Mullen Group Ltd. - Annual Report 2019

2019 ANNUAL FINANCIAL REVIEW

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MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis (" MD&A "), dated February 12, 2020, has been prepared by management of Mullen Group Ltd. (" Mullen Group " and/or the " Corporation ") for the fiscal year ended December 31, 2019, and should be read in conjunction with the audited annual consolidated financial statements for the fiscal year ended December 31, 2019 (the " Annual Financial Statements "). Unless otherwise specified, information in this MD&A is provided as at such date and any reference to "Mullen Group", "we", "us", "our" or the "Corporation" means Mullen Group Ltd., a corporation incorporated under the laws of the province of Alberta and includes its predecessors where context so requires. The Annual Financial Statements and other additional information on Mullen Group, including the Annual Information Form dated February 12, 2020, are available on SEDAR at www.sedar.com and at www.mullen-group.com. Such documents are also available upon request, free of charge, from the Corporate Investor Services group at [email protected]. This MD&A and the Annual Financial Statements were reviewed by Mullen Group's Audit Committee and approved by the Board of Directors (the " Board ") on February 12, 2020.

ACCOUNTING PRINCIPLES

The Annual Financial Statements have been prepared in accordance to and comply with International Financial Reporting Standards (" IFRS "), which include the International Accounting Standards (" IAS ") and the interpretations developed by the International Financial Reporting Interpretations Committee (" IFRIC "), as issued by the International Accounting Standards Board (" IASB "). Unless otherwise indicated, all amounts contained in this MD&A are in Canadian funds, which is the functional currency of the Corporation.

ADVISORY:

Forward-looking statements - This MD&A reflects management's expectations regarding Mullen Group's future growth, financial condition, results of operations, performance, business prospects, strategies and opportunities and contains forward-looking statements and forward-looking information (collectively, " forward-looking statements ") within the meaning of applicable securities laws. Wherever possible, words such as "anticipate", "may", "will", "believe", "expect", "potential", "continue", "view", "objective", "should", "plan", "intend", "ongoing", "estimate", "project" or similar expressions have been used to identify these forward-looking statements. These statements reflect management's current beliefs and assumptions and are based on information currently available to management. Forward-looking statements involve significant inherent risks and uncertainties, numerous assumptions and the risk that the predictions and forward-looking statements will not be achieved and that the actual results or events may differ materially from those anticipated in such forward-looking statements. A number of factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. Although the forward-looking statements contained in this MD&A are based upon what management believes to be reasonable beliefs and assumptions, Mullen Group cannot assure readers that actual results will be consistent with these forward-looking statements. Some of the risks and uncertainties include, but are not limited to certain strategic, financial and operational risks, most important of which are reduced oil and natural gas drilling, decreased oil sands and heavy oil activity, a slowdown in the general economy, currency exchange rates, change in the return on fair value of investments, prevailing interest rates, regulatory framework governing taxes and environmental matters in the jurisdictions in which the Corporation conducts and will conduct its business, customer relationships, labour disruption and driver retention, accidents, cost of liability insurance, fuel prices, ability to access sufficient capital from internal and external sources and changes in legislation including but not limited to tax laws and environmental regulations. Given these risks and uncertainties, readers should not place undue reliance on the forwardlooking statements contained in this MD&A. Readers are cautioned that the foregoing list of factors and risks is not exhaustive. Additional information on these and other factors and risks that could affect the operations or financial results of Mullen Group may be found under the heading "Principal Risks and Uncertainties" starting on page 65 as well as in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website at www.sedar.com. The forward-looking statements contained in this MD&A are made as of the date hereof and Mullen Group undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities law. Mullen Group relies on litigation protection for "forward-looking" statements. Additional information regarding the forwardlooking statements contained in this MD&A and the material assumptions made in preparing such statements may be found under the heading "ForwardLooking Information Statements" beginning on page 85 of this MD&A.

Non-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 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 Terms are useful supplemental measures. These Non-GAAP Terms do not have standardized meanings and may not be comparable to similar measures presented by other entities. Specifically, operating margin[1] , net income – adjusted[1] , earnings per share – adjusted[1] , net capital expenditures[1] , net debt[1] , total net debt[1] and cash flow per share[1] are not measures recognized by Canadian GAAP and do not have standardized meanings prescribed by Canadian GAAP. For the reader's reference, the definition, calculation and reconciliation of Non-GAAP Terms are provided in the "Glossary of Terms and Reconciliation of Non-GAAP Terms" section of this MD&A. The Non-GAAP Terms should not be considered in isolation or as a substitute for measures prepared in accordance with Canadian GAAP. Investors are cautioned that these indicators should not replace the forgoing Canadian GAAP terms: net income, earnings per share, purchases of property, plant and equipment, proceeds on sale of property, plant and equipment and debt.

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2019 ANNUAL FINANCIAL REVIEW

FINANCIAL HIGHLIGHTS – CONSOLIDATED

PERFORMANCE: *($ millions, except shareprice andper share amounts)*	Years ended December	Years ended December	31
	2019	2018	2017
Financial Results Revenue Operating income before depreciation and amortization(1) Net foreign exchange (gain) loss Decrease in fair value of investments Impairment of goodwill Net income (loss) Net income – adjusted(2) Net cash from operating activities Cash dividends declared	$ 1,278.5 $ 200.9 (14.1) — — 72.2 48.2 170.6 62.9	1,260.8 189.0 8.5 3.1 100.0 (43.8) 62.0 140.7 62.6	$ 1,138.5 172.2 (21.7) 0.7 — 65.5 42.2 142.1 37.3
Financial Position Cash and cash equivalents Long-term debt (includes the current portion thereof and the debt component of Debentures) Total assets	$ 79.0 $ 616.8 1,749.3	3.9 512.2 1,645.9	$ 134.5 540.0 1,750.7
Share Information Cash dividends declared per Common Share Earnings (loss) per share – basic Earnings (loss) per share – diluted Earnings per share – adjusted(2) Share price – December 31	$ 0.60 $ $ 0.69 $ $ 0.69 $ $ 0.46 $ $ 9.27 $	0.60 (0.42) (0.42) 0.59 12.21	$ 0.36 $ 0.63 $ 0.63 $ 0.41 $ 15.74
Other Information Net capital expenditures(2) Acquisitions	$ 68.5 $ $ 15.7 $	87.5 45.8	$ 19.8 $ 37.9

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1
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1 Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

POSITION:

Well-structured balance sheet with ample liquidity:
Working capital: $243.3 million (includes $79.0 million of cash and cash equivalents)
Net debt[1] of $362.8 million, which represents a debt to OIBDA ratio of 1.81:1
Private Placement Debt of $467.4 million (operating cash flow covenant at 2.30:1)
Unused Bank Credit Facility of $150.0 million
Net book value of property, plant and equipment of $954.6 million, which includes $571.4 million of carrying costs of owned real property

PROGRESS:

Revenue increased by $17.7 million on a year over year basis;
Record Trucking/Logistics segment results – revenue up 1.0 percent to $881.6 million
Oilfield Services segment increased by 2.6 percent to $400.1 million
OIBDA increased by 6.3 percent from the prior year (including the effect of IFRS 16 – Leases);
Record Trucking/Logistics segment results up 8.7 percent to $139.6 million
Oilfield Services segment increased by 6.0 percent to $70.8 million
Issued an aggregate principal amount of $125.0 million of convertible unsecured subordinated debentures at 5.75 percent per annum maturing November 2026
Net capital expenditures[1] were $68.5 million as we continued to expand our real estate holdings (continued construction on our 24,000 square foot less-than-truckload cross dock facility in Regina, Saskatchewan) as well as fund growth opportunities within both operating segments
Net cash from operating activities increased by $29.9 million or 21.3 percent to $170.6 million

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1 Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

SEVEN YEAR SELECTED FINANCIAL DATA

Consolidated

Years ended December 31 *($ thousands)* *(unaudited)*	2019	2018	2017	2016	2015	2014	2013
	$	$	$	$	$	$	$
Revenue Expenses Direct operating expenses Selling and administrative expenses Operating income before depreciation and amortization(1) Depreciation and amortization Finance costs Net foreign exchange (gain) loss Other (income) expense Impairment of goodwill Gain on contingent consideration Income (loss) before income taxes Income tax expense Net income (loss)	1,278,502	1,260,798 902,813 168,970	1,138,489 811,378 154,953	1,035,059 711,847 142,179	1,214,372 844,025 140,928	1,427,851 985,163 157,947	1,437,166 983,382 153,101

	909,911
	167,679
	200,912	189,015 87,489 20,027 8,537 (445) 100,000 —	172,158 86,570 27,499 (21,693) (504) — (2,000)	181,033 85,300 32,460 (5,778) (2,694) — —	229,419 94,247 35,815 39,701 19,289 — (3,000)	284,741 85,161 47,370(2) 15,570 4,897 — —	300,683 86,242 26,305 16,144 (20,710) — —
	111,491
	23,625
	(14,140)
	(201)
	—
	—
	80,137	(26,593) 17,194	82,286 16,777	71,745 19,707	43,367 30,001	131,743 37,110	192,702 49,407
	7,896
	72,241	(43,787)	65,509	52,038	13,366	94,633	143,295

Segmented Information

Years ended December 31 *($ thousands)* *(unaudited)*	2019	2018	2017	2016	2015	2014	2013
	$	$	$	$	$	$	$
Trucking/Logistics Segment Revenue Direct operating expenses Selling and administrative expenses Operating income before depreciation and amortization(1) Operating margin(3)		873,337 637,862 107,038	761,379 560,572 91,145	689,516 487,975 84,864	714,844 510,779 86,126	570,892 414,078 64,410	553,940 400,972 60,128
	881,624
	635,346
	106,720
	139,558	128,437 14.7%	109,662 14.4%	116,677 16.9%	117,939 16.5%	92,404 16.2%	92,840 16.8%
	15.8%
Oilfield Services Segment Revenue Direct operating expenses Selling and administrative expenses Operating income before depreciation and amortization(1) Operating margin(3)		389,934 274,085 49,084	378,375 257,792 46,364	350,506 231,863 46,225	501,054 337,843 61,977	858,893 578,236 84,248	886,296 590,964 83,026
	400,136
	282,701
	46,597
	70,838	66,765 17.1%	74,219 19.6%	72,418 20.7%	101,234 20.2%	196,409 22.9%	212,306 24.0%
	17.7%

(1) OIBDA increased by approximately $13.1 million ($10.9 million in the Trucking/Logistics segment and $2.2 million in the Oilfield Services segment) in the current year due to the adoption of IFRS 16 – Leases effective January 1, 2019.

(2) Includes a one-time $20.0 million prepayment expense, which resulted from Mullen Group's decision to repay its Series A and Series B Notes prior to maturity.

(3) Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

Other Information

Years ended December 31 *($ thousands)* *(unaudited)*	2019 2018 2017 2016*	2015	2014 2013
Ratios– Operating Return on equity(1) Gross margin – percentage of revenue(2) Selling and administrative expenses – percentage of revenue Operating margin(3) Operating ratio(4)	8.0% 3.5% 6.7% 5.9% 28.8% 28.4% 28.7% 31.2% 13.1% 13.4% 13.6% 13.7% 15.7% 15.0% 15.1% 17.5% 93.2% 92.2% 92.4% 90.7%	1.6% 30.5% 11.6% 18.9% 90.4%	10.5% 16.6% 31.0% 31.6% 11.1% 10.7% 19.9% 20.9% 86.4% 83.7%
Financial Position Acid test ratio(5) Property, plant and equipment Total assets Long-term debt (including current portion) Equity Debt-to-equity ratio(6) Total net debt to operating cash flow(7) Net cash from operating activities	2.74:1 1.74:1 1.76:1 1.88:1 $954,604 $965,683 $916,140 $948,540 $1,749,292 $1,645,852 $1,750,657 $1,873,027 $616,842 $512,185 $539,973 $695,697 $917,921 $898,076 $989,731 $960,410 0.67:1 0.57:1 0.55:1 0.72:1 2.30:1 2.46:1 2.40:1 2.37:1 $170,653 $140,710 $142,085 $174,314	1.85:1 $992,206 $1,817,035 $780,901 $806,644 0.97:1 3.33:1 $211,572	4.16:1 2.37:1 $911,699 $903,256 $1,862,137 $1,587,609 $704,992 $425,556 $900,943 $900,112 0.78:1 0.47:1 2.42:1 1.36:1 $248,585 $214,401
Share Data Net cash from operating activities per share Book value per share(8) Earnings (loss) per share (basic)(9) Price/earnings ratio(10) Weighted number of shares outstanding (thousands) Total shares outstanding (thousands)	$1.63 $1.35 $1.37 $1.76 $8.76 $8.57 $9.55 $9.27 $0.69 $(0.42) $0.63 $0.52 13.4 37.0 25.0 38.1 104,825 104,274 103,654 99,165 104,825 104,825 103,654 103,654	$2.31 $8.80 $0.15 93.4 91,653 91,661	$2.72 $2.39 $9.83 $9.93 $1.04 $1.60 20.5 17.7 91,377 89,764 91,611 90,662

2018 operating ratios and share data are calculated before the effect of the impairment of goodwill.

NOTES:

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2019 ANNUAL FINANCIAL REVIEW

SHAREHOLDER INFORMATION

Mullen Group's shares are listed on the Toronto Stock Exchange (" TSX ") under the trading symbol MTL.

Mullen Group's Total Shareholder Return consists of a combination of its annual dividend and the variance of its share price on an ongoing basis.

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The following table and graph illustrate the cumulative return of our Common Shares at the end of each financial year, assuming an initial investment of $100 on December 31, 2012, compared to the S&P/TSX Composite Total Return Index, assuming the reinvestment of all declared dividends and distributions where applicable.

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2019 ANNUAL FINANCIAL REVIEW

EXECUTIVE SUMMARY

The last quarter of 2019 was very challenging, to say it politely, which is reflective of the overall pressures associated with the current macro environment. The economy is clearly stuck in neutral, at best, contributing to what is referred to as freight recession, arising from weak shipper demand, accompanied by changes to the supply chain, an inventory overhang as suppliers ramped up shipments earlier in the year and excessive truck capacity. These factors are the primary reason the Trucking/Logistics segment struggled to show any meaningful growth during the quarter, in spite of a relatively strong performance in our less-than-truckload (" LTL ") business, which continues to benefit from solid consumer demand. And while growth in this segment slowed, we still managed to increase revenue and grow market share, primarily through some small tuck-in type acquisitions. Overall, we are quite pleased with the results generated, given the competitive market conditions.

Consolidated revenue was negatively impacted by declines in oilfield services. The issues surrounding western Canada's oil and natural gas industry remain front and centre and are the primary reason for the revenue and profitability declines in the fourth quarter. Adding to the lack of demand for nearly all oilfield services, is competitive pricing, the main reason we decided to demarket certain customers and contract hauls. We have always made the conscious decision to protect margin and not chase unprofitable business knowing this is the right long-term decision given the capital requirements of this business.

2019 ended just about on plan although the fourth quarter was more difficult than we had originally anticipated. Nevertheless, we generated another strong year in terms of cash from operations, paid shareholders a healthy $0.60 dividend per Common Share, exited the year with $79.0 million in cash and an unused bank line of $150.0 million. We are well positioned to grow the business in the new decade as the macro environment stabilizes and the right acquisition opportunities become available.

Mullen Group operates a diversified business model combined with a highly adaptable and variable cost structure. The financial results for the three month period ended December 31, 2019, are as follows:

generated consolidated revenue of $314.6 million, a decrease of $18.7 million, or 5.6 percent, as compared to $333.3 million in 2018 due to:
record fourth quarter revenue in the Trucking/Logistics segment, a $4.9 million increase to $224.6 million
a decrease of $22.7 million or 19.9 percent in the Oilfield Services segment
earned consolidated OIBDA of $49.9 million, a decrease of $1.8 million as compared to $51.7 million in 2018 due to:
record fourth quarter OIBDA of $37.5 million in the Trucking/Logistics segment
a decrease of $5.3 million or 25.5 percent in the Oilfield Services segment
a $0.8 million increase in Corporate Office (as hereafter defined on page 13) costs mainly due to foreign exchange

Fourth Quarter Financial Results

Revenue decreased by $18.7 million, or 5.6 percent, to $314.6 million and is summarized as follows:

Trucking/Logistics segment grew by $4.9 million, or 2.2 percent, to $224.6 million – a record compared to any previous fourth quarter period. Incremental revenue from acquisitions was $5.9 million while fuel surcharge revenue decreased by $2.7 million. Excluding acquisitions and the change in fuel surcharge revenue, growth resulted primarily from revenue increases at Gardewine Group Limited Partnership (" Gardewine ") and Smook Contractors Ltd. (" Smook ").
Oilfield Services segment decreased by $22.7 million, or 19.9 percent – this decrease is attributable to the decline in drilling activity in the Western Canadian Sedimentary Basin (" WCSB "), and the Alberta Government's mandated crude oil curtailments that resulted in lower demand and very competitive pricing

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2019 ANNUAL FINANCIAL REVIEW

for the transportation of fluids and servicing of wells and drilling related services. These decreases were partially offset by strong results generated by Premay Pipeline Hauling L.P. (" Premay Pipeline ").

OIBDA decreased by $1.8 million, or 3.5 percent, to $49.9 million and is summarized as follows:

Trucking/Logistics segment grew by $4.3 million, or 13.0 percent, to $37.5 million – record compared to any previous fourth quarter period. The majority of this rise in OIBDA, specifically $3.2 million, was due to the adoption of IFRS 16 – Leases. In addition, acquisitions accounted for $0.9 million of incremental growth. When comparing our operating margin[1] without the impact of IFRS 16 – Leases, it was 15.3 percent as compared to 15.1 percent in 2018.
Oilfield Services segment down by $5.3 million to $15.5 million – those Business Units (as hereafter defined on page 13) involved in the transportation of fluids and servicing of wells declined by $2.5 million due to the Alberta Government's mandated crude oil curtailments while those providing specialized services such as large diameter pipe stockpiling and stringing services as well as water management services declined by $2.2 million. Operating margin[1] adjusted for the impact of IFRS 16 – Leases decreased to 16.5 percent from 18.2 percent in 2018 due to higher direct operating expenses including operating supplies expense, repairs and maintenance expense, and Contractors (as hereafter defined on page 22) costs.

Net income increased by $89.5 million to $8.4 million, or $0.08 per Common Share due to:

The 2018 impairment of goodwill of $100.0 million recorded by certain Business Units within the Oilfield Services segment due to the significant deterioration of industry conditions in the fourth quarter, a $4.5 million positive variance in net foreign exchange and a $2.0 million positive variance in the fair value of investments.
The above was partially offset by a $10.0 million increase in depreciation of property, plant and equipment and right-of-use assets, a $1.8 million decrease in OIBDA, a $1.8 million increase in finance costs and a $1.4 million increase in income tax expense.

Net income – adjusted[1] decreased to $5.6 million, or $0.05 per Common Share.

Year End Financial Results

Revenue increased by $17.7 million, or 1.4 percent, to $1,278.5 million and is summarized as follows:

Trucking/Logistics segment grew by $8.3 million, or 1.0 percent, to $881.6 million – a record compared to any previous year. Our regional LTL business improved by $16.6 million to $447.4 million benefitting from acquisitions and modest market share gains. Our truckload services business decreased by $8.0 million to $446.1 million as a result of lower gross domestic product (" GDP ") growth and a lack of capital investments. Fuel surcharge revenue, excluding the effect of acquisitions, declined by $6.4 million to $83.4 million.
Oilfield Services segment increased by $10.2 million, or 2.6 percent, to $400.1 million – this increase was mainly attributable to the $39.4 million of incremental revenue generated by the 2018 mid-year acquisition of the business and assets of AECOM’s Canadian Industrial Services Division (" AECOM ISD ") and from the rise in demand for large diameter pipeline hauling and stringing services. These increases were partially offset by a $27.6 million decrease in revenue generated by those Business Units most directly tied to oil and natural gas drilling activity as a result of lower drilling activity in the WCSB. Revenue also decreased due to a decline in demand for the transportation of fluids and servicing of wells due to the Alberta Government's mandated crude oil curtailments.

OIBDA increased by $11.9 million, or 6.3 percent, to $200.9 million and is summarized as follows:

Trucking/Logistics segment grew by $11.2 million, or 8.7 percent, to $139.6 million – a record compared to any previous year. The majority of this increase, specifically $10.9 million, was due to the adoption of IFRS 16 – Leases while acquisitions accounted for $2.8 million of incremental OIBDA. These increases were somewhat offset by a reduction in OIBDA generated by certain of our truckload services Business

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2019 ANNUAL FINANCIAL REVIEW

Units. When comparing our operating margin[1] without the impact of IFRS 16 – Leases, it was 14.6 percent, as compared to 14.7 percent in 2018, which was primarily due to the lower margins generated by the recent acquisitions.

Oilfield Services segment up by $4.0 million to $70.8 million – those Business Units providing specialized services including that of Premay Pipeline increased by $7.0 million while those Business Units involved in the transportation of fluids and servicing of wells improved due to the 2018 mid-year acquisition of AECOM ISD. These increases were partially offset by a $6.9 million decrease from those Business Units tied to drilling and drilling related activity due to the decline in drilling activity in the WCSB. Operating margin[1] adjusted for the impact of IFRS 16 – Leases improved by only 0.1 percent. The net margin gain was due to the integration of the AECOM ISD assets and the change in revenue mix associated with certain large diameter pipeline projects that had a beneficial effect on margin being mostly offset by the significant decline in margin generated by those Business Units mostly tied to drilling related activity.

Net income increased by $116.0 million to $72.2 million, or $0.69 per Common Share due to:

The 2018 impairment of goodwill of $100.0 million recorded by certain Business Units within the Oilfield Services segment due to the significant deterioration of industry conditions in the fourth quarter, a $22.6 million positive variance in net foreign exchange, an $11.9 million increase in OIBDA, a $9.3 million decrease in income tax expense and a $3.1 million positive variance in the fair value of investments.
The above was partially offset by a $20.1 million increase in depreciation of property, plant and equipment and right-of-use assets, a $3.9 million increase in amortization of intangible assets, a $3.6 million increase in finance costs, a $2.4 million increase in the loss on sale of property, plant and equipment and a $0.9 million decrease in earnings from equity investments.

Net income – adjusted[1] decreased by 22.3 percent to $48.2 million, or $0.46 per Common Share.

Financial Position

The following summarizes our financial position as at December 31, 2019, along with some of the key changes that occurred during the fourth quarter of 2019:

Exited the fourth quarter with working capital of $243.3 million, which included $79.0 million of cash and cash equivalents.
Total net debt[1] ($470.6 million) to operating cash flow ($204.7 million) (as hereafter defined on page 43) of 2.30:1 as defined per our Private Placement Debt (as hereafter defined on page 25) agreement (financial covenant threshold of 3.50:1).
Net book value of property, plant and equipment of $954.6 million, which includes $495.1 million of real property (carrying costs of $571.4 million).

Our Plans for 2020

2020 will be a growth year for our company primarily because we will use a strong balance sheet to acquire some really good companies. And to the very loyal shareholders who stuck with our company during some difficult times in the last decade, as the oil and natural industry came under significant realignment, we are now positioned to resume a growth trajectory. Today Mullen Group is predominately a "Logistics Company", with an extensive and diversified business highlighted by one of the largest LTL networks in Canada. We have strong brands in the warehousing and transload business. We invest in technology to ensure we remain at the forefront of the changing supply chain and we remain an employer of choice. Not only are we focused on growing the business in areas of the economy that offer opportunity, we are implementing a series of initiatives to support shareholders. We are rebranding our company. We will maintain the dividend at $0.60 per Common Share in 2020 and we will implement a share buyback program. Our business model generates significant cash flow and given the current share price and dividend, buying back our own stock makes imminent sense.

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2019 ANNUAL FINANCIAL REVIEW

The oil and natural gas industry is an important and large part of the Canadian economy however we have concluded that it is not a growth industry any longer, as such we will be reporting operating results to shareholders in a manner that reflects the business we are focused on today. LTL is the fastest growing part of our business as we build out a network across Canada that will serve literally hundreds of communities. Logistics & Warehousing is where we will use our expertise in technology and transload capabilities to expand service offerings. And Specialized & Industrial Services will capture a wide range of niche businesses, including the oil and natural gas industry, where we see opportunity to generate excellent returns on capital. This is the today's Mullen Group.

Financial Goals and Capital Budget:

Generate consolidated revenue in excess of $1.4 billion.
Achieve operating earnings in the range of $210.0 - $220.0 million, with volatility in operating margins[1] based upon the timing of acquisitions.
Invest $50.0 million in capital expenditures, exclusive of acquisitions and new land or buildings.

To support these goals, we will focus on the following initiatives:

Pursue acquisitions.
Invest in new technologies that can improve operating efficiencies and position ourselves for the digital world, including Moveitonline[®] and Haulistic[TM] , technologies that can change the way we do business.
Continue to streamline business processes and reduce redundancies where appropriate.

Dividends and Share Buyback:

We will continue to pay annual dividends of $0.60 per Common Share on a monthly basis, being the largest portion of our annual free cash.
The Board approved management to pursue a normal course issuer bid.

2020 Operating Segments:

Effective January 1, 2020, we will report our results in three new operating segments: Less-Than-Truckload; Logistics & Warehousing; and Specialized & Industrial Services. The change in the segment reporting structure more accurately reflects the business of Mullen Group today and aligns with how information is regularly reviewed internally for the purposes of decision making, capital allocation and assessing performance.

OUTLOOK

Until recently we were quite optimistic that 2020 was shaping up to be a positive year based upon our expectation that consumer spending would remain strong, which is the principal driving force of our LTL/Final Mile business, and Canada's GDP growing by approximately 2.0 percent. In addition, we view the recent announcements regarding pipeline approvals and LNG expansion as a positive for the energy industry and the Alberta economy in particular. However, in light of the health concerns related to the Coronavirus there is now a possibility that the supply chain and economic activity could be temporarily impacted, including the North American economies. There is no factual evidence as of this date to indicate that economic growth will be negatively impacted but this is a fluid and fast moving issue of major concern, and not just to China. Within this context it is prudent to alert shareholders that any change to economic activity will impact our operations, revenue and overall profitability. We are wellpositioned to withstand any short-term market shifts due to our diversified business model, multiple service offerings and geographic coverage.

We enter 2020 with a well-structured balance sheet, strong working capital position and cash of $79.0 million, liquidity that we will use to pursue acquisition opportunities that fit our strategic objectives and meet our financial expectations.

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2019 ANNUAL FINANCIAL REVIEW

CORPORATE OVERVIEW

Mullen Group is a publicly-traded company listed on the Toronto Stock Exchange (" TSX ") under the symbol " MTL ". We are one of the leading suppliers of trucking and logistics services in Canada providing a wide range of service offerings including LTL, truckload, warehousing, logistics, transload, oversized and specialized hauling transportation. In addition, we provide a diverse set of specialized services related to the oil and natural gas industry in western Canada, water management, fluid hauling and environmental reclamation.

Objective – Maximize Shareholder Value

We strive to maximize the overall returns to shareholders by focusing on the following strategies:

Focused Growth
Return Free Cash to Shareholders
Maintain a Well-Structured Balance Sheet
Strive for Operational Excellence
Operate a Decentralized Business Model

Focused Growth

Our approach to achieving maximum overall returns to shareholders is based upon the following strategic components:

Deploy capital to expand business over the long-term.
Invest in sectors of the economy where we believe future growth opportunities exist.
Invest in accretive acquisitions – acquire competing, complementary or new business lines that can accelerate growth over the long-term.
Diversify – continue to grow and invest where opportunities exist in the two segments of the economy where we have strong market penetration and customer relationships, namely, the transportation and distribution of freight within North America and the oil and natural gas services industry.

Since going public in 1993, Mullen Group, and its predecessors the Mullen Group Income Fund and Mullen Transportation Inc., have grown annual revenues from $72.6 million in 1993 to approximately $1.3 billion in 2019. During this period over 69 acquisitions have been completed.

Return Free Cash to Shareholders

One of our objectives is to build a business that generates cash in excess of our operating and financing requirements, funds that can be returned to shareholders through dividends or reinvested to grow the business.

During 2019 we paid annual dividends of $0.60 ($0.05 paid per month) per Common Share. In 2018 we paid annual dividends of $0.60 per Common Share. On February 12, 2020, we announced our intention to pay annual dividends of $0.60 per Common Share ($0.05 per Common Share on a monthly basis) for 2020, subject to the Board approval. Since going public in 1993, we have distributed over $1.3 billion in cash dividends and distributions to our shareholders.

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2019 ANNUAL FINANCIAL REVIEW

Maintain a Well-Structured Balance Sheet

We strive to maintain a balance sheet structured in such a manner to ensure that sufficient liquidity is maintained to allow us to meet our liabilities and corporate objectives under both normal and stressed conditions. In terms of liabilities, we maintain sufficient liquidity to not only meet our obligations when due, but to avoid incurring unacceptable losses or risking damage to our reputation. Furthermore, we have balanced our equity with a reasonable proportionate use of structured long-term debt. Most notably, we use Private Placement Debt (as hereafter defined on page 25), which matures in 2024 and 2026 and has a 3.5 times total net debt[1] to operating cash flow (as hereafter defined on page 43) covenant.

We generated $170.6 million in net cash from operating activities (2018 – $140.7 million). At December 31, 2019, we had $243.3 million of working capital (2018 – $131.7 million), including $79.0 million of cash and cash equivalents and an undrawn $150.0 million Bank Credit Facility (as hereafter defined on page 18), a debt-to-equity ratio of 0.67:1 (2018 – 0.57:1) and a total net debt[1] to operating cash flow of 2.30:1 (2018 – 2.46:1). Our total net debt[1] to operating cash flow financial covenant under our Private Placement Debt enables the Corporation to include the trailing twelve months operating cash flows for acquisitions. We have not included the trailing twelve months of operating cash flows from our most recent acquisitions in our calculations.

Strive for Operational Excellence

Our business is managed upon the basic principles of generating superior profitability, striving for excellence in safety and committing to the process of continuous improvement. Operating in a team environment, we challenge ourselves to make decisions on all aspects relating to the operations of the business, improve customer service, enhance business processes, maintain cost controls, obtain excellence in safety and generate superior profitability. We evaluate operational excellence by benchmarking the financial performance, safety statistics and return on invested capital of each Business Unit.

Operate a Decentralized Business Model

We operate a decentralized business model that is non-hierarchical in nature. Each Business Unit is held accountable for its own performance and results. The management and employees of the Business Units (as hereafter defined on page 13) are remunerated based upon the performance of their respective business. Corporate Office (as hereafter defined on page 13) provides overall support to the Business Units by coordinating business strategies, monitoring financial and business performance and providing shared services on an as-needed basis. In addition, the Corporate Office has invested significantly in real estate holdings and operating facilities, mainly for use by the Business Units. The carrying costs of such holdings at December 31, 2019, was $571.4 million (2018 – $552.7 million).

We believe this model generally results in superior customer service, lower costs and provides greater operational flexibility as compared to a fully-integrated business model. Giving responsibility and the necessary authority to the Business Unit encourages greater entrepreneurship and innovation as the teams are empowered and rewarded for their actions.

