Mullen Group Ltd.
TSX : MTL

Mullen Group Ltd.

April 20, 2016 18:58 ET

Mullen Group Ltd. Reports First Quarter Financial Results and Business Update

OKOTOKS, ALBERTA--(Marketwired - April 20, 2016) - (TSX:MTL) Mullen Group Ltd. ("Mullen Group" and/or the "Corporation"), one of Canada's largest suppliers of trucking and logistics services as well as specialized transportation services to the oil and natural gas industry in Canada, today reported its financial and operating results for the period ended March 31, 2016, with comparisons to the same period last year.

Key financial highlights for the first quarter of 2016 and 2015 are as follows:

HIGHLIGHTS
(unaudited) Three month periods ended
March 31
($ millions, except per share amounts) 2016 2015 Change
$ $ %
Revenue
Trucking/Logistics 173.9 180.1 (3.4 )
Oilfield Services 99.8 158.2 (36.9 )
Corporate and intersegment eliminations (2.0 ) (1.1 ) -
Total Revenue 271.7 337.2 (19.4 )
Operating income before depreciation and amortization (1)
Trucking/Logistics 28.0 25.0 12.0
Oilfield Services 18.5 32.5 (43.1 )
Corporate (7.6 ) 7.3 -
Total Operating income before depreciation and amortization (1) 38.9 64.8 (40.0 )
Operating income before depreciation and amortization - adjusted (1) 45.5 57.4 (20.7 )
Net income 21.4 2.8 664.3
Net income - adjusted (1) 5.4 24.9 (78.3 )
Earnings per share (1) 0.23 0.03 666.7
Earnings per share - adjusted (1) 0.06 0.27 (77.8 )
(1) Refer to notes section of Summary

Mullen Group operates a highly efficient and diversified business model. The operating results for the period ending March 31, 2016 were negatively impacted for two reasons: (i) the lack of demand in the Oilfield Services segment due to challenges associated with the continued weakness in both crude oil and natural gas prices; and (ii) the rise in the Canadian dollar relative to the U.S. dollar and its negative impact on the $74.5 million of U.S. cash held by the Corporate office. Our Trucking/Logistics segment had record first quarter operating income before depreciation and amortization ("OIBDA") and our Oilfield Services segment performed well when considering the headwinds posed by lower commodity prices, as it maintained its margin during the quarter.

The highlights for the quarter are as follows:

  • consolidated revenue of $271.7 million, a decrease of $65.5 million, or 19.4 percent, as compared to $337.2 million in 2015 due to:

    • a $58.4 million decline in the Oilfield Services segment

    • a $6.2 million decline in the Trucking/Logistics segment

  • consolidated OIBDA of $38.9 million

    • record first quarter OIBDA of $28.0 million generated by the Trucking/Logistics segment

    • extremely weak demand for oilfield services resulting in the Oilfield Services segment generating only $18.5 million of OIBDA

    • loss of $7.6 million recorded at Corporate office related to foreign exchange

  • adjusting for the negative impact of foreign exchange losses, operating income before depreciation and amortization ("OIBDA - adjusted") was $45.5 million, or 16.7 percent of revenue, as compared to $57.4 million, or 17.0 percent of revenue, in 2015. These results more accurately reflect the operating performance of Mullen Group.

First Quarter Financial Results

For the three month period ended March 31, 2016, revenue decreased by $65.5 million, or 19.4 percent, to $271.7 million as compared to $337.2 million in 2015, due to a $58.4 million decline in revenue in the Oilfield Services segment and a $6.2 million decrease in the Trucking/Logistics segment. The $58.4 million decrease in revenue in the Oilfield Services segment was due to the continuation of low commodity prices and uncertainty, which resulted in lower drilling activity levels and reduced capital investments in western Canada. Revenue declines were most notable in those Business Units involved in the transportation of fluids and servicing of wells and from those Business Units most directly tied to oil and natural gas drilling activity. These decreases were somewhat offset by greater demand for services related to large diameter pipeline construction projects. The Trucking/Logistics segment experienced a $6.2 million decrease in revenue, which was mainly due to lower fuel surcharge revenue and a reduction in demand for heavy haul freight services in western Canada. These decreases were somewhat offset by greater demand for Kleysen Group L.P.'s transload facility in Edmonton, Alberta, modestly increased demand and market share gains in Manitoba and Saskatchewan and from the incremental revenue generated from the acquisition of Courtesy Freight Systems Ltd.

