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Mullen Group Ltd. Reports Second Quarter Financial Results including Record Trucking/Logistics Segment Revenue

OKOTOKS, Alberta, July 24, 2017 (GLOBE NEWSWIRE) -- Mullen Group Ltd. (TSX:MTL) ("Mullen Group", "We", "Our" 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 period ended June 30, 2017, with comparisons to the same period last year.

Key financial highlights for the second quarter of 2017 with comparison to 2016 are as follows:

HIGHLIGHTS
(unaudited)
($ millions)
Three month periods ended
June 30
20172016Change
$$%
Revenue
Trucking/Logistics183.2169.38.2
Oilfield Services90.879.514.2
Corporate and intersegment eliminations(0.4)(1.8)-
Total Revenue273.6247.010.8
Operating income before depreciation and amortization (1)
Trucking/Logistics26.430.9(14.6)
Oilfield Services17.417.9(2.8)
Corporate(4.0)(2.8)-
Total Operating income before depreciation and amortization (1) 39.846.0(13.5)
Operating income before depreciation and amortization - adjusted (1)42.346.6(9.2)
(1) Refer to notes section of Summary

Mullen Group operates a diversified business model combined with a highly adaptable and variable cost structure. The financial results for the three month period ending June 30, 2017 are as follows:

  • generated consolidated revenue of $273.6 million, an increase of $26.6 million, or 10.8 percent, as compared to $247.0 million in 2016 due to:
    • a $13.9 million increase in the Trucking/Logistics segment (record quarterly revenue of $183.2 million)
    • an $11.3 million increase in the Oilfield Services segment
  • earned consolidated operating income before depreciation and amortization ("OIBDA") of $39.8 million, a decrease of $6.2 million as compared to $46.0 million in 2016 due to:
    • a $4.5 million decrease in the Trucking/Logistics segment
    • a $0.5 million decrease in the Oilfield Services segment
    • a $1.2 million increase in Corporate Office costs related to a $1.9 million negative variance in foreign exchange
  • adjusting for the impact of foreign exchange at the Corporate Office, operating income before depreciation and amortization ("OIBDA - adjusted") was $42.3 million, or 15.5 percent of revenue, as compared to $46.6 million, or 18.9 percent of revenue in 2016.

Second Quarter Financial Results

For the three month period ended June 30, 2017, revenue increased by $26.6 million, or 10.8 percent, to $273.6 million as compared to $247.0 million in 2016. This was attributable to a $13.9 million increase in revenue in the Trucking/Logistics segment and an $11.3 million increase in the Oilfield Services segment. The increase in the Trucking/Logistics segment was mainly due to the incremental revenue related to our recent acquisitions, greater demand for freight services in western Canada along with a $3.2 million increase in fuel surcharge revenue. These increases were somewhat offset by the completion of several major capital projects such as the Suncor Energy Fort Hills oil sands and North West Upgrader projects that have not been replaced. The increase in the Oilfield Services segment was attributable to improved drilling activity which benefited those Business Units most directly tied to oil and natural gas drilling, those Business Units involved in the transportation of fluids and servicing of wells, from greater demand for pumps and related dewatering services and from the incremental revenue generated by Envolve Energy Services Corp. ("Envolve"). These increases were partially offset by a decline in demand for pipeline hauling and stringing services due to the timing and regulatory hurdles of various projects.

OIBDA for the second quarter was $39.8 million, a decrease of $6.2 million or 13.5 percent as compared to $46.0 million in 2016. This was attributable to a $4.5 million decrease in the Trucking/Logistics segment, a $1.2 million increase in Corporate Office costs due to foreign exchange and a $0.5 million decrease in the Oilfield Services segment. The Trucking/Logistics segment generated OIBDA of $26.4 million, a decrease of $4.5 million from the $30.9 million in 2016. This decrease was mainly attributable to a change in revenue mix resulting from the completion of some major capital projects that have not been replaced. The Oilfield Services segment generated OIBDA of $17.4 million, a slight decrease of $0.5 million from the $17.9 million in 2016 due to lower demand for pipeline hauling and stringing services resulting from the timing of certain projects. This decrease was somewhat offset by improved drilling activity, the continued effects of cost control measures previously implemented, the acquisition of Envolve and from greater demand for pumps and dewatering services. As a percentage of segment revenue, operating margin in the Trucking/Logistics segment decreased to 14.4 percent from 18.3 percent in 2016 due to the change in revenue mix. Operating margin in the Oilfield Services segment decreased to 19.2 percent as compared to 22.5 percent in 2016, which was mainly due to a reduction in pipeline hauling and stringing services. Adjusting for Corporate Office costs related to the impact of foreign exchange losses on U.S. dollar cash held, OIBDA - adjusted was $42.3 million, a decrease of $4.3 million or 9.2 percent as compared to $46.6 million in 2016. Stated as a percentage of consolidated revenue, operating margin - adjusted decreased to 15.5 percent as compared to 18.9 percent in 2016.

