Cunningham Lindsey Group Inc.
TSX : LIN

Cunningham Lindsey Group Inc.

February 22, 2007 17:01 ET

Cunningham Lindsey Group Inc.: Financial Results for Fourth Quarter and Fiscal Year 2006

TORONTO, ONTARIO--(CCNMatthews - Feb. 21, 2007) -

(Note: All dollar amounts in this press release are expressed in Canadian dollars, unless otherwise noted.)

Cunningham Lindsey Group Inc. (TSX:LIN) today announced its fourth quarter and year-end results for 2006. Consolidated revenues for the year ended December 31, 2006 decreased by approximately $11.2 million to $421 million compared to 2005. On a constant currency basis, however, there was an increase of $8.6 million, driven by operations in Canada, the United States, and the United Kingdom. Net earnings for 2006 were $nil compared to net earnings of $8.7 million in 2005 ($0.53 per share).

Consolidated revenue for the fourth quarter of 2006 was $114.5 an increase of $0.5 million from revenue of $114.0 million for the fourth quarter of 2005. Net earnings for the fourth quarter of 2006 were $0.6 million ($0.03 per share), compared to net earnings of $7.4 million ($0.34 per share) in the fourth quarter of 2005.

Mr. Jan Christiansen, President & CEO of Cunningham Lindsey Group Inc. stated, " CLGI ended 2006 on a positive note. Core revenues and EBITDA showed an increase over fourth quarter 2005, in spite of mild weather conditions and declining claims volumes in major markets. Overall, fourth quarter revenues and net earnings were negatively impacted by the lack of significant catastrophe activity in North America during the fall of 2006 and by an income tax expense of $3.5 million arising from taxable foreign currency exchange gains. Net earnings for fourth quarter 2005 included an income tax recovery of $3.5 million arising from tax-deductible foreign currency exchange losses. This had a negative impact of $7.0 million on our fourth quarter results compared to the same period in 2005.

The net earnings for 2006 were at breakeven and, therefore, not satisfactory. This result was negatively impacted by declining claims volumes in major markets, the lack of catastrophe-related work throughout the Company, restructuring efforts in CL Europe and a strong Canadian dollar. The actual impact of these factors was mitigated by an uncompromising commitment to quality along with a continued focus on bottom-line performance.

Our Canadian operations were impacted by the lack of weather-related activity, but delivered a profitable fourth quarter. Our US operations continued their strong growth performance in non-catastrophe related work, but the lack of hurricanes in the fall of 2006 caused an unsatisfactory result for the fourth quarter.

Our UK Operations continue to perform well, driven by the uplift in subsidence claims and momentum gathered from realignments in our service offering completed earlier in 2006. The restructuring efforts in Europe to address depressed market conditions are starting to show results. At this stage, we consider the restructuring of the Netherlands successfully completed, while new management in France is making notable progress.

CL International ended the year with a strong earnings performance, in spite of the lack of significant catastrophe events."

Fiscal Year 2006 Results

Our total revenue for 2006 was $421.0 million, a decrease of $11.2 million from revenue of $432.2 million for 2005. International operations and operations in Europe, the United Kingdom, and the United States reported decreases in revenue compared to 2005. However, on a constant currency basis, we recorded an increase of $8.6 million, driven by our operations in Canada, the United States, and the United Kingdom.

Earnings before interest, taxes, depreciation, and amortization (EBITDA)(1) for 2006 was $24.7 million (5.9% of revenue), a decrease of $10.9 million from EBITDA of $35.6 million (8.2% of revenue) for 2005. All of our operations reported decreases in EBITDA compared to 2005, which were partially offset by lower Corporate costs.

Net earnings from continuing operations for 2006 were $nil compared to $11.1 million ($0.67 per share) for 2005. Net earnings for 2006 were $nil compared to $8.7 million ($0.53 per share) for 2005. Our net earnings for 2006 include a tax recovery of $4.8 million from the recognition of a US tax asset, but also include an income tax expense of $2.9 million arising from taxable foreign currency exchange gains. Net earnings for 2005 included an income tax recovery of $3.5 million arising from tax-deductible foreign currency exchange losses, a non-recurring profit of $2.9 million from the sale of Cunningham Lindsey TES BV, and a $2.8 million pension recovery in our United Kingdom operations.