OIBDA - adjusted for the first quarter of 2016 was $45.5 million, a decrease of $11.9 million or 20.7 percent as compared to the same period last year. Stated as a percentage of consolidated revenue, OIBDA - adjusted decreased modestly to 16.7 percent as compared to 17.0 percent in 2015. The Oilfield Services segment generated $18.5 million, a decline of $14.0 million, reflecting the very challenging operating environment, whereas the Trucking/Logistics segment had another very strong quarter generating $28.0 million, an increase of $3.0 million or 12.0 percent. Consolidated OIBDA, which includes the foreign exchange effects on U.S. cash held by Corporate office, was $38.9 million, a decrease of $25.9 million or 40.0 percent as compared to 2015, primarily due to the $14.0 million negative variance in foreign exchange. Stated as a percentage of consolidated revenue, OIBDA decreased to 14.3 percent as compared to 19.2 percent last year.

"Once again our results this quarter reflect the diversity of our business model, with excellent results generated by our 12 Trucking/Logistics segment Business Units offset by steep declines in our Oilfield Services segment. The current market environment for anyone involved in or with the oil and gas industry is both difficult and challenging, with activity levels, pricing and employment at multi-decade lows. Even the very best companies have been forced to adjust to the current low commodity price environment. And while I am not happy with our financial performance in the first quarter, I am satisfied that we achieved the very best results we could given the macro environment. All one can really do in situations like this is right size your organization and patiently wait for market conditions to improve. Until then our Trucking/Logistics segment will continue to be our best performer. Our diversified business provides us with a competitive advantage over the pure play oilfield services providers," said Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

Financial Position

During the quarter Mullen Group generated net cash from operations of $34.5 million, paid dividends of $23.8 million, paid interest obligations of $6.0 million and incurred net capital expenditures of $3.8 million. In addition, the Series C ($70.0 million) Notes were repaid. At March 31, 2016, Mullen Group had $184.8 million of working capital including $105.1 million of cash and cash equivalents, net debt of $496.0 million and has access to additional funding of $40.0 million from its $75.0 million bank credit facility ($35.0 million was drawn as at March 31, 2016). The Corporation's long-term debt consists mainly of its Private Placement Debt of U.S. $314.0 million and Canadian $261.0 million. The weighted average interest rate on our U.S. dollar debt and our Canadian debt is 4.43 percent and 4.58 percent, respectively. The majority of this debt matures on October 22, 2024 and October 22, 2026. In July 2014 Mullen Group entered into two cross-currency swap contracts to swap the principal portion of $229.0 million of U.S. dollar debt into a Canadian currency equivalent of $254.1 million for an average exchange rate of 1.1096. At March 31, 2016, the carrying value of these cross-currency swaps was $29.6 million and is recorded within derivative financial instruments on Mullen Group's consolidated statement of financial position. The net book value of property, plant and equipment was $978.2 million, the majority consists of $463.4 million of real property (carrying cost of $511.6 million) and $414.4 million of trucks and trailers.

Repayment of Private Placement Debt

On February 24, 2016, Mullen Group, at its sole discretion, gave notice to the holders of Series C ($70.0 million) Notes of its intention to repay these notes on March 30, 2016. The Series C Notes were originally set to mature on June 30, 2016. In conjunction with repaying the Series C Notes on March 30, 2016, Mullen Group was required to make a $0.8 million payment to the Series C noteholders. This $0.8 million payment was a direct result of Mullen Group's decision to prepay the Series C Notes prior to maturity and consists of the net present value of the future interest payments on such notes that would have otherwise been paid to the noteholders. This $0.8 million payment was recognized as an expense in the first quarter of 2016 within finance costs in the statement of comprehensive income.

Private Placement Debt - Amending Agreement

On March 31, 2016, Mullen Group entered into an agreement with the Private Placement Debt noteholders to amend certain financial covenant terms (the "Amending Agreement") up to and including March 31, 2018 (the "Covenant Relief Period"). The Amending Agreement replaces the financial covenant term total debt with total net debt for financial covenant calculation purposes. During the Covenant Relief Period, total net debt is defined as total debt of the Corporation less the value of any cash and cash equivalents in excess of $50.0 million and less any unrealized gain on cross-currency swaps plus any unrealized loss on cross-currency swaps. After the Covenant Relief Period, the definition of total net debt will be defined as total debt of the Corporation less any unrealized gain on cross-currency swaps plus any unrealized loss on cross-currency swaps.

Dividend Reduction

On December 16, 2015, Mullen Group's board of directors (the "Board") announced its intention to pay annual dividends of $0.96 per Common Share ($0.08 per Common Share on a monthly basis) for 2016. Today, the Board determined that it was prudent and in the best interests of Mullen Group's shareholders to reduce the monthly dividend to $0.03 per Common Share ($0.36 per Common Share on an annual basis) commencing with the declaration of the May 2016 dividend. The Board will continue to monitor the amount of the monthly dividend. All things being equal, the dividend reduction will increase annual cash flow by approximately $55.0 million.

