Mullen Group Ltd.
TSX : MTL

Mullen Group Ltd.

February 11, 2015 18:22 ET

Mullen Group Ltd. Reports 2014 Financial Results

OKOTOKS, ALBERTA--(Marketwired - Feb. 11, 2015) - Mullen Group Ltd. ("Mullen Group" and/or the "Corporation") (TSX:MTL), one of Canada's largest and most diversified oilfield services and transportation companies, today reported its financial and operating results for the quarter and year ended December 31, 2014, with comparisons to the same periods last year.

Key financial highlights for the fourth quarter and year end of 2014 and 2013 were as follows:

HIGHLIGHTS
(unaudited)
($ millions)
Three month periods ended
December 31
Twelve month periods ended
December 31
2014 2013 Change 2014 2013 Change
$ $ % $ $ %
Revenue
Oilfield Services 199.6 226.1 (11.7) 858.9 886.3 (3.1)
Trucking/Logistics 146.1 141.9 3.0 570.9 553.9 3.1
Corporate and intersegment eliminations (0.5) (0.6) (16.7) (1.9) (3.0) (36.7)
Total Revenue 345.2 367.4 (6.0) 1,427.9 1,437.2 (0.6)
Operating income (1)
Oilfield Services 41.1 50.5 (18.6) 196.4 212.3 (7.5)
Trucking/Logistics 24.2 21.9 10.5 92.4 92.8 (0.4)
Corporate (0.4) (1.3) (69.2) (4.1) (4.4) (6.8)
Total Operating income 64.9 71.1 (8.7) 284.7 300.7 (5.3)
Net income 22.2 20.3 9.4 94.6 143.3 (34.0)
Net income - adjusted (1) 32.4 31.5 2.9 131.1 141.0 (7.0)
Earnings per share (1) 0.25 0.22 13.6 1.04 1.60 (35.0)
Earnings per share - adjusted (1) 0.36 0.35 2.9 1.44 1.57 (8.3)
(1) Refer to notes section of Summary

For the three month period ended December 31, 2014, Mullen Group generated revenue of $345.2 million, a decrease of $22.2 million or 6.0 percent as compared to $367.4 million in 2013. This decrease in revenue was directly attributable to the Oilfield Services segment, where revenue declined by $26.5 million, or 11.7 percent, to $199.6 million as compared to $226.1 million in the same period one year earlier. The decrease was due to lower demand for services related to large diameter pipeline construction projects and from lower demand for services generated by those Operating Entities involved in the transportation of fluids and servicing of wells, predominately within the heavy oil region of Alberta. Revenue was also negatively impacted by a reduction in revenue from those Operating Entities most directly tied to oil and natural gas drilling activity in western Canada and from lower demand for core drilling services as compared to last year. These decreases were offset by strong demand for dewatering services and from the incremental revenue generated from acquiring the business of Recon Utility Search N.A. Inc. Revenue in the Trucking/Logistics segment increased by $4.2 million, or 3.0 percent, to $146.1 million as compared to $141.9 million in the same period one year earlier. This increase was due to increased demand for our general freight services as well as $1.5 million of incremental revenue resulting from the acquisition of Bernard Transport Ltd. ("Bernard"). These increases were offset by lower demand for heavy haul freight services in western Canada as this segment continues to operate in a competitive pricing environment and a decline in revenue due to Mill Creek Motor Freight L.P.'s ("Mill Creek") financial results no longer being consolidated by Mullen Group as of December 1, 2014.

Operating income for the fourth quarter was $64.9 million, a decrease of $6.2 million or 8.7 percent over the same period in 2013. The decrease of $6.2 million was primarily attributable to the Oilfield Services segment that experienced a $9.4 million decrease in operating income. This $9.4 million decrease was mainly due to intense competition and pricing pressures in a number of markets combined with the decline in large diameter pipeline construction projects. The declines in the Oilfield Services segment were offset by gains of $2.3 million in the Trucking/Logistics segment, as well as a reduction in Corporate costs that fell by $0.9 million on a year over year basis. As a percentage of consolidated revenue, operating income decreased to 18.8 percent as compared to 19.3 percent in 2013.

