Mullen Group Ltd.
TSX : MTL

Mullen Group Ltd.

July 23, 2014 17:39 ET

Mullen Group Ltd. Reports Second Quarter Financial Results and the Pricing of $400.0 Million of Senior Unsecured Notes

OKOTOKS, ALBERTA--(Marketwired - July 23, 2014) - Mullen Group Ltd. (TSX:MTL) ("Mullen Group" and/or the "Corporation"), one of Canada's largest and most diversified oilfield services and transportation companies, today reported its financial and operating results for the period ended June 30, 2014, with comparisons to the same period last year.

Key financial highlights for the second quarter were as follows:

HIGHLIGHTS
(unaudited) Three month
periods ended
June 30
Six month
periods ended
June 30
($ millions) 2014 2013 Change 2014 2013 Change
$ $ % $ $ %
Revenue
Oilfield Services 175.9 173.6 1.3 448.5 431.2 4.0
Trucking/Logistics 137.9 137.3 0.4 278.1 266.4 4.4
Corporate and intersegment eliminations (0.4 ) (0.6 ) - (1.2 ) (1.8 ) -
Total 313.4 310.3 1.0 725.4 695.8 4.3
Operating Income
Oilfield Services 33.6 33.0 1.8 103.5 101.6 1.9
Trucking/Logistics 21.1 24.1 (12.4 ) 42.2 44.2 (4.5 )
Corporate (2.7 ) (1.1 ) - (2.5 ) (2.0 ) -
Operating income (1) 52.0 56.0 (7.1 ) 143.2 143.8 (0.4 )
Net income 25.6 27.4 (6.6 ) 61.9 71.8 (13.8 )
Net Income - adjusted (1) 15.1 20.9 (27.8 ) 62.3 66.4 (6.2 )
(1) Refer to the Notes section in the Summary chart

For the three month period ended June 30, 2014, Mullen Group generated revenue of $313.4 million, operating income of $52.0 million and net cash from operations of $83.4 million. During the quarter Mullen Group paid dividends of $27.4 million, incurred net capital expenditures of $16.5 million and paid interest obligations of $9.4 million.

Consolidated revenue in the second quarter increased by $3.1 million, or 1.0 percent, to $313.4 million as compared to $310.3 million in 2013. The majority of this increase in revenue was directly attributable to the Oilfield Services segment, which increased by $2.3 million, or 1.3 percent, to $175.9 million as compared to $173.6 million in the same period one year earlier. The increase in segment revenue was primarily due to an increase in drilling activity in western Canada in those Operating Entities servicing the drilling industry. Revenue in the Trucking/Logistics segment increased by $0.6 million, or 0.4 percent, to $137.9 million from $137.3 million primarily due to the $6.7 million of incremental revenue resulting from the acquisition of Jay's Moving & Storage Ltd. ("Jay's"), which was largely offset by lower demand for heavy haul freight services in western Canada as well as construction services in northern Manitoba.

Mullen Group generated operating income for the period ended June 30, 2014, of $52.0 million, a decrease of $4.0 million or 7.1 percent over the $56.0 million generated in 2013. The decrease of $4.0 million was due to a $3.0 million decrease in operating income in the Trucking/Logistics segment and specifically from those Operating Entities involved in heavy haul freight services in western Canada along with construction services in northern Manitoba. In addition, Corporate costs increased by $1.6 million on a year over year basis, which negatively impacted operating income. These factors were somewhat offset by a $0.6 million increase in the Oilfield Services segment's operating income. As a percentage of consolidated revenue, operating income decreased to 16.6 percent as compared to 18.0 percent in 2013 due to a reduction in margin experienced by the Trucking/Logistics segment.

In the second quarter of 2014, Mullen Group generated net income of $25.6 million, or $0.28 per share, a decrease of $1.8 million, or 6.6 percent compared to $27.4 million, or $0.30 per share in 2013. The $1.8 million decrease in net income was mainly attributable to a $13.3 million negative variance in the fair value of investments, a $4.0 million decrease in operating income and a $3.8 million increase in the loss on sale of property, plant and equipment. These decreases were somewhat offset by a $17.4 million positive variance in unrealized foreign exchange. Adjusting Mullen Group's net income and earnings per share to eliminate the impact of unrealized foreign exchange and the change in fair value of investments during the second quarter of 2014 resulted in adjusted net income of $15.1 million and adjusted earnings per share of $0.16, as compared to $20.9 million and $0.23 per share in 2013, respectively. These adjustments more clearly reflect earnings from an operating perspective.

"We are operating in competitive markets today and for the most part our Operating Entities continue to be challenged by the lack of any incremental new demand for their services. While the Canadian economy continued to show some pockets of moderate strength, there was no significant growth in the second quarter. As a result our Trucking/Logistics segment did not perform to our expectations or to last year. In our Oilfield Services segment, drilling activity in western Canada was up year over year. However, weather related issues, most recently in southeastern Saskatchewan and Manitoba where significant flooding washed out roads and limited access to well-site locations negatively impacted activity levels. Margins came under pressure primarily due to rising operating costs including fuel, operating supplies and repairs and maintenance - costs which were not fully recoverable from customers through pricing increases or productivity gains. Overall just a challenging quarter," said Mr. Murray K. Mullen, Chairman, Chief Executive Officer and President.

