Mullen Group Ltd. Reports 2015 Financial Results

OKOTOKS, ALBERTA--(Marketwired - Feb. 10, 2016) - Mullen Group Ltd. (TSX:MTL) ("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 quarter and year ended December 31, 2015, with comparisons to the same periods last year.

Key financial highlights for the fourth quarter and year end of 2015 and 2014 were as follows:

HIGHLIGHTS
		Three month periods ended December 31			Twelve month periods ended December 31
(unaudited) ($ millions, except per share amounts)		2015	2014	Change	2015	2014	Change
		$	$	%	$	$	%
Revenue
	Trucking/Logistics	177.5	146.1	21.5	714.8	570.9	25.2
	Oilfield Services	109.7	199.6	(45.0)	501.1	858.9	(41.7)
	Corporate and intersegment eliminations	0.5	(0.5)	-	(1.5)	(1.9)	-
Total Revenue		287.7	345.2	(16.7)	1,214.4	1,427.9	(15.0)
Operating income before depreciation and amortization (1) (2)
	Trucking/Logistics	29.8	24.2	23.1	117.9	92.4	27.6
	Oilfield Services	20.8	41.1	(49.4)	101.2	196.4	(48.5)
	Corporate	2.1	(0.4)	-	10.3	(4.1)	-
Total Operating income before depreciation and amortization (1 (2))		52.7	64.9	(18.8)	229.4	284.7	(19.4)
Net income		2.4	22.2	(89.2)	13.4	94.6	(85.8)
Net income - adjusted (1)		13.4	32.4	(58.6)	73.6	131.1	(43.9)
Earnings per share (1)		0.03	0.25	(88.0)	0.15	1.04	(85.6)
Earnings per share - adjusted (1)		0.15	0.36	(58.3)	0.80	1.44	(44.4)

(1)	Refer to notes section of Summary
(2)	Prior to this News Release, Mullen Group used the term "Operating Income", which has been replaced by the additional GAAP term "Operating income before depreciation and amortization"

For the three month period ended December 31, 2015, Mullen Group generated revenue of $287.7 million, operating income before depreciation and amortization ("OIBDA") of $52.7 million and net cash from operations of $64.8 million. During the quarter Mullen Group paid dividends of $27.5 million, paid semi-annual interest obligations of $13.6 million and invested a total of $19.4 million predominately within the Trucking/Logistics segment consisting of net capital expenditures and an acquisition to complement the January 2015 acquisition of Gardewine Group Limited Partnership ("Gardewine"). The Corporate office also continued to further develop its new transload facility in Edmonton, Alberta.

Consolidated revenue in the fourth quarter of 2015 decreased by $57.5 million or 16.7 percent as compared to $345.2 million in 2014, due to an $89.9 million decline in revenue in the Oilfield Services segment offset by a $31.4 million increase in the Trucking/Logistics segment. The steep and rapid decline in commodity prices negatively impacted industry cash flows reducing capital investment and drilling activity in western Canada. As a result virtually all Business Units within this segment experienced revenue decreases. Segment revenue declined during the quarter by 45.0 percent to $109.7 million as compared to $199.6 million last year. Specifically, the decrease was due to a reduction in revenue generated by those Business Units involved in the transportation of fluids and the servicing of wells, and from lower revenue generated by those Business Units most directly tied to oil and natural gas drilling activity in western Canada due to low customer demand, intense competition and pricing pressures. Revenue also decreased due to a reduction in demand for services related to dewatering and heavy haul freight services. These decreases were somewhat offset by greater demand for pipeline hauling associated with large diameter pipeline construction projects. Conversely, revenue in the Trucking/Logistics segment increased by $31.4 million or 21.5 percent to $177.5 million as compared to $146.1 million last year. This increase in segment revenue is attributable to incremental revenue generated by the acquisition of Gardewine and Courtesy Freight Systems Ltd. ("Courtesy"), offset by a reduction in demand for most freight services particularly within Alberta, coupled with the loss of revenue associated with the disposition of Mill Creek Motor Freight L.P. ("Mill Creek"). 

