31st Mar 2008 07:02
Tawa PLC31 March 2008 Tawa plc Results for the twelve months ended 31 December 2007 Tawa plc ("Tawa" or "the Group"), the UK-listed consolidator of non-lifeinsurance run-off, today announces final results for the year ended 31 December2007. OPERATIONAL HIGHLIGHTS • On 4 May, Tawa completed the UK acquisition of KX Reinsurance Company Limited ("KX Re"), formerly Continental Management Services Limited, from the CNA Group. • On 26 July Tawa raised a net $48 million through an IPO and was admitted to AIM. • On 5 November, Tawa contracted to buy PXRE Reinsurance Company of Connecticut from Argo Group - a transaction which is expected to close on 31 March 2008 • A placing of 11.1m ordinary shares at £1.30 per share is expected to be completed on 31 March 2008 to partly finance the acquisition of PXRE Re • Proposed final dividend of 1.5p per share FINANCIAL HIGHLIGHTS • Profit before tax and discontinued operations for the year $48.0 million (2006: $5.1 million). • Reported net profit $42.9 million (2006: $53.0 million). • Net assets increased by $94.6m to $237.1 million at 31 December 2007- $2.33 per share up from pro forma net assets per share at 31 December 2006 - $1.78. • Pro forma net assets at 31 December 2007 including the acquisition of PXRE Re, new debt and the share placing amount to $273.7million - $2.42 (£1.21) per share. Gilles Erulin, Chief Executive, commented: "2007 was a landmark year for Tawa.The acquisition of KX Re in May was a key milestone for us, as it produced thebulk of 2007 profits and demonstrated the scalability of our business model. Oursubsequent flotation in July has significantly enhanced Tawa's visibility andstrengthened our future financing capacity - two key elements to ensureprofitable and rapid future growth". The full interim results for the twelve months ended 31 December 2007 will besent to shareholders shortly and will be available on the Company's website atwww.tawaplc.com Enquiries: Gilles Erulin, Chief Executive 020 7068 8000Tawa plc David Haggie, Peter Rigby or Zoe Pocock 020 7417 8989Haggie Financial James Britton or Guy Wiehahn 020 7418 8900KBC Peel Hunt (nominated adviser and broker) Note for Editors Tawa plc was formed in 2001 with the purpose of acquiring and managing therun-off portfolios of non-life insurance and reinsurance companies. It alsoprovides run-off related services through a dedicated subsidiary, TawaManagement. As a consolidator of the non-life run-off market, Tawa's strategy is to acquirecompanies and portfolios in run-off in the UK, US, continental Europe, Bermuda,Australia and elsewhere as opportunities arise. By creating a diversified portfolio of run-off businesses at different stages ofthe run-off process Tawa will gain economies of scale whilst also enhancing andstabilising earnings. Since its formation, Tawa has acquired CX Reinsurance Company Limited (CX RE)and KX Reinsurance Company limited (KX RE) and is managing the run-off of thesebusinesses. In July 2007 Tawa plc was floated on the AIM market. Further information can be found on the Company's website: www.tawaplc.comJOINT STATEMENT OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER 2007 was a landmark year for Tawa plc (the "Company"). First we closed the KXReinsurance Company Limited ("KX Re") acquisition, based in London; secondly theCompany was admitted on the AIM market and thirdly, we contracted to acquirePXRE Reinsurance Company ("PXRE") in Connecticut, USA. These three events profoundly changed the scale of the Group. Over the year, theGroup moved from being a sole run-off operation, with one principal shareholder,to what it was initially formed to be - a consolidation platform for the run-offindustry. By doing so, the Group significantly enhanced its visibility andstrengthened its future financing capacity - two key elements to ensure futuregrowth. An after tax profit of $43 million was earned during 2007 and the net assetsincreased by $95 million, to $237million ($2.33 / £1.16 per share) at 31December 2007. As expected, our acquisition activity has provided the bulk of the increase innet assets this year, but our management activity, both for Group risk carriersand to third parties is also providing us with an earnings stream which will beused for regular dividend payments. We are pleased to report that the Board ofDirectors is recommending a dividend of 1.5p per share payable on 1 July 2008. As was discussed extensively in our IPO presentations in July 2007, the Group'sstrategy is to acquire further run-off companies and portfolios in the UK, US,Continental Europe, Bermuda and elsewhere in the world as suitable opportunitiesarise. This is intended to enable the Group to construct and manage a portfolioof run-offs that are at differing stages of maturity. This should allow a morestable cash flow over time for the Group than would otherwise be the case with asingle run-off as the downscaling of insurance liabilities will enable the riskcarriers to release cash from their previously trapped equity. We are pleased to say that this year has confirmed the strength of this businessmodel. The commutation programme at CX Reinsurance Company Limited ("CX Re") hascontinued apace - in the last 4 years the team has commuted well over $850million of gross insurance liabilities involving over 300 deals. Undiscountedinsurance liabilities at CX Re reduced from $580 million to $332 million overthe year and we are continuing the