Mullen Group Ltd. Reports First Quarter Financial Results and Increased 2017 Capital Budget

OKOTOKS, ALBERTA--(Marketwired - April 19, 2017) - Mullen Group Ltd. (TSX:MTL) ("Mullen Group", "We", "Our" 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, 2017, with comparisons to the same period last year.

Key financial highlights for the first quarter of 2017 with comparison to 2016 are as follows:

HIGHLIGHTS
(unaudited) ($ millions)		Three month periods ended March 31
		2017		2016		Change
		$		$		%
Revenue
	Trucking/Logistics	180.9		173.9		4.0
	Oilfield Services	104.6		99.8		4.8
	Corporate and intersegment eliminations	(0.6	)	(2.0	)	-
Total Revenue		284.9		271.7		4.9
Operating income before depreciation and amortization (1)
	Trucking/Logistics	21.4		28.0		(23.6	)
	Oilfield Services	21.6		18.5		16.8
	Corporate	(1.3	)	(7.6	)	-
Total Operating income before depreciation and amortization (1)		41.7		38.9		7.2
Operating income before depreciation and amortization - adjusted (1)		42.7		45.5		(6.2	)
(1) Refer to notes section of Summary

Mullen Group operates a diversified business model combined with a highly adaptable and variable cost structure. The financial highlights for the three month period ending March 31, 2017 are as follows:

• generated consolidated revenue of $284.9 million, an increase of $13.2 million, or 4.9 percent, as compared to $271.7 million in 2016 due to:
  • a $7.0 million or 4.0 percent increase in the Trucking/Logistics segment
  • a $4.8 million or 4.8 percent increase in the Oilfield Services segment
• earned consolidated operating income before depreciation and amortization ("OIBDA") of $41.7 million, an increase of $2.8 million as compared to $38.9 million in 2016 due to:
  • a $3.1 million increase in the Oilfield Services segment
  • a $6.6 million decrease in the Trucking/Logistics segment
  • a $6.3 million decrease in Corporate Office costs due to a $5.6 million reduction in foreign exchange expense
• adjusting for the impact of foreign exchange at the Corporate Office, operating income before depreciation and amortization ("OIBDA - adjusted") was $42.7 million, or 15.0 percent of revenue, as compared to $45.5 million, or 16.7 percent of revenue in 2016.
• closed the acquisitions of Envolve Energy Services Corp. ("Envolve") and Kel-West Carriers Ltd. ("Kel-West")

First Quarter Financial Results

For the three month period ended March 31, 2017, revenue increased by $13.2 million, or 4.9 percent, to $284.9 million as compared to $271.7 million in 2016. This was attributable to a $7.0 million increase in revenue in the Trucking/Logistics segment and a $4.8 million increase in the Oilfield Services segment. The increase in the Trucking/Logistics segment was mainly due to the incremental revenue related to our recent acquisitions. Revenue also increased due to greater demand for freight services in western Canada along with a $4.3 million increase in fuel surcharge revenue. These increases were offset by the completion of several major capital projects such as the Suncor Fort Hills oil sands project that have not been replaced. The increase in the Oilfield Services segment was attributable to improved drilling activity which benefited those Business Units most directly tied to oil and natural gas drilling activity, from greater demand for pumps and related dewatering services and from the incremental revenue generated by Envolve. These increases were partially offset by a decline in demand for pipeline hauling and stringing services associated with fewer pipeline construction projects, due to the timing and regulatory hurdles of various projects and from lower revenue generated by those Business Units involved in the transportation of fluids and servicing of wells.

OIBDA for the first quarter was $41.7 million, an increase of $2.8 million or 7.2 percent as compared to $38.9 million in 2016. This was attributable to a $3.1 million increase in the Oilfield Services segment and a $6.3 million reduction in Corporate Office costs being somewhat offset by a $6.6 million decrease in the Trucking/Logistics segment. The Oilfield Services segment generated OIBDA of $21.6 million, an increase of $3.1 million from the $18.5 million in 2016 due to improved drilling activity, the continued implementation of cost control measures and from the strong performance of Canadian Dewatering L.P. These improvements were somewhat offset by reduced profitability related to pipeline hauling and stringing services, due to the timing of certain projects. The Trucking/Logistics segment generated OIBDA of $21.4 million, a decrease of $6.6 million from the $28.0 million in 2016. This decrease was mainly attributable to the completion of some major capital projects that have not been replaced directly impacting the performance of the Kleysen Group Ltd. As a percentage of segment revenue, operating margin in the Oilfield Services segment increased to 20.6 percent from 18.5 percent in 2016. Operating margin in the Trucking/Logistics segment decreased to 11.8 percent as compared to 16.1 percent in 2016. Adjusting for Corporate Office costs related to the impact of foreign exchange losses on U.S. dollar cash held, OIBDA - adjusted was $42.7 million, a decrease of $2.8 million or 6.2 percent as compared to $45.5 million in 2016. Stated as a percentage of consolidated revenue, operating margin - adjusted decreased to 15.0 percent as compared to 16.7 percent in 2016.