OIBDA for the fourth quarter was $52.7 million, a decrease of $12.2 million or 18.8 percent over the same period in 2014. The decrease was attributable to the Oilfield Services segment that experienced a $20.3 million decrease in OIBDA, primarily due to the negative impact of low commodity prices on customer demand for the services offered by those Business Units involved in the transportation of fluids and the servicing of wells, from those Business Units 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 $5.6 million in the Trucking/Logistics segment, which mainly resulted from the acquisition of Gardewine being somewhat offset by lower demand for most freight services in Alberta and the disposition of Mill Creek. OIBDA in the Trucking/Logistics segment increased by 23.1 percent to $29.8 million as compared to $24.2 million last year. Corporate costs decreased by $2.5 million on a year over year basis, which was mainly attributable to a $3.4 million foreign exchange gain recorded in 2015. As a percentage of consolidated revenue, OIBDA decreased to 18.3 percent as compared to 18.8 percent in 2014. This 0.5 percent decrease in operating margin was mainly due to a reduction in operating margin in the Oilfield Services segment due to the loss of revenue and a generally more competitive environment. This decrease was somewhat offset by the foreign exchange gain in Corporate and slightly improved operating margin within the Trucking/Logistics segment, which benefitted from lower direct operating expenses being somewhat offset by the acquisition of Gardewine that generated an operating margin below the segment average. 

In the fourth quarter of 2015, Mullen Group generated net income of $2.4 million or $0.03 per share, a decrease of $19.8 million compared to $22.2 million or $0.25 per share in 2014. The $19.8 million decrease in net income was mainly attributable to a $12.2 million decrease in OIBDA, a $10.8 million decrease in gain on sale of property, plant and equipment, a $10.8 million gain on sale of Mill Creek recorded in 2014 and a $6.0 million negative variance in net unrealized foreign exchange. These decreases were somewhat offset by a $14.5 million positive variance in the fair value of investments, a $4.2 million decrease in income tax expense and a $3.0 million gain on contingent consideration recorded in 2015. Adjusting Mullen Group's net income and earnings per share to eliminate the impact of the one-time expense in 2014 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 in 2014, the gain on contingent consideration in 2015 and the change in fair value of investments resulted in adjusted net income of $13.4 million and adjusted earnings per share of $0.15, as compared to $32.4 million and $0.36 per share in 2014, respectively. These adjustments more clearly reflect earnings from an operating perspective.

Mr. Murray K. Mullen, Chairman and Chief Executive Officer commented, "The oil and gas sector is quite simply a mess. Commodity prices have been decimated by the continued over supply situation, lack of demand and now ruthless financial markets, which always look to take advantage of any opportunity. The results are both evident and devastating to anyone involved in the oil and gas sector. Producers' cash flows have declined significantly, negatively impacting capital investment projects, drilling activity and overall industry demand levels for all services. In addition, the prolonged downturn has stretched industry balance sheets, another drag on investment and spending levels by the producers. Here at Mullen Group we have not been spared from the industry slowdown. Revenue and profitability have been negatively impacted, particularly in those Business Units in our Oilfield Services segment. Even our Business Units in our Trucking/Logistics segment leveraged to the Alberta and Saskatchewan markets are negatively impacted by the slowing economy. In spite of all of these challenges, our 27 Business Units in 2015 still managed to generate nearly $290.0 million in revenue in the fourth quarter, positive earnings and cash flow, allowing Mullen Group to pay the annual dividend of $1.20 per share to shareholders."

