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Foremost Income Fund Reports Q2 2017 Results and Reviews Unit Redemption Monthly Limit for August 2017

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Foremost Income Fund Reports Q2 2017 Results and Reviews Unit Redemption Monthly Limit for August 2017

Foremost Income Fund Reports Q2 2017 Results and Reviews Unit Redemption Monthly Limit for August 2017

CALGARY, ALBERTA--(Marketwired - Aug 10, 2017) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three and six months ended June 30, 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 four 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,

The second quarter of 2017 was marked by continued improvement in Western Canadian market conditions and solid strength in Foremost's international markets; most notably in the United States. Mobile Equipment ("FME") ‐ including vacuum trucks, dual rotary rigs and mining tooling ‐ plays an increasingly important role in Foremost's financial performance and future. Energy Equipment ("FEE") sales in Western Canada, while still sluggish and mired in a generational price slump, are slowly improving. The share of FME revenue rose to 65% of Foremost's total revenue, an all‐time high as sales of Hydrovacs and Dual Rotary Rigs increase.

Q2 revenue for the Fund came in at $34.1 million, 10% higher than the first quarter of 2017 and 11% higher than the same period in 2016. Gross margin continued to strengthen, moving to 12% from 11% in the previous quarter, and in the same range as margin from Q2 2016 of 13%. Margins in vacuum trucks stabilized and improved as volume and prices both increased, and margins in FEE have started to trend up, albeit slowly. SG&A costs rose to $3.1 million for the quarter, but remained within normal quarterly variations and stayed at 9% of revenue. Net loss for Q2 was ‐$157,000 while EBIDTA was a healthy $723,000; both metrics a marked improvement over the previous quarter and over the same quarter last year. The balance sheet continues to be in a strong position with a cash balance of $41.8 million, cash is trending downward from previous quarters as it is being converted to working capital.

As Foremost shifts its attention from crisis management to revenue growth and margin improvements, a few key initiatives are being prioritized internally. The most focussed effort in Foremost today is the increased capacity and capability of vacuum truck production. Beginning with the first truck produced in 2012, in Q2 2017 Foremost hit the milestone of 500 vacuum trucks built and delivered. We aim to build a strong and dynamic position in the vacuum truck market in North America, and will continue to build on this momentum. In addition, ERP system improvements are being executed company wide and supply chain improvements are being driven through all levels of the organization. These initiatives will improve the profitability and market position of Foremost over the coming years.

Kevin Johnson

President

Q2 2017 Highlights:

  • Revenue increased by $3.4 million, or 11.3%, when comparing the second quarter of 2017 over the second quarter of 2016. More information can be found in the Segmented Results of Operations section of the MD&A.
  • Gross profit as a percentage of revenue dropped slightly from 13% in Q2 2016 to 12% in Q2 2017. Included in gross profit is an inventory allowance expense of $0.5 million for the second quarter of 2017 and an expense of $0.4 million in 2016.
  • Administration costs decreased $0.4 million, from $3.5 million in the second quarter of 2016 to $3.1 million in the second quarter of 2017. This drop is primarily driven by the reduction in overhead personnel when comparing quarter to quarter.
  • During the three months ended June 30, 2017 the Fund recognized a $0.3 million foreign exchange loss compared to a gain of $0.1 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 forward contracts.
SUMMARY OF QUARTERLY INFORMATION
(000's, except per Trust Unit amount)
2017 Q1 Q2 Q3 Q4 Total
Revenue $ 31,010 $ 34,067 $ 65,077
Gross profit ($) $ 3,345 $ 4,110 $ 7,455
Gross profit (%) 11 % 12 % 11 %
Admin. expenses ($) $ 2,866 $ 3,049 $ 5,915
Admin. expenses (% of total revenue) 9 % 9 % 9 %
Exchange rate loss $ 198 $ 337 $ 535
EBITDA $ 285 $ 723 $ 1,008
(Loss) income from operations $ (501 ) $ 93 $ (408 )
Comprehensive loss $ (599 ) $ (157 ) $ (756 )
Trust units redeemed 27,160 27,160
Redemptions $ 160 $ 160
Basic and diluted loss per trust unit $ (0.03 ) (0.01 ) $ (0.04 )
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 six months ended June 30, 2017, through its normal redemption program resulting in promissory notes payable of $0.2 million. During the same period ended 2016 the Fund redeemed 9,652 Trust Units resulting in promissory notes payable equal to $0.05 million.

The Trustees have determined that, as of August 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 July 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 August 2017 no later than August 15, 2017.

With respect to the month of August 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 September 2017 no later than September 15, 2017.

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