For the three month period ended December 31, 2014, Mullen Group generated net income of $22.2 million or $0.25 per share, an increase of $1.9 million, or 9.4 percent, compared to $20.3 million or $0.22 per share in 2013. The $1.9 million increase in net income was mainly attributable to a $10.8 million gain on sale of Mill Creek, a $9.0 million gain on sale of property, plant and equipment and a $3.3 million positive variance in net unrealized foreign exchange. These increases were partially offset by a $13.8 million negative variance in the fair value of investments and a $6.2 million decrease in operating income. Adjusting Mullen Group's net income and earnings per share to eliminate the impact of the one-time expense related to the prepayment of the Series A and Series B Notes, the net unrealized foreign exchange gains and losses, the gain on sale of Mill Creek and the change in fair value of investments resulted in adjusted net income of $32.4 million and adjusted earnings per share of $0.36 for 2014 as compared to $31.5 million and $0.35 per share in 2013, respectively. These adjustments more clearly reflect earnings from an operating perspective.

"Our operating results in the fourth quarter reflect the challenges faced by the oil and gas industry in North America. The virtual collapse in crude oil and natural gas pricing, that began in earnest in September 2014, negatively impacts producers' cash flow and investment activity, including capital projects as well as drilling programs. Lower activity levels accompanied by intense price competition are difficult challenges to overcome in the short term. Our fourth quarter results reflect a slowdown in our Oilfield Services segment," said Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

For the year ended December 31, 2014, Mullen Group generated revenue of $1,427.9 million, a decrease of $9.3 million or 0.6 percent as compared to $1,437.2 million in 2013. This decrease was due to a decline in revenue in the Oilfield Services segment, which was offset by an increase in revenue in the Trucking/Logistics segment. Revenue in the Oilfield Services segment decreased by $27.4 million, or 3.1 percent, to $858.9 million as compared to $886.3 million in 2013. This decrease was primarily due to a $10.1 million decline in revenue as a result of fewer large diameter pipeline construction projects and a $10.2 million decline in revenue in those Operating Entities involved in the transportation of fluids and the servicing of wells. Revenue in the Trucking/Logistics segment increased by $17.0 million, or 3.1 percent, to $570.9 million from $553.9 million in the same period one year earlier. This increase was largely due to the $16.8 million of incremental revenue generated by the acquisition of Jay's Transportation Group Ltd. and Bernard, as well as a $3.3 million increase in fuel surcharge revenue. These increases were partially offset by decreased demand for over-dimensional and heavy haul freight services, construction related services in northern Manitoba and from a decline in revenue due to Mill Creek's financial results no longer being consolidated by Mullen Group as of December 1, 2014.

In 2014 Mullen Group generated operating income of $284.7 million, a decrease of $16.0 million or 5.3 percent over the $300.7 million generated in 2013. The decrease of $16.0 million was mainly due to the Oilfield Services segment that experienced a $15.9 million decrease in operating income. The Trucking/Logistics segment experienced a $0.4 million decrease in operating income while Corporate costs declined by $0.3 million on a year over year basis. As a percentage of revenue, operating income decreased to 19.9 percent as compared to 20.9 percent in 2013. This 1.0 percent decrease in operating margin was mainly due to a generally more competitive environment that intensified in the second half of the year.

In 2014 Mullen Group generated net income of $94.6 million, or $1.04 per share, a decrease of $48.7 million or 34.0 percent, as compared to $143.3 million or $1.60 per share in 2013. The $48.7 million decrease in net income was mainly attributable to a $41.6 million negative variance in the fair value of investments, a $21.1 million increase in finance costs, which resulted from the one-time expense related to the prepayment of the Series A and Series B Notes and a $16.0 million decrease in operating income. These decreases were somewhat offset by a $10.8 million gain on sale of Mill Creek, a $12.3 million reduction of income taxes and a $5.6 million increase in gain on sale of property, plant and equipment. Adjusting Mullen Group's net income and earnings per share to eliminate the impact of the one-time expense related to the prepayment of the Series A and Series B Notes, the net unrealized foreign exchange gains and losses, the gain on sale of Mill Creek and the change in fair value of investments resulted in adjusted net income of $131.1 million and adjusted earnings per share of $1.44 for 2014 as compared to $141.0 million and $1.57 per share in 2013, respectively. Adjusted net income and earnings per share more accurately reflect the operating performance of Mullen Group.