For the year ended December 31, 2015, Mullen Group generated revenue of $1,214.4 million, a decrease of $213.5 million or 15.0 percent as compared to $1,427.9 million in 2014. The decrease in revenue was due to a significant decline in revenue generated by the Oilfield Services segment being partially offset by a rise in revenue generated by the Trucking/Logistics segment. Revenue decreased by $74.8 million, $28.6 million, $52.6 million and $57.5 million in the first, second, third and fourth quarters, respectively. Revenue in the Oilfield Services segment decreased by $357.8 million, or 41.7 percent, to $501.1 million as compared to $858.9 million in 2014. This decrease was primarily due to lower demand for oilfield services in western Canada due to the steep and rapid decline in crude oil and natural gas pricing, which began in the last half of 2014, that negatively impacted industry cash flows resulting in significant reductions in drilling activity and investments into capital projects including core drilling in the oil sands. Revenue in the Trucking/Logistics segment increased by $143.9 million, or 25.2 percent, to $714.8 million from $570.9 million in 2014. This $143.9 million increase was largely due to incremental revenue resulting from the acquisition of Gardewine, Courtesy and Bernard Transport Ltd. This increase was partially offset by the loss of revenue associated with the disposition of Mill Creek and a reduction in demand for most freight services, particularly in western Canada. On a consolidated basis, fuel surcharge revenue also decreased by $17.4 million as compared to 2014, which resulted from lower diesel fuel prices.

In 2015 Mullen Group generated OIBDA of $229.4 million, a decrease of $55.3 million or 19.4 percent from the $284.7 million generated in 2014. The decrease of $55.3 million was mainly due to the Oilfield Services segment that experienced a $95.2 million decrease in OIBDA. This was somewhat offset by the Trucking/Logistics segment that experienced a $25.5 million increase in OIBDA. In addition, Corporate costs declined by $14.4 million on a year over year basis primarily due to a $15.8 million foreign exchange gain. As a percentage of revenue, OIBDA decreased to 18.9 percent as compared to 19.9 percent in 2014. This 1.0 percent decrease in operating margin was largely due to a generally more competitive environment in the Oilfield Services segment. Adjusted for the $15.8 million foreign exchange gain, OIBDA would have been $213.6 million or 17.6 percent of consolidated revenue.

In 2015 Mullen Group generated net income of $13.4 million, or $0.15 per share, a decrease of $81.2 million as compared to the $94.6 million or $1.04 per share in 2014. The decrease of $81.2 million was mainly attributable to a $55.3 million decrease in OIBDA, a $24.2 million negative variance in unrealized foreign exchange, a $10.8 million gain on sale of Mill Creek recorded in 2014, a $6.8 million decrease in gain on sale of property, plant and equipment and a $6.0 million increase in depreciation of property, plant and equipment. These decreases were somewhat offset by a $20.0 million one-time expense in 2014 related to the prepayment of the Series A and Series B Notes, a $7.1 million decrease in income tax expense and a $3.0 million gain on contingent consideration recorded in 2015. Mullen Group's adjusted net income and adjusted earnings per share in 2015 were $73.6 million and $0.80 per share, a decrease of $57.5 million or $0.64 per share compared to the $131.1 million and $1.44 per share generated in 2014, respectively.

From a balance sheet perspective, at December 31, 2015, Mullen Group had $187.1 million of working capital, which included $147.2 million of cash and cash equivalents and a current liability of $70.0 million related to the Series C Notes, which mature on June 30, 2016. Mullen Group had $522.0 million of net debt at December 31, 2015. 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. At December 31, 2015, the carrying value of these cross-currency swaps was $39.9 million and is recorded within derivative financial instruments on Mullen Group's balance sheet. The net book value of property, plant and equipment was $992.2 million, the majority of which consists of $465.2 million of real property (carrying cost of $511.5 million) and $422.3 million of trucks and trailers.

Mr. Mullen added, "2015 was a very interesting year for our company. Firstly, it was a challenging year, a fact clearly reflected in our financial performance last year. The type of cyclical downturn the oil and gas sector is experiencing spares no one. And of course the real tragedy of downturns like this is the toll it takes on people and families. Jobs are lost. Salaries and benefits for the survivors are cut, quite significantly in many instances. Many people are struggling to cope with the downturn. But there will be a recovery, jobs will once again be in demand and the industry will be stronger. Unfortunately, the cure is often preceded by much pain. Secondly, it was a year in which our diversified business model and conservative nature, and by this I am referring to our balance sheet and cash position, were validated. We always take a long term view, looking for opportunities to build sustainable competitive advantage. A perfect example of this strategy is related to the Regional Less Than Truckload business in Canada. Our latest acquisitions have now positioned Mullen Group with the largest terminal networks in Canada, serving customers and communities alike. From this perspective I am quite proud of the steps and initiatives we undertook over the course of the last couple of years. We prepared for a cyclical downturn in the oil and gas industry and undertook initiatives to grow for the future."