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2019 ANNUAL FINANCIAL REVIEW

Business

The business is operated through a network of wholly-owned companies and limited partnerships (the " Business Units "). In 2019 the business was divided into two distinct operating segments for reporting purposes – Trucking/Logistics and Oilfield Services. The segments are differentiated by the type of service provided, equipment requirements and customer needs. Mullen Group provides the capital and financial expertise, technology and systems support, shared services and strategic planning (the " Corporate Office ") for the Business Units. The Corporate Office also invests in certain public and private corporations. In addition, the Corporate Office, through its subsidiary MT Investments Inc. (" MT "), owns a network of real estate holdings and facilities that are leased primarily to the Business Units. Such properties are leased to the Business Units by MT on commercially reasonable terms. The day to day management of the Business Units is conducted at the subsidiary level.

At December 31, 2019, the Trucking/Logistics segment consisted of 14 Business Units, offering a diversified range of truckload and LTL general freight services to customers in Canada and the United States. These services include transporting a wide range of goods including ambient temperature controlled transportation, general freight, specialized commodities such as cable, pipe and steel, over-dimensional loads such as heavy equipment, compressors and over-sized goods and dry bulk commodities such as cement and frac sand. In addition, the Trucking/Logistics segment provides logistics, warehousing and distribution, transload and intermodal services primarily in western Canada, as well as the production, excavation and transportation of various aggregate products.

Trucking/Logistics Segment:

	Power Units	Trailers Other*
Caneda Transport Ltd. LTL & Irregular Route Truckload - Canada/U.S. Cascade Carriers L.P. Dry Bulk Freight - Western Canada Courtesy Freight Systems Ltd. Regional Scheduled LTL - Northern Ontario DWS Logistics Inc.(1) Value-Added Warehousing and Distribution Services Gardewine Group Limited Partnership Regional Scheduled LTL - Manitoba and Ontario & Specialized Transportation Grimshaw Trucking L.P. Regional Scheduled LTL - Northern Alberta Hi-Way 9 Group of Companies(2) (3) (4) Regional Scheduled LTL - Southern Alberta Jay's Transportation Group Ltd. Regional Scheduled LTL - Saskatchewan Kleysen Group Ltd. Irregular Route Truckload & Multi-Modal Mullen Trucking Corp. Irregular Route Truckload & Specialized Transportation Payne Transportation Ltd. Irregular Route Truckload & Specialized Transportation RDK Transportation Co. Inc. Irregular Route Truckload & Specialized Transportation Smook Contractors Ltd. Civil Construction - Northern Manitoba Tenold Transportation Ltd.(5) (6) Irregular Route Truckload & Regional Scheduled LTL - Vancouver Region	56 96 39 — 865 145 300 226 280 126 151 64 42 169	87 5 423 14 45 37 — 64 1,653 343 345 48 641 45 386 164 872 834 351 33 322 10 114 4 72 112 134 75

* Other includes miscellaneous equipment such as: pick-ups, earthmoving equipment, yard equipment, rail cars and containers. (1) Acquired on February 9, 2018.

(2) On January 1, 2019, the operations of Bernard Transport Ltd. were combined into the Hi-Way 9 Group of Companies.

(3) Includes Dacota Freight Services Ltd., which was acquired on April 6, 2018.

(4) Includes Jen Express Inc., which was acquired on May 1, 2019.

(5) Includes the business and assets contributed to Number 8 Freight Ltd., which were acquired on August 1, 2018.

(6) Includes Argus Carriers Ltd. and Inter-Urban Delivery Service Ltd., which were acquired on July 1, 2019.

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2019 ANNUAL FINANCIAL REVIEW

At December 31, 2019, the Oilfield Services segment consisted of 17 Business Units that utilize their highly trained personnel and equipment to provide well-servicing, specialized transportation, dewatering, and drilling services to the oil and natural gas industry. These services include transporting of oversize and overweight shipments, the transportation, handling, storage and computerized inventory management of oilfield fluids, tubulars and drilling mud, stockpiling and stringing of large diameter pipe, a broad range of services related to the processing and production of heavy oil including well servicing and handling, transportation of fluids, the processing and disposal of oilfield waste, as well as frac support, dredging, water management, dewatering, pond reclamation services, hydrovac excavation, drilling rig relocation, core drilling, casing setting and conductor pipe setting services.

Oilfield Services Segment:	Oilfield Services Segment:
Business Unit	Primary Service Provided	Number of Units
		Power Units	Trailers	Other*
Production Services
Cascade Energy Services L.P.(1) E-Can Oilfield Services L.P.(1) Heavy Crude Hauling L.P.(1) R. E. Line Trucking (Coleville) Ltd. Spearing Service L.P.	Fluid Transportation - British Columbia & Alberta Fluid Transportation - Heavy Oil Regions of Alberta Fluid Transportation - Heavy Oil Regions of Alberta Fluid Transportation - Saskatchewan Fluid Transportation - Saskatchewan	342 151 135 29 248	454 139 260 75 625	100 50 25 8 56
Specialized Services
Canadian Dewatering L.P. Canadian Hydrovac Ltd.(2) Premay Equipment L.P. Premay Pipeline Hauling L.P. Recon Utility Search L.P.	Water Management Services Hydrovac Excavation Services Specialized Heavy Haul Large Diameter Pipe Transportation Hydrovac Excavation Services	2 30 45 79 17	43 3 319 225 5	1,582 10 45 84 11
Drilling Services
OK Drilling Services L.P. TREO Drilling Services L.P.	Conductor Pipe Setting Core Drilling	10 30	17 81	25 54
Drilling Related Services
Envolve Energy Services Corp. Formula Powell L.P. Mullen Oilfield Services L.P. Pe Ben Oilfield Services L.P. Withers L.P.	Processing and Disposal of Oilfield Fluids Mud / Fluid Transportation & Warehousing Rig Relocation Services Drill Pipe Transportation & Warehousing Drill Pipe Transportation & Warehousing	— 85 157 15 38	— 476 297 71 63	— 108 33 37 22

* Other includes miscellaneous equipment such as: pick-ups, mounted dri-prime diesel pumps, submersible pumps, earthmoving equipment, yard equipment and containers. (1) Includes a portion of AECOM's Canadian Industrial Services Division, which was acquired on June 25, 2018. (2) Acquired on July 1, 2018.

A more detailed description of the Business Units is set forth in the Annual Information Form, which is dated February 12, 2020, and is available on SEDAR at www.sedar.com, our website at www.mullen-group.com or upon request, free of charge, from the Corporate Investor Services group at [email protected].

Human Resources

As at December 31, 2019, approximately 6,100 people were employed or engaged by the Business Units and at Corporate Office. These people include owner operators and dedicated subcontractors engaged by the Business Units. This compares to approximately 6,400 people in 2018. The decrease is mainly due to a reduction in employee headcount within the Oilfield Services segment resulting from decreased activity levels, which was somewhat offset by a slight increase in the number of employees within the Trucking/Logistics segment by virtue of the acquisitions completed in 2019.

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2019 ANNUAL FINANCIAL REVIEW

Issuance of Debentures and Capital Allocations

Convertible Debentures

In June 2019, we issued $125.0 million of convertible unsecured subordinated debentures (the " 2019 Debentures "), by way of a bought deal, at a price of $1,000 per 2019 Debenture. The 2019 Debentures are publicly traded and are listed on the TSX under the symbol " MTL.DB ". The 2019 Debentures will mature on November 30, 2026 and bear interest at an annual rate of 5.75 percent payable semi-annually in arrears on May 31 and November 30 in each year beginning November 30, 2019.

Each $1,000 2019 Debenture is convertible into 71.4286 Common Shares of Mullen Group (such is based on a conversion price of $14.00) at any time at the option of the holders of the 2019 Debentures. Thus, an aggregate of approximately 8.9 million Common Shares of Mullen Group may be issued if all the holders convert their principal amount. The proceeds of the offering will be used for general corporate purposes, which may include future acquisitions within the Trucking/Logistics segment. As subordinated debt, the accounting value assigned to the 2019 Debentures including any related interest expense is excluded from our financial covenant calculations under our Private Placement Debt (as hereafter defined on page 25).

The 2019 Debentures shall not be redeemable by the Corporation prior to November 30, 2023. On or after November 30, 2023 and prior to November 30, 2025, the 2019 Debentures may be redeemed by the Corporation, in whole or in part from time to time, on not more than 60 days and not less than 40 days prior notice at a redemption price equal to their principal amount plus accrued and unpaid interest, if any, up to but excluding the date set for redemption, provided that the arithmetic average of the volume weighted average trading price of the Common Shares on the TSX for the 20 consecutive trading days ending five trading days prior to the date on which notice of redemption is provided is at least 125.0 percent of the conversion price. On or after November 30, 2025 and prior to the maturity date, the 2019 Debentures may be redeemed in whole or in part at the option of the Corporation on not more than 60 days and not less than 40 days prior notice at a redemption price equal to their principal amount plus accrued and unpaid interest if any, up to but excluding the date set for redemption.

The 2019 Debentures are comprised of both a debt and equity component, which are presented separately on our consolidated statement of financial position. The debt component represents the total discounted present value of both the semi-annual interest obligations and the principal payment due at maturity, using the rate of interest that would have been applicable to a non-convertible debt instrument of comparable term and risk at the date of issue. The result is an accounting value assigned to the debt component of the 2019 Debentures, which is less than the principal amount due at maturity. The debt component presented on the consolidated statement of financial position will increase over the term of the 2019 Debentures to the full face value of the outstanding 2019 Debentures at maturity. This increase will be recognized in the financial statements through a notional increase to interest expense on the 2019 Debentures and a resulting decrease to net income. In the event the 2019 Debentures are converted prior to maturity, the difference between the carrying amount of such 2019 Debentures and their face value would be charged to interest expense. The equity component of the 2019 Debentures is presented under "Equity" in the consolidated statement of financial position. The equity component represents the difference between the face value of the 2019 Debentures (namely, $125.0 million) and the accounting value assigned to the debt component of the 2019 Debentures at the date of issue (namely, $112.6 million). Subject to the impact of the 2019 Debentures being converted, this equity component amount will remain constant over the term of the 2019 Debentures. Upon conversion of the 2019 Debentures into Common Shares, a proportionate amount of both the debt and equity components are transferred to shareholders' capital. Accretion and interest expense on the 2019 Debentures are reflected as finance costs in the consolidated statement of comprehensive income.

The transaction costs associated with the 2019 Debentures were $5.2 million and are being amortized over the term of the 2019 Debentures. If the holders of the 2019 Debentures convert the principal portion to Common Shares prior to maturity, the unamortized transaction costs would be expensed and would thereby decrease earnings.

The details of the debt component of the 2019 Debentures are as follows:

*($ millions)*	December 31, 2019 December 31, 2018	December 31, 2019 December 31, 2018
Year of Maturity Interest Rate	Face Value Carrying Amount Face Value	Carrying Amount
2026 5.75% $	125.0 $ 108.7 $ — $	—

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2019 ANNUAL FINANCIAL REVIEW

Dividends

In 2019 we declared monthly dividends of $0.05 per Common Share totalling $0.60 per Common Share (2018 – $0.60 per Common Share). At December 31, 2019, we had 104,824,973 Common Shares outstanding and a dividend payable of $5.2 million (December 31, 2018 – $5.2 million), which was paid on January 15, 2020. On January 22, 2020, the Board declared a monthly dividend of $0.05 per Common Share to be paid on February 17, 2020 to the holders of record at the close of business on January 31, 2020. On February 12, 2020, we announced our intention to pay annual dividends of $0.60 per Common Share ($0.05 per Common Share on a monthly basis) for 2020. The Board will continue to consider the amount of and the record date for the monthly dividend.

Capital Expenditures

In 2019 gross capital expenditures on a pre-consolidated basis were $80.0 million as compared to $101.6 million in 2018. These capital expenditures were comprised of $44.4 million in the Trucking/Logistics segment (2018 – $52.0 million), $18.5 million in the Oilfield Services segment (2018 – $29.0 million) and $17.1 million in the Corporate Office (2018 – $20.6 million). The $21.6 million decrease in gross capital expenditures was mainly due to a lower amount of capital being invested in both segments as well as a reduction in the amount invested in real estate holdings within the Corporate Office. In 2019 the majority of the capital invested in the Trucking/Logistics segment was to purchase trucks and trailers and various pieces of operating equipment to both replace and support opportunities within this segment. The majority of the capital invested in the Oilfield Services segment was to expand our disposal capacity and service offering to our customers at Envolve Energy Services Corp. (" Envolve ") with the addition of a new disposal well, which was completed in the second quarter of 2019. Capital was also allocated to meet strong customer demand by purchasing pumps at Canadian Dewatering L.P. (" Canadian Dewatering ") and to acquire specialized equipment at Premay Pipeline. We also acquired some trucks to support the AECOM ISD business acquired in 2018. Gross dispositions on a pre-consolidated basis were $11.5 million in 2019 as compared to $14.1 million in 2018. These gross dispositions were comprised of $2.3 million in the Trucking/Logistics segment (2018 – $3.5 million), $9.2 million in the Oilfield Services segment (2018 – $10.6 million) and nil in the Corporate Office (2018 – nil). In 2019 we continued with the sale of older equipment predominantly within the Oilfield Services segment. In addition, we transferred approximately $4.7 million of trucks and trailers to the Trucking/Logistics segment from the Oilfield Services segment to improve asset utilization. In the Corporate Office, capital was invested to continue the development of our real estate holdings, mainly through expanding our LTL network. In Regina, Saskatchewan we continued with the construction of our 24,000 square foot 40-door cross-dock facility situated on approximately nine acres to both expand and improve the operating efficiencies of Jay's Transportation Group Ltd., which is expected to be operational sometime in the third quarter of 2020. We also purchased a small LTL facility out of Grande Prairie, Alberta, which will reduce our lease obligation on a go forward basis. The total cost of real property owned by Mullen Group is $571.4 million.

Acquisitions and Intangible Assets

The acquisitions set forth below have been accounted for by the acquisition method and the financial results of operations have been included in the accompanying Annual Financial Statements from the date of acquisition.

2019

Argus Carriers Ltd. and Inter-Urban Delivery Service Ltd. – On July 1, 2019, we acquired all of the issued and outstanding shares of Argus Carriers Ltd. (" Argus ") and Inter-Urban Delivery Service Ltd. (" Inter-Urban ") for total cash consideration of $20.0 million. Both Argus and Inter-Urban provide transportation and logistics services in the Lower Mainland of British Columbia. We acquired Argus and Inter-Urban as part of our strategy to invest in transportation and logistics companies that have a strong regional LTL presence centrally located to serve consumers in large urban centres. Argus and Inter-Urban have been integrated into the operations of Tenold Transportation Ltd. (" Tenold "), whose financial results were included in the Trucking/Logistics segment.

Argus, a well-established company founded in 1948, has approximately 95 employees and dedicated owner operators and operates a fleet of 57 trucks and 46 trailers providing general freight services including: local pick-up and delivery, warehousing, regional LTL, dedicated and linehaul trucking from four British Columbia operating terminals – Burnaby, Kelowna, Victoria, and Nanaimo. In addition, Argus provides daily LTL service to the Pacific Northwest of the United States.

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2019 ANNUAL FINANCIAL REVIEW

Inter-Urban, also a well-established company founded in 1974, has approximately 70 employees and dedicated owner operators and operates 43 trucks and 26 trailers focusing on critical same day delivery service for the healthcare sector including: cross-border linehaul, cross-border LTL cartage, dedicated and local pick-up and delivery. Inter-Urban operates from a terminal based in Abbotsford, British Columbia.

Jen Express Inc. – On May 1, 2019, we acquired the business and assets of Jen Express Inc. (" Jen Express ") for cash consideration of $1.5 million. Included in this amount is $0.3 million of contingent consideration. Pursuant to the purchase and sale agreement, the vendor may receive cash consideration of up to $0.3 million for achieving certain financial targets over the two year period ending May 1, 2021. The funds to settle this liability have been set aside in an escrow account, which have been presented within cash and cash equivalents. We acquired Jen Express as part of our strategy to invest in the transportation sector in western Canada. Located in Stettler, Alberta, Jen Express offers LTL services and has been integrated into the operations of the Hi-Way 9 Group of Companies (" Hi-Way 9 "), whose financial results were included in the Trucking/Logistics segment.

2018

DWS Logistics Inc. – On February 9, 2018, we acquired DWS Logistics Inc. (" DWS ") for cash consideration of $10.1 million, comprised of $8.3 million for all the issued and outstanding shares and $1.8 million for the repayment of debt. Included in this amount is $1.0 million of contingent consideration. Pursuant to the purchase and sale agreement, the vendors could receive cash consideration of up to $1.0 million for achieving certain financial targets for the twelve month period ended December 31, 2018. DWS achieved such targets. The funds to settle this liability had been set aside in an escrow account. DWS is headquartered in Mississauga, Ontario and provides valueadded warehousing and distribution services that includes warehousing, distribution, order fulfilment, cross docking and transloading, all of which are supported by a proprietary inventory management system. DWS has over 500,000 square feet of warehousing space situated in four distribution centres in the Greater Toronto Area and the Lower Mainland of British Columbia. DWS is an asset-light operation and generates margins that are in line with Mullen Group's non-asset based Business Units in the Trucking/Logistics segment. We acquired DWS as part of our strategy to invest in the transportation and e-commerce sectors in Canada. The financial results from DWS' operations were included in the Trucking/Logistics segment.

Dacota Freight Services Ltd. – Effective April 1, 2018, we acquired Dacota Freight Services Ltd. (" Dacota ") for cash consideration of $2.4 million, comprised of $2.1 million for all the issued and outstanding shares and $0.3 million for the repayment of debt. Included in this amount is $0.2 million of contingent consideration. Pursuant to the purchase and sale agreement, the vendor may receive cash consideration of up to $0.2 million for achieving certain financial targets over the two year period ending March 31, 2020. The funds to settle this liability have been set aside in an escrow account, which have been presented within cash and cash equivalents. Dacota is headquartered in Cranbrook, British Columbia and provides transportation and logistics services primarily in western Canada. We acquired Dacota as part of our strategy to invest in the transportation sector in western Canada. Dacota has been integrated into the operations of Hi-Way 9, whose financial results were included in the Trucking/Logistics segment.

AECOM's Canadian Industrial Services Division – On June 25, 2018, we acquired the business and assets of AECOM ISD for cash consideration of $25.9 million. We acquired the business and assets of AECOM ISD as part of our strategy to invest in the energy sector. AECOM ISD provides specialized oilfield services and operates largely within the heavy oil and oil sands regions of Alberta. As part of the transaction, Mullen Group hired approximately 350 people and purchased in excess of 250 pieces of specialized equipment including: pressure trucks, hydrovacs, vacuum trucks, combo units, flushby units, fluid hauling equipment and various other pieces of support equipment. AECOM ISD service offerings are complementary to Mullen Group's Oilfield Services segment and it has been integrated into the operations of Cascade Energy Services L.P., E-Can Oilfield Services L.P. and Heavy Crude Hauling L.P., whose financial results were included in the Oilfield Services segment.

Canadian Hydrovac Ltd. – Effective July 1, 2018, we acquired Canadian Hydrovac Ltd. (" Canadian Hydrovac ") for total consideration of $11.9 million consisting of $9.9 million of cash consideration and $2.0 million of Common Shares of the Corporation by issuing 133,334 Common Shares. We recorded $4.6 million of cash used to acquire all of the issued and outstanding shares of Canadian Hydrovac on our consolidated statement of cash flows, which consists of $9.9 million of total cash consideration less $5.3 million allocated to the repayment of long-term debt. Canadian Hydrovac is headquartered in Sherwood Park, Alberta, in the heart of the refinery complex of the greater Edmonton region and Alberta's Industrial Heartland and operates a fleet of approximately 50 pieces of specialized equipment including: hydrovacs, vacuum trucks, combo units and various other pieces of support equipment.

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2019 ANNUAL FINANCIAL REVIEW

Canadian Hydrovac is an industry leader in providing hydrovac services to the midstream, pipeline, construction and municipal sectors of western Canada. We acquired Canadian Hydrovac as part of our strategy to invest in the energy sector. The results from Canadian Hydrovac's operations were included in the Oilfield Services segment.

Number 8 Freight Ltd. – Effective August 1, 2018, we acquired the business and assets of 1007474 B.C. Ltd. doing business as Number 8 Freight, which were contributed to a newly formed corporation named Number 8 Freight Ltd. (" Number 8 ") for cash consideration of $5.0 million. Number 8 manages a fleet of approximately 80 dedicated subcontractors that provides same day LTL, full load and expedited transportation services to the greater Vancouver and Fraser Valley regions of British Columbia. Number 8 is an asset-light operation and generates margins that are in line with Mullen Group's non-asset based Business Units in the Trucking/Logistics segment. We acquired Number 8 as part of our strategy to invest in the transportation sector in western Canada. Number 8 operates out of a facility located in Chilliwack, British Columbia and has been integrated into the operations of Tenold, whose financial results were included in the Trucking/Logistics segment.

Intangible Assets

In the second quarter of 2019, MT purchased a customer list for Hi-Way 9 from a third-party for $0.4 million. The customer list included LTL customers in the Alberta and British Columbia regions.

In the fourth quarter of 2018, Gardewine purchased a customer list from a third-party for $3.0 million. The customer list included LTL customers in northern Ontario.

Bank Credit Facility Amendments

On October 24, 2018, we entered into an agreement to amend the amount available to be borrowed on the credit facility with the Royal Bank of Canada (the " Bank Credit Facility "). The amount available to be borrowed on the Bank Credit Facility was increased by $50.0 million to $125.0 million. On June 21, 2019, the amount available to be borrowed on the Bank Credit Facility was increased by $25.0 million to $150.0 million. All other terms under the Bank Credit Facility remain the same. This facility does not have any financial covenants, however, we cannot be in default of our Private Placement Debt (as hereafter defined on page 25) and we must be in compliance with certain reporting and general covenants. We are in compliance with all of these reporting and general covenants.

Repayment of Private Placement Debt

On June 29, 2018, we used cash to repay $70.0 million of Series D Notes. The Series D Notes matured on June 30, 2018. The repayment of the Series D Notes reduced our annual interest obligation by approximately $4.0 million. Prior to the repayment of the Series D Notes, the weighted average interest rate on our Canadian dollar Private Placement Debt (as hereafter defined on page 25) was 4.51 percent. The weighted average interest rate after repaying the Series D Notes is 3.99 percent.

Equity Investments

On August 1, 2018, we invested $2.0 million to acquire a 40.0 percent equity interest in Pacific Coast Express Limited (" PCX "), a LTL transportation company operating out of a number of facilities throughout western Canada. This investment is part of our strategy to invest alongside high quality entrepreneurs in companies that have growth potential. In conjunction with this investment, we also entered into a $3.2 million debenture agreement with PCX. We granted the majority shareholder of PCX an irrevocable option to sell all of the remaining shares of PCX to us at a price to be agreed upon by both parties once certain financial targets have been achieved.

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2019 ANNUAL FINANCIAL REVIEW

Current Development

2020 New Operating Segments

In the first quarter of 2020, we will commence with reporting our financial results in three new segments: Less-ThanTruckload; Logistics & Warehousing; and Specialized & Industrial Services. The change in the segment reporting structure more accurately reflects our strategic direction and the business of Mullen Group today and aligns with how financial information will be regularly reviewed internally for the purposes of decision making, capital allocation and assessing performance. Our results will be reported in the following segments:

Less-Than-Truckload Segment

Less-Than-Truckload or LTL is often referred to as the final or last mile delivery of general freight consisting of smaller shipments, packages and parcels. Through an extensive terminal network the pickup, handling and delivery of a wide range of freight including ambient, temperature controlled and consumer goods is coordinated from regional hubs located in Ontario and western Canada. We are committed to investing in the most advanced technologies available ensuring the continued improvement in all aspects of our business, shortening delivery times and providing customers with visibility, via tracking and tracing, to their shipments during transit. The segment will initially be comprised of the following eight Business Units:

Argus Carriers Ltd. Courtesy Freight Systems Ltd. Gardewine Group Limited Partnership Grimshaw Trucking L.P. Hi-Way 9 Express Ltd. Inter-Urban Delivery Service Ltd. Jay's Transportation Group Ltd. Number 8 Freight Ltd.

Logistics & Warehousing Segment

The Logistics & Warehousing segment provides shippers throughout North America with a wide range of trucking and logistics service offerings including full truckload, specialized transportation, warehousing, fulfillment centres that handle e-commerce transactions, and transload facilities designed for intermodal and bulk shipments. Operations and customer service are supported by a robust suite of leading edge technology solutions including a fully integrated transportation management system, customized inventory management and warehouse systems along with our proprietary Moveitonline[®] and Haulistic[TM] technology platforms, applications that are positioning our organization for an evolving and changing supply chain. The segment currently consists of nine Business Units:

Caneda Transport Ltd. Cascade Carriers L.P. DWS Logistics Inc. Kleysen Group Ltd. Mullen Trucking Corp. Payne Transportation Ltd. RDK Transportation Co. Inc. Tenold Transportation Ltd. 24/7 The Storehouse (2015) Ltd.

Specialized & Industrial Services Segment

The Specialized & Industrial Services segment is comprised of a wide range of unique businesses providing specialized equipment and services to the oil and natural gas, environmental, construction, pipeline, utility, telecom and civil industries. Strategically located throughout western Canada, these specialty Business Units are focused on providing advanced technology solutions and leading edge service capabilities. The segment includes the following 17 Business Units:

Canadian Dewatering L.P. Cascade Energy Services L.P. Canadian Hydrovac Ltd. E-Can Oilfield Services L.P. Envolve Energy Services Corp. Formula Powell L.P. Heavy Crude Hauling L.P. Mullen Oilfield Services L.P. OK Drilling Services L.P. Pe Ben Oilfield Services L.P. Premay Equipment L.P. Premay Pipeline Hauling L.P. R. E. Line Trucking (Coleville) Ltd. Recon Utility Search L.P. Smook Contractors Ltd. Spearing Service L.P. TREO Drilling Services L.P.

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2019 ANNUAL FINANCIAL REVIEW

The following table provides financial information that conforms to our new segment presentation commencing in the first quarter of 2020 on a retrospective basis for comparative purposes:

	Year ended December 31, 2019 Revenue OIBDA	Year ended December 31, 2018	Year ended December 31, 2018
		Revenue OIBDA
Less-Than-Truckload Logistics & Warehousing Specialized & Industrial Services Corporate and Inter-segment eliminations	$ $ % 451.6 70.6 15.6 404.8 64.8 16.0 426.3 75.0 17.6 (4.2) (9.5) —	$ $	%
		429.3 62.9 424.8 61.7 410.6 70.6 (3.9) (6.2)	14.7 14.5 17.2 —
	1,278.5 200.9 15.7	1,260.8 189.0	15.0

Normal Course Issuer Bid

On February 12, 2020, the Board approved management to pursue a normal course issuer bid (the " Bid ") through the facilities of the Toronto Stock Exchange. If eligible, we plan to repurchase our Common Shares for cancellation at market prices prevailing at the time of purchase as shall be permitted by applicable laws. We believe that the repurchase of our Common Shares represents an appropriate use of our funds. The decision regarding the timing and number of Common Shares being repurchased under the Bid will be subject to management's discretion and are based on a variety of factors, including market conditions.

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2019 ANNUAL FINANCIAL REVIEW

2019 CONSOLIDATED FINANCIAL RESULTS

Our results for 2019 reflect the strategy to focus growth and investment allocation towards the trucking and logistics component of the Canadian economy, which is closely linked and highly correlated with consumer spending and GDP, and to redirect capital from the Oilfield Services segment due to our concerns related to future development and growth prospects for Canada's oil and natural gas industry. Over the past eight years we have transformed Mullen Group from being a major player in the Canadian oilfield services sector into one of Canada's largest trucking and logistics providers. Today the Trucking/Logistics segment is the dominant contributor to our business generating 68.8 percent of consolidated revenue in 2019 as compared to 35.1 percent in 2011.

2019 results were similar in many respects to 2018 reflecting the macro environment. With Canadian GDP growing a very modest 1.5 percent year over year along with significant declines in western Canadian drilling activity, internal growth opportunities were very limited. In particular freight volumes and demand for transportation and logistics services slowed quite noticeably in the fourth quarter. Furthermore, we did not identify any large acquisition opportunities that met our thresholds. As a result growth was limited in 2019. The majority of our focus was centered on streamlining current business and reducing costs where appropriate, which mitigated the challenges associated with the ultracompetitive market conditions. Some of the specific factors contributing to the 2019 results include:

our largest LTL Business Unit, Gardewine, had another strong year growing revenue and improving operating margins[1] ;
Kleysen Group Ltd. had another exceptional year taking advantage of the transload facility in Edmonton, Alberta to expand their service offerings as well as growing market share in the industrial salt business;
the completion of three tuck-in acquisitions contributed incremental revenue and operating profitability; and
the demand for large diameter pipeline construction related services remained robust contributing revenue of $67.0 million.

These positive factors were offset by declines in most Business Units due to lower demand and competitive pricing pressures, especially in the second half of the year. Some of the specific factors negatively impacting last year's results were:

slower economic growth in the North American economies, along with changes in the supply chain and excessive truck capacity, which led to a "freight recession" in the second half of 2019. The demand for freight services was soft and competitive pricing pressures emerged;
drilling activity in western Canada declined by 24.9 percent year over year, from previously depressed levels, negatively impacting both revenue and operating profitability in 2019;
mandated crude oil curtailments by the Province of Alberta, along with the lack of access to foreign markets for oil, negatively impacted crude producers resulting in lower demand for crude oil hauling and related production services; and
our decision to exit certain markets due to unrealistic pricing by undisciplined competitors.

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2019 ANNUAL FINANCIAL REVIEW

Revenue

Revenue is generated by the Corporation through its Business Units. These Business Units are divided into two operating segments: Trucking/Logistics and Oilfield Services. The Business Units utilize a combination of company assets that are either owned by the Business Unit or leased (" Company Equipment "), owner operators who provide trucks and/or trailers and work exclusively for the Business Unit under annual contracts and subcontractors who own their own equipment and are used during times of peak demand (collectively, " Contractors ").

Consolidated Revenue by Segment Years ended December 31 *($ millions)* 2019 2018 Change	Consolidated Revenue by Segment Years ended December 31 *($ millions)* 2019 2018 Change
$ % $ % $**	%
Trucking/Logistics 881.6 68.8 873.3 69.1 8.3 Oilfield Services 400.1 31.2 389.9 30.9 10.2 Corporate and intersegment eliminations (3.2) — (2.4) — (0.8)	1.0 2.6 —
Total 1,278.5 100.0 1,260.8 100.0 17.7	1.4

*as a percentage of pre-consolidated revenue

Mullen Group's consolidated revenue in 2019 increased by $17.7 million, or 1.4 percent, to $1,278.5 million as compared to $1,260.8 million in 2018. This increase in revenue was primarily due to acquisitions that led to a rise in revenue in both segments. Revenue increased by $27.5 million and $23.3 million in the first and second quarters, respectively and then declined by $14.4 million and $18.7 million in the third and fourth quarters, respectively.

Revenue in the Trucking/Logistics segment increased by $8.3 million, or 1.0 percent, to $881.6 million as compared to $873.3 million in 2018. This improvement was primarily due to incremental revenue related to our recent acquisitions being partially offset by lower demand for truckload services, as a result of lower GDP growth and a lack of project work associated with capital investments, and fuel surcharge revenue. Revenue in the Oilfield Services segment increased by $10.2 million, or 2.6 percent, to $400.1 million as compared to $389.9 million primarily due to the acquisition of AECOM ISD at the end of the second quarter of 2018 as well as a significant increase in demand for large diameter pipeline stringing and stockpiling services, which was offset by significantly lower drilling activity in the WCSB.