descaling plan. CX Re's residual volatilityhas been compensated for by a more stable KX Re run-off, and we believe that thetwo companies are together forming a stable footing in the UK which can sustainfurther local acquisitions. Tawa plc's expected acquisition of PXRE, a mediumsize company in the US with $123 million estimated undiscounted insuranceliabilities is another step forward as it enables us to establish a footing inConnecticut , one of the insurance centres of the US. PXRE will form the basisof our planned development effort in the US which currently is the main focus ofthe management team. This report provides us with an opportunity to list the key objectives we setout for Tawa plc when we came to the market:- 1) The Group seeks to grow its net asset value per share in excess of 15%per year. Such long term growth will mainly be formed by carefully structuredacquisitions of run-off portfolios while accepting short term earnings willvary, arising from the volatility of individual portfolios. 2) The Group prices its acquisitions with an IRR target similar to thoseof Private Equity fund expectations, namely in excess of 20% post leverage.While including some leverage in its acquisitions Tawa plc believes that thebuilt-in leverage of its targets sets natural limits to bank financing. 3) The Group's claim-focused, accelerated run-off descaling strategy isand will remain a key strength for the Group. It is designed to protect and thencreate shareholder value while respecting the rights of policyholders. We have started 2008 with the expected closing on 31 March 2008 of the PXREtransaction. It is being funded with $30 million of debt facilities and $29million from new equity raised by Tawa plc. The net asset value is expected toincrease on a pro-forma basis from $2.33 /£1.16 to $2.42 /£1.21 per share whenthe transaction closes, after taking into account the PXRE acquisition, new debttaken on and the share placing. JOINT STATEMENT OF THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER (continued) As to future prospects, we believe that active underwriting companies are nowunder increasing pressure to focus on the efficient use of their capital, whichshould create a greater need for redeployment of capital tied up in discontinuedbusiness. In this context, vendors will want to ensure that transfers of suchportfolios will go with minimal execution risk, with no reputation risk, andeven more that the finality such sales procure will not be jeopardized bymismanagement of divested assets. Tawa plc is committed to providing highquality run-off operations that meet these objectives. We therefore look forward to 2008 with confidence knowing that the Group is ingood shape to grow in these changing and challenging markets. While we are by nomeans immune to competition, we believe we are in a good position to takeopportunities as they occur. We would like to thank all our employees for their support in 2007 and ourshareholders for their backing both of the IPO and in underwriting our new PXREConnecticut acquisition. Lastly, we believe that all of this year's work has created significantly lessvolatility for our Group. However, we remind you that we are in the business oftaking or assuming risks. In our view, our descaling strategy mitigates thoserisks, but it is only through careful assessment and management of those risksthat we can earn the level of return our shareholders expect. . Robin Jackson Giles Erulin Chairman Chief Executive Officer FINANCIAL REVIEW Summary of 2007 results • Profit for the year was $42.9 million. • Group net assets have increased by $94.6 million to $237.1 million ($2.33/£1.16 per share). Introduction to the Group's business Tawa plc's strategy is to build up and manage a portfolio of run-off businessesand by doing so become a consolidator of the non-life run-off market. Bycreating a diversified portfolio of run-off businesses at different stages ofthe run-off process, Tawa will gain economies of scale and enhanced and morestable earnings. Since its formation, Tawa has acquired CX Re and KX Re and ismanaging the run-off of these businesses and expects shortly to complete theacquisition of PXRE, Connecticut. Tawa seeks to generate value from run-offs in a variety of ways, depending onthe nature of each run-off entity in question. These include: • Buying net assets at a significant discount to economic value and accelerating capital extraction, • Buying volatile books of business and applying Tawa's management techniques to create value and reduce volatility, • Earning management fees from managing run-offs, and • Obtaining synergies and process efficiencies from combining the management of multiple run-offs. During the course of a run-off, a company will be exposed to a range of risks,which need to be identified and managed. Those risks include adverse lossdevelopment (insurance risk), liquidity and operational risks, fluctuatingforeign exchange rates and interest rates, and credit risk both in respect ofinvestments and reinsurer solvency The assets of a run-off company typically comprise cash, investments andreinsurance recoveries. From these assets and any associated investment incomethe company must meet the cost of administering, and paying, all future claimson policies issued prior to the run-off. The residual balance, if any, will bereturned to shareholders once all liabilities have been repaid or when theregulator is satisfied, inter alia, that the volatility is reduced to a levelwhere capital can be released based on estimates as to the appropriate level ofreserves and capital that the business requires to settle all valid claims. Balance Sheet The Group focuses its business performance on growing the net assets per shareand aligns its performance rewards to increasing shareholder value through theincrease in the overall net asset value (NAV). The table below shows the Group'sperformance over the last four years. The increase in NAV for 2007, excludingthe $48 million net proceeds of the IPO, was 33%. As is described further belowthe major driver for this increase ($41.3 million) in NAV was the Group'sacquisition of KX Re on 4 May 2007. 