Income Fund Reports Q1 2017 Results and Reviews Unit Redemption Monthly Limit for May 2017

CALGARY, ALBERTA--(Marketwired - May 12, 2017) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three months ended March 31, 2017.

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

Dear Unitholders,

2017 arrived at Foremost quietly, but the start of the year has been promising for a few reasons. The improving conditions in primary markets for Foremost including the Western Canadian energy and the US energy and construction/utilities markets being the most important. The US infrastructure and utilities markets picked up a lot of steam as consumer and business confidence improved substantially from the previous periods. In the Western Canadian markets the price of oil stabilized, allowing drillers and service companies to increase spending on new activity.

First quarter revenue came in at $31.0 million, almost squarely in line Q4 2016, but $4.8 million lower than the same quarter in 2016. While revenue is stable gross margin is slowly rising coming in at 11% in Q1 vs 7% in Q4 2016 and 10% in the same quarter in 2016. This rise can be attributed to better margins in vacuum trucks, an increased share of revenue from higher margin mobile equipment and mining tools, and a lower inventory allowance provision. SG&A costs were controlled for Q1 at $2.9 million, lower than the full year 2016 average of $3.0 million. Net loss for the first quarter was $0.6 million as the EBIDTA of $0.3 million was insufficient to cover non‐cash expenses. The balance sheet remains in a strong position with a cash balance of $43.4 million and no debt. Cash has decreased from previous quarters as inventory starts to get depleted and new materials are purchased.

The outlook for 2017 is stable with growth in vacuum truck sales in the US and Canada, continued strong sales of the dual rotary drills and mining tools being the bright spots. The new Rival truck is seeing excellent growth and market acceptance. The demand in the Western Canadian energy markets does continue to strengthen but margins are very poor as the industry struggles with overcapacity.

The keys to success in 2017 are to increase and maintain a high production rate of vacuum trucks, a strong sales and marketing push for Mobile Equipment in the US to take advantage of the exchange rate and the bullish economy, and a continued organizational push within Energy Equipment to find efficiencies and to protect market share particularly in Western Canada.

Kevin Johnson

President

Q1 2017 Highlights:

  • Revenue decreased by $4.8 million, or 13.5%, when comparing quarter over quarter. 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 from 10% in 2016 to 11% in 2017. Included in gross profit is an inventory allowance recovery of $0.1 million for the first quarter of 2017 and an expense of $0.9 million in 2016.
  • Administration costs decreased $0.3 million, from $3.2 million in the first quarter of 2016 to $2.9 million in 2017. Majority of this drop relates to the savings in personnel costs due to reduced wages and benefit provider costs.
  • During the first three months of 2017 the Fund recognized a $0.2 million foreign exchange loss compared $0.4 million for the same period in 2016. The foreign exchange loss is mainly reflective of changes in the value of the Fund's U.S. dollar‐ denominated net monetary assets and liabilities along with the change in value for current forward contracts.

SUMMARY OF QUARTERLY INFORMATION

(000's, except per Trust Unit amount)

2017 Q1 Q2 Q3 Q4 Total
Revenue $ 31,010 $ 31,010
Gross profit ($) $ 3,345 $ 3,345
Gross profit (%) 11 % 11 %
Admin. expenses ($) $ 2,866 $ 2,866
Admin. expenses (% of total revenue) 9 % 9 %
Exchange rate loss $ 198 $ 198
EBITDA $ 284 $ 284
Loss from operations $ (502 ) $ (502 )
Comprehensive loss $ (600 ) $ (600 )
Trust units redeemed 27,160 27,160
Redemptions $ 160 $ 160
Basic and diluted loss per trust unit $ (0.03 ) $ (0.03 )
2016 Q1 Q2 Q3 Q4 Total
Revenue $ 35,846 $ 30,621 $ 29,943 $ 29,435 $ 125,845
Gross profit ($) $ 3,655 $ 3,965 $ 2,780 $ 2,028 $ 12,428
Gross profit (%) 10 % 13 % 9 % 7 % 10 %
Admin. expenses ($) $ 3,198 $ 3,476 $ 3,000 $ 2,181 $ 11,855
Admin. expenses (% of total revenue) 9 % 11 % 10 % 7 % 9 %
Exchange rate loss (gain) $ 454 $ (117 ) $ 89 $ 29 $ 455
Adjusted EBITDA * $ 16 $ 606 $ (340 ) $ (195 ) $ 87
Loss from operations $ (661 ) $ (604 ) $ (1,286 ) $ (1,682 ) $ (4,233 )
Comprehensive loss $ (1,149 ) $ (259 ) $ (1,447 ) $ (2,166 ) $ (5,021 )
Trust units redeemed 5,000 4,652 26,700 36,352
Redemptions $ 28 $ 29 $ 161 $ $ 218
Basic and diluted loss per trust unit $ (0.06 ) $ (0.01 ) (0.08 ) (0.12 ) $ (0.27 )

Trust Unit Redemptions and Distributions

The Fund redeemed 27,160 Trust Units during the three months ended March 31, 2017, through its normal redemption program resulting in promissory notes payable of $0.2 million. During the first quarter of 2016 the Fund redeemed 5,000 Trust Units resulting in promissory notes payable equal to $0.03 million.

The Trustees have determined that, as of May 10, 2017, the Fund will redeem tendered Trust Units at tangible book value of $5.75 per unit.

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 April 2017, 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, and to $500,000.00 for the months of November and December, 2014, and January 2015 (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 May 2017 no later than May 15, 2017.

With respect to the month of May 2017, the Trustees have determined that the monthly limit for cash redemptions will be set at $0.00 due to concerns as to current working capital and debt of the Fund, having regard to the Board's views on the potential impact of current and expected market conditions on the Fund's performance. The Trustees have undertaken to review the revised monthly limit in respect of the month of June 2017 no later than June 15, 2017.

In accordance with the Deed of Trust, unitholders that submit or have submitted notices of redemption during the month of May 2017, such that the Fund is obligated to pay the redemption price in respect of the subject units on or before June 30, 2017, 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 the units that they submit for redemption 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 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

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.

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


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