A summary of Mullen Group's results for the fourth quarter and year ended December 31, 2015, are as follows:

SUMMARY
	Three month periods ended December 31				Twelve month periods ended December 31
(unaudited) ($ millions, except per share amounts)	2015	2014	Change		2015	2014	Change
	$	$	%		$	$	%
Revenue	287.7	345.2	(16.7	)	1,214.4	1,427.9	(15.0	)
Operating income before depreciation and amortization(1)	52.7	64.9	(18.8	)	229.4	284.7	(19.4	)
Net unrealized foreign exchange loss	10.6	4.6	130.4		39.7	15.5	156.1
Decrease in fair value of investments	3.5	18.0	(80.6	)	19.4	20.7	(6.3	)
Net income	2.4	22.2	(89.2	)	13.4	94.6	(85.8	)
Net income - adjusted(2)	13.4	32.4	(58.6	)	73.6	131.1	(43.9	)
Earnings per share(3)	0.03	0.25	(88.0	)	0.15	1.04	(85.6	)
Earnings per share - adjusted(2)	0.15	0.36	(58.3	)	0.80	1.44	(44.4	)
Net cash from operating activities	64.8	79.1	(18.1	)	211.6	248.6	(14.9	)
Net cash from operating activities per share(3)	0.71	0.86	(17.4	)	2.31	2.72	(15.1	)
Cash dividends declared per Common Share	0.30	0.30	-		1.20	1.20	-

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)	Net income - adjusted and earnings per share - adjusted are calculated by adjusting net income and basic earnings per share by the impact of the one-time expense in 2014 related to the prepayment of the Series A and Series B Notes, the amount of any net unrealized foreign exchange gains and losses, the gain on sale of Mill Creek, the gain on contingent consideration 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.

OIBDA, 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
		December 31
(thousands)		2015	2014
		$	$
Assets
Current assets:
	Cash and cash equivalents	147,243	325,365
	Trade and other receivables	159,963	209,835
	Inventory	30,278	38,147
	Prepaid expenses	9,620	10,010
	Current tax receivable	6,019	5,835
		353,123	589,192
Non-current assets:
	Property, plant and equipment	992,206	911,699
	Goodwill	344,186	257,795
	Intangible assets	30,107	31,437
	Investments	42,495	52,792
	Deferred tax assets	9,807	9,078
	Derivative financial instruments	39,949	9,345
	Other assets	5,162	799
		1,463,912	1,272,945
Total Assets		1,817,035	1,862,137
Liabilities and Equity
Current liabilities:
	Accounts payable and accrued liabilities	83,156	117,438
	Dividends payable	9,166	9,161
	Current tax payable	1,878	2,102
	Current portion of long-term debt	71,856	-
		166,056	128,701
Non-current liabilities:
	Long-term debt	696,859	692,909
	Convertible debentures - debt component	12,186	12,083
	Deferred tax liabilities	135,290	127,501
		844,335	832,493
Equity:
	Share capital	778,448	777,262
	Convertible debentures - equity component	550	550
	Contributed surplus	11,597	10,463
	Retained earnings	16,049	112,668
		806,644	900,943
Total Liabilities and Equity		1,817,035	1,862,137

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)		2015	2014	2015	2014
		$	$	$	$
		(unaudited)
Revenue		287,686	345,160	1,214,372	1,427,851
Direct operating expenses		200,369	241,510	844,025	985,163
Selling and administrative expenses		34,612	38,700	140,928	157,947
Operating income before depreciation and amortization		52,705	64,950	229,419	284,741
Depreciation of property, plant and equipment		19,534	17,924	75,275	69,295
Amortization of intangible assets		4,725	4,306	18,972	15,866
Finance costs		9,024	8,665	35,815	47,370
Net unrealized foreign exchange loss		10,619	4,639	39,701	15,570
Other (income) expense		1,784	(1,639)	16,289	4,897
Income before income taxes		7,019	31,055	43,367	131,743
Income tax expense		4,658	8,784	30,001	37,110
Net income and total comprehensive income		2,361	22,271	13,366	94,633
Retained earnings, beginning of period		41,186	117,879	112,668	127,737
Dividends declared to common shareholders		(27,498)	(27,482)	(109,985)	(109,702)
Retained earnings, end of period		16,049	112,668	16,049	112,668
Earnings per share:
	Basic	0.03	0.25	0.15	1.04
	Diluted	0.03	0.24	0.15	1.02
Weighted average number of Common Shares outstanding:
	Basic	91,661	91,608	91,653	91,377
	Diluted	91,661	92,888	91,687	93,027