Consolidated Revenue Years ended December 31 *($ millions)*	2019 2018 Change	2019 2018 Change
Company Contractors Other	$ % $ % $	%
	910.4 71.2 864.1 68.5 46.3 362.3 28.3 389.3 30.9 (27.0) 5.8 0.5 7.4 0.6 (1.6)	5.4 (6.9) (21.6)
Total	1,278.5 100.0 1,260.8 100.0 17.7	1.4

Revenue related to Company Equipment increased by $46.3 million, or 5.4 percent, to $910.4 million as compared to $864.1 million in 2018 and represented 71.2 percent of consolidated revenue in the current period as compared to 68.5 percent in 2018. Revenue related to Contractors decreased by $27.0 million, or 6.9 percent, to $362.3 million as compared to $389.3 million in 2018, and represented 28.3 percent of consolidated revenue in the current period as compared to 30.9 percent in 2018.

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2019 ANNUAL FINANCIAL REVIEW

Direct Operating Expenses

Direct operating expenses (" DOE ") include two main categories of expenses. The first category of DOE relates to the direct costs incurred to operate and maintain Company Equipment. The major DOE associated with operating Company Equipment are wages, fuel, repairs and maintenance, purchased transportation and operating supplies. The other expenses included under DOE – Company mainly consist of short-term or low value leases, equipment rent, insurance and licensing costs. The second category of DOE are the costs incurred to hire Contractors, whether owner operators or subcontractors.

Consolidated Direct Operating Expenses Years ended December 31 *($ millions)* 2019 2018 Change	Consolidated Direct Operating Expenses Years ended December 31 *($ millions)* 2019 2018 Change	Consolidated Direct Operating Expenses Years ended December 31 *($ millions)* 2019 2018 Change
Company Wages and benefits Fuel Repairs and maintenance Purchased transportation Operating supplies Other Contractors	$ % $ % $**	%
	241.1 26.5 231.7 26.8 9.4 86.0 9.4 90.7 10.5 (4.7) 120.8 13.3 117.2 13.6 3.6 97.2 10.7 89.0 10.3 8.2 67.1 7.4 57.3 6.6 9.8 24.8 2.7 24.9 2.9 (0.1)	4.1 (5.2) 3.1 9.2 17.1 (0.4)
	637.0 70.0 610.8 70.7 26.2 272.9 75.3 292.0 75.0 (19.1)	4.3 (6.5)
	909.9 71.2 902.8 71.6 7.1

*as a percentage of respective Consolidated revenue

DOE in 2019 were $909.9 million as compared to $902.8 million in 2018. The increase of $7.1 million, or 0.8 percent, was attributable to the $17.7 million, or 1.4 percent, increase in consolidated revenue. As a percentage of revenue these expenses decreased slightly to 71.2 percent as compared to 71.6 percent in 2018 due to lower fuel prices and operational efficiency gains.

In 2019 DOE associated with Company Equipment increased to $637.0 million as compared to $610.8 million in 2018. The increase of $26.2 million, or 4.3 percent, was attributable to the $46.3 million, or 5.4 percent, increase in Company revenue that occurred during the period. As a percentage of Company revenue these expenses decreased to 70.0 percent as compared to 70.7 percent in 2018. The reduction in fuel expense accounted for the majority of the decrease. Total fuel expense decreased by 1.1 percent of Company revenue to 9.4 percent, or $86.0 million, as compared to 10.5 percent or $90.7 million in 2018.

Contractors expense in 2019 decreased by 6.5 percent to $272.9 million, as compared to $292.0 million in 2018. This $19.1 million decrease was generally in line with the $27.0 million, or 6.9 percent, decline in Contractors revenue. As a percentage of Contractors revenue, Contractors expense increased by 0.3 percent to 75.3 percent as compared to 75.0 percent in 2018 due to the nature of the AECOM ISD acquisition and the effect of rate discounting, primarily by those Business Units involved in the transportation of fluids and servicing of wells in the Oilfield Services segment, being offset by lower costs in the Trucking/Logistics segment.

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2019 ANNUAL FINANCIAL REVIEW

Selling and Administrative Expenses

Selling and administrative (" S&A ") expenses include salaries, employee profit share and other administrative expenses incurred to support the operations of Mullen Group and its Business Units.

Consolidated Selling and Administrative Expenses Years ended December 31 *($ millions)* 2019 2018 Change	Consolidated Selling and Administrative Expenses Years ended December 31 *($ millions)* 2019 2018 Change	Consolidated Selling and Administrative Expenses Years ended December 31 *($ millions)* 2019 2018 Change
Wages and benefits Communications, utilities and general supplies Profit share Foreign exchange Stock-based compensation Rent and other	$ % $ % $**	%
	98.9 7.7 95.8 7.6 3.1 46.9 3.7 44.4 3.5 2.5 12.5 1.0 11.9 0.9 0.6 0.8 0.1 (1.7) (0.1) 2.5 1.4 0.1 1.7 0.1 (0.3) 7.2 0.5 16.9 1.4 (9.7)	3.2 5.6 5.0 (147.1) (17.6) (57.4)
Total	167.7 13.1 169.0 13.4 (1.3)	(0.8)

as a percentage of total Consolidated revenue

S&A expenses decreased to $167.7 million in 2019 as compared to $169.0 million in 2018. The decrease of $1.3 million was primarily due to the $9.7 million reduction in rent expense associated with the adoption of IFRS 16 – Leases being partially offset by the $6.2 million of incremental S&A expenses associated with acquisitions and the $2.5 million negative variance in foreign exchange expense.

Operating Income Before Depreciation and Amortization

Operating income before depreciation and amortization (" OIBDA ") is net income before impairment of goodwill, depreciation of property, plant and equipment, depreciation of right-of-use assets, amortization of intangible assets, finance costs, net foreign exchange gains and losses, other (income) expense and income taxes.

Consolidated Operating Income Before Depreciation and Amortization Years ended December 31 *($ millions)* 2019 2018 Change	Consolidated Operating Income Before Depreciation and Amortization Years ended December 31 *($ millions)* 2019 2018 Change	Consolidated Operating Income Before Depreciation and Amortization Years ended December 31 *($ millions)* 2019 2018 Change
Trucking/Logistics Oilfield Services Corporate	$ % $ % $	%
	139.6 69.5 128.4 67.9 11.2 70.8 35.2 66.8 35.3 4.0 (9.5) (4.7) (6.2) (3.2) (3.3)	8.7 6.0 53.2
	200.9 100.0 189.0 100.0 11.9

OIBDA for the period was $200.9 million, or 15.7 percent of revenue, as compared to $189.0 million, or 15.0 percent, in 2018. The $11.9 million, or 6.3 percent, increase was primarily due to the adoption of IFRS 16 – Leases whereby $13.1 million of previously expensed operating leases were capitalized and depreciated. This had a 100-bps impact on operating margin[1] . On a year over year comparative basis, after adjusting for the effect of the adoption of IFRS 16 – Leases, operating margin[1] decreased by 0.3 percent to 14.7 percent as compared to 15.0 percent in 2018.

Depreciation of Property, Plant and Equipment

Depreciation of property, plant and equipment was $80.5 million in 2019 as compared to $72.1 million in 2018. This increase of $8.4 million was mainly attributable to a greater amount of depreciation being recorded in both the Trucking/Logistics segment and the Oilfield Services segment, while depreciation in the Corporate Office remained relatively consistent on a year over year basis. Depreciation in the Trucking/Logistics segment increased by $4.4 million and was mainly due to an increase in the amount of capital expenditures being made within this segment. Depreciation in the Oilfield Services segment increased by $4.3 million and was mainly due to additional depreciation recorded on specialty equipment within Spearing Service L.P. (" Spearing ") and Formula Powell L.P.

1 Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

(" Formula Powell ") after an assessment of current market conditions for such equipment and from the incremental depreciation being recorded on the assets acquired in the AECOM ISD and the Canadian Hydrovac acquisitions. These increases were somewhat offset by the lower amount of capital expenditures made within this segment.

Depreciation of Right-of-Use Assets

Depreciation of right-of-use assets was $11.7 million in 2019 consisting of $9.7 million in the Trucking/Logistics segment and $2.0 million in the Oilfield Services segment. The majority of our right-of-use assets consist of real property leases within the Trucking/Logistics segment. Depreciation of right-of-use assets mainly consists of real property leases entered into by the Business Units and are depreciated over the lease term. Effective January 1, 2019, we adopted IFRS 16 – Leases using the modified retrospective method. Under the modified retrospective method, comparative financial information is not restated and continues to be reported under the accounting standards in effect for those periods. The associated right-of-use assets were measured at the lease liability amount, adjusted by the amount of any subleases and any lease inducements relating to those leases.

Amortization of Intangible Assets

Intangible assets are normally acquired on acquisitions and are mainly comprised of customer relationship values and non-competition agreements that are amortized over their estimated life from the date of acquisition. Amortization of intangible assets was $19.3 million in 2019 as compared to $15.4 million in 2018. This increase mainly resulted from the additional amortization recorded on the intangible assets associated with the recent acquisitions and from a customer list purchased by Gardewine in the fourth quarter of 2018. These increases were somewhat offset by certain intangible assets becoming fully amortized.

Finance Costs

Finance costs mainly consist of:

Interest expense on financial liabilities, including:
U.S. $117.0 million of Series G Notes, U.S. $112.0 million of Series H Notes, $30.0 million of Series I Notes, $3.0 million of Series J Notes, $58.0 million of Series K Notes and $80.0 million of Series L Notes (collectively, the " Private Placement Debt ");
- the 2019 Debentures that were issued in June 2019;
lease liabilities; and
borrowings on the Bank Credit Facility.
Less any interest income generated from the debentures issued to PCX and Thrive Management Group Ltd. (" Thrive ") and from cash and cash equivalents.

Finance costs were $23.6 million in 2019 as compared to $20.0 million in 2018. The increase of $3.6 million was mainly attributable to the $3.8 million of interest expense being recorded on the 2019 Debentures, an increase in interest expense from borrowings on the Bank Credit Facility and the interest expense on the lease liabilities. These increases were somewhat offset by the June 29, 2018 repayment of the Series D ($70.0 million bearing interest at 5.76 percent) Notes, the repayment and conversion of some previously issued convertible debentures that were issued in 2009 (the " 2009 Debentures "), which matured on July 1, 2018, and from a greater amount of interest income being earned on PCX and Thrive debentures held in 2019.

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2019 ANNUAL FINANCIAL REVIEW

Net Foreign Exchange (Gain) Loss

We recognize foreign exchange gains or losses at the end of each reporting period related to our U.S. dollar debt and from our two cross-currency swap contracts. In 2014 we entered into two cross-currency swap contracts to swap the principal portion of the Series G (U.S. $117.0 million) and Series H (U.S. $112.0 million) Notes (collectively, the " Cross-Currency Swaps ") into Canadian dollars at foreign exchange rates of $1.1047 and $1.1148 that mature on October 22, 2024 and October 22, 2026, respectively. These swap contracts were entered into as a method of hedging the U.S. debt notes against any declines in the Canadian dollar vis-à-vis the U.S. dollar.

The net foreign exchange gain was $14.1 million in 2019 as compared to a net foreign exchange loss of $8.5 million in 2018. The net foreign exchange gain of $14.1 million in 2019 resulted even though the principal portion of all our U.S. $229.0 million debt is hedged by our Cross-Currency Swaps. This gain is due to how our U.S. dollar debt and our Cross-Currency Swaps are valued for accounting purposes. Our U.S. dollar debt is valued at the end of each quarter using the closing exchange rate between the Canadian dollar vis-à-vis the U.S dollar (the " Spot Rate "). In addition to the Spot Rate, our Cross-Currency Swaps are valued using a discounted value from maturity of the forward rate, which is influenced by changes in interest rate differentials between Canada and the United States. As the Cross-Currency Swaps get closer to maturity, their accounting value should more closely correlate to the value of our U.S. dollar debt. The variance of $22.6 million was mainly attributable to the change in the value of the Canadian dollar relative to the U.S. dollar. The details of the net foreign exchange gain are as follows:

Net Foreign Exchange (Gain) Loss *($ millions)*	Years ended December 31	Years ended December 31
	CDN. $ Equivalent
	2019	2018
Foreign exchange (gain) loss on U.S. $ debt Foreign exchange loss(gain)on Cross-CurrencySwaps	(14.9) 0.8 (14.1)	25.1
		(16.6)
Net foreign exchange (gain) loss		8.5

Foreign Exchange (Gain) Loss on U.S. $ Debt

We recorded a foreign exchange gain of $14.9 million related to our U.S. dollar debt due to the $0.0654 strengthening of the Canadian dollar relative to the U.S. dollar during 2019. In 2018 we recorded a foreign exchange loss of $25.1 million due to the weakening of the Canadian dollar relative to the U.S. dollar. The details of the foreign exchange (gain) loss on the U.S. dollar debt is summarized in the following table:

Foreign Exchange (Gain) Loss on U.S. $ Debt *($ millions, except exchange rate amounts)*		Years ended December 31	Years ended December 31
	2019	CDN. $ Equivalent	2018 U.S. $ Debt Exchange Rate
	U.S. $ Debt Exchange Rate			CDN. $ Equivalent
Ending – December 31 Beginning– January1	229.0 1.2988 229.0 1.3642	297.5 312.4	229.0 1.3642 229.0 1.2545	312.4 287.3
Foreign exchange (gain) loss on U.S. $ debt		(14.9)		25.1

Foreign Exchange Loss (Gain) on Cross-Currency Swaps

On July 25, 2014, we entered into two Cross-Currency Swaps with a Canadian bank to swap U.S. $117.0 million and U.S. $112.0 million into Canadian currency at foreign exchange rates of $1.1047 and $1.1148 that mature on October 22, 2024 and October 22, 2026, respectively. The Cross-Currency Swaps convert the repayment of the principal portion of the Series G and Series H Notes into a Canadian currency equivalent of $129.2 million and $124.9 million, respectively. We record the foreign exchange gain or loss relating to these Cross-Currency Swaps within net foreign exchange (gain) loss on the consolidated statement of comprehensive income, which is consistent with its underlying nature and purpose. The carrying value of these Cross-Currency Swaps are recorded within derivative financial instruments (" Derivatives ") in the consolidated statement of financial position.

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2019 ANNUAL FINANCIAL REVIEW

We recorded a foreign exchange loss on Cross-Currency Swaps of $0.8 million in 2019 as compared to a $16.6 million gain in 2018. This was due to the change over the period in the fair value of these Cross-Currency Swaps as summarized in the table below:

Foreign Exchange Loss (Gain) on Cross-Currency Swaps *($ millions)*		Years ended December 31	Years ended December 31
		2019 CDN. $ Change in Fair Value of Swaps		2018
	U.S. $ Swaps		U.S. $ Swaps	CDN. $ Change in Fair Value of Swaps
Cross-Currency Swap maturing October 22, 2024 Cross-CurrencySwapmaturingOctober 22, 2026	117.0 112.0	1.1 (0.3) 0.8	117.0 112.0	(9.1)
				(7.5)
Foreign exchange loss (gain) on Cross-Currency Swaps				(16.6)

Other (Income) Expense

Other (income) expense consists of the change in fair value of investments, the gain or loss on sale of the Corporation's assets including property, plant and equipment and earnings from equity investments. Other income in 2019 was $0.2 million, a $0.2 million negative variance as compared to the $0.4 million of other income recorded in 2018. The $0.2 million negative variance was due to the factors set forth below:

Change in Fair Value of Investments (positive variance of $3.1 million). We periodically invest in certain public corporations. In 2019 there was no change in the fair value of investments as compared to a $3.1 million decrease in 2018. There were $0.7 million of investments sold in 2019 and no investments were purchased. There were no investments purchased or sold in 2018.

Loss on Sale of Property, Plant and Equipment (negative variance of $2.4 million). We recognized a loss of $2.7 million in 2019 on sale of property, plant and equipment on total consolidated proceeds on sale of $6.5 million as compared to a $0.3 million loss on sale of property, plant and equipment on total consolidated proceeds on sale of $12.2 million in 2018. The $2.7 million loss on sale of property, plant and equipment in 2019 mainly resulted from the sale of older equipment in both the Trucking/Logistics and Oilfield Services segments. The $0.3 million loss on sale of property, plant and equipment in 2018 mainly resulted from the sale of older equipment in the Trucking/Logistics segment.

Earnings from Equity Investments (negative variance of $0.9 million). We recognized $2.9 million of earnings from equity investments in 2019 as compared to earnings of $3.8 million in 2018. We use the equity method to account for investments in which we obtain significant influence or joint control over the investee and we recognize earnings from these equity investments from the date thereof. There were no equity investments purchased in 2019. In 2018 we invested $2.0 million to acquire a 40.0 percent equity interest in PCX. In 2019 the aggregate amount of revenue and OIBDA generated by our equity investees was $275.1 million (2018 – $234.6 million) and $42.6 million (2018 – $26.8 million), respectively. The following table details our equity investments and the date from which we commenced recording earnings from them.

	Date of Significant Influence
Equity Investment	or Joint Control Obtained
Canol Oilfield Services Inc.	January 1, 2013
Kriska Transportation Group Limited	December 1, 2014
Cordova Oilfield Services Ltd.	April 17, 2015
Butler Ridge Energy Services (2011) Ltd.	July 1, 2015
Thrive Management Group Ltd.	September 27, 2017
Pacific Coast Express Limited	August 1, 2018

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2019 ANNUAL FINANCIAL REVIEW

Impairment of Goodwill

In general terms, goodwill represents the excess of the purchase price of a business combination over the net amount of identifiable assets acquired less the liabilities assumed. Goodwill is tested at the cash generating unit (" CGU ") level and is determined based upon the recoverable amount of each CGU compared to the CGU's respective carrying amount. At December 31, 2019, we performed our annual impairment test for goodwill and concluded that there was no impairment of goodwill within our CGUs. In 2018 we concluded that there was impairment of goodwill within certain CGUs in the Oilfield Services segment as the recoverable amount for these CGUs was lower than their respective carrying amount and was mainly due to the downturn in the fourth quarter in the oil and natural gas industry in western Canada. We recognized a $100.0 million impairment of goodwill in the fourth quarter of 2018 using the following discount and terminal value growth rates within each respective CGU:

		Impairment of		Terminal Value
*($ millions)*		Goodwill	Discount Rate	Growth Rate
Cash Generating Unit
Formula Powell L.P.	$	45.6	11.5%	2.5%
Cascade Energy Services L.P.		37.6	12.0%	2.0%
Mullen Oilfield Services L.P.		5.8	12.0%	2.0%
Spearing Service L.P.		5.0	12.0%	2.0%
R. E. Line Trucking (Coleville) Ltd.		3.0	12.0%	2.5%
Withers L.P.		3.0	12.0%	2.0%
Total Impairment of Goodwill	$	100.0

The impairment of goodwill within these CGUs resulted from the deterioration of the oil and natural gas industry in the fourth quarter of 2018, which led to us revising our projected future cash flows. The oil and natural gas industry in Canada continued to be mired with negative news in the fourth quarter of 2018. The price of Canadian crude oil was U.S. $13.46 per barrel on November 15, 2018. This impacted the profitability of oil and gas producers and resulted in a reduction of oil and gas drilling and the curtailment of drilling programs in 2019. On December 3, 2018, the Government of Alberta announced production curtailments commencing on January 1, 2019. The industry continues to be negatively impacted by the inability to increase takeaway capacity through additional pipelines and access to tidewater and new markets. The persistent negativism surrounding the oil and gas industry in Canada has led to a lack of capital investment. As a result of these factors, we lowered our future expectations regarding drilling activity and earnings for our CGUs within this segment, which resulted in a $100.0 million impairment of goodwill. After recognizing this impairment of goodwill, the recoverable amount of these CGUs equaled its carrying amount. The recording of this impairment of goodwill was recognized as an expense and reduced book equity and net income but did not impact cash flows.

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2019 ANNUAL FINANCIAL REVIEW

Income Taxes

*($ millions)*	Years ended December 31	Years ended December 31
	2019	2018
Income (loss) before income taxes Combined statutory tax rate Expected income tax Add (deduct): Impairment of goodwill Non-deductible (taxable) portion of net foreign exchange (gain) loss Non-deductible (taxable) portion of the change in fair value of investments Stock-based compensation expense Changes in unrecognized deferred tax asset Decrease in income tax due to changes in income tax rates Other	$ 80.1 27% 21.6 — (1.8) — 0.4 (1.8) (9.5) (1.0)	$ (26.6) 27% (7.2) 21.4 1.2 0.4 0.4 1.2 — (0.2)
Income tax expense	$ 7.9	$ 17.2

Income tax expense was $7.9 million in 2019 as compared to $17.2 million in 2018. The decrease of $9.3 million was mainly attributable to the decrease in the substantively enacted tax rate in Alberta. In the second quarter of 2019, the Government of Alberta passed Bill 3, which will reduce the Alberta provincial corporate tax rate from 12.0 percent to 8.0 percent in a phased approach between July 1, 2019 and January 1, 2022. As a result of this change, the Corporation made an adjustment to current and deferred income taxes of $0.2 million and $9.5 million, respectively, which was recorded in 2019.

Net Income (Loss)

*($ millions, except share and per share amounts)*	Years ended December 31
	2019 2018	% Change
Net income (loss) Weighted average number of Common Shares outstanding	$ 72.2 $ (43.8) 104,824,973 104,273,508	(264.8) 0.5
Earnings (loss) per share – basic	$ 0.69 $ (0.42)	(264.3)

Net income increased to $72.2 million in 2019 as compared to $(43.8) million in 2018. The factors contributing to the increase in net income as previously discussed include:

a $100.0 million impairment in goodwill recorded in 2018;
a $22.6 million positive variance in net foreign exchange;
an $11.9 million increase in OIBDA;
a $9.3 million decrease in income tax expense; and
a $3.1 million positive variance in the fair value of investments.

These factors were somewhat offset by the following factors that decreased net income:

an $11.7 million increase in depreciation of right-of-use assets;
an $8.4 million increase in depreciation of property, plant and equipment;

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2019 ANNUAL FINANCIAL REVIEW

a $3.9 million increase in amortization of intangible assets;
a $3.6 million increase in finance costs;
a $2.4 million increase in the loss on sale of property, plant and equipment; and
a $0.9 million decrease in earnings from equity investments.

Basic earnings (loss) per share increased to $0.69 in 2019 as compared to $(0.42) in 2018. This increase resulted from the effect of the $116.0 million increase in net income. The weighted average number of Common Shares outstanding increased slightly from 104,273,508 to 104,824,973 which was mainly due to the conversion of some of the 2009 Debentures into Common Shares in 2018 and from the Common Shares issued on the Canadian Hydrovac acquisition.

Net Income – Adjusted and Earnings per Share – Adjusted

The following table illustrates net income (loss) and basic earnings (loss) per share before considering the impact of the impairment of goodwill, the net foreign exchange gains or losses and the change in fair value of investments. Net income (loss) and basic earnings (loss) per share have been adjusted to reflect earnings from a strictly operating perspective.

*($ millions, except share and per share amounts)*	Years ended December 31	Years ended December 31
	2019	2018
Income (loss) before income taxes Add (deduct): Impairment of goodwill Net foreign exchange (gain) loss Change in fair value of investments	$ 80.1 $ — (14.1) —	(26.6) 100.0 8.5 3.1
Income before income taxes – adjusted Income tax rate Computed expected income tax expense	66.0 27% (17.8)	85.0 27% (23.0)
Net income – adjusted(1) Weighted average number of Common Shares outstanding– basic	48.2 104,824,973	62.0 104,273,508
Earnings per share – adjusted(1)	$ 0.46 $	0.59

(1) Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

2019 SEGMENTED INFORMATION

Year ended December 31, 2019 *($ millions)*		Corporate and
	Trucking Oilfield	intersegment
	/Logistics Services	eliminations	Total
Revenue Direct operating expenses Sellingand administrative expenses	$ $	$	$
	881.6 400.1 635.3 282.7 106.7 46.6	(3.2) (8.1) 14.4(3)	1,278.5 909.9 167.7
Operating income before depreciation and amortization(1)	139.6 70.8	(9.5)	200.9
Net capital expenditures(2)	42.1 9.3	17.1	68.5

Year ended December 31, 2018 *($ millions)*			Corporate and
	Trucking	Oilfield	intersegment
	/Logistics	Services	eliminations	Total
Revenue Direct operating expenses Sellingand administrative expenses	$	$	$	$
	873.3 637.9 107.0	389.9 274.1 49.0	(2.4) (9.2) 13.0(4)	1,260.8 902.8 169.0
Operating income before depreciation and amortization(1)	128.4	66.8	(6.2)	189.0
Net capital expenditures(2)	48.5	18.4	20.6	87.5

(3) Includes a $0.4 million foreign exchange loss.

TRUCKING/LOGISTICS SEGMENT

The transportation and distribution of freight is nearly a $300 billion business in Canada and is generally described as both highly competitive and fragmented. The Trucking/Logistics segment provides a wide range of trucking and logistics services in Canada, as well as to and from the continental U.S. At December 31, 2019, the Trucking/Logistics segment was comprised of 14 Business Units that utilize both Company Equipment and Contractors.

*Service Offerings*	*Service Offerings*	*Key Drivers and Considerations*	*Key Drivers and Considerations*
•	Long-Haul Trucking (T/L)	•	Tied to general economy (i.e., GDP)
•	Less-Than-Truckload Trucking (LTL)	•	Regional network comprised of 94 terminals;
			tied to the consumer
•	Logistics, Intermodal and Transload Services	•	Requires less maintenance capital
•	Bulk Hauling	•	Primarily contract services
•	Ambient Temperature Controlled Transportation	•	Tied to the movement of healthcare products

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2019 ANNUAL FINANCIAL REVIEW

Revenue

Revenue – Trucking/Logistics Years ended December 31

Revenue – Trucking/Logistics Years ended December 31
*($ millions)*	2019 2018 Change
Company Contractors Other	$ % $ % $	%
	603.5 68.5 574.5 65.8 29.0 277.1 31.4 297.8 34.1 (20.7) 1.0 0.1 1.0 0.1 —	5.0 (7.0) —
	881.6 100.0 873.3 100.0 8.3

The Trucking/Logistics segment revenue increased by $8.3 million, or 1.0 percent, to $881.6 million as compared to $873.3 million in 2018 and represented 68.8 percent of pre-consolidated revenue in 2019 as compared to 69.1 percent in 2018. Segment revenue increased as a result of the incremental revenue related to our recent acquisitions being partially offset by lower demand for freight services and lower fuel surcharge revenue. Revenue increased by $7.7 million and $0.2 million in the first and second quarters, respectively, then fell by $4.5 million in the third quarter followed by an increase of $4.9 million in the fourth quarter. Some of the specific factors that impacted revenue were the following:

Our regional LTL business improved by $16.6 million, or 3.9 percent, benefitting from acquisitions and modest market share gains. The five regional LTL Business Units[1] generated pre-consolidated revenue of $447.4 million as compared to $430.8 million in 2018.
Our truckload services Business Units generated pre-consolidated revenue of $446.1 million as compared to $454.1 million in 2018 due to the decrease in demand for truckload services as a result of lower GDP growth and a lack of capital investments as well as a reduction in fuel surcharge revenue.
Fuel surcharge revenue, excluding the effect of acquisitions, declined by $6.4 million to $83.4 million as compared to $89.8 million in 2018.

Revenue related to Company Equipment increased by $29.0 million, or 5.0 percent, to $603.5 million as compared to $574.5 million in 2018 and represented 68.5 percent of segment revenue in the current period as compared to 65.8 percent in 2018. Revenue related to Contractors decreased by $20.7 million, or 7.0 percent, to $277.1 million as compared to $297.8 million in 2018 and represented 31.4 percent of segment revenue in the current period as compared to 34.1 percent in 2018.

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2019 ANNUAL FINANCIAL REVIEW

Direct Operating Expenses

Direct Operating Expenses – Trucking/Logistics Years ended December 31 *($ millions)* 2019 2018 Change	Direct Operating Expenses – Trucking/Logistics Years ended December 31 *($ millions)* 2019 2018 Change	Direct Operating Expenses – Trucking/Logistics Years ended December 31 *($ millions)* 2019 2018 Change
Company Wages and benefits Fuel Repairs and maintenance Purchased transportation Operating supplies Other Contractors	$ % $ % $**	%
	157.0 26.0 154.1 26.8 2.9 62.6 10.4 65.4 11.4 (2.8) 69.8 11.6 66.6 11.6 3.2 94.8 15.7 86.6 15.1 8.2 29.7 4.9 26.1 4.5 3.6 17.3 2.8 17.8 3.1 (0.5)	1.9 (4.3) 4.8 9.5 13.8 (2.8)
	431.2 71.4 416.6 72.5 14.6 204.1 73.7 221.3 74.3 (17.2)	3.5 (7.8)
Total	635.3 72.1 637.9 73.0 (2.6)	(0.4)

*as a percentage of respective Trucking/Logistics revenue

DOE expressed as a percentage of revenue decreased by 0.9 percent to 72.1 percent as compared to 73.0 percent in 2018 due to lower fuel costs and operational efficiencies. Total DOE were $635.3 million in 2019 as compared to $637.9 million in 2018. The decrease of $2.6 million, or 0.4 percent, resulted despite an $8.3 million, or 1.0 percent, increase in segment revenue and was directly related to the following factors:

a continued focus on cost control;
lower fuel expense as a result of lower diesel fuel prices; and
higher purchased transportation costs as a result of market share gains experienced by Gardewine.

DOE related to Company Equipment increased by $14.6 million, or 3.5 percent, to $431.2 million as compared to $416.6 million in 2018. This increase was generally in proportion to the $29.0 million increase in Company revenue. In terms of a percentage of revenue, Company expenses decreased by 1.1 percent to 71.4 percent as compared to 72.5 percent in 2018. This decrease was primarily due to decreased fuel costs associated with the year over year decline in diesel prices.

Contractors expense in 2019 decreased by $17.2 million to $204.1 million as compared to $221.3 million in 2018. This decrease was generally in line with the $20.7 million decrease in Contractors revenue. As a percentage of Contractors revenue, Contractors expense decreased to 73.7 percent as compared to 74.3 percent in 2018 due to the greater availability of subcontractors.

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2019 ANNUAL FINANCIAL REVIEW

Selling and Administrative Expenses

Selling and Administrative Expenses – Years ended December 31 *($ millions)*	Trucking/Logistics 2019 2018 Change	Trucking/Logistics 2019 2018 Change
Wages and benefits Communications, utilities and general supplies Profit share Foreign exchange Rent and other	$ % $ % $**	%
	66.0 7.5 63.2 7.2 2.8 29.0 3.3 26.9 3.1 2.1 7.8 0.9 8.0 0.9 (0.2) 0.5 0.1 (1.4) (0.2) 1.9 3.4 0.3 10.3 1.3 (6.9)	4.4 7.8 (2.5) (135.7) (67.0)
Total	106.7 12.1 107.0 12.3 (0.3)	(0.3)

*as a percentage of total Trucking/Logistics revenue

S&A expenses were $106.7 million in 2019 as compared to $107.0 million in 2018. The decrease of $0.3 million was primarily due to the $6.9 million reduction in rent expense, which was primarily due to the adoption of IFRS 16 – Leases being offset by the $2.9 million of incremental S&A expenses associated with the acquisitions and a $1.9 million negative variance in foreign exchange. S&A expenses as a percentage of segment revenue remained relatively stable at 12.1 percent as compared to 12.3 percent in 2018.