Mullen Group's consolidated revenue in the first six months of 2014 increased by $29.6 million, or 4.3 percent, to $725.4 million as compared to $695.8 million in 2013. The majority of this increase in revenue, specifically $26.5 million, occurred in the first quarter. Revenue in the Oilfield Services segment increased by $17.3 million, or 4.0 percent, to $448.5 million as compared to $431.2 million in the same period one year earlier. This increase was due to the combined effect of an increase in revenue related to oil sands and pipeline construction projects, increased revenue generated by Heavy Crude Hauling L.P. as a result of a major crude oil and fluid hauling contract in the Lloydminster region and a modest increase in drilling activity in western Canada. These increases were partially offset by decreased revenue due to the challenging operating environment in western Canada resulting from the combination of competitive pricing, continued pipeline and infrastructure bottlenecks in certain markets as well as extreme cold weather in the first quarter and rain and flood related issues in the second quarter. Revenue in the Trucking/Logistics segment increased by $11.7 million, or 4.4 percent, to $278.1 million from $266.4 million in the same period one year earlier. This $11.7 million increase was largely due to incremental revenue resulting from the acquisition of Jay's as well as a $2.2 million increase in fuel surcharge revenue. These increases were partially offset by decreased demand for over-dimensional and heavy haul freight services as well as construction activity in northern Manitoba remained soft and below 2013 levels.

Operating income for the first six months of 2014 decreased to $143.2 million, or 0.4 percent, as compared to $143.8 million generated in the same period last year. The decrease of $0.6 million was primarily due to the Trucking/Logistics segment that experienced a $2.0 million decrease in operating income. In addition, Corporate costs rose by $0.5 million on a year over year basis. These factors were somewhat offset by the Oilfield Services segment that experienced a $1.9 million increase in operating income. As a percentage of revenue, operating income decreased to 19.7 percent as compared to 20.7 percent in 2013. This 1.0 percent decrease in operating margin largely was due to a generally more competitive environment in the Trucking/Logistics segment.

Net income in the first six months of 2014 decreased to $61.9 million, or 13.8 percent, as compared to $71.8 million in 2013. The decrease of $9.9 million was mainly attributable to a $20.7 million negative variance in the fair value of investments and a $4.3 million increase in the loss on sale of property, plant and equipment. These decreases were somewhat offset by a $12.6 million positive variance in unrealized foreign exchange and a $2.5 million reduction in income tax expense. Mullen Group's adjusted net income and earnings per share in the first six months of 2014 was $62.3 million and $0.68 per share, as compared to $66.4 million and $0.75 per share in 2013, respectively.

"2014 has begun very much as we expected. Markets are competitive, demand has remained elusive and costs are rising. I am optimistic, however, that the balance of the year will be more positive primarily due to our expectations that drilling activity in Canada will be stronger as the year progresses. Our strategy is to remain focused on operating efficiencies and to raise pricing as market fundamentals improve," added Mr. Mullen.

Also today, Mullen Group announces that it has priced a proposed offering of senior unsecured notes on a private placement basis with a principal amount of approximately $400.0 million. The notes have an average term of approximately 11 years and a weighted average fixed interest rate of approximately 3.95 percent per annum. The private placement is subject to customary due diligence and closing conditions and is expected to close on or about October 22, 2014. Mullen Group intends to use the proceeds to repay portions of our existing private placement debt and for general corporate purposes.

"Maintaining a strong and well structured balance sheet is one of Mullen Group's key strategic objectives, which is why I am so pleased with today's announcement. Investors see the value and diversity in our business model as well as our consistent financial performance, evidenced by the strong investor demand associated with the offering. We have reduced our cost of borrowing and positioned Mullen Group for the future," said Mr. Mullen.

A summary of Mullen Group's results for the three and six month periods ended June 30, 2014 and 2013 are as follows:

SUMMARY
(unaudited) Three month
periods ended
June 30
Six month
periods ended
June 30
($ millions, except per share amounts) 2014 2013 Change 2014 2013 Change
$ $ % $ $ %
Revenue 313.4 310.3 1.0 725.4 695.8 4.3
Operating income (1) 52.0 56.0 (7.1 ) 143.2 143.8 (0.4 )
Unrealized foreign exchange (gain) loss (9.0 ) 8.4 (207.1 ) 0.8 13.4 (94.0 )
Loss on sale of property, plant and equipment 4.6 0.8 475.0 4.5 0.2 2,150.0
Decrease (increase) in fair value of investments (3.0 ) (16.3 ) (81.6 ) (0.1 ) (20.8 ) (99.5 )
Net income 25.6 27.4 (6.6 ) 61.9 71.8 (13.8 )
Net Income - adjusted (2) 15.1 20.9 (27.8 ) 62.3 66.4 (6.2 )
Earnings per share (3) 0.28 0.30 (6.7 ) 0.68 0.81 (16.0 )
Earnings per share - adjusted (2) 0.16 0.23 (30.4 ) 0.68 0.75 (9.3 )
Net cash from operating activities 83.4 75.1 11.1 118.5 92.5 28.1
Net cash from operating activities per share (3) 0.91 0.83 9.6 1.30 1.04 25.0
Cash dividends declared per Common Share 0.30 0.30 - 0.60 0.60 -
Notes:
(1) Operating income is defined as net income before depreciation of property, plant and equipment, amortization of intangible assets, finance costs, 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 unrealized foreign exchange gains and losses 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.

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. 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

  • Mullen Group Ltd.
    Mr. Murray K. Mullen
    Chairman of the Board, Chief Executive Officer and President
    403-995-5200 or Toll-free: 1-866-995-7711
    403-995-5296 (FAX)

    Mullen Group Ltd.
    Mr. P. Stephen Clark
    Chief Financial Officer
    403-995-5200 or Toll-free: 1-866-995-7711
    403-995-5296 (FAX)
    www.mullen-group.com