Mullen Group Ltd.
TSX : MTL

Mullen Group Ltd.

July 22, 2015 18:34 ET

Mullen Group Ltd.: Reports Second Quarter Financial Results

OKOTOKS, ALBERTA--(Marketwired - July 22, 2015) - (TSX:MTL) Mullen Group Ltd. ("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, 2015, with comparisons to the same period last year.

Key financial highlights for the second quarter of 2015 and 2014 were as follows:

HIGHLIGHTS
(unaudited)
($ millions, except per share amounts)
Three month periods ended
June 30
Six month periods ended
June 30
2015 2014 Change 2015 2014 Change
$ $ % $ $ %
Revenue
Oilfield Services 111.2 175.9 (36.8 ) 269.4 448.5 (39.9 )
Trucking/Logistics 174.1 137.9 26.3 354.2 278.1 27.4
Corporate and intersegment eliminations (0.5 ) (0.4 ) - (1.6 ) (1.2 ) -
Total Revenue 284.8 313.4 (9.1 ) 622.0 725.4 (14.3 )
Operating Income
Oilfield Services 20.3 33.6 (39.6 ) 52.8 103.5 (49.0 )
Trucking/Logistics 29.4 21.1 39.3 54.4 42.2 28.9
Corporate (3.3 ) (2.7 ) - 4.0 (2.5 ) -
Total Operating Income (1) 46.4 52.0 (10.8 ) 111.2 143.2 (22.3 )
Net income 0.9 25.6 (96.5 ) 3.7 61.9 (94.0 )
Net income - adjusted (1) 11.2 15.1 (25.8 ) 36.1 62.3 (42.1 )
Earnings per share (1) 0.01 0.28 (96.4 ) 0.04 0.68 (94.1 )
Earnings per share - adjusted (1) 0.12 0.16 (25.0 ) 0.39 0.68 (42.6 )
(1) Refer to notes section of Summary

For the three month period ended June 30, 2015, Mullen Group generated consolidated revenue of $284.8 million, operating income of $46.4 million and net cash from operations of $62.7 million. During the quarter Mullen Group paid dividends of $27.5 million, incurred net capital expenditures of $10.7 million predominately within the Trucking/Logistics segment and paid semi-annual interest obligations of $13.2 million. Mullen Group ended the second quarter with approximately $138.3 million of cash and cash equivalents.

Consolidated revenue in the second quarter decreased by $28.6 million, or 9.1 percent, to $284.8 million as compared to $313.4 million in 2014, due to a $64.7 million decline in revenue in the Oilfield Services segment offset by a $36.2 million increase in the Trucking/Logistics segment. The Oilfield Services segment continued to be negatively impacted by steep reductions in capital investment, new projects and drilling activity by the oil and natural gas industry in western Canada. As a result virtually all Operating Entities within this segment experienced revenue decreases. Segment revenue declined during the quarter by 36.8 percent to $111.2 million as compared to $175.9 million last year. Specifically, the decrease was due to a reduction in revenue generated by those Operating Entities involved in the transportation of fluids and servicing of wells, as a result of low customer demand, intense competition and pricing pressures. Revenue also decreased due to 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 dewatering services. These decreases were somewhat offset by higher demand for pipeline hauling associated with large diameter pipeline construction projects and from the incremental revenue generated from acquiring the business of Recon Utility Search N.A. Inc. ("Recon"). Conversely, revenue in the Trucking/Logistics segment increased to $174.1 million from $137.9 million in spite of the challenging market conditions, particularly in western Canada. The 26.3 percent increase in segment revenue is attributed to incremental revenue generated by the acquisition of Gardewine Group Limited Partnership ("Gardewine") and Bernard Transport Ltd. ("Bernard"), offset by the loss of revenue associated with the disposition of Mill Creek Motor Freight L.P. ("Mill Creek").