Operating Income Before Depreciation and Amortization

OIBDA in 2019 increased by $11.2 million, or 8.7 percent, to $139.6 million as compared to $128.4 million generated in 2018. The majority of this rise in OIBDA, specifically $10.9 million, was due to the adoption of IFRS 16 – Leases. In addition, acquisitions accounted for $2.8 million of incremental OIBDA. Somewhat offsetting these gains was a reduction in OIBDA generated by certain of our truckload services Business Units.

Operating margin[1] increased by 1.1 percent to 15.8 percent as compared to 14.7 percent in 2018 primarily due to the adoption of IFRS 16 – Leases, which had a 1.2 percent positive impact on our operating margin[1] . When comparing our operating margin[1] without the impact of IFRS 16 – Leases, it was 14.6 percent. The 0.1 percent decrease in operating margin[1] was primarily due to lower margins generated by the recent acquisitions, which are generally classified as asset light and typically generate lower margins.

Capital Expenditures

Net capital expenditures[1] were $42.1 million in 2019, a decrease of $6.4 million as compared to $48.5 million in 2018. The Trucking/Logistics segment had gross capital expenditures of $44.4 million and dispositions of $2.3 million for net capital expenditures[1] of $42.1 million in 2019. The majority of the capital was invested to purchase trucks and trailers and various pieces of operating equipment to both replace and support new opportunities within this segment. In addition, we transferred $4.7 million of trucks and trailers to the Trucking/Logistics segment from the Oilfield Services segment to improve asset utilization. In 2018 gross capital expenditures were $52.0 million and dispositions were $3.5 million for net capital expenditures[1] of $48.5 million.

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2019 ANNUAL FINANCIAL REVIEW

OILFIELD SERVICES SEGMENT

Mullen Group provides the energy sector in northern and western Canada with a wide range of services related to the drilling for oil and natural gas, oil and natural gas production, oil sands infrastructure development and capital projects. At December 31, 2019, the Oilfield Services segment was comprised of 17 Business Units, that utilize both Company Equipment and Contractors.

*Service Offerings*	*Service Offerings*	*Key Drivers and Considerations*	*Key Drivers and Considerations*
•	Production Services	•	Commodity prices (i.e., oil and natural gas)
•	Specialized Services	•	Drilling trends and evolving technologies
	− oil sands, dewatering and infrastructure	•	Take-away / Pipeline Capacity
•	Drilling and Drilling Related	•	Drilling activity in western Canada

Industry Statistics

One of the important industry statistics we follow is drilling activity. With changes in drilling techniques the industry continues to evolve. We consider the number of active rigs operating, total wells drilled, length of metres drilled within such wells and the number of operating days, to be useful measures to gauge the strength of industry activity. Recent efforts to enhance drilling efficiency, combined with a movement to longer and deeper multi-stage horizontal wells have changed the correlation of certain drilling statistics. Generally speaking, the rig count and average days to drill a well have decreased while the total metres drilled have increased. In addition, drilling techniques have evolved whereby the demand for bagged mud has diminished. However, the increase in metres drilled per well has continued to support demand for drill pipe transportation and drilling fluid hauling services.

Drilling activity in the WCSB, as reported in terms of active rig count, total wells drilled and length of metres drilled within such wells, declined in 2019 as compared to the prior year. Industry statistics indicate that the average active rig count was 135 rigs during 2019 as compared to 191 active rigs in 2018, a decrease of 56 rigs or 29.3 percent. In addition, total wells drilled in 2019 decreased by 24.9 percent to 5,568 wells drilled in the period as compared to 7,415 wells drilled in 2018. The length of metres drilled within such wells decreased by 25.4 percent during the current period to 14.87 million metres as compared to 19.93 million metres in 2018.

The number of wells completed on a geographic basis was as follows:

Years ended December 31 2019 2018 # Change	% Change
British Columbia 364 438 (74) Alberta 3,090 4,139 (1,049) Saskatchewan 1,896 2,562 (666) Manitoba 218 276 (58) Northwest Territories — — —	(16.9) (25.3) (26.0) (21.0) —
Total 5,568 7,415 (1,847)	(24.9)

source: JuneWarren-Nickle's Energy Group – wells completed on rig release basis.

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2019 ANNUAL FINANCIAL REVIEW

Revenue

2019 2018 Change	2019 2018 Change
$ % $ % $	%
306.9 76.7 289.6 74.3 17.3 92.3 23.1 98.9 25.4 (6.6) 0.9 0.2 1.4 0.3 (0.5)	6.0 (6.7) (35.7)
400.1 100.0 389.9 100.0 10.2

Segment revenue increased by $10.2 million, or 2.6 percent, to $400.1 million as compared to $389.9 million in 2018 and represented 31.2 percent of pre-consolidated revenue as compared to 30.9 percent of pre-consolidated revenue in 2018. This increased revenue was mainly attributable to the 2018 mid-year acquisition of AECOM ISD that contributed $39.4 million of incremental revenue in the first half of 2019 and the rise in demand for large diameter pipeline hauling and stringing services. Revenue increased by $20.4 million and $23.1 million in the first and second quarters, respectively and then decreased by $10.6 million and $22.7 million in the third and fourth quarters, respectively. Specific factors affecting the Oilfield Services segment's 2019 revenue were:

a $28.6 million increase in revenue generated by those Business Units providing specialized services to the oil sands and water management industries including a $25.6 million increase in pipeline hauling and stringing services revenue as well as an increase in demand for pumps and water management services at Canadian Dewatering, particularly during the first quarter;
a $10.2 million increase in revenue generated by those Business Units involved in the transportation of fluids and servicing of wells due to the AECOM ISD acquisition being partially offset by a decline in demand as a result of the Alberta Government mandated oil curtailments;
a $27.6 million decrease in revenue generated by those Business Units most directly tied to oil and natural gas drilling activity as a result of lower drilling activity in the WCSB; and
a $1.0 million decrease in revenue generated by those Business Units providing drilling services.

Direct Operating Expenses

Direct Operating Expenses – Oilfield Services Years ended December 31

Years ended December 31
*($ millions)*	2019 2018 Change
Company Wages and benefits Fuel Repairs and maintenance Purchased transportation Operating supplies Other Contractors	$ % $ % $**	%
	84.1 27.4 77.6 26.8 6.5 23.3 7.6 25.3 8.7 (2.0) 51.0 16.6 50.6 17.5 0.4 2.4 0.8 2.5 0.9 (0.1) 37.4 12.2 31.2 10.8 6.2 8.7 2.8 8.7 2.9 —	8.4 (7.9) 0.8 (4.0) 19.9 —
	206.9 67.4 195.9 67.6 11.0 75.8 82.1 78.2 79.1 (2.4)	5.6 (3.1)
Total	282.7 70.7 274.1 70.3 8.6	3.1

*as a percentage of respective Oilfield Services revenue

DOE were $282.7 million in 2019 as compared to $274.1 million in 2018. The increase of $8.6 million, or 3.1 percent, was directly related to the $10.2 million, or 2.6 percent, increase in segment revenue. As a percentage of revenue these expenses increased by 0.4 percent to 70.7 percent compared to 70.3 percent in 2018 largely as a result of the change in revenue mix and inflationary cost pressures.

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2019 ANNUAL FINANCIAL REVIEW

In 2019 DOE associated with Company Equipment increased by $11.0 million, or 5.6 percent, to $206.9 million as compared to $195.9 million in 2018. This increase was directly related to the $17.3 million, or 6.0 percent, increase in Company revenue. As a percentage of Company revenue these expenses decreased by 0.2 percent to 67.4 percent as compared to 67.6 percent in 2018 primarily due to lower fuel costs as well as lower repairs and maintenance expense being partially offset by a rise in wages and benefits expense as a result of the AECOM ISD acquisition and a $6.2 million increase in operating supplies expense mainly due to the increase in Canadian Dewatering's product sales as well as costs related to Premay Pipeline's operations.

Contractors expense in 2019 decreased to $75.8 million, as compared to $78.2 million in 2018. This $2.4 million decrease was directly related to the reduction in Contractors revenue. As a percentage of Contractors revenue, Contractors expense increased to 82.1 percent as compared to 79.1 percent due to the nature of the AECOM ISD acquisition.

Selling and Administrative Expenses

Selling and Administrative Expenses – Years ended December 31 *($ millions)*	Oilfield Services 2019 2018 Change	Oilfield Services 2019 2018 Change
Wages and benefits Communications, utilities and general supplies Profit share Rent and other	$ % $ % $**	%
	25.9 6.5 26.9 6.9 (1.0) 14.2 3.5 14.2 3.6 — 4.7 1.2 3.9 1.0 0.8 1.8 0.4 4.0 1.1 (2.2)	(3.7) — 20.5 (55.0)
Total	46.6 11.6 49.0 12.6 (2.4)	(4.9)

as a percentage of total Oilfield Services revenue

S&A expenses in 2019 decreased by $2.4 million to $46.6 million as compared to $49.0 million in 2018 primarily due to the effect of the adoption of IFRS 16 – Leases that had a $2.2 million positive effect on rent expense as well as various cost control initiatives. These decreases were partially offset by the $2.2 million of incremental S&A expenses associated with acquisitions as well as the $0.8 million increase in profit share expense due to greater profitability in certain Business Units. S&A expenses as a percentage of segment revenue decreased by 1.0 percent to 11.6 percent due to the overall fixed nature of these expenses relative to the $10.2 million increase in segment revenue and the reduction in rent expense as a result of the adoption of IFRS 16 – Leases.

Operating Income Before Depreciation and Amortization

OIBDA in 2019 increased by $4.0 million, or 6.0 percent, to $70.8 million. OIBDA increased by $3.6 million, $5.0 million and $0.7 million in the first, second and third quarters, respectively, and then declined by $5.3 million in the fourth quarter due to poor industry conditions. Operating margin[1] increased to 17.7 percent as compared to 17.1 percent in 2018, however, IFRS 16 – Leases had a 0.5 percent positive impact on the operating margin[1] . On a comparative basis, after adjusting for the effect of the adoption of IFRS 16 – Leases, operating margin[1] improved by only 0.1 percent. The net margin gain was due to the integration of the AECOM ISD assets and the change in revenue mix associated with certain large diameter pipeline projects that had a beneficial effect on margin being mostly offset by the significant decline in margin generated by those Business Units most tied to drilling related activity. Specifically, the $4.0 million year over year increase in OIBDA can be attributed to the following:

a $7.0 million increase relating to those Business Units leveraged to the oil sands and pipeline construction projects;
a $3.9 million increase in those Business Units involved in the transportation of fluids and servicing of wells; and
a $6.9 million decrease from those Business Units tied to drilling and drilling related activity.

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2019 ANNUAL FINANCIAL REVIEW

Capital Expenditures

Net capital expenditures[1] were $9.3 million in 2019, a decrease of $9.1 million as compared to $18.4 million in 2018. In 2019 the Oilfield Services segment had gross capital expenditures of $18.5 million and dispositions of $9.2 million for net capital expenditures[1] of $9.3 million. The majority of the capital was invested to purchase pumps at Canadian Dewatering including new tier 4 environmentally friendly pumps and to expand our disposal facility at Envolve with the drilling of a new disposal well to increase our capacity and service offering. Capital was also allocated to meet customer demand by purchasing some equipment for Premay Pipeline. The majority of the dispositions related to transferring of trucks, trailers and some hydrovac equipment to the Trucking/Logistics segment to improve asset utilization. In 2018 gross capital expenditures were $29.0 million and dispositions were $10.6 million for net capital expenditures[1] of $18.4 million.

CORPORATE

The Corporate Office provides support to the Business Units including coordinating business strategies, monitoring financial and business performance and providing shared services such as payroll services, human resource support, information technology support, legal support and accounting services. The Corporate Office also owns a network of real estate holdings and facilities, through its subsidiary MT, which are leased primarily to the Business Units. Such properties are leased on commercially reasonable terms. In addition, the Corporate Office is responsible for capital allocation to the Business Units as well as all regulatory and public reporting.

The Corporate Office recorded a loss of $9.5 million in 2019 as compared to a loss of $6.2 million in 2018. The $3.3 million increase in loss was mainly attributable to higher salary costs associated with the new retention plan for corporate personnel and Business Unit leaders, from a lower amount of costs recovered from our Business Units and from lower income generated from our real estate holdings. In 2019 the Corporate Office recorded a foreign exchange loss of $0.4 million as compared to a foreign exchange gain of $0.3 million in 2018.

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2019 ANNUAL FINANCIAL REVIEW

CAPITAL RESOURCES AND LIQUIDITY

Consolidated Cash Flow Summary

*($ millions)*	Years ended December 31	Years ended December 31
	2019	2018
Net cash from operating activities Net cash used in financing activities Net cash used in investingactivities	$ 170.6 $ (15.0) (79.9)	140.7 (131.5) (140.7)
Change in cash and cash equivalents Effect of exchange rate fluctuations on cash held Cash and cash equivalents, beginningofperiod	75.7 (0.6) 3.9	(131.5) 0.9 134.5
Cash and cash equivalents, end of period	$ 79.0 $	3.9

Annual Sources and Uses of Cash

Mullen Group continues to generate cash in excess of its operating needs by generating $170.6 million in 2019 as compared to $140.7 million in 2018. Net cash used in financing activities in 2019 was $15.0 million as compared to using $131.5 million in 2018. The $116.5 million year over year decrease was mainly due to issuing the 2019 Debentures as compared to repaying the Series D Notes upon maturity at June 30, 2018. Net cash used in investing activities decreased by $60.8 million due to a reduction in cash used on acquisitions and from a lower amount of net capital expenditures[1] in 2019. Specific changes in cash flow are set forth below.

Cash From Operating Activities

Net cash from operating activities increased to $170.6 million in 2019 as compared to $140.7 million in 2018. The increase of $29.9 million, or 21.3 percent was mainly due to an $11.9 million increase in OIBDA and from a $25.9 million decrease in cash used in non-cash working capital items. These items were somewhat offset by a $9.1 million increase in cash taxes paid.

The change in non-cash working capital items from operating activities is detailed in the table below:

Changes in Non-Cash Working Capital Items from Operating Activities *($ millions)*	Years ended December 31
	2019 2018	Variance
	$ $	$
Sources (uses) of cash Trade and other receivables Inventory Prepaid expenses Accountspayable and accrued liabilities	13.3 (26.2) 0.9 (3.6) (3.5) (0.1) (11.2) 3.5	39.5 4.5 (3.4) (14.7)
Total sources (uses) of cash from non-cash working capital items	(0.5) (26.4)	25.9

In 2019 we continued to fund growth and used $0.5 million of cash from changes in non-cash working capital items from operating activities as compared to using $26.4 million of cash in 2018. This $25.9 million variance was mainly due to the following factors.

An additional $39.5 million of cash was generated from trade and other receivables that resulted from the combined effect of a $13.3 million source of cash in 2019 as compared to a $26.2 million use of cash in 2018.

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2019 ANNUAL FINANCIAL REVIEW

An additional $4.5 million of cash was generated from inventory that resulted from the combined effect of a $0.9 million source of cash in 2019 as compared to a $3.6 million use of cash in 2018.

Somewhat offsetting these items were the following:

An additional $3.4 million of cash was used from prepaid expenses that resulted from the combined effect of a $3.5 million use of cash in 2019 as compared to a $0.1 million use of cash in 2018.
An additional $14.7 million of cash was used from accounts payable and accrued liabilities that resulted from the combined effect of an $11.2 million use of cash in 2019 as compared to a $3.5 million source of cash in 2018.

Cash Used In Financing Activities

Net cash used in financing activities was $15.0 million in 2019 as compared to using $131.5 million in 2018. This $116.5 million variance was mainly due to the factors set forth below.

A $119.8 million increase in cash from issuing the 2019 Debentures in the second quarter of 2019.
A $72.4 million decrease in the repayment of long-term debt and loans, which was mainly due to the 2018 repayments of the Series D Notes ($70.0 million) upon maturity and from repaying the debt acquired on the Canadian Hydrovac and DWS acquisitions.

Somewhat offsetting these items were the following:

A $60.0 million variance in cash on the Bank Credit Facility resulting from repaying $30.0 million in 2019 as compared to borrowing $30.0 million in 2018.
A $2.4 million increase in dividends paid to shareholders in 2019 as compared to 2018 due to an increase in the amount of the monthly dividend and the number of Common Shares outstanding.
A $12.1 million increase in the repayment of lease liabilities due to the January 1, 2019, adoption of IFRS 16 – Leases.
A $2.4 million increase in interest paid on long-term debt, the 2019 Debentures and lease liabilities.

Cash Used In Investing Activities

Net cash used in investing activities decreased to $79.9 million in 2019 as compared to $140.7 million in 2018. This $60.8 million decrease was mainly due to the factors set forth below.

A $30.1 million decrease in cash used to fund acquisitions due to the 2018 acquisitions of Number 8, AECOM ISD, Canadian Hydrovac, DWS and Dacota as compared to the 2019 acquisitions of Argus, Inter-Urban and Jen Express.
A $19.0 million decrease in net capital expenditures[1] . In 2019 net capital expenditures[1] were $68.5 million as compared to $87.5 million in 2018.
A $5.6 million change in other assets due to the timing of the debentures advanced to and collected from PCX and Thrive.
A $1.2 million change in net investment in finance leases.
A $2.0 million decrease in the purchase of equity investments due to the 2018 investment in PCX.

Somewhat offsetting these items was the following:

A $0.4 million variance in changes in non-cash working capital items from investing activities.

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2019 ANNUAL FINANCIAL REVIEW

The following charts present the sources and uses of cash for comparative purposes.

Year ended December 31, 2019

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Year ended December 31, 2018

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In addition to the $170.6 million (2018 – $140.7 million) of net cash from operating activities, we also received $124.5 million (2018 – $4.0 million) of cash from other sources, which mainly consisted of issuing the 2019 Debentures, from changes in non-cash working capital items from financing and investing activities, cash received from net investment in finance leases, the sale of some investments and from interest income generated on cash and cash equivalents. Cash was used to repay (borrow) the Bank Credit Facility of $30.0 million (2018 – $(30.0) million), repay lease liabilities of $12.1 million (2018 – nil), fund acquisitions of $15.7 million (2018 – $45.8 million), repay long-term debt and loans of $5.8 million (2018 – $79.7 million), pay dividends totalling $62.9 million (2018 – $60.5 million), incur net capital expenditures[1] of $68.5 million (2018 – $87.5 million) and pay interest obligations of $23.9 million (2018 – $21.5 million). We also had $1.1 million (2018 – $10.3 million) of other uses.

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2019 ANNUAL FINANCIAL REVIEW

Working Capital

At December 31, 2019, we had $243.3 million (December 31, 2018 – $131.7 million) of working capital, which included $79.0 million of cash and cash equivalents, of which $12.5 million was denominated in U.S. currency. On June 21, 2019, our Bank Credit Facility was increased by $25.0 million to $150.0 million. This working capital also includes a current liability of $10.7 million related to the current portion of lease liabilities. This working capital, the Bank Credit Facility and the anticipated cash flow from operating activities in 2020 are available to finance our ongoing working capital requirements, our 2020 capital budget, as well as various special projects and acquisition opportunities.

Capital Expenditures

On February 12, 2020, the Board approved a $50.0 million capital budget for 2020, exclusive of corporate acquisitions, real property and special projects with $45.0 million to be allocated to replace trucks, trailers and specialized equipment to support the operations of the business and $5.0 million allocated to the Corporate Office mainly to complete the Regina, Saskatchewan cross dock facility. The Board will continue to monitor the various sectors of the economy we serve and will adjust the capital budget as new opportunities arise.

Generally, over the course of an economic cycle, our maintenance capital expenditures approximate our annual depreciation on property, plant and equipment. Our diverse business model, and wide range of operations, provides us with the ability to redeploy certain assets over different regions for greater utilization. In 2019 there were $4.7 million of trucks and trailers transferred to Business Units in the Trucking/Logistics segment from the Oilfield Services segment. It also provides us with considerable flexibility in the amount of maintenance capital expenditure requirements in any given fiscal period.

The following chart summarizes our capital expenditures and depreciation for facilities as well as trucks, trailers and specialized equipment for the last number of years.

Capital Expenditures and Depreciation Summary *($ millions)*	Years ended December 31
	2019 2018 2017	2016
Facilities Gross capital expenditures Net capital expenditures(1) Depreciation Trucks, trailers and specialized equipment Gross capital expenditures Net capital expenditures(1) Depreciation Total Gross capital expenditures Net capital expenditures(1) Depreciation	$ $ $	$
	18.7 22.4 2.5 18.7 22.4 1.8 7.9 7.8 7.7 56.3 77.3 30.6 49.8 65.1 18.0 72.6 64.3 67.7 75.0 99.7 33.1 68.5 87.5 19.8 80.5* 72.1 75.4	2.8 2.6 7.6 18.1 11.9 63.7 20.9 14.5 71.3

(1) Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms". * Included $8.9 million of net capital expenditures for special projects.

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2019 ANNUAL FINANCIAL REVIEW

Debt

As at December 31, 2019, we had net debt[1] outstanding of $362.8 million, (December 31, 2018 – $350.5 million), which consisted of total debt of $616.8 million (December 31, 2018 – $512.2 million) less working capital (excluding the current portion of lease liabilities) of $254.0 million (December 31, 2018 – $161.7 million). The primary reason for the increase in the carrying value of the long-term debt was due to issuing the 2019 Debentures and from adopting IFRS 16 – Leases on January 1, 2019, resulting in $40.7 million of lease liabilities being added to the consolidated statement of financial position. Total debt is comprised of the Private Placement Debt, the 2019 Debentures, lease liabilities and the Bank Credit Facility. The following table summarizes our total debt and net debt[1] as at December 31, 2019, and December 31, 2018:

			December 31, 2019 December 31, 2018	December 31, 2019 December 31, 2018	December 31, 2019 December 31, 2018
					CDN. CDN.		Change in
	Interest		U.S.		Dollar U.S. Dollar		CDN. Dollar
*($ millions)*	Rate		Dollar		Equivalent Dollar Equivalent		Equivalent
Private Placement Debt: Series G - matures October 22, 2024 Series H - matures October 22, 2026 Series I - matures October 22, 2024 Series J - matures October 22, 2026 Series K - matures October 22, 2024 Series L - matures October 22, 2026 Bank Credit Facility Less: Unamortized debt issuance costs	3.84% 3.94% 3.88% 4.00% 3.95% 4.07% variable(1)				151.9 $ 117.0 $ 159.6 145.5 112.0 152.8 30.0 — 30.0 3.0 — 3.0 58.0 — 58.0 80.0 — 80.0 — — 30.0 (1.0) — (1.2)
		$	117.0	$		$	(7.7)
			112.0				(7.3)
			—				—
			—				—
			—				—
			—				—
			—				(30.0)

			—				0.2
Long-term debt (including the current			229.0		467.4 229.0 512.2		(44.8)
portion) 2019 Debentures – debt component Lease liabilities (including the current portion)	5.75% 3.20%				108.7 — — 40.7 — —
			—		108.7		108.7
			—		40.7		40.7

Total debt Less: Working capital (excluding the Bank		$	229.0	$	616.8 $ 229.0 $ 512.2	$	104.6


Credit Facility and the current portion
of leases)					254.0 161.7		92.3
Net debt(2)				$	362.8 $ 350.5	$	12.3

(1) Bank prime rate plus 0.5 percent or bankers' acceptance rates plus 1.5 percent.

(2) Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

Total Net Debt[1] to Operating Cash Flow. Mullen Group's total net debt[1] cannot exceed 3.5 times operating cash flow calculated using the trailing twelve months' financial results normalized for acquisitions. The term total net debt[1] means all debt including the Private Placement Debt, lease liabilities, the Bank Credit Facility and letters of credit, excluding the 2019 Debentures less any unrealized gain on Cross-Currency Swaps plus any unrealized loss on Cross-Currency Swaps as disclosed within Derivatives on the consolidated statement of financial position. The term " operating cash flow ", as defined within the 2014 Note Purchase Agreement, means, for any quarterly period, the trailing twelve months' consolidated net income adjusted for all amounts deducted in the computation thereof on account of (i) taxes imposed on or measured by income or excess profits; (ii) depreciation and amortization taken during such period; (iii) total interest charges, including interest on the 2019 Debentures; and (iv) non-cash charges. Total net debt[1] to operating cash flow financial covenant under our Private Placement Debt enables us to include the trailing twelve months operating cash flows from acquisitions. Although permitted, we have not included any operating cash flows generated prior to the date of the acquisition from our recent acquisitions in this financial covenant calculation.

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2019 ANNUAL FINANCIAL REVIEW

Total net debt[1] to operating cash flow was calculated as follows:

Total net debt(1) to operating cash flow		December 31 2019	December 31 2018
Total net debt(1) Operating cash flow	$	470.6 $ 204.7 $	474.1 192.8
	$
Total net debt(1)to operating cash flow		2.30:1	2.46:1

(1) Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

Total Earnings Available for Fixed Charges to Total Fixed Charges. The fixed charge coverage ratio cannot be less than 1.75:1 calculated using the trailing twelve months financial results.

The term " total earnings available for fixed charges " means, for any period, consolidated net income plus all amounts deducted in the computation thereof on account of (i) taxes imposed on or measured by income or excess profits, (ii) the depreciation and amortization taken during such period, (iii) consolidated fixed charges, (iv) interest charges with respect to convertible debentures, and (v) non-cash charges, and less any non-cash gains included in the computation of consolidated net income. The term " total fixed charges" means, for any period, the sum of total interest charges and rental charges for such period.

Total Earnings Available for Fixed Charges to Total Fixed Charges		December 31 2019	December 31 2018
Total earnings available for fixed charges Total fixed charges	$	207.2 $ 23.2 $	206.6 35.1
	$
Total earnings available for fixed charges to total fixed charges		8.94:1	5.89:1

Mullen Group, as evidenced by the table below, is in compliance with both of the aforementioned covenants.

Financial Covenants Financial Covenant Threshold	December 31 2019	December 31 2018
Private Placement Debt Covenants (a) Total net debt(1)to operating cash flow cannot exceed 3.50:1 (b) Total earnings available for fixed charges to total fixed charges cannot be less than 1.75:1		2.46:1 5.89:1
	2.30:1
	8.94:1

(1) Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

Total net debt[1] to operating cash flow was 2.30:1 at December 31, 2019. Assuming the $470.6 million of total net debt[1] remains constant, we would need to generate approximately $134.5 million of operating cash flow on a trailing twelve month basis to remain in compliance with this financial covenant. When a business is acquired, the trailing twelve months of operating cash flows generated by the newly acquired business may be added to our trailing twelve months' operating cash flows from the date of acquisition for financial covenant calculation purposes.

Mullen Group is also subject to a priority debt covenant. The term " priority debt " means all indebtedness secured by permitted liens excluding certain qualified subsidiary debt. Priority debt cannot exceed 15.0 percent of total assets. At December 31, 2019, the priority debt was $0.8 million or an insignificant percentage of total assets.

Our debt-to-equity ratio was 0.67:1 at December 31, 2019, as compared to 0.57:1 at December 31, 2018. This increase in the debt-to-equity ratio was due to the net effect of a $104.6 million increase in total debt (including the current portion) and a $19.8 million increase in equity as compared to December 31, 2018. The $104.6 million increase in total debt was mainly due to an additional $108.7 million of the debt component of the 2019 Debentures and from an additional $40.7 million of lease liabilities (including the current portion) resulting from the January 1, 2019, adoption of IFRS 16 – Leases. These increases were somewhat offset by the $30.0 million repayment of the amount drawn on our Bank Credit Facility and the $14.9 million foreign exchange gain on the Corporation's U.S. dollar debt. The $19.8 million increase in equity mainly resulted from the $72.2 million of net income being

1 Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

recognized in 2019 and from the additional $9.1 million of the equity component of the 2019 Debentures. These increases were somewhat offset by the $62.9 million of dividends declared to shareholders in 2019.

Contractual Obligations

The following table summarizes the contractual maturities of financial liabilities.

*($ millions)*	Maximum Payments
	Total 1 year 2 – 3 years 4 – 5 years $ $ $ $	5 years and thereafter $
Long-term debt(1) Interest on long-term debt(1) 2019 Debentures Interest on the 2019 Debentures Purchase obligations Lease liabilities	468.4 — — 239.9 110.2 18.4 36.8 36.8 125.0 — — — 49.7 7.2 14.4 14.4 12.0 12.0 — — 43.7 12.1 16.6 7.4	228.5 18.2 125.0 13.7 — 7.6
Total Contractual Obligations	809.0 49.7 67.8 298.5	393.0

(1) Assumes a U.S. dollar foreign exchange rate of $1.2988.

We ended 2019 with long-term debt (including the current portion thereof) of $467.4 million, a decrease of $44.8 million as compared to the $512.2 million of long-term debt at the beginning of the year. This decrease was due to the $30.0 million repayment of the amount drawn on our Bank Credit Facility and the $14.9 million foreign exchange gain on the Corporation's U.S. dollar debt. The long-term debt consists of the Private Placement Debt, which matures in 2024 and 2026.

In June 2019, we issued $125.0 million of the 2019 Debentures, by way of a bought deal, at a price of $1,000 per 2019 Debenture. The 2019 Debentures mature on November 30, 2026, and bear interest at an annual rate of 5.75 percent payable semi-annually in arrears on the last day of May and November of each year. Each $1,000 2019 Debenture is convertible into 71.4286 Common Shares (or a conversion price of $14.00) at any time at the option of the holders of the 2019 Debentures. As at the date of issuance, an aggregate of 8,928,575 Common Shares would be issued if all holders converted their principal amount.

As at December 31, 2019, we entered into various capital expenditure purchase obligations totalling $12.0 million. The majority of these purchase obligations relate to the acquisition of trucks and trailers given that certain manufacturers require purchase obligations in advance so that manufacturing can commence and expected delivery times can be met.

Effective January 1, 2019, we adopted IFRS 16 – Leases using the modified retrospective method whereby comparative financial information is not restated and continues to be reported under the accounting standards in effect for those periods. The majority of our lease liabilities relate to real property leases that are mainly utilized by certain Business Units within the Trucking/Logistics segment. Some Business Units have also entered into leases pertaining to various pieces of operating equipment including rail cars, trucks and trailers. As at December 31, 2019, we had total contractual cash commitments of $43.7 million while the carrying amount of these lease liabilities on our consolidated statement of financial position was $40.7 million. The carrying amount is measured at the present value of the remaining lease payments at an average incremental borrowing rate of 3.2 percent.

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Share Capital

The authorized share capital of the Corporation consists of an unlimited number of Common Shares and an unlimited number of Preferred Shares, issuable in series. The number of, and the specific rights, privileges, restrictions and conditions attaching to any series of Preferred Shares shall be determined by the Board prior to the creation and issuance thereof. As at the date hereof, no series of Preferred Shares has been created.

Common Shares

Common Shares Authorized: Unlimited Number # of Common Shares	Amount *($ millions)*
Balance as at December 31, 2019 and 2018 104,824,973	$ 946.9

At December 31, 2019, there were 104,824,973 Common Shares outstanding representing $946.9 million in share capital. There was no change in the number of Common Shares outstanding during 2019. As at January 31, 2020, there were 104,824,973 Common Shares issued and outstanding.

Stock Option Plan

Outstanding – December 31, 2018 3,462,500 $ Forfeited (182,500)	19.15 (17.91)
Outstanding – December 31, 2019 3,280,000	19.22
Exercisable – December 31, 2019 2,794,981	19.66

There are 4,660,000 options available to be issued under our stock option plan. In 2019 there were 182,500 stock options forfeited. As at December 31, 2019, Mullen Group had 3,280,000 stock options outstanding under the stock option plan. As at January 31, 2020, there were 3,152,500 stock options outstanding under the stock option plan.

