Mr. Murray Mullen reports
MULLEN GROUP LTD. REPORTS 2015 FINANCIAL RESULTS
Mullen Group Ltd. is releasing its financial and operating results for the quarter and year ended Dec. 31, 2015, with comparisons with the same periods last year.
KEY FINANCIAL HIGHLIGHTS
(in millions of dollars, except per-share amounts)
Three-month period ended 12-month period ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2015 2014 2015 2014
Revenue
Trucking and logistics $ 177.5 $ 146.1 $ 714.8 $ 570.9
Oil field services 109.7 199.6 501.1 858.9
Corporate and intersegment
eliminations 0.5 (0.5) (1.5) (1.9)
Total revenue 287.7 345.2 1,214.4 1,427.9
Operating income before
depreciation and
amortization
Trucking and logistics 29.8 24.2 117.9 92.4
Oil field services 20.8 41.1 101.2 196.4
Corporate 2.1 (0.4) 10.3 (4.1)
Total operating income
before depreciation and
amortization 52.7 64.9 229.4 284.7
Net income 2.4 22.2 13.4 94.6
Net income, adjusted 13.4 32.4 73.6 131.1
Earnings per share $ 0.03 $ 0.25 $ 0.15 $ 1.04
Earnings per share,
adjusted $ 0.15 $ 0.36 $ 0.80 $ 1.44
For the three-month period ended Dec. 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 and logistics segment, consisting of net capital expenditures and an acquisition to complement the January, 2015, acquisition of Gardewine Group LP. The corporate office also continued to further develop its new transload facility in Edmonton, Alta.
Consolidated revenue in the fourth quarter of 2015 decreased by $57.5-million or 16.7 per cent, as compared with $345.2-million in 2014, due to an $89.9-million decline in revenue in the oil field services segment offset by a $31.4-million increase in the trucking and 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 per cent to $109.7-million, as compared with $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 and logistics segment increased by $31.4-million or 21.5 per cent to $177.5-million, as compared with $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., 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 LP.
OIBDA for the fourth quarter was $52.7-million, a decrease of $12.2-million or 18.8 per cent over the same period in 2014. The decrease was attributable to the oil field 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 oil field services segment were somewhat offset by gains of $5.6-million in the trucking and 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 and logistics segment increased by 23.1 per cent to $29.8-million, as compared with $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 per cent, as compared with 18.8 per cent in 2014. This 0.5-per-cent decrease in operating margin was mainly due to a reduction in operating margin in the oil field 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 and logistics segment, which benefited 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 three cents per share, a decrease of $19.8-million compared with $22.2-million or 25 cents 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 15 cents, as compared with $32.4-million and 36 cents per share in 2014, respectively. These adjustments more clearly reflect earnings from an operating perspective.
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 oversupply 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 oil field services segment. Even our business units in our trucking and 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 Dec. 31, 2015, Mullen Group generated revenue of $1,214.4-million, a decrease of $213.5-million or 15.0 per cent as compared with $1,427.9-million in 2014. The decrease in revenue was due to a significant decline in revenue generated by the oil field services segment being partially offset by a rise in revenue generated by the trucking and 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 oil field services segment decreased by $357.8-million, or 41.7 per cent, to $501.1-million, as compared with $858.9-million in 2014. This decrease was primarily due to lower demand for oil field 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, which 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 and logistics segment increased by $143.9-million, or 25.2 per cent, 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 with 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 per cent from the $284.7-million generated in 2014. The decrease of $55.3-million was mainly due to the oil field services segment that experienced a $95.2-million decrease in OIBDA. This was somewhat offset by the trucking and 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 per cent, as compared with 19.9 per cent in 2014. This 1.0-per-cent decrease in operating margin was largely due to a generally more competitive environment in the oil field services segment. Adjusted for the $15.8-million foreign exchange gain, OIBDA would have been $213.6-million or 17.6 per cent of consolidated revenue.
In 2015, Mullen Group generated net income of $13.4-million, or 15 cents per share, a decrease of $81.2-million as compared with 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 80 cents per share, a decrease of $57.5-million or 64 cents per share compared with the $131.1-million and $1.44 per share generated in 2014, respectively.
From a balance sheet perspective, at Dec. 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 Dec. 31, 2015. Mullen Group also has access to additional financing 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 $314.0-million (U.S.) and $331.0-million (Canadian). The weighted average interest rates on the company's U.S.-dollar debt and its Canadian-dollar debt are 4.43 per cent and 4.80 per cent, respectively. The majority of this debt matures on Oct. 22, 2024, and Oct. 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 Dec. 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: "Two thousand fifteen 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."
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND RETAINED EARNINGS
(in thousands of dollars, except per-share amounts)
Three-month period 12-month period
ended Dec. 31, ended Dec. 31,
2015 2014 2015 2014
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
We seek Safe Harbor.
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