Total interest expense in 2006 was $16.7 million compared to $19.2 million in 2005. Total interest expense in 2006 included $8.8 million of interest incurred on our $125 million 7% unsecured Series "B" debentures and other long-term debt. The other $7.9 million of interest expense in 2006 consisted of $7.8 million of interest and amortisation of issue costs associated with our unsecured non-revolving loan facility, and $0.1 million interest on operating lines and other credit facilities. Interest expense in 2006 was less than 2005 due to lower average debt levels during 2006 compared to 2005, partially offset by higher interest rates in 2006 compared to 2005.

The 2006 income tax expense was $2.7 million compared to $3.2 million for 2005. The 2006 income tax expense includes an income tax recovery of $4.8 million from the establishment of a tax asset by the operations in the United States, and an income tax expense of $2.9 million arising from taxable foreign currency exchange gains. The income tax expense in 2005 included an income tax recovery of $3.5 million arising from tax-deductible foreign currency exchange losses.

Fourth Quarter 2006 Results

Total revenue for the fourth quarter of 2006 was $114.5 million, an increase of $0.5 million compared to revenue of $114.0 million for the fourth quarter of 2005. International operations and operations in the United Kingdom reported improvements in revenue compared to the fourth quarter of 2005, which were partially offset by declines in revenue reported by operations in Canada, Europe, and the United States.

EBITDA for the fourth quarter of 2006 was $10.0 million (8.7% of revenue), unchanged from EBITDA of $10.0 million (8.8% of revenue) for the fourth quarter of 2005.

Our net earnings for the fourth quarter of 2006 were $0.6 million ($0.03 per share) compared to net earnings of $7.4 million ($0.34 per share) in the fourth quarter of 2005. The reduction in fourth quarter net earnings was primarily attributable to an increase in our income tax expense.

The income tax expense in the fourth quarter of 2006 was $4.1 million compared to an income tax recovery of $3.0 million in the fourth quarter of 2005. The income tax expense in the fourth quarter of 2006 included $3.5 million of tax expense arising from taxable foreign currency exchange gains. The income tax recovery in the fourth quarter of 2005 included an income tax recovery of $3.5 million arising from tax-deductible foreign currency exchange losses.

Total interest expense in the fourth quarter of 2006 was $3.8 million, $0.6 million less than interest expense of $4.4 million in the fourth quarter of 2005. Total interest expense included $2.2 million of interest incurred on our $125 million 7% unsecured Series "B" debentures and other long-term debt. The other $1.6 million of interest expense consisted of $1.9 million of interest and amortisation of issue costs associated with the unsecured non-revolving loan facility, partially offsest by a reduction of $0.3 million of interest on operating lines and other credit facilities. Interest expense in the fourth quarter of 2006 was less than the fourth quarter of 2005 due to lower debt levels in 2006 compared to 2005, partially offset by higher interest rates in 2006 than in 2005.

Liquidity

Overall, we improved our operating cash flow for 2006 compared to 2005. Cash used in operating activities was $2.2 million in 2006 compared to cash used in operating activities of $13.9 million in 2005. Cash provided in operating activities from continuing operations was $1.3 million in 2006 compared to cash used in operating activities from continuing operations of $8.0 million in 2005. The $9.3 million increase in cash was due to a $22.5 million favourable working capital movement, offset by an $11.0 million decrease in net earnings from continuing operations and a $2.2 million reduction in items not affecting cash.

Net debt (defined as total long-term debt, bank indebtedness and other loans less cash) as at December 31, 2006 was $198.4 million compared to $189.0 million at December 31, 2005. The increase in net debt was to fund operating cash flow and additional investments.