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2019 ANNUAL FINANCIAL REVIEW

FOURTH QUARTER 2019 – CONSOLIDATED FINANCIAL RESULTS

Summary – Trailing Eight Quarters

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Consolidated Revenue OIBDA Operating Margin [1]
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Revenue

Q4 Consolidated Revenue by Segment Three month periods ended December 31

*(unaudited)* *($ millions)*	2019 2018 Change	2019 2018 Change
Trucking/Logistics Oilfield Services Corporate and intersegment eliminations	$ % $ % $**	%
	224.6 71.1 219.7 65.8 4.9 91.4 28.9 114.1 34.2 (22.7) (1.4) — (0.5) — (0.9)	2.2 (19.9) —
Total	314.6 100.0 333.3 100.0 (18.7)	(5.6)

*as a percentage of pre-consolidated revenue

Consolidated revenue in the fourth quarter decreased by $18.7 million, representing a year over year decline of 5.6 percent, declining to $314.6 million as compared to $333.3 million in 2018 due to a very challenging oil and gas environment in western Canada and a softening general economy. The Trucking/Logistics segment rose by 2.2 percent, or $4.9 million, due to $5.9 million in incremental revenue from acquisitions being partially offset by lower fuel surcharge revenue. Our Oilfield Services segment experienced a $22.7 million, or 19.9 percent, decrease in revenue due to the significant reduction in drilling activity and oil production being partially offset by a $1.9 million increase in revenue at Premay Pipeline, a provider of pipeline hauling and stringing services. Fuel surcharge revenue was $21.7 million as compared to $24.0 million in 2018.

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Q4 Consolidated Revenue Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change $ % $ % $ % Company 234.6 74.6 233.7 70.1 0.9 0.4 Contractors 79.0 25.1 98.3 29.5 (19.3) (19.6) Other 1.0 0.3 1.3 0.4 (0.3) (23.1) Total 314.6 100.0 333.3 100.0 (18.7) (5.6)	Q4 Consolidated Revenue Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change $ % $ % $ % Company 234.6 74.6 233.7 70.1 0.9 0.4 Contractors 79.0 25.1 98.3 29.5 (19.3) (19.6) Other 1.0 0.3 1.3 0.4 (0.3) (23.1) Total 314.6 100.0 333.3 100.0 (18.7) (5.6)	Q4 Consolidated Revenue Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change $ % $ % $ % Company 234.6 74.6 233.7 70.1 0.9 0.4 Contractors 79.0 25.1 98.3 29.5 (19.3) (19.6) Other 1.0 0.3 1.3 0.4 (0.3) (23.1) Total 314.6 100.0 333.3 100.0 (18.7) (5.6)
	$ % $ % $	%
	234.6 74.6 233.7 70.1 0.9 79.0 25.1 98.3 29.5 (19.3) 1.0 0.3 1.3 0.4 (0.3)	0.4 (19.6) (23.1)
	314.6 100.0 333.3 100.0 (18.7)	(5.6)

Revenue generated by Company Equipment increased by $0.9 million, or 0.4 percent, to $234.6 million as compared to $233.7 million in 2018 and represented 74.6 percent of consolidated revenue in the current period as compared to 70.1 percent in 2018. Revenue related to Contractors decreased by $19.3 million, or 19.6 percent, to $79.0 million as compared to $98.3 million in 2018 and represented 25.1 percent of consolidated revenue in the current period as compared to 29.5 percent in 2018.

Direct Operating Expenses

Q4 Consolidated Direct Operating Expenses Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Consolidated Direct Operating Expenses Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Consolidated Direct Operating Expenses Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change
Company Wages and benefits Fuel Repairs and maintenance Purchased transportation Operating supplies Other Contractors	$ % $ % $**	%
	58.8 25.1 62.7 26.8 (3.9) 22.1 9.4 23.3 10.0 (1.2) 29.4 12.5 30.3 13.0 (0.9) 26.9 11.5 24.7 10.6 2.2 20.0 8.5 17.3 7.4 2.7 6.3 2.7 6.0 2.5 0.3	(6.2) (5.2) (3.0) 8.9 15.6 5.0
	163.5 69.7 164.3 70.3 (0.8) 58.8 74.4 73.2 74.5 (14.4)	(0.5) (19.7)
Total	222.3 70.7 237.5 71.3 (15.2)	(6.4)

*as a percentage of respective Consolidated revenue

DOE were $222.3 million in the fourth quarter as compared to $237.5 million in 2018. This decrease of $15.2 million, or 6.4 percent, was in line with the $18.7 million decrease in consolidated revenue.

DOE associated with Company Equipment decreased to $163.5 million as compared to $164.3 million in 2018. This decrease of $0.8 million, or 0.5 percent, was despite the $0.9 million, or 0.4 percent, increase in Company revenue primarily due to a decrease in fuel expense and cost control initiatives being partially offset by higher operating supplies expense related to Canadian Dewatering's and Premay Pipeline's operations and higher purchased transportation costs primarily as a result of acquisitions. As a percentage of Company revenue these expenses decreased by 0.6 percent to 69.7 percent as compared to 70.3 percent in 2018 due to decreased fuel expense and cost control initiatives.

Contractors expense in the fourth quarter decreased to $58.8 million as compared to $73.2 million in 2018. This $14.4 million decrease was attributable to the $19.3 million decline in Contractors revenue. As a percentage of revenue, Contractors expense remained relatively stable and decreased by 0.1 percent to 74.4 percent as compared to 74.5 percent in 2018.

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Selling and Administrative Expenses

Q4 Consolidated Selling and Administrative Expenses Three month periods ended December 31

*(unaudited)* *($ millions)*	2019 2018 Change	2019 2018 Change
Wages and benefits Communications, utilities and general supplies Profit share Foreign exchange Stock-based compensation Rent and other	$ % $ % $**	%
	24.6 7.8 25.0 7.5 (0.4) 12.0 3.8 11.3 3.4 0.7 3.5 1.1 3.6 1.1 (0.1) 0.4 0.1 (1.0) (0.3) 1.4 0.4 0.1 0.4 0.1 — 1.5 0.6 4.8 1.4 (3.3)	(1.6) 6.2 (2.8) (140.0) — (68.8)
Total	42.4 13.5 44.1 13.2 (1.7)	(3.9)

as a percentage of total Consolidated revenue

S&A expenses for the period declined by $1.7 million to $42.4 million as compared to $44.1 million in 2018 largely due the $3.3 million reduction in rent expense associated with the adoption of IFRS 16 – Leases whereby previously expensed rent payments were capitalized under the new accounting framework as well as cost control initiatives. These decreases were partially offset by the $1.1 million of incremental S&A expenses associated with acquisitions and the $1.4 million negative variance in foreign exchange expense that related to the year over year change in the Canadian dollar relative to the U.S. dollar.

Operating Income Before Depreciation and Amortization

Q4 Consolidated Operating Income Before Depreciation and Amortization Three month periods ended December 31

Q4 Consolidated Operating Income Before Depreciation and Amortization Three month periods ended December 31	Q4 Consolidated Operating Income Before Depreciation and Amortization Three month periods ended December 31
*(unaudited)* *($ millions)* 2019 2018 Change
$ % $ % $	%
Trucking/Logistics 37.5 75.2 33.2 64.2 4.3 Oilfield Services 15.5 31.1 20.8 40.2 (5.3) Corporate (3.1) (6.3) (2.3) (4.4) (0.8)	13.0 (25.5) 34.8
Total 49.9 100.0 51.7 100.0 (1.8)	(3.5)

OIBDA for the period was $49.9 million, or 15.9 percent of revenue, as compared to $51.7 million, or 15.5 percent, in 2018. The $1.8 million decline represents a year over year decline of 3.5 percent and was primarily due to significantly lower OIBDA in the Oilfield Services segment and slightly higher Corporate costs being partially offset by a $4.3 million increase in OIBDA in the Trucking/Logistics segment.

OIBDA was positively impacted by the adoption of IFRS 16 – Leases whereby $3.6 million of previously expensed operating leases were capitalized and depreciated. This had a 120-bps impact on operating margin[1] . On a comparative basis, operating margin[1] decreased by 0.8 percent to 14.7 percent as compared to 15.5 percent in 2018.

Depreciation of Property, Plant and Equipment

Depreciation of property, plant and equipment was $26.7 million in the fourth quarter as compared to $20.0 million in 2018. This increase of $6.7 million was mainly attributable to a greater amount of depreciation being recorded in both the Oilfield Services segment and the Trucking/Logistics segment, while depreciation in the Corporate Office remained consistent on a year over year basis. Depreciation in the Oilfield Services segment increased by $4.9 million and was mainly due to additional depreciation recorded on specialty equipment within Spearing and Formula Powell after an assessment of current market conditions for such equipment, which was somewhat offset by the lower amount of capital expenditures made within this segment. The $1.8 million increase in depreciation in

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2019 ANNUAL FINANCIAL REVIEW

the Trucking/Logistics segment was mainly due to a greater amount of capital expenditures being made within this segment.

Depreciation of Right-of-Use Assets

Depreciation of right-of-use assets was $3.3 million in the fourth quarter of 2019 consisting of $2.9 million in the Trucking/Logistics segment and $0.4 million in the Oilfield Services segment. Depreciation of right-of-use assets mainly consists of real property leases entered into by the Business Units and are depreciated over the lease term. Effective January 1, 2019, we adopted IFRS 16 – Leases using the modified retrospective method. Under the modified retrospective method, comparative financial information is not restated and continues to be reported under the accounting standards in effect for those periods. The associated right-of-use assets were measured at the lease liability amount, adjusted by the amount of any subleases and any lease inducements relating to those leases.

Amortization of Intangible Assets

Amortization of intangible assets was $5.3 million in the fourth quarter as compared to $4.3 million in 2018. This increase mainly resulted from the additional amortization recorded on the intangible assets associated with the recent acquisitions in the Trucking/Logistics segment.

Finance Costs

Finance costs were $6.4 million in the fourth quarter as compared to $4.6 million in 2018. The increase of $1.8 million was mainly attributable to the $1.8 million of interest expense being recorded on the 2019 Debentures and the interest expense on the lease liabilities. These increases were somewhat offset by the reduction in interest expense from borrowings on the Bank Credit Facility, a greater amount of interest income being earned on cash held in the third quarter of 2019 and from a less amount of interest expense being recorded on our U.S. dollar debt as a result of the change in the value of the Canadian dollar relative to the U.S. dollar in the fourth quarter of 2019.

Net Foreign Exchange (Gain) Loss

The net foreign exchange gain was $2.3 million in the fourth quarter as compared to a loss of $2.2 million in 2018. The components of net foreign exchange (gain) loss were as follows:

Net Foreign Exchange (Gain) Loss *(unaudited)* *($ millions)*	Three month periods ended December 31	Three month periods ended December 31
	CDN. $ Equivalent
	2019	2018
Foreign exchange (gain) loss on U.S. $ debt Foreign exchange loss(gain)on Cross-CurrencySwaps	(5.8) 3.5 (2.3)	16.0
		(13.8)
Net foreign exchange (gain) loss		2.2

Foreign Exchange (Gain) Loss on U.S. $ Debt

We recorded a foreign exchange gain of $5.8 million related to our U.S. dollar debt due to the $0.0255 strengthening of the Canadian dollar relative to the U.S. dollar during the fourth quarter. For the same period in 2018, we recorded a foreign exchange loss of $16.0 million due to the $0.0697 weakening of the Canadian dollar relative to the U.S. dollar. The details of the foreign exchange (gain) loss on the U.S. dollar debt is summarized in the following table:

Foreign Exchange (Gain) Loss on U.S. $ Debt *(unaudited)* *($ millions, except exchange rate amounts)*	Three month periods ended December 31	Three month periods ended December 31	Three month periods ended December 31
	2019	CDN. $ Equivalent	2018
	U.S. $ Debt Exchange Rate		U.S. $ Debt Exchange Rate	CDN. $ Equivalent
Ending – December 31 Beginning– September 30	229.0 1.2988 229.0 1.3243	297.5 303.3 (5.8)	229.0 1.3642 229.0 1.2945	312.4
				296.4
Foreign exchange (gain) loss on U.S. $ debt				16.0

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2019 ANNUAL FINANCIAL REVIEW

Foreign Exchange Loss (Gain) on Cross-Currency Swaps

The foreign exchange loss on Cross-Currency Swaps of $3.5 million in the fourth quarter was due to the change over the period in the fair value of these Cross-Currency Swaps as summarized in the table below:

Foreign Exchange Loss (Gain) on Cross-Currency Swaps *(unaudited)* *($ millions)*	Three month periods ended December 31	Three month periods ended December 31	Three month periods ended December 31	Three month periods ended December 31
		2019 CDN. $ Change in Fair Value of Swaps		2018
	U.S. $ Swaps		U.S. $ Swaps	CDN. $ Change in Fair Value of Swaps
Cross-Currency Swap maturing October 22, 2024 Cross-CurrencySwapmaturingOctober 22, 2026	117.0 112.0	1.9 1.6 3.5	117.0 112.0	(7.3)
				(6.5)
Foreign exchange loss (gain) on Cross-Currency Swaps				(13.8)

Other (Income) Expense

Other expense was $0.3 million in the fourth quarter of 2019 as compared to $1.3 million of other expense recorded in 2018. The $1.0 million positive variance was due to the factors set forth below:

Change in Fair Value of Investments (positive variance of $2.0 million). We recorded an increase in the fair value of investments of $0.3 million in the fourth quarter as compared to a $1.7 million decrease in 2018.

Loss on Sale of Property, Plant and Equipment (negative variance of $0.1 million). We recognized a loss of $0.9 million on sale of property, plant and equipment on total consolidated proceeds on sale of $2.8 million in the fourth quarter as compared to a $0.8 million loss on sale of property, plant and equipment on total consolidated proceeds on sale of $2.6 million in 2018. The loss on sale of property, plant and equipment in 2019 and 2018 mainly resulted from the sale of older assets by Business Units within the Oilfield Services segment.

Earnings from Equity Investments (negative variance of $0.9 million). We recognized $0.3 million of earnings from equity investments in the fourth quarter as compared to $1.2 million of earnings in 2018. There were no equity investments purchased or sold in the fourth quarter of 2019 and 2018.

Impairment of Goodwill

At December 31, 2019, we performed our annual impairment test for goodwill and concluded that there was no impairment of goodwill within any of our CGUs. In the fourth quarter of 2018, we recognized a $100.0 million impairment of goodwill within certain CGUs in the Oilfield Services segment as the recoverable amount for these CGUs was lower than their respective carrying amount. For more information refer to the " Critical Accounting Estimates " section on page 80.

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2019 ANNUAL FINANCIAL REVIEW

Income Taxes

*(unaudited)* *($ millions)*	Three month periods ended December 31
	2019 2018
Income (loss) before income taxes Combined statutory tax rate Expected income tax Add (deduct): Impairment of goodwill Non-deductible (taxable) portion of net foreign exchange (gain) loss Non-deductible (taxable) portion of the change in fair value of investments Stock-based compensation expense Changes in unrecognized deferred tax asset Decrease in income tax due to changes in income tax rate Other	$ 10.2 $ (80.7) 27% 27% 2.7 (21.8) — 21.4 (0.2) 0.3 — 0.2 0.1 0.1 (0.2) 0.3 — — (0.6) (0.1)
Income tax expense	$ 1.8 $ 0.4

Income tax expense increased to $1.8 million in the fourth quarter as compared to $0.4 million in 2018. This increase of $1.4 million was mainly attributable to the tax implications associated with the $100.0 million impairment of goodwill recognized in the fourth quarter of 2018.

Net Income (Loss)

*(unaudited)* *($ millions, except share and per share amounts)*	Three month periods ended December 31	Three month periods ended December 31
	2019 2018	% Change
Net income (loss) Weighted average number of Common Shares outstanding	$ 8.4 $ (81.1) 104,824,973 104,824,973	(110.4) —
Earnings (loss) per share – basic	$ 0.08 $ (0.77)	(110.4)

Net income increased to $8.4 million in the fourth quarter of 2019 as compared to a loss of $81.1 million for the same period last year. The factors contributing to the increase in net income as previously discussed include:

a $100.0 million impairment of goodwill recorded in the fourth quarter of 2018;
a $4.5 million positive variance in net foreign exchange; and
a $2.0 million positive variance in the fair value of investments.

These factors were somewhat offset by the following factors that decreased net income:

a $6.7 million increase in depreciation of property, plant and equipment;
a $3.3 million increase in depreciation of right-of-use assets;
a $1.8 million decrease in OIBDA;
a $1.8 million increase in finance costs;
a $1.4 million increase in income tax expenses;

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a $1.0 million increase in amortization of intangible assets;
a $0.9 million decrease in earnings from equity investments; and
a $0.1 million increase in the loss on sale of property, plant and equipment.

Basic earnings (loss) per share increased to $0.08 in 2019 as compared to $(0.77) in 2018. This increase resulted from the effect of the $89.5 million increase in net income. The weighted average number of Common Shares outstanding remained constant at 104,824,973.

Net Income – Adjusted and Earnings per Share – Adjusted

The following table illustrates net income (loss) and basic earnings (loss) per share before considering the impact of the impairment of goodwill, net foreign exchange gains or losses and the change in fair value of investments. Net income (loss) and basic earnings (loss) per share have been adjusted to reflect earnings from a strictly operating perspective.

*(unaudited)* *($ millions, except share and per share amounts)*	Three month periods ended December 31	Three month periods ended December 31
	2019	2018
Income (loss) before income taxes Add (deduct): Impairment of goodwill Net foreign exchange (gain) loss Change in fair value of investments	$ 10.2 $ — (2.3) (0.3)	(80.7) 100.0 2.2 1.7
Income before income taxes – adjusted Income tax rate Computed expected income tax expense	7.6 27% (2.0)	23.2 27% (6.3)
Net income – adjusted(1) Weighted average number of Common Shares outstanding– basic	5.6 104,824,973	16.9 104,824,973
Earnings per share – adjusted(1)	$ 0.05 $	0.16

(1) Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

FOURTH QUARTER 2019 – SEGMENTED INFORMATION

Three month period ended December 31, 2019 *(unaudited)* *($ millions)*		Corporate and
	Trucking Oilfield	Intersegment
	/Logistics Services	eliminations	Total
Revenue Direct operating expenses Sellingand administrative expenses	$ $	$	$
	224.6 91.4 159.7 64.9 27.4 11.0	(1.4) (2.3) 4.0(3)	314.6 222.3 42.4
Operating income before depreciation and amortization(1)	37.5 15.5	(3.1)	49.9
Net capital expenditures(2)	11.3 (1.2)	10.8	20.9

Three month period ended December 31, 2018 *(unaudited)* *($ millions)*		Corporate and
	Trucking Oilfield	Intersegment
	/Logistics Services	eliminations	Total
Revenue Direct operating expenses Sellingand administrative expenses	$ $	$	$
	219.7 114.1 159.5 79.9 27.0 13.4	(0.5) (1.9) 3.7(4)	333.3 237.5 44.1
Operating income before depreciation and amortization(1)	33.2 20.8	(2.3)	51.7
Net capital expenditures(2)	14.1 5.1	10.1	29.3

(3) Includes a $0.2 million foreign exchange loss.

(4) Includes a $0.2 million foreign exchange gain.

TRUCKING/LOGISTICS SEGMENT

Summary – Trailing Eight Quarters

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Consolidated Revenue OIBDA Operating Margin [1]
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1 Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

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2019 ANNUAL FINANCIAL REVIEW

General economic activity is the main driver of demand levels for our Trucking/Logistics segment. The Trucking/Logistics segment is also influenced by North American trade volumes and resulting demand for freight services. Early estimates indicate that Canada's real GDP contracted by 0.1 percent in October 2019 as a decline in goods-producing industries was offset by an increase in services-producing industries. The U.S. economy continues to grow and it is estimated that the U.S. economy expanded by 2.1 percent in the fourth quarter after growing by 2.1 percent in the third quarter.

Revenue

Q4 Revenue – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Revenue – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Revenue – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change
Company Contractors Other	$ % $ % $	%
	162.6 72.4 146.9 66.9 15.7 61.9 27.6 72.6 33.0 (10.7) 0.1 — 0.2 0.1 (0.1)	10.7 (14.7) (50.0)
	224.6 100.0 219.7 100.0 4.9

The Trucking/Logistics segment generated $224.6 million of revenue in the fourth quarter, despite some challenges associated with the slowdown in the North American freight markets and represented 71.1 percent of preconsolidated revenue as compared to 65.8 percent in 2018. Revenue increased by $4.9 million, or 2.2 percent, to $224.6 million as compared to $219.7 million in 2018 due to the $5.9 million of incremental revenue related to our recent acquisitions being partially offset by a $2.7 million decline in fuel surcharge revenue and a reduction in truckload revenue. Fuel surcharge revenue decreased to $20.2 million from $22.9 million in 2018. Excluding acquisitions and the change in fuel surcharge revenue, the Trucking/Logistics segment revenue increased by $1.7 million primarily due to revenue increases at Gardewine and Smook. Some of the specific factors that impacted revenue in the fourth quarter were the following:

The regional LTL business improved by 7.2 percent during the quarter due to revenue gains at Gardewine and the acquisitions of Argus and Inter-Urban being partially offset by a $0.8 million decrease in fuel surcharge revenue. Our five regional LTL Business Units[1] generated pre-consolidated revenue of $113.5 million as compared to $105.9 million in 2018.
Truckload revenue decreased by $2.7 million due to the decrease in demand for truckload services as a result of lower GDP growth and a lack of project work associated with capital investments, as well as a $1.8 million reduction in fuel surcharge revenue. The nine truckload services Business Units generated pre-consolidated revenue of $114.2 million as compared to $116.9 million in 2018.
Fuel surcharge revenue, excluding the effect of acquisitions, declined to $20.2 million as compared to $22.9 million in 2018.

Revenue related to Company Equipment increased by $15.7 million, or 10.7 percent, to $162.6 million as compared to $146.9 million in 2018 due to an increase in demand for LTL services. Revenue related to Company Equipment represented 72.4 percent of segment revenue in the current period as compared to 66.9 percent in 2018. Revenue related to Contractors decreased by $10.7 million, or 14.7 percent, to $61.9 million as compared to $72.6 million in 2018 and represented 27.6 percent of segment revenue in the current period as compared to 33.0 percent in 2018 due to the reduction in demand for truckload services.

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2019 ANNUAL FINANCIAL REVIEW

Direct Operating Expenses

Q4 Direct Operating Expenses – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Direct Operating Expenses – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Direct Operating Expenses – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change
Company Wages and benefits Fuel Repairs and maintenance Purchased transportation Operating supplies Other Contractors	$ % $ % $**	%
	39.2 24.1 38.1 25.9 1.1 16.4 10.1 15.5 10.6 0.9 17.4 10.7 16.5 11.2 0.9 26.2 16.1 23.7 16.1 2.5 10.8 6.6 8.1 5.5 2.7 4.4 2.8 4.2 2.9 0.2	2.9 5.8 5.5 10.5 33.3 4.8
	114.4 70.4 106.1 72.2 8.3 45.3 73.2 53.4 73.6 (8.1)	7.8 (15.2)
Total	159.7 71.1 159.5 72.6 0.2	0.1

*as a percentage of respective Trucking/Logistics revenue

Total DOE were $159.7 million in the fourth quarter as compared to $159.5 million in 2018. The increase of $0.2 million, or 0.1 percent, was attributable to the $4.9 million, or 2.2 percent, rise in segment revenue. DOE expressed as a percentage of revenue decreased by 1.5 percent to 71.1 percent as compared to 72.6 percent in 2018.

DOE related to Company Equipment increased by $8.3 million, or 7.8 percent, to $114.4 million as compared to $106.1 million in 2018. In terms of a percentage of revenue, Company expenses decreased by 1.8 percent to 70.4 percent as compared to 72.2 percent in 2018 due to lower fuel costs and greater operational efficiencies being somewhat offset by higher operating supplies expense associated with the increased purchase of road salt, which is resold under contracts with various municipalities in western Canada.

Contractors expense in the fourth quarter decreased by $8.1 million to $45.3 million as compared to $53.4 million in 2018. This decrease was generally in proportion to the $10.7 million decrease in Contractors revenue. As a percentage of Contractors revenue, Contractors expense decreased by 0.4 percent to 73.2 percent as compared to 73.6 percent in 2018 due to the greater availability of subcontractors.

Selling and Administrative Expenses

Q4 Selling and Administrative Expenses – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Selling and Administrative Expenses – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Selling and Administrative Expenses – Trucking/Logistics Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change
Wages and benefits Communications, utilities and general supplies Profit share Foreign exchange Rent and other	$ % $ % $**	%
	16.8 7.5 16.3 7.4 0.5 7.4 3.3 6.7 3.0 0.7 2.4 1.1 2.2 1.0 0.2 0.2 0.1 (0.8) (0.4) 1.0 0.6 0.2 2.6 1.3 (2.0)	3.1 10.4 9.1 (125.0) (76.9)
Total	27.4 12.2 27.0 12.3 0.4	1.5

*as a percentage of total Trucking/Logistics revenue

S&A expenses were $27.4 million in the fourth quarter as compared to $27.0 million in 2018. The increase of $0.4 million was primarily due to the $1.1 million of incremental S&A expenses associated with acquisitions, largely wages and benefits expense, as well as the $1.0 million negative variance on foreign exchange. These increases were somewhat offset by the $2.0 million reduction in rent expense primarily due to the adoption of IFRS 16 – Leases. S&A expenses as a percentage of segment revenue declined to 12.2 percent as compared to 12.3 percent in 2018. The adoption of IFRS 16 – Leases had a 140-bps positive impact on S&A expenses as a percentage of revenue.

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Operating Income Before Depreciation and Amortization

OIBDA for the fourth quarter increased by $4.3 million, or 13.0 percent, to $37.5 million as compared to $33.2 million generated in 2018. The majority of this rise in OIBDA, specifically $3.2 million, was due to the adoption of IFRS 16 – Leases. In addition, acquisitions accounted for $0.9 million of incremental growth.

Operating margin[1] increased by 1.6 percent to 16.7 percent as compared to 15.1 percent in 2018 primarily due to the adoption of IFRS 16 – Leases, which had a 1.4 percent positive impact on our operating margin[1] . When comparing our operating margin[1] without the impact of IFRS 16 – Leases, it was 15.3 percent as compared to 15.1 percent in 2018.

Capital Expenditures

Net capital expenditures[1] were $11.3 million in the fourth quarter, a decrease of $2.8 million as compared to $14.1 million in 2018. The Trucking/Logistics segment had gross capital expenditures of $12.2 million and dispositions of $0.9 million for net capital expenditures[1] of $11.3 million in 2019. The majority of the capital was invested to purchase trucks and trailers as well as various pieces of operating equipment to both replace and support new opportunities within this segment. In 2018 gross capital expenditures were $15.3 million and dispositions were $1.2 million for net capital expenditures[1] of $14.1 million.

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2019 ANNUAL FINANCIAL REVIEW

OILFIELD SERVICES SEGMENT

Summary – Trailing Eight Quarters

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Consolidated Revenue OIBDA Operating Margin [1]
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Industry Statistics

Drilling activity in the WCSB, as reported in terms of active rig count, total wells drilled and length of metres drilled within such wells, decreased significantly in the quarter as compared to the prior year. Industry statistics indicate that the average active rig count for the quarter was 139 rigs during 2019 as compared to 177 active rigs in 2018, a decrease of 38 rigs or 21.5 percent. Total wells drilled decreased by 28.6 percent to 1,196 wells drilled in the quarter as compared to 1,674 wells drilled in 2018. The length of metres drilled also decreased by 22.8 percent during the current quarter to 3.70 million metres as compared to 4.79 million metres in 2018. In addition, a portion of our operations are related to the continued development and extraction of the oil sands deposits in western Canada, which is changing due to current crude oil pricing, lack of pipeline capacity to new markets and regulatory requirements.

The number of wells completed on a geographic basis for the quarter was as follows:

	Three month periods ended December 31	Three month periods ended December 31
	2019 2018 # Change	% Change
British Columbia Alberta Saskatchewan Manitoba Northwest Territories	73 104 (31) 649 870 (221) 405 626 (221) 69 74 (5) — — —	(29.8) (25.4) (35.3) (6.8) —
Total	1,196 1,674 (478)	(28.6)

source: JuneWarren-Nickle's Energy Group – wells completed on rig release basis.

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2019 ANNUAL FINANCIAL REVIEW

Revenue

Q4 Revenue – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Revenue – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Revenue – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change
Company Contractors Other	$ % $ % $	%
	72.0 78.8 86.8 76.1 (14.8) 19.2 21.0 26.8 23.5 (7.6) 0.2 0.2 0.5 0.4 (0.3)	(17.1) (28.4) (60.0)
Total	91.4 100.0 114.1 100.0 (22.7)	(19.9)

Segment revenue decreased by $22.7 million, or 19.9 percent, to $91.4 million as compared to $114.1 million in 2018 and represented 28.9 percent of pre-consolidated revenue as compared to 34.2 percent in 2018. The decline in revenue can be attributed to the decline in drilling activity in the WCSB, Alberta Government mandated crude oil curtailments that resulted in both the loss of demand for oilfield production and drilling related services and very competitive pricing. These negative factors were partially offset by strong results generated by Premay Pipeline. Some of the specific factors that impacted revenue in the fourth quarter were the following:

a $13.6 million decrease in revenue generated by those Business Units involved in the transportation of fluids and servicing of wells due to very competitive pricing and the Alberta crude oil curtailment program;
a $6.1 million decrease in revenue generated by those Business Units most directly tied to oil and natural gas drilling activity and those providing drilling services due to the significant decline in drilling activity during the quarter and intense competition; and
a $3.0 million decrease in revenue generated by those Business Units providing specialized services primarily due to a $2.6 million decline in demand for heavy haul services as well as lower demand for hydrovac services being somewhat offset by a $1.9 million increase in revenue at Premay Pipeline, a provider of pipeline hauling and stringing services.

Revenue related to Company Equipment decreased by $14.8 million, or 17.1 percent, to $72.0 million as compared to $86.8 million in 2018 and represented 78.8 percent of segment revenue in the current period as compared to 76.1 percent in 2018. Revenue related to Contractors decreased by $7.6 million, or 28.4 percent, to $19.2 million as compared to $26.8 million in 2018. It represented 21.0 percent of segment revenue in the current period as compared to 23.5 percent in 2018.

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2019 ANNUAL FINANCIAL REVIEW

Direct Operating Expenses

Q4 Direct Operating Expenses – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Direct Operating Expenses – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Direct Operating Expenses – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change
Company Wages and benefits Fuel Repairs and maintenance Purchased transportation Operating supplies Other Contractors	$ % $ % $**	%
	19.6 27.2 24.5 28.2 (4.9) 5.6 7.8 7.7 8.9 (2.1) 12.0 16.7 13.8 15.9 (1.8) 0.7 1.0 1.1 1.3 (0.4) 9.3 12.9 9.2 10.6 0.1 2.1 2.9 2.5 2.8 (0.4)	(20.0) (27.3) (13.0) (36.4) 1.1 (16.0)
	49.3 68.5 58.8 67.7 (9.5) 15.6 81.3 21.1 78.7 (5.5)	(16.2) (26.1)
Total	64.9 71.0 79.9 70.0 (15.0)	(18.8)

*as a percentage of respective Oilfield Services revenue

DOE decreased by $15.0 million, or 18.8 percent, to $64.9 million in the fourth quarter as compared to $79.9 million in 2018 due to the following factors:

a $22.7 million, or 19.9 percent, decline in segment revenue;
a focus on cost control that reduced wages and benefits expense as a percentage of revenue;
lower fuel expense due to the fall in oil and diesel prices; and
higher operating supplies expense related to Canadian Dewatering and Premay Pipeline's activity.