Operating income for the second quarter was $46.4 million, a decrease of $5.6 million or 10.8 percent over the same period in 2014. The decrease was attributable to the Oilfield Services segment that experienced a $13.3 million decrease in operating income, primarily due to the negative impact of low commodity prices on customer demand for the services offered by those Operating Entities involved in the transportation of fluids and servicing of wells, from those Operating Entities most directly tied to oil and natural gas drilling activity in western Canada and from dewatering services. The declines in the Oilfield Services segment were somewhat offset by gains of $8.3 million in the Trucking/Logistics segment, which mainly resulted from the acquisition of Gardewine and Bernard. Corporate costs increased by $0.6 million on a year over year basis, which was mainly attributable to an increase in various administrative expenses including professional fees related to acquiring a minority equity interest in various companies and from a $0.7 million negative variance in foreign exchange. As a percentage of consolidated revenue, operating income decreased to 16.3 percent as compared to 16.6 percent in 2014. This 0.3 percent decrease in operating margin was mainly due to the loss of revenue and a generally more competitive environment in the Oilfield Services segment. This decrease was somewhat offset by a 1.6 percent increase in operating margin within the Trucking/Logistics segment, which benefitted from lower fuel costs, certain operational efficiencies and cost control measures.

In the second quarter of 2015, Mullen Group generated net income of $0.9 million or $0.01 per share, a decrease of $24.7 million, or 96.5 percent, compared to $25.6 million or $0.28 per share in 2014. The $24.7 million decrease in net income was mainly attributable to a $5.6 million decrease in operating income, a $10.2 million negative variance in net unrealized foreign exchange and a $7.2 million negative variance in the fair value of investments. These decreases were partially offset by a $4.8 million decrease 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 net unrealized foreign exchange gains and losses and the change in fair value of investments during the second quarter of 2015 resulted in adjusted net income of $11.2 million and adjusted earnings per share of $0.12, as compared to $15.1 million and $0.16 per share in 2014, respectively. These adjustments more clearly reflect earnings from an operating perspective.

"Our Trucking/Logistics segment continues to produce positive results, including record operating income of $29.4 million and higher margins. I am most pleased with these results given the state of the economy, which continues to underperform. In particular, the Alberta economy is in the midst of a significant slowdown making this performance even more impressive. Unfortunately, our overall results continue to be negatively impacted by the slowdown in capital spending and drilling activity by the oil and natural gas industry in western Canada, which remains under tremendous stress due to low oil and natural gas prices. Nevertheless, we adjusted to the realities of the market in what I can only describe as very challenging. Our strategy of operating a diversified business model accompanied by the initiatives we implemented last year allowed Mullen Group to minimize the impacts of the slowdown in our oilfield related business," commented Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

Mullen Group's consolidated revenue in the first six months of 2015 decreased by $103.4 million, or 14.3 percent, to $622.0 million as compared to $725.4 million in 2014. The majority of this decrease in revenue, specifically $74.8 million, occurred in the first quarter. Revenue in the Oilfield Services segment decreased by $179.1 million, or 39.9 percent, to $269.4 million as compared to $448.5 million in the same period one year earlier. This decrease was due to a reduction in revenue generated by those Operating Entities involved in the transportation of fluids and servicing of wells, a reduction in revenue from those Operating Entities most directly tied to oil and natural gas drilling activity in western Canada, the cancellation of core drilling programs within the oil sands and project delays related to large diameter pipeline construction projects. These decreases were partially offset by the incremental revenue generated from acquiring the business of Recon. Revenue in the Trucking/Logistics segment increased by $76.1 million, or 27.4 percent, to $354.2 million from $278.1 million in the same period one year earlier. This increase was largely due to the incremental revenue generated from the acquisition of Gardewine and Bernard, which was somewhat offset by Mill Creek's financial results no longer being consolidated by Mullen Group as of December 1, 2014.