During 2014 Mullen Group strengthened its balance sheet by issuing $400.0 million (CDN. $171.0 million and U.S. $229.0 million) of senior unsecured notes having an average term of 11 years and a weighted average fixed interest rate of approximately 3.95 percent per annum (interest payable semi-annually). At our sole discretion, Mullen Group used a portion of these proceeds to repay the holders of its Series A (U.S. $100.0 million) and Series B (U.S. $50.0 million) Notes having a weighted average fixed interest rate of 6.32 percent, which were scheduled to mature in 2016 and 2018, respectively. To mitigate the risk of foreign currency fluctuations on our new debt, Mullen Group entered into two cross-currency swaps to swap the principal portion of the Series G (U.S. $117.0 million) and Series H (U.S. $112.0 million) Notes into Canadian dollars at foreign exchange rates of $1.1047 and $1.1148 that mature on October 22, 2024 and October 24, 2026, respectively. At December 31, 2014, Mullen Group had $460.5 million of working capital which included $325.4 million of cash and cash equivalents and $244.5 million of net debt. During 2014, Mullen Group generated net cash from operations of $248.6 million which was used, among other things, to pay dividends of $109.6 million, incur net capital expenditures of $69.4 million, fund acquisitions of $28.6 million and pay interest obligations of $24.4 million. On January 9, 2015, Mullen Group acquired Gardewine Group Limited Partnership in an all cash transaction for total consideration of $172.0 million.

"The two pillars of our strategic plan - maintaining a strong balance sheet and diversification through investing in both the oilfield sector as well as the trucking and logistics segment of the economy - have always been important elements to our success spanning over six decades. With the oil and gas industry in the midst of what will most likely be a severe cyclical downturn, Mullen Group will allocate capital and pursue opportunities leveraged to the general economy. Our previously announced acquisitions are examples of how we are always looking at minimizing risk not just maximizing profitability in the short term. We fully expect 2015 will be a challenging year for anyone and any company involved in Canada's oil and gas industry, including Mullen Group. However, we are diversified and we have a strong balance sheet with cash reserves of over $153.0 million and $75.0 million of unutilized bank lines, funds we will use to grow our business as strategic opportunities arise. We prepared for this downturn in 2014 and now we can begin planning for the future.

"It will not come as a surprise to our shareholders that the collapse in crude oil and natural gas prices has severely impacted cash flows of oil and gas producers - our customers. In response they have reduced capital investments and drilling activity much quicker than most service industry observers, including myself, envisioned just a few months ago. As such I expect the financial performance of the majority of the Operating Entities in our Oilfield Services segment to be well below prior year levels, a trend that will continue until these commodity prices rise from today's unsustainable levels," commented Mr. Mullen.

A summary of Mullen Group's results for the quarter and year ended December 31, 2014, are as follows:

