Foremost Income Fund Reports Q2 2021 Results

Calgary, Alberta--(Newsfile Corp. - August 10, 2021) - Foremost Income Fund ("Foremost" or the "Fund") announces the financial results for the three and six month period ended June 30, 2021.

Overview

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's financial performance improved in Q2 2021, as sales increased in key markets and profitability rose due to increased gross margins. Foremost Mobile Equipment revenue and gross margins were the main drivers in the Fund's results. The effects of the worldwide pandemic slowdowns are still providing headwinds to revenue growth, but strong sales in the key markets of Mining and Construction have mitigated those effects.

Foremost Mobile Equipment (FME) produced revenues of $27.0 million versus $18.6 million in Q2 2020, a 45.1% increase. Gross margin was $5.4 million vs $3.4 million in Q2 2020, a 62.1% increase. Strong demand in the key regions of USA and South America drove strong revenue growth in the Vacuum Trucks, Drills, and Parts categories. This continued an upward trend for FME revenues and gross margin from the previous two quarters.

Foremost Energy Equipment (FEE) revenue improved over the previous two quarters as stronger commodity prices drove more business activity in Western Canada. FEE revenue was $5.7 million vs $5.0 million in Q2 2020 an increase of 14.5%, and gross margin was negative $0.6 million compared to negative $0.5 million in Q2 2020. Prices for FEE products remained depressed as the effect of the pandemic shutdowns continue to suppress demand growth in Western Canada. Sales in Ag bins were steady, and tracking higher than previous seasons.

At the time of this release, COVID-19 restrictions have been lifted in the Province of Alberta, allowing Foremost to resume normal business operations. Management continues to monitor the situation to ensure the safety of our employees during this phase of the pandemic.

The overview: key measurements for Q2 2021

Revenue was $32.6 million, an increase from the previous quarter of 12.3% or $3.6 million and a 38.2% increase from the Q2 2020 revenue of $23.6 million.

Gross margin increased 41.8% to $4.8 million, up from $3.4 million in Q1 2021 and a 60.7% increase from the Q2 2020 value of $3.0 million.

SG&A expenses increased from 10% of revenue in Q1 2021 to 11% of revenue in Q2 2021 and was consistent at 11% compared to Q2 2020. Total spend in Q2 2021 in this category was $3.5 million, compared to $3.0 million in Q1 2021 and $2.7 million in Q2 2020.

Adjusted EBIDTA is $2.3 million, an increase from the Q1 2021 value of $1.4 million and an increase from the Q2 2020 value of $1.2 million.

Re-classification - During the first quarter of 2021, certain costs were re-classified to better align with their function. This included moving (i) depreciation and amortization expense between cost of goods sold (for plant-level assets) and SG&A (for corporate-level assets) and (ii) office-related occupancy costs out of cost of sales and into administrative expenses. This results in reporting lower gross margin and higher SG&A expenses, while removing the Fund-wide amortization and depreciation expense from the statement of net income. The total amortization and depreciation continues to be shown on the statement of cash flows. These changes have been reflected in all comparative data in this quarter's reports and will be followed for future reporting periods. Refer to note 3 of the Financial Statements for more information.

2021 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

Q2 2021 vs Q2 2020 Highlights

  • The mining industry has seen a surge in demand with increases in commodity prices and the ability for companies to resume operations safely during the pandemic. However, while the oil and gas industry experienced increases in commodity prices, it still faces significant challenges and uncertainties. For Foremost, this contributed to the increase in revenue of $9.0 million when comparing Q2 2021 to Q2 2020. The FME segment recognized $8.4 million more revenue in 2021 over 2020, while the FEE segment recognized a $0.6 million increase in revenue. More information is in the Segmented Results of Operations section of the MD&A.
  • Gross profit for Q2 2021 was $4.8 million and 15% of revenue. More information is in the Segmented Results of Operations section.
  • Administration costs increased to $3.5 million or 11% of revenue, up from $2.7 million in Q2 2020. The majority of spend in this category is related to personnel costs.
  • Adjusted EBITDA (defined on page 12 of the MD&A) was $2.3 million for Q2 2021 compared to $1.2 million in Q2 2020.
  • In the first quarter of 2021, certain costs were reclassified, which will result in a lower gross margin and higher SG&A expenses going forward. Refer to note 3 of the Financial Statements for more information.
  • The Trustees have determined that, as of August 10, 2021, the Fund will redeem tendered Trust Units at tangible book value of $6.35 per unit.

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.

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

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/92779

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