In the second quarter of 2017, we recorded net income of $19.6 million or $0.19 per share, an increase of $5.9 million, or 43.1 percent, compared to net income of $13.7 million or $0.14 per share in 2016. The $5.9 million increase was primarily due to the $4.0 million positive variance in the fair value of investments, a $3.7 million positive variance in net unrealized foreign exchange, a $2.7 million decrease in depreciation and amortization and a $1.0 million decrease in income tax expense. These increases were partially offset by the $6.2 million decrease in OIBDA.

"This was the first quarter in several years that we began to witness a broad based recovery across most of our business lines, with the only exception being the development of major capital projects in Alberta related to the oil sands and some of the large diameter pipeline undertakings. These projects neared completion and as such the transportation and logistics component declined significantly year over year. Overall, however, I was very pleased with our performance. Revenue expanded in both segments with our Trucking/Logistics segment achieving a record for any quarter. Operating profitability and margins were negatively impacted for the reasons outlined above but were definitely supported by the strengthening in the economy and stronger drilling activity year over year. The fundamentals clearly are more constructive today than they have been for some time," commented Mr. Murray K. Mullen, Chairman and Chief Executive Officer.

Financial Position

At June 30, 2017, we had $192.5 million (December 31, 2016 - $243.1 million) of working capital that included $250.0 million (December 31, 2016 - $270.3 million) of cash and cash equivalents, of which $82.4 million (December 31, 2016 - $81.0 million) was denominated in U.S. currency. Included within non-cash working capital items is $202.1 million of current portion of long-term debt which mainly relates to the Series E (U.S. $85.0 million) and Series F ($20.0 million) Notes, which mature on September 27, 2017 and the Series D ($70.0 million) Notes which mature on June 30, 2018. At June 30, 2017, net debt was $286.4 million (December 31, 2016 - $316.3 million) and we had access to additional funding of $75.0 million from our undrawn bank credit facility. The Corporation's long-term debt consists mainly of its Private Placement Debt (which includes the Series D, Series E and Series F Notes) of U.S. $314.0 million and Canadian $261.0 million. The weighted average interest rate on our U.S. dollar debt and our Canadian dollar debt is 4.43 percent and 4.58 percent, respectively. The majority of this debt matures on October 22, 2024 and October 22, 2026. In July 2014, we 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 for an average exchange rate of $1.1096. At June 30, 2017, the carrying value of these cross-currency swaps was $30.3 million and was recorded within derivative financial instruments on the consolidated statement of financial position. The net book value of property, plant and equipment was $932.4 million, the majority of which consists of $461.7 million of real property (carrying cost of $518.3 million) and $375.1 million (carrying cost of $740.8 million) of trucks and trailers.

"It appears that the economic conditions have improved measurably to the point that there is now a healthy rebound in the economy, both nationally as well as in Alberta. In fact we are seeing the supply/demand fundamentals brought quickly into balance, which is alleviating the downward pricing pressures on trucking rates. In the last 60 days we have started to see some leverage in terms of spot market pricing, a trend that should prevail given the current economic indicators. In the oil and gas sector drilling activity levels are expected to remain strong for the balance of the year, particularly in the resource plays where the economics are more compelling. Of course drilling and capital investment by the oil and gas industry is highly dependent upon the price for crude oil and natural gas, which can be very volatile. Nevertheless, there is definitely more industry optimism today than last year, which is the best indicator we have for our Oilfield Services segment these days," added Mr. Mullen.

Six Month Period Ended Financial Results

For the six month period ended June 30, 2017, revenue increased by $39.8 million, or 7.7 percent, to $558.5 million as compared to $518.7 million in 2016. This was attributable to a $20.9 million increase in revenue in the Trucking/Logistics segment and a $16.1 million increase in the Oilfield Services segment. The increase in the Trucking/Logistics segment was mainly due to the incremental revenue related to our recent acquisitions, from greater demand for freight services in western Canada along with an increase in fuel surcharge revenue. These increases were somewhat offset by the completion of several major capital projects such as the Suncor Energy Fort Hills oil sands and North West Upgrader projects that have not been replaced. The increase in the Oilfield Services segment was attributable to improved drilling activity which benefited those Business Units most directly tied to oil and natural gas drilling, from greater demand for pumps and related dewatering services and from the incremental revenue generated by Envolve. These increases were partially offset by a decline in demand for pipeline hauling and stringing services due to the timing and regulatory hurdles of various projects and from lower revenue generated by those Business Units involved in the transportation of fluids and servicing of wells.