Cost Savings Initiatives

In light of the challenging market conditions, Mullen Group has instituted a number of cost savings initiatives. Many initiatives have been implemented over the first quarter of 2016 including right-sizing the organization, minimizing discretionary expenses and job sharing where applicable. To date, headcount is lower by 658 people or 10.3 percent as compared to the first quarter of 2015. Additionally, our Board has unanimously agreed to take a 20.0 percent reduction in respect of their annual retainer fee recognizing the challenges faced by all employees.

"Since 2005 Mullen Group has returned over $1.0 billion to investors. We did this because business fundamentals were strong and we chose not to misallocate our shareholders' equity with untimely acquisitions or by chasing growth. We preferred to stay the course and return excess cash to our shareholders. Today, however, we must adapt to the changing market and wait for better days to return. The decision today to reduce the monthly dividend was predicated on two factors. Firstly, we have steadfastly held to the belief that the dividend should be proportionate to the cash flow generated from operations. Given the recent capital and spending reductions announced by the oil and gas companies, the demand for oilfield services is currently at multi-decade lows. As such, our Oilfield Services segment is expected to underperform for the next few quarters. In addition, preserving the balance sheet and ensuring we have ample liquidity is not only prudent, it provides the flexibility needed to expand our business when the right opportunities are presented," added Mr. Mullen.

A summary of Mullen Group's results for the three month periods ended March 31, 2016 and 2015 are as follows:

SUMMARY
(unaudited) Three month periods ended March 31
($ millions, except per share amounts) 2016 2015 Change
$ $ %
Revenue 271.7 337.2 (19.4 )
Operating income before depreciation and amortization(1) 38.9 64.8 (40.0 )
Operating income before depreciation and amortization - adjusted(2) 45.5 57.4 (20.7 )
Net unrealized foreign exchange (gain) loss (16.5 ) 17.7 (193.2 )
Decrease (increase) in fair value of investments 0.1 4.3 (97.7 )
Net income 21.4 2.8 664.3
Net Income - adjusted(3) 5.4 24.9 (78.3 )
Earnings per share(4) 0.23 0.03 666.7
Earnings per share - adjusted(3) 0.06 0.27 (77.8 )
Net cash from operating activities 34.5 41.9 (17.7 )
Net cash from operating activities per share(4) 0.38 0.46 (17.4 )
Cash dividends declared per Common Share 0.24 0.30 (20.0 )
Notes:
(1) Operating income before depreciation and amortization ("OIBDA") 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) Operating income before depreciation and amortization - adjusted ("OIBDA - adjusted") 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, income taxes and foreign exchange gains and losses recognized within its Corporate office.
(3) 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 and the change in fair value of investments.
(4) 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.
Non-GAAP and Additional GAAP Terms - Mullen Group reports on certain financial performance measures that are described and presented in order to provide shareholders and potential investors with additional measures to evaluate Mullen Group's ability to fund its operations and information regarding its liquidity. In addition, these measures are used by management in its evaluation of performance. These financial performance measures ("Non-GAAP and Additional GAAP Terms") are not recognized financial terms under Canadian generally accepted accounting principles ("Canadian GAAP"). For publicly accountable enterprises, such as Mullen Group, Canadian GAAP is governed by principles based on IFRS and interpretations of IFRIC. Management believes these Non-GAAP and Additional GAAP Terms are useful supplemental measures. These Non-GAAP and Additional GAAP Terms do not have standardized meanings and may not be comparable to similar measures presented by other entities. Specifically, OIBDA, OIBDA - adjusted, 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.

This news release may contain forward-looking statements that are subject to risk factors associated with the oil and natural gas business and the overall economy. Mullen Group believes that the expectations reflected in this news release are reasonable, but results may be affected by a variety of variables. 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. Additional information regarding the forward-looking statements is found on pages 1, 38 and 39 of Mullen Group's Management's Discussion and Analysis.

Mullen Group is a company that owns a network of independently operated businesses. The Corporation is recognized as one of the leading suppliers of trucking and logistics services in Canada and provides a wide range of specialized transportation and related services to the oil and natural gas industry in western Canada - two sectors of the economy in which Mullen Group has strong business relationships and industry leadership. The corporate office 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

  • Mullen Group Ltd.
    Mr. Murray K. Mullen
    Chairman of the Board, Chief Executive Officer and President
    403-995-5200
    403-995-5296 (FAX)

    Mullen Group Ltd.
    Mr. P. Stephen Clark
    Chief Financial Officer
    403-995-5200
    403-995-5296 (FAX)

    Mullen Group Ltd.
    Mr. Richard J. Maloney
    Senior Vice President
    403-995-5200
    403-995-5296 (FAX)
    www.mullen-group.com