Overall these expenses increased as a percentage of revenue by 1.0 percent to 71.0 percent as compared to 70.0 percent in 2018.

DOE associated with Company Equipment in the fourth quarter decreased to $49.3 million as compared to $58.8 million in 2018. The decrease of $9.5 million, or 16.2 percent, was directly related to the $14.8 million, or 17.1 percent, decrease in Company revenue. As a percentage of Company revenue these expenses increased by 0.8 percent to 68.5 percent as compared to 67.7 percent in 2018, primarily due to higher operating supplies that rose by 2.3 percent as a percentage of revenue being somewhat offset by lower fuel as well as lower wages and benefits expense and continued cost control initiatives.

Contractors expense in the fourth quarter decreased by $5.5 million to $15.6 million as compared to $21.1 million in 2018. This decrease was generally in line with the decrease in Contractors revenue. As a percentage of Contractors revenue, Contractors expense increased to 81.3 percent, consistent with the third quarter of 2019, as compared to 78.7 percent in 2018 due to higher costs borne by those Business Units involved in the transportation of fluids and servicing of wells.

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Selling and Administrative Expenses

Q4 Selling and Administrative Expenses – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Selling and Administrative Expenses – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change	Q4 Selling and Administrative Expenses – Oilfield Services Three month periods ended December 31 *(unaudited)* *($ millions)* 2019 2018 Change
Wages and benefits Communications, utilities and general supplies Profit share Rent and other	$ % $ % $**	%
	6.0 6.6 7.1 6.2 (1.1) 3.5 3.8 3.8 3.3 (0.3) 1.1 1.2 1.4 1.2 (0.3) 0.4 0.4 1.1 1.0 (0.7)	(15.5) (7.9) (21.4) (63.6)
Total	11.0 12.0 13.4 11.7 (2.4)	(17.9)

as a percentage of total Oilfield Services revenue

S&A expenses were $11.0 million in the fourth quarter as compared to $13.4 million in 2018. The $2.4 million decrease was attributable to lower wages and benefits expense and a $0.7 million reduction in rent expense primarily due to the adoption of IFRS 16 – Leases whereby previously expensed rent payments were capitalized under the new accounting framework. S&A expenses as a percentage of segment revenue increased slightly to 12.0 percent in comparison to 11.7 percent in 2018 due to the 19.9 percent decrease in segment revenue, which was partially offset by headcount reductions and other cost cutting initiatives.

Operating Income Before Depreciation and Amortization

OIBDA in the fourth quarter decreased by $5.3 million, or 25.5 percent, to $15.5 million as compared to $20.8 million in 2018. Operating margin[1] decreased to 17.0 percent in the fourth quarter as compared to 18.2 percent in 2018 due to higher DOE. Somewhat offsetting this decrease was the effect of the adoption of IFRS 16 – Leases, which had a 0.5 percent positive impact on the operating margin[1] . Some of the specific factors that impacted OIBDA in the fourth quarter were the following:

a $2.5 million decrease in those Business Units involved in the transportation of fluids and servicing of wells;
a $2.2 million decrease in those Business Units providing specialized services such as large diameter pipe stockpiling and stringing services as well as water management services; and
a $0.6 million decrease in OIBDA relating to those Business Units involved in drilling and drilling related services.

Capital Expenditures

Net capital expenditures[1] were $(1.2) million in the fourth quarter, a decrease of $6.3 million as compared to $5.1 million in 2018. The Oilfield Services segment had gross capital expenditures of $1.9 million and dispositions of $3.1 million for net capital expenditures[1] of $(1.2) million in 2019. There was some capital invested at Canadian Dewatering and Premay Pipeline to meet customer demand. In 2018 gross capital expenditures were $7.0 million and dispositions were $1.9 million for net capital expenditures[1] of $5.1 million.

CORPORATE

The Corporate Office recorded a loss of $3.1 million in the fourth quarter of 2019 as compared to a loss of $2.3 million in 2018. The $0.8 million increase in loss was mainly attributable to a lower amount of costs recovered from our Business Units and from a $0.4 million negative variance in foreign exchange. In the fourth quarter of 2019, the Corporate Office recorded a foreign exchange loss of $0.2 million as compared to a foreign exchange gain of $0.2 million in 2018.

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SUMMARY OF QUARTERLY RESULTS

Seasonality of Operations

Revenue and profitability within the Trucking/Logistics segment are generally lower in the first quarter than during the remainder of the year as freight volumes are typically lower following the holiday season due to less consumer demand and customers reducing shipments. Operating expenses also tend to increase within this segment in the winter months due to decreased fuel efficiency and increased repairs and maintenance expense resulting from cold weather conditions. The Trucking/Logistics segment represents approximately 69.0 percent of our pre-consolidated revenue on an annualized basis. Generally speaking, our third and fourth quarters tend to be the strongest in terms of demand for the services in this segment. As a result, our consolidated revenue is generally higher in these quarters compared to the first and second quarters of the year.

A significant portion of the operations within the Oilfield Services segment relates to the moving of heavy equipment, drilling rigs and drilling supplies such as oilfield fluids, tubulars and drilling mud and providing services such as conductor pipe-setting, core drilling and casing setting in northern and western Canada. Activity levels, revenue and earnings are influenced by the seasonal activity pattern of western Canada's oil and natural gas exploration industry whereby activity typically peaks in the winter months and declines during the spring when wet weather and the spring thaw make the ground unstable. Consequently, municipalities and provincial transportation departments enforce road bans that restrict the movement of rigs and other heavy equipment, thereby reducing activity levels. Additionally, certain oil and natural gas producing areas are only accessible in the winter months because the ground surrounding the drilling sites in these areas consists of swampy terrain. Seasonal factors and unpredictable weather patterns may lead to declines in the activity levels of the oil and gas companies and corresponding declines in the demand for oilfield services. As a result, the demand for these services is traditionally highest in the first quarter and lowest in the second quarter.

Financial Results

Financial Results
*(unaudited)* *($ millions, except per* *share amounts)*	TTM(1)	2019 Q4 Q3 Q2 Q1 $ $ $ $	2018
	$		Q4 Q3 $ $	Q2 Q1 $ $
Revenue Operating income before depreciation and amortization Net income (loss) Earnings (loss) per share Basic Diluted	1,278.5 200.9 72.2 0.69 0.69	314.6 325.3 319.0 319.6 49.9 55.6 51.4 44.0 8.4 20.5 31.7 11.6 0.08 0.20 0.30 0.11 0.08 0.20 0.30 0.11	333.3 339.7 51.7 55.1 (81.1) 21.9 (0.77) 0.21 (0.77) 0.21	295.7 292.1 44.3 37.9 13.9 1.5 0.13 0.01 0.13 0.01
Other Information Net foreign exchange (gain) loss Decrease (increase) in fair value of investments	(14.1) —	(2.3) (3.9) (6.8) (1.1) (0.3) 0.3 0.1 (0.1)	2.2 (1.8) 1.7 0.3	1.9 6.2 (0.4) 1.5

(1) TTM represents the "trailing twelve months" and consists of a summary of the Corporation's financial results for the most recently completed four quarters.

Consolidated revenue in the fourth quarter decreased by $18.7 million to $314.6 million as compared to $333.3 million in 2018. Revenue generated by the Oilfield Services segment decreased by $22.7 million or 19.9 percent and is mainly attributable to lower revenue generated by those Business Units involved in the transportation of fluids and servicing of wells and from those Business Units providing drilling and drilling related services due to intense competition, pricing pressure and from a decline in drilling activity in the WCSB. Revenue in the Trucking/Logistics segment increased by $4.9 million during the quarter, which included $5.9 million of incremental revenue from acquisitions while fuel surcharge revenue decreased by $2.7 million. Excluding acquisitions and the change in fuel surcharge revenue, the Trucking/Logistics segment revenue increased by $1.7 million primarily due to revenue increases at Gardewine and Smook. Net income (loss) in the fourth quarter of 2019 was $8.4 million, an increase of $89.5 million from the net loss of $(81.1) million generated in 2018. The $89.5 million increase in net income (loss) was mainly attributable to the $100.0 million impairment of goodwill recognized in 2018, a $4.5 million positive variance in net foreign exchange and a $2.0 million positive variance in

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2019 ANNUAL FINANCIAL REVIEW

the fair value of investments. These increases to net income were partially offset by a $6.7 million increase in depreciation of property, plant and equipment, a $1.4 million increase in income tax expense, a $3.3 million increase in depreciation of right-of-use assets, a $1.8 million increase in finance costs, a $1.0 million increase in amortization of intangible assets and a $1.8 million decrease in OIBDA. As a result, basic earnings (loss) per share in the fourth quarter of 2019 was $0.08, an increase of $0.85, from the $(0.77) loss per share generated in 2018.

Consolidated revenue in the third quarter decreased by $14.4 million to $325.3 million as compared to $339.7 million in 2018. Revenue in the Trucking/Logistics segment decreased by $4.5 million during the quarter, which included $7.1 million of incremental revenue from acquisitions while fuel surcharge revenue decreased by $3.1 million. Excluding acquisitions and the change in fuel surcharge revenue, the Trucking/Logistics segment revenue declined by $8.5 million due to lower demand for capital related project work and a softening in the general economy. Revenue generated by the Oilfield Services segment decreased by $10.6 million or 9.3 percent and is mainly attributable to lower revenue generated by those Business Units involved in the transportation of fluids and servicing of wells due to intense competition and pricing pressure and from the Alberta Government's mandated crude oil curtailments. The significant decline in drilling activity in the WCSB also had a negative impact on those Business Units most directly tied to oil and natural gas drilling activity. These decreases were partially offset by greater revenue generated by Premay Pipeline. Net income in the third quarter of 2019 was $20.5 million, a decrease of $1.4 million from the $21.9 million of net income generated in 2018. The $1.4 million decrease in net income was mainly attributable to a $2.8 million increase in depreciation of right-of-use assets, a $2.2 million increase in finance costs, and a $1.2 million increase in amortization of intangible assets. These decreases were partially offset by a $2.1 million positive variance in net foreign exchange, a $1.9 million decrease in income tax expense and a $0.5 million increase in OIBDA. As a result, basic earnings per share in the third quarter of 2019 was $0.20, a decrease of $0.01, from the $0.21 of earnings per share generated in 2018.

Consolidated revenue in the second quarter increased by $23.3 million to $319.0 million as compared to $295.7 million in 2018 with acquisitions accounting for $28.4 million of incremental revenue. Revenue in the Trucking/Logistics segment increased by $0.2 million during the quarter of which $2.6 million was due to acquisitions while fuel surcharge revenue decreased by $0.2 million. Excluding acquisitions and the change in fuel surcharge revenue, the Trucking/Logistics segment revenue declined by a modest $2.2 million due to a reduction in freight volumes. Revenue generated by the Oilfield Services segment increased by $23.1 million or 30.1 percent and is mainly attributable to $25.8 million of incremental revenue related to the acquisitions of AECOM ISD and Canadian Hydrovac and improved revenue generated by Premay Pipeline. These increases were partially offset by a decline in drilling activity in the WCSB. Net income in the second quarter of 2019 was $31.7 million, an increase of $17.8 million from the $13.9 million of net income generated in 2018. The $17.8 million increase in net income was mainly attributable to a $9.4 million decrease in income tax expense, an $8.7 million positive variance in net foreign exchange and a $7.1 million increase in OIBDA. These increases were partially offset by a $2.8 million increase in depreciation of right-of-use assets, a $1.9 million increase in loss on disposal of property, plant and equipment, a $0.8 million increase in depreciation of property, plant and equipment and a $0.8 million increase in amortization of intangible assets. As a result, basic earnings per share in the second quarter of 2019 was $0.30, an increase of $0.17, from the $0.13 of earnings per share generated in 2018.

Consolidated revenue in the first quarter improved from the prior year with the Trucking/Logistics segment generating record first quarter revenue along with revenue gains also being experienced in the Oilfield Services segment. Consolidated revenue in the first quarter of 2019 increased by $27.5 million, or 9.4 percent, to $319.6 million as compared to $292.1 million in 2018. The increase of $27.5 million was primarily due to $23.4 million of incremental revenue from acquisitions. Revenue in the Trucking/Logistics segment increased by $7.7 million during the quarter of which $4.0 million was due to acquisitions while fuel surcharge revenue decreased by $0.3 million. Our regional LTL business improved due to revenue gains at Gardewine while truckload services benefitted from certain one-time projects. Revenue generated by the Oilfield Services segment increased by $20.4 million or 24.1 percent and is mainly attributable to the AECOM ISD and Canadian Hydrovac acquisitions and stronger demand for large diameter pipeline hauling and stringing services. These increases were partially offset by a decline in drilling activity in the WCSB. Net income in the first quarter of 2019 was $11.6 million, an increase of $10.1 million from the $1.5 million of net income generated in 2018. The $10.1 million increase in net income was mainly attributable to a $7.3 million positive variance in net foreign exchange, a $6.1 million increase in OIBDA, a $1.6 million positive variance in the fair value of investments and a $0.5 million decrease in finance costs. These increases were partially offset by a $2.8 million increase in depreciation of right-of-use assets, a $1.0 million increase in depreciation of property, plant and equipment and a $0.9 million increase in amortization of intangible assets. As a result, basic earnings per share in the first quarter of 2019 was $0.11, an increase of $0.10, from the $0.01 of earnings per share generated in 2018.

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2019 ANNUAL FINANCIAL REVIEW

TRANSACTIONS WITH RELATED PARTIES

Key Management Personnel Compensation

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the business activities of the Corporation, including all its directors along with certain executives. Directors are remunerated for services rendered in their capacity as directors by way of a combination of retainer fees and meeting attendance fees. The overall compensation program for executives is comprised of base salary and benefits, annual profit share and stock-based compensation. Our Executives do not have formal employment contracts. Similar to the employment processes established for employees, each executive's personnel file contains a memorandum outlining the basic terms of an executive's employment relationship with the Corporation. There are no agreements or arrangements with any executive for the payment of compensation in the case of resignation, retirement, or termination of employment, a change of control of Mullen Group or its Business Units or a change in an executive's responsibilities following a change of control. Key management personnel do not participate in a defined benefit or actuarial pension plan, however, key management personnel do participate in the Stock Option Plan. Total remuneration to key management personnel including directors' fees, salaries and benefits, annual profit share, and the value attributable to stock-based compensation expense was as follows:

*($ millions)* Category	Years Ended December 31	Years Ended December 31
	2019	2018
Salaries and benefits (including profit share) Share-basedpayments	$ 1.6 0.1	$ 1.5 0.1
Total	$ 1.7	$ 1.6

There are no outstanding amounts owing to or amounts receivable from directors and officers as at December 31, 2019 and 2018, with respect to the overall compensation program for the executives. As at December 31, 2019, directors and officers of Mullen Group collectively held 5,505,008 Common Shares (2018 – 5,498,699) representing 5.3 percent (2018 – 5.3 percent) of all Common Shares of the Corporation. As at December 31, 2019, directors and officers of Mullen Group held $4.8 million of the 2019 Debentures under the same terms and conditions as those issued to unrelated third parties.

Related Party Transactions

During the year, we generated revenue of $16,000 (2018 – $8,000) and incurred expenses of $25,000 (2018 – $6,000) with entities that are related by virtue of a certain Board member having control or joint control over the other entities. There were no accounts receivable amounts due from these related parties as at December 31, 2019.

During the year, we generated revenue of $4.9 million (2018 – $3.0 million) and incurred expenses of $0.6 million (2018 – $0.2 million) with our equity investees, which are accounted for by the equity method of accounting. As at December 31, 2019, there was $0.2 million (2018 – $0.4 million) of accounts receivable amounts due from our equity investees, excluding debentures. Mullen Group had $7.8 million (10.0 percent annual interest rate) and $3.2 million (8.5 percent annual interest rate) of debentures owing from Thrive and PCX, respectively. Interest is calculated and payable semi-annually. The debentures with Thrive mature in October 2020, while the PCX debenture matures in December 2020.

All related party transactions were provided in the normal course of business materially under the same commercial terms and conditions as transactions with unrelated companies and recorded at the exchange amount.

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2019 ANNUAL FINANCIAL REVIEW

PRINCIPAL RISKS AND UNCERTAINTIES

The nature of both our business and our strategy means that we face a number of inherent risks and uncertainties. We endeavour to manage these risks within the context of our understanding of market trends and our strategic goal of achieving satisfactory shareholder returns.

The operational complexities inherent in our business, together with the highly regulated and competitive environment of the industries in which we operate, leave Mullen Group exposed to a number of risks and uncertainties (collectively the " risks "). The transportation business and other related activities are directly affected by fluctuations in the general economy, including the amount of trade between Canada and the United States and the value of the Canadian dollar as compared to the U.S. dollar. Our Oilfield Services segment is directly affected by fluctuations in the levels of oil and gas drilling activity, oil sands development and production activity carried on by its customers, which in turn is dictated by numerous factors, including but not limited to world energy prices and government policies.

Many risks, for example, the cyclical and volatile nature of the oil and gas industry, may be mitigated to a certain degree but still remain outside of our control. The Board is responsible for approving our organization's level of risk tolerance and for overseeing the management of the risks the organization faces. Risk oversight guidance is set forth in the Mullen Group Board mandate. We define risk as: " The possibility that an event, action or circumstance may adversely affect the organization's ability to achieve its business objectives. " A risk management review process has been formalized to assist in mitigating risk. The risk management review process highlights the significant risks that our business is exposed to, which then leads to mitigation plans. Although we have developed and implemented these mitigation plans to assist in managing these risks, there is no certainty these strategies will be successful in whole or in part. In addition, the inability to identify, assess and respond to known and unknown risks through the risk management review process could lead to, among other things, our inability to capture opportunities, recognize threats and inefficiencies and comply with laws and regulations, all of which may have a material adverse effect on our business or share price.

We believe that the risks described below are the ones that could have the most significant impact on the Corporation. Readers are cautioned that the list of risks is not exhaustive and new information, future events or changing circumstances could affect our operations and financial results, which may reduce or restrict our ability to pay a dividend to our shareholders and may materially affect the market price of our securities. We encourage you to review and carefully consider the risks described below, which may impact or materially adversely affect our business, financial condition, results of operations, cash flows or prospects. In turn, this could have a material adverse effect on the trading price of our Common Shares. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also adversely affect our business and operations.

The most significant risks identified by Mullen Group are categorized and described as follows:

STRATEGIC RISKS:	STRATEGIC RISKS:	FINANCIAL RISKS:	FINANCIAL RISKS:	OPERATIONAL RISKS:	OPERATIONAL RISKS:
•	geopolitical risks	•	foreign exchange rates	•	employees & labour relations
	• general economy	•	investments	•	cost escalation & fuel costs
	• natural gas and oil	•	access to financing	•	potential operating risks & insurance
•	drilling and oil sands development • changes in the legal framework e-commerce and supply chain evolution	• • • •	reliance on major customers impairment of goodwill or intangible assets credit risk interest rates	• • • •	digital infrastructure & cyber security business continuity, disaster recovery & crisis management environmental liability risks weather & seasonality
• •	acquisitions competition			•	access to parts, development of new technology & relationships with key suppliers
				•	regulation
				•	litigation

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2019 ANNUAL FINANCIAL REVIEW

STRATEGIC RISKS:

Geopolitical Risks:

Geopolitical risk is viewed as the major strategic risk to our organization impacting everything from the general economy to oil and gas development in western Canada. Political shocks and surprises of the past few years show how easily assumptions about rational markets, legal certainty, international relations and trade can be shaken. In our view, geopolitical volatility has become a key driver of uncertainty, and will remain one over the next few years.

Risk Description & Trend

Geopolitical risk is the risk associated with legislative, judicial, political, economic and regulatory uncertainty. For instance, unexpected events can cause a spike in commodity prices or an unexpected change in trade patterns or currency valuations.

Trend: In the recent past, the rise of populism, the repudiation of existing economic and political systems, global trade tensions and certain judicial decisions have created uncertainty that have negatively impacted investment sentiment in Canada and in the oil and gas sector specifically.

Potential Impact

There are a variety of decisions that various levels of government and the judiciary can make that can negatively affect individual businesses, industries and the overall economy. These include, but not limited to, regulatory approvals, currency valuation, trade tariffs, labour laws, taxes and carbon pricing, environmental and other regulations. More specifically, we identify geopolitical risks may impact the following strategic risks:

General economy
Natural gas and oil drilling and oil sands development
Changes in legal framework

Mitigation

In consideration of this risk, we strive to be flexible and resilient, monitor risks proactively, and have adopted a diversification strategy. We service an extensive customer base from diverse industries covering a broad geographic area. In addition, we actively manage the mix of Company Equipment and Contractors we use to service our customers. In our opinion, these diversification and operating strategies ensure, as much as possible, that we are not overly exposed to any single economic trend.

– Geopolitical Risks General Economy:

Our results are affected by the state of the economy and trade patterns and the associated demand for freight transportation and logistics services. These general economic factors, as well as instability in financial and credit markets, which are largely beyond our control, could adversely affect our business, financial condition, results of operations and cash flows.

Risk Description & Trend

Mullen Group is a significant provider of trucking and logistics services to customers throughout North America. Our results are affected by the state of the economy and trade patterns, both in North America and globally, and the associated demand for freight transportation and logistics services. Trade disruptions may pose a substantial risk to Mullen Group.

Trend: In our opinion, the overall health of the North American economy appears to be sound with moderate growth expectations for the next twelve months. The USMCA was agreed to by the respective partners providing for a degree of trade stability.

Potential Impact

General economic activity is the main driver of demand levels for our Trucking/Logistics segment. A decline or uncertainty with regard to the health

of the North American economy or trade patterns could have a material adverse effect on the operations of our Trucking/Logistics segment and, to a lesser degree, our Oilfield Services segment (to the extent that the economy affects commodity pricing with respect to oil and gas, in particular), and our overall financial condition.

An economic recession may result in a decrease or substantial reduction in revenue as a result of:

lower overall freight levels, which negatively affects our asset utilization and margin;
customers bidding out freight or selecting competitors that offer lower rates, in an attempt to lower their costs, forcing us to lower our rates or lose freight; and
customers with credit issues and cash flow problems.

Mitigation

In consideration of this risk, we service an extensive customer base from diverse industries covering a broad geographic area. In addition, we actively manage the mix of Company Equipment and Contractors we use to service our customers. During periods of peak demand, we tend to use a higher volume of Contractors, which yield lower margins, but protects us from the downside risk and fixed costs associated with a larger fleet of Company Equipment during periods of lower demand.

In our opinion, these diversification and operating strategies ensure, as much as possible, that we are not overly exposed to any single economic trend.

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2019 ANNUAL FINANCIAL REVIEW

– Geopolitical Risk Natural Gas and Oil Drilling and Oil Sands Development:

As a service provider to the oil and gas industry we are reliant on the levels of capital expenditures made by oil sands, oil and gas producers. Our results may be affected by the level of capital expenditures in the WCSB, including investments in natural gas and both for conventional and unconventional oil and oil sands development. Pipeline approvals and natural gas export facilities are critical to the future development of Canada's natural gas and oil resource development.

Risk Description & Trend

Approximately one-fifth of our revenue is directly related to oil and gas drilling activity and oil sands development in western Canada. As a service provider to the oil and gas industries we are reliant on the levels of capital expenditures made by oil and gas exploration and production companies (" E&Ps "). In our experience, the level of capital investment made by E&Ps is based on several factors including, but not limited to:

net hydrocarbon prices and the related impacts of fluctuating light/heavy and sweet/sour crude oil differentials;
market access and long-term takeaway capacity, including pipeline and rail infrastructure;
anticipated and actual aggregate production levels;
access to capital;
regulatory and stakeholder approvals for exploration and development activities;
changes in demand for refinery feedstock;
fuel conservation measures, long-term demand for fossil fuels, the evolution of electric vehicles (" EV ") and alternative forms of transportation;
changes to royalty and tax legislation;
aboriginal claims or protests; and
environmental regulations and approvals.

Negative public perception of oil sands, conventional oil and natural gas development, pipelines, hydraulic fracturing and fossil fuels generally may further impede industry growth in the WCSB. Operators and producers tend to examine long-term fundamentals affecting the foregoing factors before they adjust their capital budgets to reflect these assessments. There can be no certainty that investments will be made by E&Ps, or that approvals for infrastructure or export facilities by regulators or the judiciary will be forthcoming. Market access and longterm takeaway capacity are critical factors to western Canadian oil production growth.

Further, the development of LNG export facilities and pipeline infrastructure are critical to the future development of Canada's natural gas sector.

In addition, a change in this regulatory regime may impact our customers and our operations. Climate change regulations and carbon taxes may lead to project delays and additional costs to producers affecting both their profitability and their investments in oil, oil sands and natural gas. Given the evolving nature of the debate related to climate change, it is not currently possible to predict the nature of, or the impact on, our operations and future financial condition, however, it seems unlikely that major oil sands expansion, as seen in the recent past, will be forthcoming.

Further, the industry may become subject to new environmental regulations, which could negatively affect future capital expenditures. In addition to Green House Gas (" GHG ") emissions regulations, oil sands producers are subject to tailings management regulations, which may become more stringent and require additional capital in order to satisfy. To date, regulations relating to tailings management, such as the Alberta Government's Directive 74, have had no demonstrable or quantifiable negative effect on our business.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and gas, and technological advances in fuel economy and energy generation devices could reduce the demand for crude oil and other liquid hydrocarbons.

Trend: Despite egress concerns, large infrastructure projects and debottlenecking initiatives are progressing and WCSB oil differentials have improved dramatically in 2019, in part due to Alberta Government mandated curtailments, however, downside risks remain. These curtailments caused Canadian E&Ps to reduce their capital expenditures in 2019, which negatively affected Mullen Group. In 2020, investment in the oil and gas industry in Alberta is expected to decline for a third year in a row. Due to the relatively low price environment, further oil sands expansion is unlikely at this time.

Natural gas prices, specifically Alberta Energy Company (" AECO ") pricing, remained low in 2019, setting new five year lows during the summer months. Lower near term pricing has caused many natural gas producers to continue to restrict their capital budgets for 2020. The LNG Canada project will eventually boost capital investment and will add roughly 1.7 bcf/d of export capacity.

Potential Impact

As a service provider to this sector, we are directly impacted by and reliant on the level of capital and operational expenditures. A sudden significant or prolonged decline of oil and/or natural gas prices will have a negative impact on drilling activity and further oil sands development that would negatively affect the operations in our Oilfield Services segment as well as our overall financial condition. Conversely, a resurgence of oil and/or natural gas prices should have a positive impact on the operations in our Oilfield Services segment as well as our overall financial condition.

Ultimately, the prices of our services are subject to aggregate industry demand and the availability of service equipment and qualified personnel. In addition, the longterm impact of changing demand for oil and gas products could have a material adverse effect on our business, results of operations and financial condition.

Mitigation

In consideration of this risk and potential uncertainty we endeavour to ensure that our capital allocation, costs and pricing are appropriate for the anticipated level of oil sands, oil and natural gas development. In addition, we recognize the cyclical and volatile nature of drilling activity and mitigate the risks associated with this volatility as reasonably possible through the combination of a disciplined capital allocation process and a focus on maintaining long-term relationships with large-cap oil and gas companies. We also continually assess the requirements for further investments in our Oilfield Services segment and have diversified our operations by further investing in our Trucking/Logistics segment to further mitigate this risk.

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2019 ANNUAL FINANCIAL REVIEW

– Geopolitical Risk Changes in the Legal Framework:

We may be adversely affected by changes to existing laws and regulations, trade agreements, change in the permitting process as it relates to oil and natural gas infrastructure projects and subsequent court challenges.

Risk Description:

Our operations are subject to a variety of federal, provincial and local laws, regulations and guidelines and income tax laws (" Regulations "). In addition, the operations of Mullen Group may be affected by international trade agreements and the ability to seamlessly cross international borders.

Our customers in the oil and gas sector are subject to various Regulations such as royalties, environmental regulations and the reduction of GHG emissions. In addition, before proceeding with most major projects, including the building of a pipeline, an LNG export facility or significant changes to an existing oil sands plant, E&Ps must obtain various federal, provincial, state and municipal permits and regulatory approvals. These permits may be

challenged and subject to denial or the imposition of further conditions by the judiciary.

Potential Impact

There can be no assurance that such Regulations, including those relating to the oil and gas industry and the transportation industry, as well as environmental and otherwise applicable operating legislation will not be changed in a manner that adversely affects our organization. Any such change could have a material adverse effect on our business, results of operations and financial condition. Our customers are similarly subject to Regulations and there can be no assurance that the Regulations governing our customers will not be changed in a manner that adversely

affects them and, thereby, Mullen Group.

Mitigation

The diversity of our Business Units and our decentralized business model may diminish the effect that a change in the legal framework could have on Mullen Group as a whole. This diversification strategy has resulted in investment in several sectors of the economy, most notably in transportation and logistics and oilfield services, as well as in many geographic regions. We monitor proposed legislative changes and participate with various industry associations in advocating for reasonable and non-disruptive regulatory changes.

E-Commerce and Supply Chain Evolution:

Our results may be affected by disruptive technologies and supply chain innovations. Technology continues to evolve at a rapid pace, which has the potential to impact everything, including how markets conduct transactions as well as how we manage our business. As the retail marketplace continues to evolve, digital technology is disrupting traditional operations. The impact on supply chain management is particularly great as businesses reinvent their supply chain strategies.

Risk Description & Trend

Disruptive technologies continue to change the structure of the North American economy due to the continuous growth of e-commerce. The use of web based and mobile technology is increasingly becoming the preferred method by consumers and retailers to both shop for and ship orders. As a result, supply chains have undergone enormous change with more frequent direct to consumer shipments replacing transportation from distribution centers to traditional retail stores. In addition, our organization is reliant on certain Information Technology (" IT ") systems

(see Digital Infrastructure and Cyber Security on page 76).

Trend: E-commerce sales continue to grow and the pace of innovation continues.

Potential Impact

E-commerce and omni-channel marketing requires a different distribution model than traditional retail or big-box store logistics. Generally, it is negatively affecting demand for truckload and long-haul transportation services, however, it is creating greater demand for warehousing as well as LTL and small package Final Mile™ deliveries.

The added complexity of e-commerce and the change in the supply chain presents an opportunity to expand our logistics revenue.

Mitigation

In consideration of this risk, we have expanded our LTL and warehousing network in western Canada and continue to focus on supply chain efficiencies. Our ability to meet customer demands in respect of e- commerce and supply management will depend upon innovation and our ability to reasonably anticipate market trends and change management execution. We continue to focus on technology and our online logistics marketplace Moveitonline[®] .

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2019 ANNUAL FINANCIAL REVIEW

Acquisitions:

Our company strategy includes pursuing selected and strategic acquisitions focused primarily on the two segments of the economy where we have strong market penetration and customer relationships, namely, the transportation and distribution of freight within North America and the oil and gas services industry; however, we may not be able to execute or integrate future acquisitions successfully.

Risk Description & Trend

Historically, a key component of our growth strategy has been to pursue acquisitions of strategic and/or complementary businesses. We continually evaluate acquisition candidates and may acquire assets and businesses that we believe complement our existing businesses or enhance our service offerings.