In the first quarter of 2017, we recorded net income of $14.5 million or $0.14 per share, a decrease of $6.9 million, or 32.2 percent, compared to net income of $21.4 million or $0.23 per share in 2016. The $6.9 million decrease was primarily due to the $14.2 million negative variance in unrealized foreign exchange. This decrease was partially offset by the $2.8 million increase in OIBDA, a $2.2 million decrease in amortization of intangibles, a $1.9 million decrease in finance costs and a $1.7 million decrease in depreciation of property, plant and equipment.

"After two years of reporting declining revenues we are finally starting to experience some growth. The $285.0 million generated in the first quarter of 2017 remains well below prior peak levels but the results are 4.9 percent above last year, representing that some early stage stability is returning to the battered oil and natural gas service industry as well as reinforcing our acquisition strategy. I remain of the view that the markets we serve are fragile and that a period of adjustment is still required before our financial performance improves in a more meaningful way but there is a sense of optimism returning to the oil and natural gas industry, which I fully expect will benefit our organization in the second half of the year. In terms of the overall Canadian economy the story is very similar. Freight demand is starting to increase, which will ultimately lead to improved pricing later this year. In the meantime, however, the trucking and logistics sector of the economy remains very competitive," commented Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

Financial Position

At March 31, 2017, we had $245.2 million (December 31, 2016 - $243.1 million) of working capital that included $242.7 million (December 31, 2016 - $270.3 million) of cash and cash equivalents, of which $82.8 million (December 31, 2016 - $81.0 million) was denominated in U.S. currency. Included within non-cash working capital items is $135.2 million of current portion of long-term debt which mainly relates to the Series E (U.S. $85.0 million) and Series F ($20.0 million) Notes, which mature on September 27, 2017. At March 31, 2017, net debt was $310.9 million (December 31, 2016 - $316.3 million) and we had access to additional funding of $75.0 million from our undrawn bank credit facility. The Corporation's long-term debt consists mainly of its Private Placement Debt (which includes the Series E and Series F Notes) 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 dollar 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, we 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, 2017, the carrying value of these cross-currency swaps was $31.1 million and was recorded within derivative financial instruments on the consolidated statement of financial position. The net book value of property, plant and equipment was $945.2 million, the majority of which consists of $462.9 million of real property (carrying cost of $517.7 million) and $387.2 million (carrying cost of $754.4 million) of trucks and trailers.

"One of our stated strategic initiatives for 2017 centered on growth through acquisitions. In this latest quarter we closed two transactions, the most notable being the acquisition of Envolve Energy Services Corp., opening up a new growth platform for Mullen Group. For the balance of the year we will continue to identify new opportunities that we can benefit from for many years. In addition, we are announcing an increase of $25.0 million to our 2017 capital expenditure budget in anticipation of a recovery in the energy sector. This is exactly why we took the necessary steps to strengthen our balance sheet in 2016. We are uniquely positioned to proactively pursue opportunities," added Mr. Mullen.

A summary of Mullen Group's results for the three month periods ended March 31, 2017 and 2016 are as follows:

SUMMARY
(unaudited) ($ millions, except per share amounts)	Three month periods ended March 31
	2017		2016		Change
	$		$		%
Revenue	284.9		271.7		4.9
Operating income before depreciation and amortization(1)	41.7		38.9		7.2
Operating income before depreciation and amortization - adjusted(2)	42.7		45.5		(6.2	)
Net unrealized foreign exchange (gain)	(2.3	)	(16.5	)	(86.1	)
Decrease in fair value of investments	1.0		0.1		900.0
Net income	14.5		21.4		(32.2	)
Net income - adjusted(3)	11.6		5.4		114.8
Earnings per share(4)	0.14		0.23		(39.1	)
Earnings per share - adjusted(3)	0.11		0.06		83.3
Net cash from operating activities	4.3		34.5		(87.5	)
Net cash from operating activities per share(4)	0.04		0.38		(89.5	)
Cash dividends declared per Common Share	0.09		0.24		(62.5	)

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, operating margin, OIBDA - adjusted, operating margin - 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, 40, 41, and 42 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.