OIBDA – adjusted for the first six months of 2017 was $85.0 million, a decrease of $7.1 million or 7.7 percent as compared to $92.1 million in 2016. This was attributable to an $11.1 million decrease in the Trucking/Logistics segment. This decrease was somewhat offset by a $2.6 million increase in the Oilfield Services segment and a $1.4 million reduction in Corporate Office costs. The Trucking/Logistics segment generated OIBDA of $47.8 million, a decrease of $11.1 million from the $58.9 million in 2016. This decrease was mainly attributable to the completion of some major capital projects that have not been replaced. The Oilfield Services segment generated OIBDA of $39.0 million, an increase of $2.6 million from the $36.4 million in 2016 due to improved drilling activity, the continued effects of cost control measures previously implemented, the acquisition of Envolve and from greater demand for pumps and dewatering services. These improvements were somewhat offset by lower demand for pipeline hauling and stringing services due to the timing of certain projects. As a percentage of segment revenue, operating margin in the Trucking/Logistics segment decreased to 13.1 percent from 17.2 percent in 2016 due to the completion of major capital projects, contracts that generated higher margins due to the scope of work required. Operating margin in the Oilfield Services segment decreased slightly to 20.0 percent as compared to 20.3 percent in 2016. Stated as a percentage of consolidated revenue, operating margin - adjusted decreased to 15.2 percent as compared to 17.8 percent in 2016.

In the first six months of 2017, we recorded net income of $34.1 million or $0.33 per share, a decrease of $1.0 million, or 2.8 percent, compared to net income of $35.1 million or $0.37 per share in 2016. The $1.0 million decrease was primarily due to the $10.5 million negative variance in net unrealized foreign exchange and a $3.4 million decrease in OIBDA. These decreases were partially offset by the $6.6 million decrease in depreciation and amortization, a $3.1 million positive variance in the fair value of investments, a $1.9 million decrease in finance costs and a $1.5 million gain on the fair value of an equity investment.

A summary of Mullen Group's results for the three and six month periods ended June 30, 2017 and 2016 are as follows:

SUMMARY
(unaudited)
($ millions, except per share amounts)
Three month periods ended
June 30
Six month periods ended
June 30
20172016Change 20172016Change
$$% $$%
Revenue273.6247.010.8 558.5518.77.7
Operating income before depreciation and amortization(1)39.846.0(13.5) 81.584.9(4.0)
Operating income before depreciation and amortization - adjusted(2)42.346.6(9.2) 85.092.1(7.7)
Net unrealized foreign exchange (gain) loss(9.4)(5.7)64.9 (11.7)(22.2)(47.3)
Decrease in fair value of investments0.24.2(95.2) 1.24.3(72.1)
Net income19.613.743.1 34.135.1(2.8)
Net income - adjusted(3)9.911.9(16.8) 21.517.324.3
Earnings per share(4)0.190.1435.7 0.330.37(10.8)
Earnings per share - adjusted(3)0.100.12(16.7) 0.210.1816.7
Net cash from operating activities35.548.9(27.4) 39.883.4(52.3)
Net cash from operating activities per share(4)0.340.50(32.0) 0.380.88(56.8)
Cash dividends declared per Common Share0.090.14(35.7) 0.180.38(52.6)
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) Operating income before depreciation and amortization - adjusted ("OIBDA - adjusted") 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, income taxes and foreign exchange gains and losses recognized within the Corporate Office.
(3) 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.
(4) 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.

Non-GAAP and Additional GAAP Terms - Mullen Group reports on certain financial performance measures that are described and presented in order to provide shareholders and potential investors with additional measures to evaluate Mullen Group's ability to fund its operations and information regarding its liquidity. In addition, these measures are used by management in its evaluation of performance. These financial performance measures ("Non-GAAP and Additional GAAP Terms") are not recognized financial terms under Canadian generally accepted accounting principles ("Canadian GAAP"). For publicly accountable enterprises, such as Mullen Group, Canadian GAAP is governed by principles based on IFRS and interpretations of IFRIC. Management believes these Non-GAAP and Additional GAAP Terms are useful supplemental measures. These Non-GAAP and Additional GAAP Terms do not have standardized meanings and may not be comparable to similar measures presented by other entities. Specifically, OIBDA, operating margin, OIBDA - adjusted, operating margin – adjusted, 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. 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. Additional information regarding the forward-looking statements is found on pages 1, 56 and 57 of Mullen Group's Management's Discussion and Analysis.

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 the capital and financial expertise, legal support, 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.

For further information, please contact:
Mr. Murray K. Mullen - Chairman of the Board, Chief Executive Officer and President
Mr. P. Stephen Clark - Chief Financial Officer
Mr. Richard J. Maloney - Senior Vice President

121A - 31 Southridge Drive
Okotoks, Alberta, Canada T1S 2N3
Telephone: 403-995-5200
Fax: 403-995-5296

Source: Mullen Group Ltd