The processes of evaluating acquisitions and performing due diligence procedures include risks. Further, we face competition from both peer group and non-peer group firms for acquisition opportunities. This external competition may hinder our ability to identify and/or consummate future acquisitions successfully. If the prices sought by sellers of these potential acquisitions were to rise or otherwise be deemed unacceptable, we may find fewer suitable acquisition opportunities.

Achieving the benefits of acquisitions will depend, in part, on successfully consolidating functions and integrating operations and procedures in a timely and efficient manner. In addition, noncore assets may be periodically disposed of so that we can focus our efforts and resources more efficiently. Depending on the state of the market such non-core assets, if disposed of, could realize a price less than their carrying value resulting in a loss on disposal.

Trend: Opportunities for acquisitions continue. In 2019 we successfully acquired three new businesses for total consideration of $21.5 million as compared to five new businesses in

2018 for total consideration of $53.2 million[1] .

Potential Impact

Entities that are acquired may not increase our OIBDA or yield other anticipated benefits. The possible difficulties of integration include, among others:

we may be unable to retain customers or key employees including drivers and Contractors;
the business may not achieve anticipated revenue, earnings, or cash flows;
we may be unable to integrate successfully and realize the anticipated economic, operational, and other benefits in a timely manner, which could result in substantial costs and delays;
we may have limited experience in the acquiree's market and may experience difficulties operating in its market;
we may assume liabilities beyond our estimates or what was disclosed to us;
the acquisition could disrupt our ongoing business, distract our management, and divert our resources; and
we may incur indebtedness or issue additional Common Shares.

The risks involved in successful integration could be heightened if we were to complete a large acquisition or multiple acquisitions within a short period of time.

If any one, or a combination, of the described possibilities results in our failure to execute our acquisition strategy successfully in the future, it could limit our ability to continue to grow in terms of revenue, OIBDA and cash flow. In addition, there is a risk of impairment of acquired goodwill and intangible assets. This risk of impairment to goodwill and intangible assets exists because the assumptions used in the initial valuation of these assets, such as interest rate or forecasted cash flows, may change when testing for impairment is required.

Mitigation

In consideration of the risk relating to identifying and realizing the benefits of acquisitions and disposals, we endeavour to create a balanced and diverse portfolio in our Trucking/Logistics and Oilfield Services segments by using considerable experience and the financial modeling to assess potential targets for, among other things, potential synergies, financial returns, cultural fit and integration.

In addition, we manage our cash flows diligently and maintain our capital allocation disciplines to ensure that we maintain what we believe is a suitable level of liquidity and leverage.

There is no assurance that we will be successful in identifying, negotiating, consummating or integrating any future acquisitions. If the Corporation does not make any future acquisitions, our growth rate could be materially and adversely affected.

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1 Includes the repayment of shareholders' loans.

2019 ANNUAL FINANCIAL REVIEW

Competition:

We operate in a highly competitive industry, and certain market segments have mature characteristics and face commoditization. Our business could suffer if we are unable to adequately address downward pricing pressures and other factors that could adversely affect our profitability.

Risk Description & Trend

Our various Business Units operate in highly competitive and fragmented industries with low barriers to entry, especially within the trucking industry. We compete with several large companies both in the transportation and energy services industries that may have greater financial and other resources. There can be no assurance that such competitors will not substantially increase the resources devoted to the development and marketing of services that we compete for or that new competitors will not enter our various markets.

Trend: North American freight volumes

and economic growth improved during 2019, however, economic activity and freight volumes began to moderate relative to the pace of growth experienced in 2018. This moderation, combined with increased industry capacity, caused freight rates in the spot market to decline. As such, there is no certainty that freight rates will improve in 2020.

Potential Impact

Numerous competitive factors could impair our ability to maintain or improve

our profitability. These factors include but are not limited to the following:

Many of our competitors periodically reduce their rates to gain business, especially during times of reduced oilfield activity or economic recessions. This may make it difficult for us to maintain or increase rates, or may require us to reduce our rates, or lose business. Additionally, it may limit our ability to maintain or expand our business.
Competition from logistics and brokerage companies may negatively impact our customer relationships and rates.
Higher prices and higher fuel surcharges to our customers may cause some of our customers to consider alternatives, including deciding to transport more of their own product with their own assets or substituting trucking for rail transportation.
Many customers periodically solicit bids from multiple providers for their transportation needs, which may depress freight rates or

result in a loss of business to competitors.

Mitigation

In consideration of this risk we endeavour to use technological change and innovation to remain competitive in our various businesses. Furthermore, the diversity of our Business Units and our decentralized business model may diminish the effect that new competitive forces might have on our organization. In addition, we believe that our Human Resources strategies enable us to retain and attract drivers or qualified Contractors thereby enabling us to service our clients through all business cycles.

In certain aspects of our business, we believe we have competitive advantages such as lower overhead costs and specialized regional strengths.

In addition, from time to time, we acquire competing, complementary or new business lines, which allows us to consolidate a market we serve, expand our geographic footprint or expand our service offerings thereby lessening the effects of competition.

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2019 ANNUAL FINANCIAL REVIEW

FINANCIAL RISKS

Foreign Exchange Rates:

Our consolidated financial statements are presented in Canadian dollars, however, a portion of our revenue is derived in U.S. dollars and a portion of our debt is denominated in U.S. currency.

Risk Description & Trend

Mullen Group has foreign exchange risk relating to the relative value of the Canadian dollar vis-à-vis the U.S. dollar. A stronger Canadian dollar is beneficial as it results in a foreign exchange gain on our U.S. dollar debt recognized on our consolidated income statement, as well as an equivalent reduction in the carrying value of such debt on the balance sheet. However, a stronger Canadian dollar also has the potential to reduce the level of Canadian exports thereby potentially negatively affecting the results of operations in the Trucking/Logistics segment. Conversely, a weakening Canadian dollar results in a foreign exchange loss and an equivalent increase in the carrying value related to the U.S. dollar debt. A weaker Canadian dollar has the potential to increase the level of Canadian exports and thereby potentially positively affect the results of operations in the Trucking/Logistics segment. In addition, many of our parts and

equipment are built in the U.S. and priced in U.S. dollars. A decrease in the relative value of the Canadian dollar vis-à-vis the U.S. dollar increases the costs of these parts and equipment.

Trend: Foreign exchange rates between the U.S. and Canadian dollar remain volatile. During 2019 the exchange rate fluctuated between $0.7353 and $0.7699 closing the year at $0.7699 as compared to $0.7330 at December 31, 2018.

Potential Impact

At the end of each reporting period we recognize foreign exchange gains or losses as they relate to financial contracts, assets and liabilities held in foreign currencies. This risk mainly arises from our U.S. $229.0 million of Senior Guaranteed Unsecured Notes (" U.S. Notes "). Specifically, our U.S. Notes are comprised of Series G (U.S. $117.0 million) and Series H (U.S. $112.0 million) Notes that mature in 2024 and 2026, respectively.

At December 31, 2019, we also had U.S. dollar cash of $12.5 million, U.S. dollar trade receivables of $5.1 million and U.S. dollar trade payables and accrued liabilities of $2.9 million.

Mitigation

We have mitigated a significant portion of the foreign exchange risk by entering into the Cross-Currency Swaps to convert the principal portion of the Series G and Series H Notes into a Canadian currency equivalent of $129.2 million and $124.9 million, respectively.

We are also exposed to foreign exchange risk related to approximately U.S. $8.9 million of annual interest payable on our U.S. Notes. This risk is partially offset by the fact that our business generates surplus U.S. funds in our operations, predominately within the Trucking/Logistics segment. This surplus U.S. dollar cash being generated acts as a natural hedge as it is used to repay our annual interest obligation on the U.S. Notes.

Investments:

Mullen Group invests in both private and public companies. The value of these investments fluctuate.

Risk Description & Trend

Mullen Group invests in both private and public companies. Fair values of public company investments are based on quoted prices in active markets. There is a risk that the value of an investment may fluctuate as a result of changes in market conditions, whether those changes are caused by factors specific to the individual investment, classes of investments or factors affecting all investments traded in the market. As such, there is a risk that a portion of the original investment may be lost.

Trend: In 2019 we recorded an increase in the fair value of investments of $15,000. In 2019 we sold $0.7 million of investments.

Potential Impact

Our investments in public companies are measured at fair value and have an initial cost of $11.5 million. At December 31, 2019, the fair value of these investments was $2.2 million.

We use the equity method to account for investments in private companies in which we have significant influence or joint control. At December 31, 2019, the carrying value of these investments totalled $36.3 million and consisted of the investments in Canol Oilfield Services Inc., Kriska Transportation Group Limited, Cordova Oilfield Services Ltd., Butler Ridge Energy Services (2011) Ltd., Thrive and PCX.

The timing of future dispositions and the realized share price are uncertain. There is no assurance that the Corporation will realize any benefits from its investment portfolio.

Mitigation

We accept a certain amount of risk and consider the underlying risk and possible market volatility of our investments. We strive to mitigate this risk by investing in areas that we have industry knowledge and expertise and we invest for the long-term. Risk capital is limited to a level that is deemed acceptable to Mullen Group.

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2019 ANNUAL FINANCIAL REVIEW

Access to Financing:

We may find it necessary in the future to obtain additional debt or equity financing to support ongoing operations, to undertake capital expenditures or to fund acquisitions.

Risk Description & Trend

We may find it necessary in the future to obtain additional debt or equity financing to support ongoing operations, to undertake capital expenditures or to fund acquisitions. There can be no assurance that additional financing will be available when needed or on acceptable terms, which could limit our growth and could have a material adverse effect on our business, results of operations and financial condition. In addition, we have certain financial and other covenants under our Private Placement Debt that are customary for financings of this type including, but not limited to, a maximum leverage ratio and a minimum interest coverage ratio. A breach of a covenant and failure to obtain appropriate amendments to or waivers under the applicable financing arrangement may cause our borrowings under such facilities to be immediately declared due and payable.

Trend: At December 31, 2019, our debt covenant leverage ratio was 2.30 as compared to 2.46 in 2018.

Potential Impact

We may need to incur additional debt, or issue debt or equity securities in the future. We could face constraints on generating sufficient cash from operations, obtaining sufficient financing on favorable terms, or maintaining compliance with financial and other covenants in our financing agreements.

If any of these events occur, then we may face liquidity constraints and it may impair our future ability to secure financing on satisfactory terms, or at all. A liquidity constraint may impair Mullen Group's ability to continue as a going concern. Although we expect that we will be able to obtain additional financing when needed, in the amounts required and on acceptable terms there is no assurance that such would occur.

Mitigation

We manage our cash flows diligently to ensure that we maintain what we believe is a suitable level of liquidity and leverage. Our approach to managing liquidity is to ensure, to the extent possible, that we will always have sufficient liquidity to meet our liabilities when due, under both normal and stressed conditions. Consistent with others in the industry, we monitor capital on the basis of debt-to-equity. This ratio is calculated as total debt divided by shareholders' equity. Total debt is calculated as the total of: current portion of long-term debt, longterm debt and the debt component of 2019 Debentures. Equity is comprised of share capital, convertible debentures – equity component, contributed surplus and retained earnings. The debt-to-equity ratio calculation at December 31, 2019, was 0.67:1 (2018 – 0.57:1).

Reliance on Major Customers:

There is an inherent risk that arises to all businesses when economic dependence on a major customer hinders a company's ability to maximize profit.

Risk Description & Trend

Although we do not have a significant customer concentration, the growth of our business could be materially impacted and our results of operations would be adversely affected if we lost all or a portion of the business of some of our large customers because they:

chose to divert all or a portion of their business with us to one of our competitors;
demand pricing concessions for our services;
require us to provide enhanced services that increase our costs; or
• develop their own shipping and distribution capabilities.

Trend: In 2019 our top ten customers accounted for 16.6 percent of revenue (2018 – 15.9 percent), and the largest customer accounted for approximately 3.0 percent (2018 – 3.6 percent) of such revenue.

Potential Impact

The loss of one or more major customers, any significant decrease in services provided, decreases in rates charged, or any other changes to the terms of service with customers, could have a material adverse effect on our business, results of operations and financial condition. Furthermore, a

concentration of revenue with a major customer, or a small group of major customers, may lead to an enhanced ability of those customers to influence pricing and other contract terms, which

may have a material adverse effect on our results.

Mitigation

We strive to mitigate this risk through a diversification strategy in an attempt to ensure that our organization does not become reliant on any single customer. Furthermore, we operate a decentralized business model whereby we utilize the expertise of management at each Business Unit to negotiate its own contracts that have pricing and terms that are competitive according to their specific market and/or geographic region.

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2019 ANNUAL FINANCIAL REVIEW

Impairment of Goodwill or Intangible Assets:

Our total assets include goodwill and intangible assets. If we determine that these assets have become impaired in the future, our net income could be adversely affected.

Risk Description & Trend

There is also a risk of impairment of acquired goodwill and intangible assets. This risk of impairment of goodwill and intangible assets exists because the assumptions used in the initial valuation of these assets, such as the interest rate or forecasted cash flows, may change when testing for impairment is conducted either annually or upon a triggering event.

Trend: In 2019 our goodwill and intangible assets accounted for $317.2 million, or 18.1 percent of our total assets as compared to $315.6 million, or 19.2 percent of total assets in 2018.

Potential Impact

Our regular review of the carrying value of our goodwill and intangible assets

has resulted, from time to time, in significant impairments, and we may in the future be required to recognize additional impairment charges. Such did occur in 2007 when the Federal government implemented changes to the tax regime governing specified investment flow-through (" SIFT ") entities such as Mullen Group's predecessor Mullen Group Income Fund. In addition, the Alberta Government announced changes to the oil and gas royalty regime in Alberta that impacted many of our customers.

Changes in government regulations, or economic or market conditions have resulted and may result in further substantial impairments of our goodwill or intangible assets. In 2018 Mullen Group recognized a $100.0 million goodwill impairment charge. As at December 31, 2019, we had goodwill

of $268.7 million and intangible assets of $48.5 million. Our impairment testing in 2019 produced no indication of impairment. The results of our impairment evaluations, assumptions and sensitivities can be found on page 80.

Mitigation

We strive to mitigate this risk through a disciplined acquisition strategy in an attempt to ensure that our organization does not overpay for entities resulting in overvalued goodwill balances. In addition, we use professional skepticism and advisors to value goodwill and intangible assets values upon acquisition, thereby mitigating the risk of misevaluation of goodwill or intangible assets upon initial recognition.

Credit Risk:

Credit risk is the risk of financial loss to Mullen Group if a customer or counterparty to a financial asset fails to meet its contractual obligations. This risk arises predominately from our trade receivables generated from our customers.

Risk Description & Trend

A significant portion of our accounts receivable are with customers involved in the oil and gas industry, whose revenues may be impacted by fluctuations in commodity prices thereby potentially impacting their ability to meet contractual obligations. Although collection of these receivables could be influenced by this and other economic factors affecting the industries we serve, management considers the risk of a significant loss to be remote at this time.

Trend: In 2019 accounts receivable were $211.2 million comprised of $71.9 million within our Oilfield Services segment, $127.9 million within our Trucking/Logistics segment and $11.4 million within the Corporate Office.

Potential Impact

Our exposure to credit risk is influenced mainly by the individual characteristics of each customer. Economic conditions and capital markets may adversely affect our customers and their ability to remain solvent. We transport a wide variety of freight for a broad customer base that spans numerous industries. The financial failure of a customer may impair our ability to collect on all or a portion of the accounts receivable balance. In addition, we have counter-party risk with our Derivatives and other financial assets.

Mitigation

Credit risk related to trade and other receivables is initially managed by each Business Unit. Each Business Unit is responsible for reviewing the credit risk for each of their customers before standard payment and delivery terms and conditions are offered. The

Business Units' review consists of external ratings, when available, and in some cases bank and trade references. Our Corporate Office has established a credit policy under which new customers are analyzed for creditworthiness before credit is extended. Corporate Office monitors its trade and other receivables aging on an ongoing basis and communicates concerns to all of our Business Units as part of its process in managing its credit risk. We also manage credit risk related to trade and other receivables on a consolidated basis whereby the aggregate exposure to individual customers is reviewed and their credit quality is assessed. We also attend industry forums to assess credit worthiness of customers related predominately to the oil and gas industry. No individual customer accounted for more than ten percent of Mullen Group's consolidated revenue for the fiscal years ended 2019 and 2018.

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2019 ANNUAL FINANCIAL REVIEW

Interest Rates:

Changes in interest rates may result in fluctuations in our future cash flows.

Risk Description & Trend

We are susceptible to fluctuations in interest rates. Our Bank Credit Facility is priced at variable rates, however, it remains undrawn. To the extent we utilize our Bank Credit Facility we incur the risk of interest rates rising. Our Private Placement Debt, the 2019 Debentures and the majority of our Various Financing Loans are issued at fixed rates. The majority of our longterm debt, specifically $467.4 million, matures in 2024 and 2026.

Trend: At December 31, 2019, we had $616.8 million (2018 – $512.2 million) of borrowings at an average interest rate of 4.2 percent.

Potential Impact

Borrowings issued at fixed rates, like our Private Placement Debt, expose Mullen Group to fair value interest rate risk. More specifically, we are susceptible to the opportunity costs associated with interest rate decreases considering that the interest rates on the majority of our borrowings are fixed. In theory, assuming all other variables

were held constant, if interest rates increased by 1.0 percent on our $616.8 million debt, we would incur additional annual interest expense of approximately $6.2 million upon renewal.

Mitigation

We do not hedge interest rates or have any interest rate swaps, but we have mitigated the negative risk of rising interest rates by financing most of our debt, specifically $467.4 million, at fixed rates.

OPERATIONAL RISKS

Employees and Labour Relations:

We depend on our employees to support our business operations and future growth opportunities. If our relationship with our employees deteriorates or if we have difficulty attracting and retaining employees, we could be faced with labour inefficiencies, disruptions, work stoppages, or delayed growth, which could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Risk Description & Trend

The success of Mullen Group is dependent upon attracting and retaining key personnel. Any loss of the services of such persons could have a material adverse effect on our business, results of operations and financial condition. We anticipate that our ability to expand services will be dependent upon attracting additional qualified employees, which is constrained in times of strong industry activity. Our senior management team is an important part of our business and loss of key employees could have a material adverse effect on our business, results of operations and financial condition.

Trend: At December 31, 2019, we employed 6,124 employees, owner operators and dedicated subcontractors as compared to 6,435 in 2018.

Potential Impact

The failure to attract and retain a sufficient number of qualified personnel

could have a material adverse effect on our profitability. The largest components of our overall expenses are salary, wages, benefits and costs of Contractors. Any significant increase in these expenses could impact our financial performance. In addition, we are at risk if there are any labour disruptions. Some of our Business Units are subject to collective agreements with their employees. Any work stoppages, or unbudgeted or

unexpected increases in compensation could have a material adverse effect on our profitability and reduce cash flow from operating activities.

Further, we benefit from the leadership and experience of our senior management team and other key employees and depend on their continued services to successfully implement our business strategy. The unexpected loss of key employees or inability to execute our succession planning strategies could have an adverse effect on our business, results of operations, and financial condition.

Mitigation

In order to reasonably mitigate this risk, we aim to be an employer of choice by offering competitive wages and incentive-based pay, establishing superior safety programs and fostering a strong reputation as an ethical company. In addition, the Board reviews its succession plans for the senior executive team on an annual basis. These endeavours are designed to attract the best people at every level of our business, establish them in their roles, manage their development and identify successor candidates for senior roles. In addition to providing specific job-related and safety training, we encourage all of our employees to continue their education, training and skills upgrading and provide employees with the resources required to achieve and maintain our operational excellence.

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2019 ANNUAL FINANCIAL REVIEW

Cost Escalation and Fuel Costs:

Our ability to control our costs is critical to servicing customers at attractive rates and remaining profitable.

Risk Description & Trend

Cost escalations due to rising labour and other costs, the effect of inflation, the price of fuel, equipment and other input costs, insurance costs, interest rates, fluctuations in customers' business cycles and national and regional economic conditions are factors over which we have little or no control. Of these costs, fuel represents a significant operating expense for us. Fuel prices fluctuate greatly due to factors beyond our control, such as global supply and demand for crude oil, political events, price and supply decisions by oil producing countries and cartels, terrorist activities, the depreciation of the Canadian dollar relative to other currencies, hurricanes and other natural disasters as well as fuel and carbon taxes.

Trend: The average wholesale rack price of diesel fuel in Canada for 2019

was $0.7870 per litre as compared to $0.8563 per litre in 2018.

Potential Impact

GHG regulations are likely to continue to impact the design and cost of equipment utilized in our operations as well as fuel costs. Significant increases in fuel prices, labour costs, equipment prices, other input prices, interest rates or insurance costs, to the extent not offset by increases in rates or fuel surcharges, would reduce profitability and could adversely affect our ability to carry out our strategic plans. We

cannot predict the impact of future economic conditions and there is no assurance that our operations will continue to be profitable.

Mitigation

To reasonably mitigate the risk of potential for cost escalation, we focus

on operational excellence, synergies between our Business Units and cost control. We rely on, among other things, long-term planning, budgeting processes, and internal benchmarking to achieve our profitability targets. Additionally, we mitigate the risk of inflation by owning a large network of terminals. We also mitigate our exposure to rising fuel costs through the implementation of various fuel surcharge programs, which pass the majority of cost increases to our customers and have implemented policies that focus on fuel efficiency, including fuel economy, asset utilization and minimizing dead-head mileage, proper repairs and maintenance of equipment, idling and speed policies.

Potential Operating Risks and Insurance:

Our success is dependent on our ability to manage operational risks. The transportation and oilfield services sectors are subject to inherent risks. Failure to manage these operational risks may have a material adverse effect on our business, results of operations, financial condition, and cash flows.

Risk Description & Trend

Our transportation operations are subject to risks inherent in the transportation industry, including potential liability that could result from, among other things, personal injury or property damage arising from motor vehicle accidents. Our Oilfield Services segment is subject to risks inherent in the oil and gas industry, such as equipment defects, malfunction, failures and natural disasters. These risks could expose Mullen Group to substantial liability for personal injury, loss of life, business interruption, property damage or destruction, pollution and other environmental damages.

Trend: Our 2019 total recordable injury frequency rate, a leading indicator of operational excellence, was 3.10 as compared to 3.17 in 2018.

Potential Impact

Claims may be asserted against us related to accidents, cargo loss or damage, property damage, personal injury, employment and environmental or other issues occurring in our operations. Although we have obtained insurance coverage against certain of the risks to which we are exposed, such insurance is subject to deductibles and coverage limits and no assurance can be given that such insurance will be adequate to cover our liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If the frequency and/or severity of claims increase, our operating results could be adversely affected. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we are not able to obtain liability insurance, our

business, results of operations and financial condition may be materially adversely affected.

Mitigation

We have insurance and risk management programs in place to protect our assets, operations and employees and also have programs in place to address compliance with current safety and regulatory standards so as to reasonably mitigate against the risks to which we are exposed. Each Business Unit has a health and safety coordinator responsible for maintaining and developing policies and monitoring operations vis-à-vis those policies. The health and safety coordinators are required to report incidents directly to the Corporate Office in a timely manner. Internal and external audits are conducted on a regular basis to ensure the proper functioning of the Health, Safety and Environment program and the reporting systems.

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2019 ANNUAL FINANCIAL REVIEW

Digital Infrastructure and Cyber Security:

We are dependent on computer and communications systems; and a systems failure or data breach could cause a significant disruption to our business.

Risk Description

We believe that a well-functioning and efficient IT system is a prerequisite to growth, operational excellence and superior customer service, aids day-today operational management and provides accurate financial information. Our business involves high transaction volumes, complex logistics, the tracking of thousands of orders, the geopositioning of trucks and trailers as well as the communication with drivers and field personnel in real time. We are therefore heavily dependent on certain software, communication systems and network infrastructure. A serious prolonged failure in this area may materially affect our business.

Potential Impact

Our IT systems may be susceptible to damage, disruptions or shutdowns due to: hardware failures, power outages, fire, natural disasters, telecommunications failure, internet failures, computer viruses, data

breaches or attacks by computer hackers or malicious actors, user errors or catastrophic events. Such failures or unauthorized access could disrupt our business and could result in the loss of confidential information, intellectual property, litigation, remediation costs, damage to our reputation and negatively impact our ability to service our customers. In addition, the cost and operational consequences of reinstituting our IT systems capabilities or implementing further data or system protection measures could be significant.

Mitigation

Each of our Business Units run separate instances of our Enterprise Resource Planning (" ERP ") software package that supports our business processes. As part of our entity wide IT risk mitigation policy, we regularly engage third-party vendors to complete security assessments of our IT systems, consisting of external and internal penetration tests. At both the

corporate level and within the individual Business Units, IT systems are subject to stringent guidelines, standardization, vigorous virus and access protection, back-up systems and replicated data. We employ project management techniques to manage new software developments and/or system implementations. We have a disaster recovery plan in place that is evaluated regularly and portions thereof are tested on a regular basis. Hosted by a reputable third-party, our primary data and back-up data centres have high levels of durability and redundancy built into them. Our back-up data centre allows our organization to continue processing data in the event of a major incident involving our primary data centre. In addition, we have purchased cyber insurance coverage to assist with mitigating the unlikely risk that an outside threat gains access to our IT systems.

Business Continuity, Disaster Recovery and Crisis Management:

In the event of a serious incident, the inability to restore or replace critical capacity in a timely manner may impact our business and operations.

Risk Description

Our operations are widespread and geographically diverse. Severe weather conditions and other natural or manmade disasters, including storms, floods, fires, epidemics or pandemics, conflicts or unrest, terrorist attacks or other events affecting one of our major facilities or areas of operations could result in a significant interruption in or disruption of our business.

Potential Impact

A serious event could result in decreased revenue, as our ability to service our customers may be impeded or we may incur increased costs to operate our business, which could have an adverse effect on our results of operations. In addition, a serious event may reduce our customers' needs for our services.

Mitigation

This risk is mitigated by the development of business continuity arrangements, including disaster recovery plans and back-up delivery systems, to minimize the significance of any business disruption in the event of a major disaster. Insurance coverage may minimize losses in certain circumstances.

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2019 ANNUAL FINANCIAL REVIEW

Environmental Liability Risks:

Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties. The costs of compliance with existing or future environmental laws and regulations may be significant and could adversely impact our business, results of operations, financial condition, and cash flows.

Risk Description

The risk of incurring environmental liabilities is inherent in oilfield service and transportation operations. Historically, activities associated with such operations and the ownership, management or control of real estate pose an environmental risk. Some of our Business Units will routinely deal with natural gas, oil and other petroleum products. Our operations are subject to numerous laws, regulations and guidelines governing the management, handling, transportation and disposal of nonregulated and regulated substances and otherwise relating to the protection of the environment. These laws, regulations and guidelines include those relating to the remediation of spills, releases, emissions and discharges of regulated substances into the environment and those requiring removal or remediation of pollutants or contaminants.

Our customers are subject to various laws, regulations, and guidelines that prescribe, among other things, limits on emissions into the air and discharges into surface and sub-surface waters. While regulatory developments that may follow in subsequent years could have the effect of reducing industry activity, we cannot predict the nature of the restrictions that may be imposed.

Potential Impact

Failure to comply with an environmental law or regulation may impose civil and criminal penalties. Certain of our Business Units carry significant volumes of dangerous goods. This involves specific

insurance requirements, training programs and appropriate permits with the various provinces and states in which our Business Units operate.

We may be required to increase operating expenses or capital expenditures in order to comply with any new restrictions or regulations.

We operate out of numerous owned and leased facilities throughout Canada where storage tanks may be used or may have been used at some prior date. Canadian laws generally impose potential liability on the present or former owners or occupants of properties on which contamination has occurred. Although we are not aware of any contamination which, if remediation or clean-up were required, could have a material adverse effect on Mullen Group. Certain facilities have been in operation for many years and, over such time, Mullen Group or the prior owners, operators or custodians of the properties may have generated and disposed of substances which are or may be considered hazardous.

Mitigation

There can be no assurance that we will not be required at some future date to comply with new environmental laws, or that our operations, business or assets will not otherwise be further affected by current or future environmental laws. While we maintain liability insurance, including insurance for certain environmental incidents, the insurance is subject to coverage limits and certain of our policies exclude coverage for damages resulting from environmental contamination. There can be no assurance that insurance will

continue to be available to us on commercially reasonable terms, that the types of liabilities that we may incur will be covered by our insurance, or that the dollar amount of such liabilities will not exceed our policy limits.

In regards to the transportation of dangerous goods, we ensure that strict guidelines are met before a Business Unit and the individual drivers are permitted to manage, handle or transport such dangerous goods.

We have programs to address compliance with current environmental standards and monitor our practices concerning the handling of environmentally hazardous materials. We endorse a formalized quality program and strive to be the best in class in areas of safety and environmental excellence. We believe in a balanced approach to sustainable development and are committed to best in class environmental management systems. In addition, we work with government, industry groups and the public to improve and develop environmental standards and further our understanding of environmental issues. We also promote the participation and certification of our Business Units in the SmartWay Certification Program, a Government of Canada program designed to reduce GHG.

Due diligence procedures in the context of potential acquisitions and appropriate terms in purchase and sale agreements related to acquisitions also assist with reasonably mitigating the risk of environmental liabilities.

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2019 ANNUAL FINANCIAL REVIEW

Weather and Seasonality:

Our operations could be impacted by seasonal fluctuations or harsh weather conditions.

Risk Description & Trend

Harsh weather conditions can impede the movement of goods and increase operating costs.

The level of activity in the Canadian oilfield service industry is influenced by seasonal weather patterns. Typically activity levels are reduced in the spring when wet weather and the spring thaw make the ground unstable. Consequently, municipalities and provincial transportation departments enforce road bans that restrict the movement of heavy equipment.

Additionally, certain oil and gas producing areas are only accessible in the winter months because the ground surrounding the drilling sites in these areas consists of swampy terrain.

Trend: In 2019 revenue was affected by low oilfield activity in the first quarter and acquisitions. Revenue, excluding the effect of acquisitions, was 24.5 percent of total annual revenue in the first quarter, 23.9 percent in the second quarter, 26.2 percent in the third quarter and 25.4 percent in the fourth quarter.

Potential Impact

An unexpected or harsh weather event could result in decreased revenue, as our ability to service our customer is impeded or we may incur increased costs to operate our business, which could have an adverse effect on our results of operations.

Seasonal factors typically lead to declines in activity levels. In the Trucking/Logistics segment, operating

expenses tend to increase in the winter months due to decreased fuel efficiency and increased repairs and maintenance expense resulting from cold weather conditions at a time when demand is seasonally lower.

In the Oilfield Services segment, a significant portion of our operations

relates to the moving of heavy equipment, drilling rigs and drilling supplies in northern and western Canada. Activity levels, revenue and earnings are influenced by the seasonal activity pattern of western Canada's oil and gas exploration industry whereby activity peaks in the winter months and declines during the spring.

Mitigation

We mitigate some of this risk by charging standby fees or by positioning equipment in strategic locations in order to take advantage of good weather conditions when they occur. We also manage some of this risk by diversifying our operations and by using subcontractors and owner operators, which requires no investment by Mullen Group, to handle seasonal peaks.

Our growth through acquisition, in the last number of years, into businesses not directly tied to oil and gas drilling activity has lessened the seasonal nature of our overall performance.

Access to Parts, Development of New Technology and Relationships with Key Suppliers:

We depend on suppliers for fuel, equipment, parts, and services that are critical to our operations. A disruption in the availability of or a significant increase in the cost to obtain these supplies could adversely impact our business and results of operations.

