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.