SUMMARY
(unaudited)
($ millions, except per share amounts)
Three month periods ended
December 31
Twelve month periods ended
December 31
2014 2013 Change 2014 2013 Change
$ $ % $ $ %
Revenue 345.2 367.4 (6.0) 1,427.9 1,437.2 (0.6)
Operating income(1) 64.9 71.1 (8.7) 284.7 300.7 (5.3)
Net unrealized foreign exchange loss 4.6 7.9 (41.8) 15.5 16.2 (4.3)
Decrease (increase) in fair value of investments 18.0 4.2 328.6 20.7 (20.9) (199.0)
Net income 22.2 20.3 9.4 94.6 143.3 (34.0)
Net income - adjusted(2) 32.4 31.5 2.9 131.1 141.0 (7.0)
Earnings per share(3) 0.25 0.22 13.6 1.04 1.60 (35.0)
Earnings per share - adjusted(2) 0.36 0.35 2.9 1.44 1.57 (8.3)
Net cash from operating activities 79.1 67.6 17.0 248.6 214.4 16.0
Net cash from operating activities per share(3) 0.86 0.75 14.7 2.72 2.39 13.8
Cash dividends declared per Common Share 0.30 0.30 - 1.20 1.20 -
Notes:
(1) Operating income is defined as net income before depreciation of property, plant and equipment, amortization of intangible assets, finance costs, net unrealized foreign exchange gains and losses, other (income) expense and income taxes.
(2) Net income - adjusted and earnings per share - adjusted are calculated by adjusting net income and basic earnings per share by the amount of any net unrealized foreign exchange gains and losses, the gain on sale of Mill Creek and the change in fair value of investments.
(3) Earnings per share and net cash from operating activities per share are calculated based on the weighted average number of Common Shares outstanding for the period.
Operating income, net income - adjusted and earnings per share - adjusted are not recognized terms under IFRS and do not have standardized meanings prescribed by IFRS. Management believes these measures are useful supplemental measures. Investors should be cautioned that these indicators should not replace net income and earnings per share as an indicator of performance.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(thousands) December 31
2014 2013
$ $
Assets
Current assets:
Cash and cash equivalents 325,365 58,236
Trade and other receivables 209,835 234,485
Inventory 38,147 34,143
Prepaid expenses 10,010 10,946
Current tax receivable 5,835 6,318
589,192 344,128
Non-current assets:
Property, plant and equipment 911,699 903,256
Goodwill 257,795 244,440
Intangible assets 31,437 41,742
Investments 52,792 49,463
Deferred tax assets 9,078 3,015
Derivative financial instruments 9,345 -
Other assets 799 1,565
1,272,945 1,243,481
Total Assets 1,862,137 1,587,609
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities 117,438 108,963
Dividends payable 9,161 9,066
Current tax payable 2,102 4,993
Current portion of long-term debt - 277
128,701 123,299
Non-current liabilities:
Long-term debt 692,909 409,209
Convertible debentures - debt component 12,083 16,070
Deferred tax liabilities 127,501 138,919
832,493 564,198
Equity:
Share capital 777,262 760,310
Convertible debentures - equity component 550 738
Contributed surplus 10,463 11,327
Retained earnings 112,668 127,737
900,943 900,112
Total Liabilities and Equity 1,862,137 1,587,609
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND RETAINED EARNINGS
Three month periods ended
December 31
Twelve month periods ended
December 31
(thousands, except per share amounts) 2014 2013 2014 2013
$ $ $ $
(unaudited)
Revenue 345,160 367,388 1,427,851 1,437,166
Direct operating expenses 241,510 257,494 985,163 983,382
Selling and administrative expenses 38,700 38,847 157,947 153,101
64,950 71,047 284,741 300,683
Depreciation of property, plant and equipment 17,924 18,498 69,295 69,499
Amortization of intangible assets 4,306 3,873 15,866 16,743
Finance costs 8,665 6,591 47,370 26,305
Net unrealized foreign exchange loss 4,639 7,825 15,570 16,144
Other (income) expense (1,639) 4,351 4,897 (20,710)
Income before income taxes 31,055 29,909 131,743 192,702
Income tax expense 8,784 9,558 37,110 49,407
Net income and total comprehensive income 22,271 20,351 94,633 143,295
Retained earnings, beginning of period 117,879 134,568 127,737 92,321
Dividends declared to common shareholders (27,482) (27,182) (109,702) (107,879)
Retained earnings, end of period 112,668 127,737 112,668 127,737
Earnings per share:
Basic 0.25 0.22 1.04 1.60
Diluted 0.24 0.22 1.02 1.57
Weighted average number of Common Shares outstanding:
Basic 91,608 90,559 91,377 89,764
Diluted 92,888 92,695 93,027 92,502
CONSOLIDATED STATEMENT OF CASH FLOWS
Three month periods ended
December 31
Twelve month periods ended
December 31
(thousands) 2014 2013 2014 2013
$ $ $ $
(unaudited)
Cash provided by (used in):
Cash flows from operating activities:
Net income 22,271 20,351 94,633 143,295
Adjustments for:
Depreciation of property, plant and equipment 17,924 18,498 69,295 69,499
Amortization of intangible assets 4,306 3,873 15,866 16,743
Finance costs 8,665 6,591 47,370 26,305
Stock-based compensation expense 281 836 1,633 2,588
Unrealized foreign exchange gain on cross-currency swaps (7,022) - (9,345) -
Foreign exchange 10,157 7,380 22,770 15,294
Change in fair value of investments 17,969 4,206 20,726 (20,935)
(Gain) loss on sale of property, plant and equipment (8,819) 173 (4,523) 1,118
Income tax expense 8,784 9,558 37,110 49,407
Earnings from equity investment 5 (28) (512) (893)
Gain on sale of subsidiary (10,794) - (10,794) -
63,727 71,438 284,229 302,421
Changes in non-cash working capital items from operating activities:
Trade and other receivables 24,869 13,304 22,995 (10,413)
Inventory (590) (1,166) (4,107) (1,776)
Prepaid expenses 4,468 1,711 804 (10)
Accounts payable and accrued liabilities 377 (3,659) 2,520 2,466
Cash generated from operating activities 92,851 81,628 306,441 292,688
Income tax paid (13,665) (13,987) (57,856) (78,287)
Net cash from operating activities 79,186 67,641 248,585 214,401
Cash flows from financing activities:
Cash dividends paid to common shareholders (27,482) (27,158) (109,607) (120,730)
Interest paid (7,670) (9,476) (24,403) (26,210)
Proceeds of long-term debt 426,415 311 426,415 311
Repayment of long-term debt and loans (188,513) (238) (188,904) (7,423)
Net proceeds from Common Share issuances 28 3,367 10,076 10,407
Changes in non-cash working capital items from financing activities 189 8 394 86
Net cash used in financing activities 202,967 (33,186) 113,971 (143,559)
Cash flows from investing activities:
Acquisitions (28,606) - (28,606) (15,665)
Purchase of property, plant and equipment (50,477) (32,208) (125,743) (133,686)
Proceeds on sale of property, plant and equipment 35,459 5,560 56,272 14,315
Purchase of investments - - (3,543) (23)
Cash contribution to equity investee (2,560) - (2,560) -
Interest received 523 167 1,112 839
Other assets 743 3 770 (1,238)
Changes in non-cash working capital items from investment activities 3,947 (330) 4,231 (770)
Net cash used in investing activities (40,971) (26,808) (98,067) (136,228)
Change in cash and cash equivalents 241,182 7,647 264,489 (65,386)
Cash and cash equivalents, beginning of period 82,184 50,144 58,236 122,772
Effect of exchange rate fluctuations on cash held 1,999 445 2,640 850
Cash and cash equivalents, end of period 325,365 58,236 325,365 58,236