Summary of Financial Results

The following table presents a summary of the financial results for the three and twelve months ended December 31, 2006:

Summary of Financial Results

The following table presents a summary of the financial results for the three and twelve months ended December 31, 2006:



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Fourth Quarter Year
(in $000's except share and per share
amounts) 2006 2005 2006 2005
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Revenue
Canada 12,285 13,342 53,283 52,885
United States 13,615 20,061 60,954 62,017
United Kingdom 58,256 50,165 197,052 198,241
Europe 16,847 16,935 58,642 64,121
International 13,487 13,461 51,032 54,912
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Total Revenue 114,490 113,964 420,963 432,176
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EBITDA (1)
Canada 282 266 850 1,297
United States (174) 1,311 2,951 3,060
United Kingdom 8,160 9,358 17,738 24,457
Europe 1,245 (70) 806 822
International 1,909 745 8,258 13,102
Corporate (1,421) (1,566) (5,864) (7,142)
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Total EBITDA 10,001 10,044 24,739 35,596
Depreciation expense 1,527 1,214 5,253 5,147
Interest expense 3,808 4,426 16,734 19,152
Gain on disposal - - - (2,944)
Income tax provision (recovery) 4,112 (3,026) 2,709 3,163
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Net earnings from continuing operations 554 7,430 43 11,078
Net loss from discontinued operations - - - (2,352)
Net earnings 554 7,430 43 8,726
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Basic and diluted net earnings per
share from continuing operations $0.03 $0.34 $0.00 $0.67
Basic and diluted net earnings per
share $0.03 $0.34 $0.00 $0.53
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Total shares outstanding (000) (2) 22,093 22,093 22,093 22,093
Weighted average shares (000) 21,957 21,843 21,919 16,579
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(1) EBITDA (earnings before interest, taxes, depreciation, and
amortization) is defined as revenue from continuing operations less cost of
service and selling, general and administration expenses, excluding
depreciation and amortization. EBITDA does not have a standard meaning
prescribed by generally accepted accounting principles and may not be
comparable to similar measures used by other companies.

(2) As at December 31, 2006, there are 19,919,968 subordinate voting shares
and 2,172,829 multiple voting shares issued and outstanding.



About Cunningham Lindsey

Cunningham Lindsey Group Inc. is one of the leading insurance loss adjusting groups worldwide. Through its operating subsidiaries, Cunningham Lindsey Group provides a wide range of independent insurance claims services, including claims adjusting, appraisal and claims and risk management. It has a global network of approximately 4,000 professionals located in 357 locations throughout Canada, the United States, the United Kingdom, continental Europe, the Far East, Latin America and the Middle East. Beyond its core loss adjusting services, Cunningham Lindsey provides engineering consultancy, risk management, risk surveys, environmental remediation, valuations and related services as well as claims appraisal training and education courses in the United States. Further information about Cunningham Lindsey is available on our website at www.cunninghamlindsey.com.

Forward-Looking Information

The matters discussed in this release include certain forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future plans, intentions, levels of activity, results, performance or achievements. Forward-looking statements may be identified, without limitation, by the use of such words as "may", "will", "should", "would", "could", "anticipates", "estimates", "expects", "intends", "plans", "predicts", "projects", "believes", or words or phrases of similar meaning or negative derivations thereof. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements or other future events. Readers should not rely on forward-looking statements as they involve known and unknown risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed, implied or anticipated in the forward-looking statements. These risks, uncertainties and other factors include, but are not limited to the following factors which are more fully described in our filings with the Canadian securities regulators on www.sedar.com: we have substantial debt; stable weather conditions; general insurance market conditions; reduction in our potential customers; foreign currency fluctuations; the loss of key personnel; competition; the loss of a key customer; changes to the regulatory environment; legal proceedings; access to cash; accounts receivable; critical accounting estimates; controlling shareholder influence; and our outstanding debt may discourage a change of control. We operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for management to predict all such risks. We have no obligation, and do not intend, to update or alter such forward-looking statements as a result of new information, future events or otherwise, except as required by law.

(1) EBITDA is defined as revenue from continuing operations less cost of service and selling, general and administration expenses, excluding depreciation and amortization. EBITDA does not have a standard meaning prescribed by generally accepted accounting principles and may not be comparable to similar measures used by other companies.

Contact Information

  • Cunningham Lindsey Group Inc.
    Jan Christiansen
    Chief Executive Officer and President
    (847) 517-3300 Ext. 3333
    Website: www.cunninghamlindsey.com