Risk Description

Our ability to compete and expand is most directly tied to our having access at a reasonable cost to equipment, parts and components, which are at least technologically equivalent to those utilized by competitors, and to the development and acquisition of new and competitive technologies.

Potential Impact

Although we have individual distribution agreements with various key suppliers, there can be no assurance that those sources of

equipment, parts, components or relationships with key suppliers will be maintained. If these are not maintained, our ability to compete may be impaired by virtue of diminished availability and/or increased cost of securing certain equipment and parts. We have access to certain distributors and secure discounts on parts and components that would not be available if it were not for our relationships with certain key suppliers. Should the relationships with key suppliers cease the availability and cost of securing certain equipment and parts may be adversely affected.

Mitigation

In consideration of this risk we assess our suppliers and endeavour to ensure that our suppliers are financially viable or that suitable alternatives exist if relationships with current suppliers were to become compromised. In addition, we also retain what we consider an appropriate level of inventory of critical parts and supplies.

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2019 ANNUAL FINANCIAL REVIEW

Regulation:

Various federal, provincial and state agencies exercise broad regulatory powers over the transportation industry, generally governing our activities.

Risk Description

Notwithstanding that the transportation industry is largely deregulated in terms of entry into the industry, each carrier must obtain a license from, or register with, provincial regulatory authorities in order to carry goods extra-provincially or to transport goods within any province. Our operations are subject to a variety of Regulations relating to, among other things: safety, equipment weight, equipment dimensions, driver hours-of-service and the transportation of hazardous materials. Licensing is also required from regulatory authorities in the United States for the transportation of goods between Canada and the United States. In addition, our operations are subject to hours of service regulations and

electronic logging and, in certain cases,

random drug testing.

Potential Impact

Changes in regulations applicable to Mullen Group could increase operating costs and have a material adverse effect on our business, results of operations and financial condition. The right to continue to hold applicable licenses and permits is generally subject to maintaining satisfactory compliance with regulatory and safety guidelines, policies and regulations. Although we are committed to compliance and safety through our operational excellence initiatives, there is no assurance that we will be in full compliance at all times with such policies, guidelines and regulations. Consequently, at some future time, we

could be required to incur significant costs to maintain or improve our compliance record.

Mitigation

In consideration of this risk we monitor regulatory frameworks with a particular focus on hours of service, overdimensional freight and transportation of fluids and work, in conjunction with industry associations, to advocate our need to regulators and ensure that equipment meets regulations and that sufficient capital is invested to meet current and anticipated regulatory requirements.

Litigation:

From time to time, Mullen Group or its Business Units may be the subject of litigation, claims, administrative proceedings and regulatory actions ("Claims") arising out of its operations or business in general.

Risk Description

Our business is subject to the risk of litigation by employees, customers, vendors, government agencies, shareholders and other parties. Various types of Claims may be made against Mullen Group or its Business Units including but not limited to those pertaining to negligence, breach of contract, environmental, tax, patent infringement, employment matters and safety incidents.

Potential Impact

The outcome of litigation is difficult to assess or quantify, and the magnitude

of potential loss relating to such Claims made against Mullen Group or its Business Units may be material or may be indeterminate. The outcome of any such Claims cannot be predicted with certainty and may impact our business, financial condition, results of operations or cash flows. Further, unfavourable outcomes of settlements of Claims could encourage the commencement of additional Claims. We may also be subject to negative publicity with respect to such Claims regardless of fault. We may also be required to incur significant expenses and devote significant resources in defence of any such Claims.

Mitigation

In consideration of this risk we have insurance and risk management programs in place. For Claims that do not fall under such programs, we endorse a formalized quality program and strive to be the best in class in respect of operational excellence so as to reasonably mitigate this risk. When required we retain expert legal counsel to defend Mullen Group or its Business Units so as to reasonably mitigate the risk of an unfavourable outcome of a claim.

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2019 ANNUAL FINANCIAL REVIEW

CRITICAL ACCOUNTING ESTIMATES

This MD&A summarizes Mullen Group's financial condition and results of operations, which are based upon our Annual Financial Statements that have been prepared in accordance with IFRS. The Annual Financial Statements require management to select significant accounting policies, which are contained within the notes to such statements. These significant accounting policies involve critical accounting estimates regarding matters that are inherently uncertain and require management to make estimates, complex judgements and assumptions. These estimates, complex judgements and assumptions are based on the circumstances that exist at the reporting date and may affect the reported amounts of income and expenses during the reporting periods and the carrying amounts of assets, liabilities, accruals, provisions, contingent liabilities, other financial obligations, as well as the determination of fair values. The following describes critical accounting estimates we used in preparing the Annual Financial Statements and are an important part in understanding such statements:

Impairment tests

We assess, at the end of each reporting period, whether there is an indication that an asset group may be impaired. We have three significant asset groups that are reviewed for impairment. First, goodwill is reviewed for impairment annually, or more frequently if there are indications that impairment may have occurred. The second and third asset groups consist of intangible assets and long-lived assets. Intangible assets are normally acquired on acquisitions and are mainly comprised of customer relationship values and non-competition agreements, which are amortized over their estimated life from the date of acquisition. Long-lived assets include property, plant and equipment and other assets. These asset groups are tested for impairment when events or changes in circumstances indicate that their carrying amount may not be recoverable. If any indication of impairment exists we estimate the recoverable amount of the asset group. External triggering events include, for example, changes in customer or industry dynamics, drilling and other technologies and economic declines, including the decline in the value of our Common Share price. Internal triggering events for impairment include lower profitability or planned restructuring.

The impairment tests compare the carrying amount of the asset of the CGU to its recoverable amount. The recoverable amount is the higher of the fair value less costs of disposal (" FVLCD ") and the determination of value in use (" VIU "). The determination of VIU requires the estimation and discounting of cash flows, which involve key assumptions that consider all information available on the respective testing date. Management uses its judgement, considering past and actual performance as well as expected developments in the respective markets and in the overall macro-economic environment and economic trends to model and discount future cash flows.

Impairment of Goodwill

In general terms, goodwill represents the excess of the purchase price of a business combination over the net amount of identifiable assets acquired less the liabilities assumed. At December 31, 2019, we performed our annual impairment test for goodwill and concluded that there was no impairment of goodwill in any of our CGUs as the recoverable amount for these CGUs was higher than their respective carrying amount.

At December 31, 2018, we performed our annual impairment test for goodwill and concluded that there was impairment of goodwill within certain CGUs in the Oilfield Services segment as the recoverable amount for these CGUs was lower than their respective carrying amount. We recognized a $100.0 million impairment of goodwill in the fourth quarter of 2018 using the following discount and terminal value growth rates within each respective CGU:

		Impairment of		Terminal Value
*($ millions)*		Goodwill	Discount Rate	Growth Rate
Cash Generating Unit
Formula Powell L.P.	$	45.6	11.5%	2.5%
Cascade Energy Services L.P.		37.6	12.0%	2.0%
Mullen Oilfield Services L.P.		5.8	12.0%	2.0%
Spearing Service L.P.		5.0	12.0%	2.0%
R. E. Line Trucking (Coleville) Ltd.		3.0	12.0%	2.5%
Withers L.P.		3.0	12.0%	2.0%
Total Impairment of Goodwill	$	100.0

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2019 ANNUAL FINANCIAL REVIEW

The impairment of goodwill within these CGUs resulted from the deterioration of the oil and natural gas industry in the fourth quarter of 2018, which led to us revising our projected future cash flows. After recognizing this impairment of goodwill, the recoverable amount of these CGUs equaled its carrying amount, which was $263.1 million. The recording of this impairment of goodwill is recognized as an expense and reduces book equity and net income but did not impact cash flows.

The recoverable amount was determined using a discounted cash flow approach for all CGUs. The discounted cash flow model employed by the Corporation reflects the specifics of each CGU and its business environment. The model calculates the present value of the estimated future earnings of each CGU.

Estimating future earnings requires judgement, considering past and actual performance as well as expected developments in the respective markets and in the overall macro-economic environment. The calculation of the recoverable amount using the discounted cash flow approach was based on the following key assumptions:

	Discount rate December 31, 2019 December 31, 2018	Discount rate December 31, 2019 December 31, 2018	Terminal value growth rate	Terminal value growth rate
	December 31, 2019		December 31, 2019	December 31, 2018
Cash Generating Unit Gardewine Group Limited Partnership Kleysen Group Ltd. Hi-Way 9 Group of Companies Tenold Transportation Ltd. Heavy Crude Hauling L.P. E-Can Oilfield Services L.P. Canadian Dewatering L.P. Others	10.5% 10.5% 11.0% 11.0% 12.0% 12.0% 12.0% 11.0% – 12.0%	10.5% 10.5% 11.0% 11.0% 12.0% 12.0% 12.0% 11.0% – 12.0%	2.0% 2.5% 2.5% — 2.0% 2.0% 2.5% 2.0% – 2.5%	2.0% 2.5% 2.5% 2.5% 2.0% 2.0% 2.5% 2.0% – 2.5%

(i) Cash flows were projected based on past experience, actual operating results and the one year business plan for the immediate year. Cash flows for a further four year period were extrapolated using constant growth rates of between 2.0 to 2.5 percent with adjustments reflecting an expectation of changes in the general economy, forecasted changes in drilling activity and the Business Unit's respective markets, and represents the Corporation's best estimate of the set of economic conditions that are expected to exist over the forecast period.
(ii) The terminal value growth rate is based on management's best estimate of the long-term growth rate for its CGUs after the forecast period, considering historic performance and future economic forecasts.
(iii) Each CGU's discount rate reflects their individual size, risk profile and circumstance and is based on past experience and industry average weighted average cost of capital.

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2019 ANNUAL FINANCIAL REVIEW

The Corporation believes that the following changes in the key assumptions would result in a recoverable amount equal to the carrying value of the CGU, with any additional change in the assumptions causing goodwill to become impaired.

	Change in discount rate December 31, 2019 December 31, 2018	Change in discount rate December 31, 2019 December 31, 2018	Change in terminal value growth rate	Change in terminal value growth rate
	December 31, 2019		December 31, 2019	December 31, 2018
Cash Generating Unit Gardewine Group Limited Partnership Kleysen Group Ltd. Hi-Way 9 Group of Companies Tenold Transportation Ltd. Heavy Crude Hauling L.P. E-Can Oilfield Services L.P. Canadian Dewatering L.P.	4.1% 6.4% 12.8% 6.5% 3.5% 3.0% 8.9%	5.0% 8.3% 12.7% 11.3% 1.3% 2.4% 7.8%	(6.1)% (10.3)% (29.2)% (8.4)% (5.4)% (4.4)% (17.5)%	(8.6)% (16.4)% (34.4)% (26.9)% (1.9)% (2.8)% (14.5)%

Intangible assets

Intangible assets are mainly comprised of customer relationships and non-competition agreements. The fair value of these assets are calculated when an intangible asset or a business is acquired and then amortized on a straightline basis over their estimated life. At December 31, 2019, intangible assets totalled $48.5 million (2018 – $50.3 million). Property, plant and equipment are mainly comprised of trucks and trailers, land and buildings. The net book value of property, plant and equipment at December 31, 2019, was $954.6 million (2018 – $965.7 million).

Acquisitions

The acquired assets, assumed liabilities (other than deferred taxes) and contingent consideration are recognized at fair value on the date we effectively obtain control. The measurement of business combinations is based on the information available on the acquisition date. The determination of fair value of the acquired intangible assets (including goodwill), property, plant and equipment and other assets and the liabilities assumed at the date of acquisition, as well as the useful lives of the acquired intangible assets and property, plant and equipment, is based on assumptions. The measurement is largely based on projected cash flows and market conditions at the date of acquisition. Contingent consideration is based on the likelihood of various outcomes of specified future events.

Property, plant and equipment and intangible assets

Property, plant and equipment are initially recognized at cost and include all expenditures directly attributable to bringing the asset to its intended use. The method and rates used in calculating depreciation of property, plant and equipment is an estimate. We calculate depreciation of property, plant and equipment using the declining balance method for the majority of our assets. Effective January 1, 2018, we began recording depreciation expense on specialty equipment within the Oilfield Services segment using a rate of 20.0 percent under the declining balance method as opposed to using a rate of 10.0 percent under the declining balance method in prior years. No other changes were made to the methods or rates we used to estimate depreciation expense on property, plant and equipment during the past two years.

We believe the methods and rates of depreciation reasonably reflect the annual decline in the value of property, plant and equipment. These methods and rates used are validated by the fact that net gains or losses on sale of property, plant and equipment over the last ten years have been minimal, which indicates that the net book value of assets approximates fair market value over an extended period of time. At December 31, 2019, the Oilfield Services segment had a carrying value of property, plant and equipment of $255.7 million (2018 – $294.4 million) as compared to $225.6 million (2018 – $208.9 million) in the Trucking/Logistics segment. The carrying value of property, plant and equipment within the Corporate Office was $473.3 million at December 31, 2019 (2018 – $462.3 million).

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2019 ANNUAL FINANCIAL REVIEW

Intangible assets are amortized on a straight line basis over a period of five years. Mullen Group determines the length of the amortization period at the date of acquisition. The method used in determining the amortization period is based upon the anticipated present value of future cash flows generated from customer relationships purchased on acquisitions. At December 31, 2019, the Trucking/Logistics segment had a carrying value of intangible assets of $39.3 million (2018 – $37.1 million) as compared to $9.2 million (2018 – $13.2 million) in the Oilfield Services segment.

Derivative Financial Instruments

We utilize Derivatives such as cross-currency swaps to manage our exposure to foreign currency risks relating to our U.S. dollar debt. The fair value of Derivatives fluctuate depending on the estimate of certain underlying financial measures. The estimated fair value of Derivatives are based on observable market data, including foreign currency curves, interest rates and credit spreads.

Trade and other receivables

Impairment of trade and other receivables is constantly monitored. Evidence of impairment could, for example, occur when the financial difficulties of a debtor become known or payment delays occur. Impairments are based on historical values, observed customer solvency, the aging of trade and other receivables and customer-specific and industry risks. In addition, we review external credit ratings as well as bank and trade references when available. At December 31, 2019, we recognized a reserve for bad debts of $7.8 million (2018 – $5.9 million) against total gross trade and other receivables of $219.0 million (2018 – $224.0 million).

Income Taxes

Mullen Group's deferred income tax assets and liabilities are determined based on "temporary differences" (differences between the accounting basis and the tax basis of the assets and liabilities), and are measured using the currently enacted, or substantively enacted, tax rates and laws expected to apply when these differences reverse. We operate in several provincial jurisdictions and are subject to various rates of taxation. The actual amount of tax ultimately paid in these jurisdictions may differ from the estimated amount.

SIGNIFICANT ACCOUNTING POLICIES

New Standards and Interpretations Not Yet Adopted

Mullen Group has reviewed new and revised standards and interpretations that have been approved by the IASB. There have been no new standards or interpretations issued during 2019 that significantly impact Mullen Group.

Changes in Accounting Policies

IFRS 16 – Leases

Effective January 1, 2019, Mullen Group adopted IFRS 16 – Leases using the modified retrospective method. Under the modified retrospective method, comparative financial information is not restated and continues to be reported under the accounting standards in effect for those periods. Under the principles of the new standard, Mullen Group recognized lease liabilities related to its lease commitments. These lease liabilities are measured at the present value of the remaining lease payments, discounted using the Corporation's incremental borrowing rate as at January 1, 2019. The associated right-of-use assets were measured at the lease liability amount on January 1, 2019 resulting in no adjustment to the opening balance of retained earnings. The Corporation is using the following practical expedients permitted under the new standard:

(i) Leases with a remaining lease term of less than twelve months as at January 1, 2019 as short-term leases;
(ii) Leases of low dollar value will continue to be expensed as incurred; and
(iii) The Corporation will not apply any grandfathering practical expedients.

Effective January 1, 2019, Mullen Group adopted IFRS 16 – Leases which resulted in the initial recognition of rightof-use assets and lease liabilities of approximately $42.2 million.

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2019 ANNUAL FINANCIAL REVIEW

IFRIC 23 – Uncertainty over Income Tax Treatments

IFRIC 23 – Uncertainty over Income Tax Treatments specifies how to reflect uncertainty in accounting for income taxes and is mandatory for the accounting period beginning on January 1, 2019. There was no impact on the measurement of taxes as a consequence of this adoption.

Annual Improvements to IFRS Standards

On December 12, 2017, the IASB issued narrow-scope amendments to three standards as part of its annual improvements process. The amendments are effective on or after January 1, 2019. Each of the amendments has its own specific transition requirements. Amendments were made to the following standards:

IFRS 3 – Business Combinations and IFRS 11 – Joint Arrangements – to clarify how an entity accounts for increasing its interest in a joint operation that meets the definition of a business;
IAS 12 – Income Taxes – to clarify that all income tax consequences of dividends are recognized consistently with the transactions that generated the distributable profits; and
IAS 23 – Borrowing Costs – to clarify that specific borrowings – i.e. funds borrowed specifically to finance the construction of a qualifying asset – should be transferred to the general borrowings pool once the construction of the qualifying asset has been completed. They also clarify that an entity includes funds borrowed specifically to obtain an asset other than a qualifying asset as part of general borrowings.

Mullen Group has adopted these amendments in its financial statements effective January 1, 2019. The extent of the impact of adoption of the amendments is not material.

DISCLOSURE AND INTERNAL CONTROLS

Disclosure Controls and Internal Controls over Financial Reporting

As at December 31, 2019, an evaluation of the effectiveness of our disclosure controls and procedures as defined under the rules adopted by the Canadian securities regulatory authorities was carried out under the supervision and with the participation of management, including the Chief Executive Officer (" CEO ") and the Chief Financial Officer (" CFO "). Based on this evaluation, the CEO and the CFO concluded that, as at December 31, 2019, the design and operation of our disclosure controls and procedures was effective.

Internal control over financial reporting is a process designed by or under the supervision of management and effected by the Board, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and preparation of consolidated financial statements for external purposes in accordance with IFRS. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, no matter how well designed, has inherent limitations and can provide only reasonable assurance with respect to the preparation and fair presentation of published financial statements. Under the supervision and with the participation of the CEO and CFO, management conducted an evaluation of the effectiveness of its internal control over financial reporting as at December 31, 2019.

Based on this evaluation, the CEO and CFO concluded that as at December 31, 2019, our internal control over financial reporting was effective. We utilize the Internal Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations of the Treadway Commission. As at December 31, 2019 there was no change in our internal control over financial reporting that materially affected or is reasonably likely to materially affect our internal control over financial reporting.

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2019 ANNUAL FINANCIAL REVIEW

FORWARD-LOOKING INFORMATION STATEMENTS

This MD&A contains forward-looking statements within the meaning of applicable Canadian Securities laws. Readers are cautioned that expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The following is a list of forward-looking statements contained within this MD&A, along with the respective assumptions:

Mullen Group's comment that we are well positioned to grow the business in the new decade and that we can confidently say we are now positioned to resume a growth trajectory, as referred to in the Executive Summary section beginning on page 7. These forward-looking statements are based on the assumption that the macro environment stabilizes and that we have a strong balance sheet with $79.0 million in cash and an unused bank line of $150.0 million with which to use when the right acquisition opportunities become available.
Mullen Group's comment that 2020 will be a growth year for our company, as referred to in the Executive Summary section beginning on page 7. This forward-looking statement is based on the assumption that we will use a strong balance sheet to acquire some really good companies.
Mullen Group's comment that we will maintain the dividend at $0.60 per Common Share in 2020 and will implement a share buyback program, as referred to in the Executive Summary section beginning on page 7. These forward-looking statements are based on the assumption that we will generate sufficient cash in excess of our financial obligations to support the dividend and that if approved, we plan to repurchase our Common Shares for cancellation at market prices prevailing at the time of purchase as shall be permitted by applicable laws.
Mullen Group's 2020 financial goals of generating consolidated revenue in excess of $1.4 billion, and achieving operating earnings in the range of $210.0 - $220.0 million, with volatility in operating margins[1] based upon the timing of acquisitions, as referred to in the Executive Summary section beginning on page 7. This forwardlooking statement is based on the assumption of how we expect our current Business Units to perform in 2020 along with the timing and financial results of acquisitions.
Mullen Group's intention to invest $50.0 million in capital expenditures, exclusive of acquisitions, new land or buildings and special projects, as referred to in the Executive Summary and the Capital Resources and Liquidity section beginning on pages 7 and 39, respectively. This forward-looking statement is based on the assumption that our Business Units will require capital to support their ongoing operations and growth opportunities and that we will generate sufficient cash in excess of our financial obligations to support the capital expenditures.
Mullen Group's intention to pay annual dividends of $0.60 per Common Share ($0.05 per Common Share on a monthly basis) for 2020, as referred to in the Executive Summary, the Corporate Overview and the Dividends section beginning on pages 7, 11 and 16, respectively. This forward-looking statement is based on the assumption that we will generate sufficient cash in excess of our financial obligations to support the dividend.
Mullen Group's comment that until recently we were quite optimistic that 2020 was shaping up to be a positive year, as referred to in the Outlook section beginning on page 10. This forward-looking statement is based on the assumption that consumer spending would remain strong, which is the principal driving force of our LTL/Final Mile business, and Canada's GDP growing by approximately 2.0 percent. In addition, we view the recent announcements regarding pipeline approvals and LNG expansion as a positive for the energy industry and the Alberta economy in particular. However, in light of the health concerns related to the Coronavirus there is now a possibility that the supply chain and economic activity could be temporarily impacted, including the North American economies. There is no factual evidence as of this date to indicate that economic growth will be negatively impacted but this is a fluid and fast moving issue of major concern, and not just to China. Within this context it is prudent to alert shareholders that any change to economic activity will impact our operations, revenue and overall profitability.

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1 Refer to the section entitled "Glossary of Terms and Reconciliation of Non-GAAP Terms".

2019 ANNUAL FINANCIAL REVIEW

Mullen Group's comment that we will use our liquidity to pursue acquisition opportunities, as referred to in the Outlook section beginning on page 10. This forward-looking statement is based on the assumption that we will be able to use a well-structured balance sheet, strong working capital position and cash of $79.0 million to acquire companies that fit our strategic objectives and meet our financial expectations.
Mullen Group's plan to repurchase our Common Shares for cancellation at market prices prevailing at the time of purchase, as referred to in the Normal Course Issuer Bid section beginning on page 20. This forward-looking statement is based on the assumption that we will receive approval of the Bid and that we will be able to repurchase our Common Shares for cancellation as shall be permitted by applicable laws.
Mullen Group's intention to use working capital, the Bank Credit Facility (as defined on page 18) and the anticipated cash flow from operating activities in 2020 to finance our ongoing working capital requirements, our 2020 capital budget, as well as various special projects and acquisition opportunities, as referred to in the Capital Resources and Liquidity section beginning on page 39. This forward-looking statement is based on our belief that our access to cash will exceed our expected requirements.

Although we believe that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because we can give no assurance that they will prove to be correct.

Forward-looking statements address future events and conditions and, therefore, involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the service and energy industry in general; ability to access sufficient capital from internal and external sources; failure to obtain required regulatory, securityholder and other approvals as may be required from time to time; and changes in legislation, including but not limited to tax laws and environmental regulations. Accordingly, readers should not place undue reliance on the forward-looking statements contained in this MD&A.

Readers are cautioned that the foregoing list of factors and risks is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of Mullen Group along with the forward-looking statements in this MD&A, may be found in the Advisory on page 1 as well as in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website at www.sedar.com. The forward-looking statements contained in this MD&A are made as of the date hereof and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities law. We rely on litigation protection for "forward-looking" statements.

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2019 ANNUAL FINANCIAL REVIEW

GLOSSARY OF TERMS AND RECONCILIATION OF NON-GAAP TERMS

The Annual Financial Statements attached and referred to in this MD&A were prepared according to Canadian GAAP. References to operating margin, net income – adjusted, earnings per share – adjusted, net capital expenditures, net debt, total net debt and cash flow per share are not measures recognized by Canadian GAAP and do not have standardized meanings prescribed by Canadian GAAP. This MD&A reports on certain financial performance measures that are described and presented in order to provide shareholders and potential investors with additional measures to evaluate our ability to fund our operations and information regarding our liquidity. In addition, these measures are used by management in its evaluation of performance. These Non-GAAP Terms may not be comparable to similar measures presented by other issuers and should not be considered in isolation or as a substitute for measures prepared in accordance with Canadian GAAP. Investors are cautioned that these indicators should not replace the foregoing Canadian GAAP terms: net income, earnings per share, purchases of property, plant and equipment, proceeds on sale of property, plant and equipment and debt.

Operating Margin

Operating margin is a Non-GAAP term and is defined as OIBDA divided by revenue. Management relies on operating margin as a measurement since it provides an indication of our ability to generate an appropriate return as compared to the associated risk and the amount of assets employed within our principal business activities.

	Three month periods ended December 31 2019 2018	Three month periods ended December 31 2019 2018	Three month periods ended December 31 2019 2018
		2019	2018
Operating income before depreciation and amortization Revenue	$ 49.9 $ 51.7 $ 314.6 $ 333.3	$ 200.9 $ 1,278.5	$ 189.0 $ 1,260.8
Operating margin	15.9% 15.5%	15.7%	15.0%

Net Income – Adjusted and Earnings per Share – Adjusted

Net income – adjusted and earnings per share – adjusted are calculated by adjusting net income and basic earnings per share by the impairment of goodwill, the impact of any net foreign exchange gains and losses and from the change in fair value of investments. Management adjusts net income and earnings per share by excluding these specific factors to more clearly reflect earnings from an operating perspective. See pages 30 and 53 for detailed calculations of net income – adjusted and earnings per share – adjusted.

Net Capital Expenditures

Net capital expenditures are calculated by subtracting the amount of cash received from the sale of property, plant and equipment from the amount of cash used to purchase property, plant and equipment. Management calculates net capital expenditures to evaluate and manage its capital expenditure budget and to assist in allocating capital amongst its Business Units.

	Three month periods ended December 31 2019 2018	Three month periods ended December 31 2019 2018	Three month periods ended December 31 2019 2018
		2019	2018
Purchase of property, plant and equipment Proceeds on sale ofproperty,plant and equipment	$ 23.7 $ 31.9 (2.8) (2.6)	$ 75.0 (6.5)	$ 99.7 (12.2)
Net capital expenditures	$ 20.9 $ 29.3	$ 68.5	$ 87.5

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2019 ANNUAL FINANCIAL REVIEW

Net Debt

Net debt is calculated by subtracting total working capital (current assets less current liabilities) from total debt (longterm debt plus the debt component of lease liabilities and 2019 Debentures). Management calculates net debt to monitor its capital structure and makes adjustments to it in light of changes in economic conditions.

*(unaudited)* *($ millions)* December 31, 2019	December 31, 2018
Long-term debt $ 467.4 $ Convertible debentures - debt component 108.7 Lease liabilities(non-currentportion) 30.0	482.2 — —
Total debt 606.1 Less working capital: Current assets 349.3 Current liabilities (106.0)	482.2 272.1 (140.4)
Total workingcapital 243.3	131.7
Net debt $ 362.8 $	350.5

Total Net Debt

The term " total net debt " means all debt including the Private Placement Debt, lease liabilities, the Bank Credit Facility and letters of credit less any unrealized gain on Cross-Currency Swaps plus any unrealized loss on CrossCurrency Swaps, as disclosed within Derivatives on the consolidated statement of financial position. Management calculates total net debt to monitor its capital structure and makes adjustments to it in light of changes in economic conditions.

*(unaudited)* *($ millions)*	December 31, 2019
Private Placement Debt $ Lease liabilities (including the current portion) Letters of credit	467.4 40.7 3.9
Total debt Less: unrealized gain on Cross-Currency Swaps Add: unrealized loss on Cross-CurrencySwaps	512.0 (41.4) —
Total net debt $	470.6

Cash Flow per Share

Cash flow per share is calculated by dividing net cash from operating activities by the weighted average number of Common Shares outstanding. Management measures cash flow per share to provide investors with an indication of the amount of cash being generated on a per share basis, after consideration of working capital and income taxes paid.

	Three month periods ended December 31 2019 2018	Three month periods ended December 31 2019 2018	Three month periods ended December 31 2019 2018
		2019	2018
Net cash from operating activities Weighted average number of Common Shares outstanding	$ 54.2 $ 56.5 104,824,973 104,824,973	$ 170.6 104,824,973	$ 140.7 104,273,508
Cash flow per share	$ 0.52 $ 0.54	$ 1.63	$ 1.35

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2019 ANNUAL FINANCIAL REVIEW

AI assistant

Mullen Group Ltd. — Annual Report 2019

46434_rns_2020-02-12_3776c571-4120-4596-9fed-11e96255971b.pdf

MANAGEMENT'S DISCUSSION AND ANALYSIS

ACCOUNTING PRINCIPLES

ADVISORY:

FINANCIAL HIGHLIGHTS – CONSOLIDATED

POSITION:

PROGRESS:

SEVEN YEAR SELECTED FINANCIAL DATA

Consolidated

Segmented Information

Other Information

NOTES:

SHAREHOLDER INFORMATION

EXECUTIVE SUMMARY

Fourth Quarter Financial Results

Revenue decreased by $18.7 million, or 5.6 percent, to $314.6 million and is summarized as follows:

OIBDA decreased by $1.8 million, or 3.5 percent, to $49.9 million and is summarized as follows:

Net income increased by $89.5 million to $8.4 million, or $0.08 per Common Share due to:

Year End Financial Results

Revenue increased by $17.7 million, or 1.4 percent, to $1,278.5 million and is summarized as follows:

OIBDA increased by $11.9 million, or 6.3 percent, to $200.9 million and is summarized as follows:

Net income increased by $116.0 million to $72.2 million, or $0.69 per Common Share due to:

Net income – adjusted[1] decreased by 22.3 percent to $48.2 million, or $0.46 per Common Share.

Financial Position

Our Plans for 2020

Financial Goals and Capital Budget:

To support these goals, we will focus on the following initiatives:

Dividends and Share Buyback:

2020 Operating Segments:

OUTLOOK

CORPORATE OVERVIEW

Objective – Maximize Shareholder Value

Focused Growth

Return Free Cash to Shareholders

Maintain a Well-Structured Balance Sheet

Strive for Operational Excellence

Operate a Decentralized Business Model

Business

Trucking/Logistics Segment:

Human Resources

Issuance of Debentures and Capital Allocations

Convertible Debentures

Dividends

Capital Expenditures

Acquisitions and Intangible Assets

2019

2018

Intangible Assets

Bank Credit Facility Amendments

Repayment of Private Placement Debt

Equity Investments

Current Development

2020 New Operating Segments

Less-Than-Truckload Segment

Logistics & Warehousing Segment

Specialized & Industrial Services Segment

Normal Course Issuer Bid

2019 CONSOLIDATED FINANCIAL RESULTS

Revenue

Direct Operating Expenses

Selling and Administrative Expenses

Operating Income Before Depreciation and Amortization

Depreciation of Property, Plant and Equipment

Depreciation of Right-of-Use Assets

Amortization of Intangible Assets

Finance Costs

Net Foreign Exchange (Gain) Loss

Foreign Exchange (Gain) Loss on U.S. $ Debt

Foreign Exchange Loss (Gain) on Cross-Currency Swaps

Other (Income) Expense

Impairment of Goodwill

Income Taxes

Net Income (Loss)

Net Income – Adjusted and Earnings per Share – Adjusted

2019 SEGMENTED INFORMATION

TRUCKING/LOGISTICS SEGMENT

Revenue

Direct Operating Expenses

Mullen Group Ltd. Annual Report 2019