Operating income for the first six months of 2015 decreased to $111.2 million, or 22.3 percent, as compared to $143.2 million generated in the same period last year. The decrease of $32.0 million was primarily due to the Oilfield Services segment that experienced a $50.7 million decrease in operating income. This decrease was somewhat offset by the Trucking/Logistics segment that experienced a $12.2 million increase in operating income. In addition, Corporate costs fell by $6.5 million on a year over year basis, which was mainly attributable to a $6.4 million positive variance in foreign exchange. As a percentage of revenue, operating income decreased to 17.9 percent as compared to 19.7 percent in 2014, reflecting the challenging market conditions.

Net income in the first six months of 2015 decreased to $3.7 million, as compared to $61.9 million in 2014. The decrease of $58.2 million was mainly attributable to a $32.0 million decrease in operating income, an $18.1 million negative variance in net unrealized foreign exchange, and an $8.6 million negative variance in the fair value of investments. These decreases were somewhat offset by a $4.5 million decrease in gain on sale of property, plant and equipment and a $0.6 million increase in earnings from equity investments. Mullen Group's adjusted net income and earnings per share in the first six months of 2015 was $36.1 million and $0.39 per share, as compared to $62.3 million and $0.68 per share in 2014, respectively.

At June 30, 2015, Mullen Group had $194.9 million of working capital which included $138.3 million of cash and cash equivalents, and $471.5 million of net debt. Mullen Group also has access to additional funding of $75.0 million from its bank credit facility, which continues to remain undrawn. The long-term debt consists mainly of its private placement debt of U.S. $314.0 million and Canadian $331.0 million. The weighted average interest rate on our U.S. dollar debt and our Canadian debt is 4.43 percent and 4.80 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.

"These are very difficult times for anyone involved in the oil and natural gas industry, which I expect will continue until oil and natural gas prices recover from current levels. The timing of the recovery remains uncertain, however we have experienced cyclical downturns many times and will manage our business appropriately. Fortunately, we strengthened our balance sheet last year and completed some timely acquisitions focused on the trucking and logistics sector, providing at least some positive in an otherwise pretty difficult market environment. We are well positioned to take advantage of future opportunities that will inevitably arise," added Mr. Mullen.

A summary of Mullen Group's results for the three and six month periods ended June 30, 2015 and 2014 are as follows:

SUMMARY
(unaudited)
($ millions, except per share amounts)
Three month periods ended
June 30
Six month periods ended
June 30
2015 2014 Change 2015 2014 Change
$ $ % $ $ %
Revenue 284.8 313.4 (9.1 ) 622.0 725.4 (14.3 )
Operating income(1) 46.4 52.0 (10.8 ) 111.2 143.2 (22.3 )
Net unrealized foreign exchange loss (gain) 1.2 (9.0 ) (113.3 ) 18.9 0.8 -
(Gain) loss on sale of property, plant and equipment (0.2 ) 4.6 (104.3 ) - 4.5 (100.0 )
Decrease (increase) in fair value of investments 4.2 (3.0 ) (240.0 ) 8.5 (0.1 ) -
Net income 0.9 25.6 (96.5 ) 3.7 61.9 (94.0 )
Net Income - adjusted(2) 11.2 15.1 (25.8 ) 36.1 62.3 (42.1 )
Earnings per share(3) 0.01 0.28 (96.4 ) 0.04 0.68 (94.1 )
Earnings per share - adjusted(2) 0.12 0.16 (25.0 ) 0.39 0.68 (42.6 )
Net cash from operating activities 62.7 83.4 (24.8 ) 104.6 118.5 (11.7 )
Net cash from operating activities per share(3) 0.68 0.91 (25.3 ) 1.14 1.30 (12.3 )
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, 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 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. Additional information regarding the forward-looking statements is found on pages 1, 47, 48 and 49 of Mullen Group's Management's Discussion and Analysis.

Mullen Group is a company that owns a network of independently operated businesses providing a wide range of specialized transportation and related services to the oil and natural gas industry in western Canada and is recognized as 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. 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