CONSOLIDATED STATEMENT OF CASH FLOWS
			Three month periods ended December 31		Twelve month periods ended December 31
(thousands)			2015	2014	2015	2014
			$	$	$	$
			(unaudited)
Cash provided by (used in):
Cash flows from operating activities:
	Net income		2,361	22,271	13,366	94,633
	Adjustments for:
		Depreciation of property, plant and equipment	19,534	17,924	75,275	69,295
		Amortization of intangible assets	4,725	4,306	18,972	15,866
		Finance costs	9,024	8,665	35,815	47,370
		Stock-based compensation expense	333	281	1,470	1,633
		Unrealized foreign exchange gain on cross-currency swaps	(4,924)	(7,022)	(30,604)	(9,345)
		Foreign exchange	11,815	10,157	53,585	22,770
		Change in fair value of investments	3,546	17,969	19,432	20,726
		Loss (gain) on sale of property, plant and equipment	2,043	(8,819)	2,367	(4,523)
		Income tax expense	4,658	8,784	30,001	37,110
		Earnings from equity investments	(805)	5	(2,510)	(512)
		Gain on sale of subsidiary	-	(10,794)	-	(10,794)
		Gain on contingent consideration	(3,000)	-	(3,000)	-
			49,310	63,727	214,169	284,229
Changes in non-cash working capital items from operating activities:
	Trade and other receivables		21,976	24,869	77,791	22,995
	Inventory		1,645	(590)	83	(4,107)
	Prepaid expenses		4,148	4,468	1,714	804
	Accounts payable and accrued liabilities		(9,872)	377	(43,540)	2,520
Cash generated from operating activities			67,207	92,851	250,217	306,441
Income tax paid			(2,449)	(13,665)	(38,645)	(57,856)
Net cash from operating activities			64,758	79,186	211,572	248,585
Cash flows from financing activities:
	Cash dividends paid to common shareholders		(27,498)	(27,482)	(109,980)	(109,607)
	Interest paid		(13,613)	(7,670)	(35,210)	(24,403)
	Proceeds of long-term debt		-	426,415	-	426,415
	Repayment of long-term debt and loans		(1,466)	(188,513)	(4,789)	(188,904)
	Net proceeds from Common Share issuances		-	28	850	10,076
	Changes in non-cash working capital items from financing activities		(179)	189	663	394
Net cash (used in) from financing activities			(42,756)	202,967	(148,466)	113,971
Cash flows from investing activities:
	Acquisitions		(10,797)	(28,606)	(176,776)	(28,606)
	Purchase of property, plant and equipment		(10,017)	(50,477)	(73,293)	(125,743)
	Proceeds on sale of property, plant and equipment		2,620	35,459	7,744	56,272
	Purchase of investments		-	-	(6,625)	(3,543)
	Cash contribution to equity investee		-	(2,560)	-	(2,560)
	Interest received		129	523	507	1,112
	Other assets		17	743	(4,363)	770
	Changes in non-cash working capital items from investment activities		(1,019)	3,947	(5,142)	4,231
Net cash used in investing activities			(19,067)	(40,971)	(257,948)	(98,067)
Change in cash and cash equivalents			2,935	241,182	(194,842)	264,489
Cash and cash equivalents, beginning of period			140,580	82,184	325,365	58,236
Effect of exchange rate fluctuations on cash held			3,728	1,999	16,720	2,640
Cash and cash equivalents, end of period			147,243	325,365	147,243	325,365

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. 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.