This news release may contain forward-looking information that is subject to risk factors associated with the oil and natural gas business and the overall economy. This information relates to future events and Mullen Group's future performance. All information and statements contained herein that are not clearly historical in nature constitute forward-looking information, and the words "may", "will", "should", "could", "expect", "plan", "intend", "anticipate", "believe", "estimate", "propose", "predict", "potential", "continue", "aim", or the negative of these terms or other comparable terminology are generally intended to identify forward-looking information. Such information represents Mullen Group's internal projections, estimates, expectations, beliefs, plans, objectives, assumptions, intentions or statements about future events or performance. This information involves known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information. Mullen Group believes that the expectations reflected in this forward-looking information are reasonable; however, undue reliance should not be placed on this forward-looking information, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. For further information on any strategic financial, operational and other outlook on Mullen Group's business please refer to Mullen Group's Management's Discussion and Analysis available for viewing on SEDAR at www.sedar.com. The risks and other factors are described under "Principal Risks and Uncertainties" in Mullen Group's Annual Information Form and Management's Discussion and Analysis. The forward-looking information contained in this news release is expressly qualified by this cautionary statement. The forward-looking information contained herein is made as of the date of this news release and Mullen Group disclaims any intent or obligation to update publicly any such forward-looking information, whether as a result of new information, future events or results or otherwise, other than as required by applicable Canadian securities laws. Mullen Group relies on litigation protection for "forward-looking" statements.

Mullen Group is a company that owns a network of independently operated businesses. Mullen Group provides a wide range of specialized transportation and related services to the oil and natural gas industry in western Canada and is one of the leading suppliers of trucking and logistics services in Canada - two sectors of the economy in which Mullen Group has strong business relationships and industry leadership. Mullen Group provides management and financial expertise, technology and systems support, shared services and strategic planning to its independent businesses.

Mullen Group is a publicly traded corporation listed on the Toronto Stock Exchange under the symbol "MTL". Additional information is available on our website at www.mullen-group.com or on SEDAR at www.sedar.com.

Contact Information

  • Mr. Murray K. Mullen
    Chairman of the Board, Chief Executive Officer and President

    Mr. P. Stephen Clark
    Chief Financial Officer

    Mr. Richard J. Maloney
    Senior Vice President

    121A - 31 Southridge Drive
    Okotoks, Alberta, Canada T1S 2N3
    Telephone: 403-995-5200
    Fax: 403-995-5296