2007 % 2006 % 2005 % 2004 $m Increase $m Increase $m Increase $m The Group's net asset value 189.1 142.5 88.4 84.8development % Increase of the net asset value 33% 61% 4% Net proceeds from the IPO 48.0 The Group's net assets at 31 237.1December 2007 FINANCIAL REVIEW (continued) KX Re's Discounted Balance Sheet The Group's insurance subsidiary, KX Re, maintains a discounted balance sheet.Discounting is applied to insurance assets and liabilities with a mean term inexcess of 4 years. At 31 December 2007 KX Re's portfolios had an average meanterm of 10.37 years. The Group's policy is to discount the insurance liabilities and the reinsuranceasset at the risk free rate applicable to the relevant currency at the durationof the liabilities. Currencies held are US$, GBP and Euros. The averageeffective rate of investment return used to discount KX Re's net liabilities is4.21%. KX Re's net liabilities before discounting as at 31 December 2007 are $94.9million. After applying a discount of $26.2 million they are $68.7 million. Thediscount is unwound over the life of the portfolio, which represents a charge tothe Profit & Loss Account and actual investment income is measured against thisto ensure that it remains appropriate to continue to discount at the chosenrate. In 2007 the investment return for KX Re was $1.5 million in excess of theunwind of the discount. Cash and Investments The Group's consolidated cash position at 31 December 2007 was $38.5 million. Ofthat amount $26.0 million related to the Group's insurance subsidiary KX Re.This cash is not considered to be freely distributable within the Group. TheGroup's free cash is therefore $12.5 million. The Group's investment strategy is to mitigate, in so far as is possible, therisks relating to changes in interest rates, foreign exchange rates and toliquidity risks, whilst adopting a conservative approach to credit risk. Thismitigation is achieved by broadly matching the duration and currency of theliabilities and maintaining a high quality and readily realisable portfolio offixed income securities. Within the confines of this strategy, the Groupcontinues to look for opportunities to enhance the return from the portfolio. The Group's investments, which are derived from its subsidiary KX Re, at the endof the period are $165.0 million. The KX Re portfolio, which is broadly matchedin terms of foreign exchange exposure and duration, comprises almostexclusively cash and treasuries and has therefore been largely unaffected by therecent market volatility related to the credit crunch. The entire portfolio isinvested in instruments with a credit rating of "A" or better. FINANCIAL REVIEW (continued) Cash and Investments (continued)Investments & cash %Type Treasuries 44.81Corporates 3.73CMO, MBS & ABS 0.84 50.62 100.00 By Credit ratingAAA 96.27AA 1.24A 2.49 100.00 Deferred assets On 21 March 2006, the Group disposed of 87.35% of its shareholding in CX Re. Theretained shareholding of 12.65% has been accounted for under the equity methodsince that date. The initial consideration for the shares was $1.00, together with a deferredconsideration equal to the purchaser's share of 100 %of the amount ofdistributions made by CX Re up to $171 million and thereafter equal to 95% ofthe distributions made by CX Re. Deferred assets relate to the consideration outstanding on the disposal of CX Reand the Group's receipt of a facilitation fee in respect of the sale followingwhich tax losses have been surrendered to CX Re's shareholders. The deferredconsideration is accounted for in two ways: • Adjustment in the overall net asset value of the Group's associate CX Re through the income statement • Transaction facilitation fee due directly to Tawa FINANCIAL REVIEW (continued) The effect of the deferred consideration on the Group's balance sheet is asfollows: $m Group share 100% 87.35%CX Re net assets December 2006 98.1 85.6CX Re net assets December 2007 92.2 80.5Movement in net assets (5.9) (5.1) The drivers behind the Group's reduction in deferred consideration in respect ofCX Re are discussed below in the section on Profit and Loss. The Transaction facilitation fee is derived from the level of tax lossessurrendered to shareholders. The amount surrendered for 2006 accounting periodswas greater than anticipated a year ago and the increase in the fee representsTawa plc's share of the increased proceeds. Deferred consideration in respect ofthe Group's transaction facilitation fee amounts to $23.8 million (2006: $20.6million). At 31 December 2007 the total deferred consideration was $104.3 million (2006:$106.0 million). 2006 106.0 Reduction in NAV of CX Re (5.1)Increase in transaction facilitation fee 2.2Interest on transaction facilitation fee 0.5Exchange gain 0.7 2007 104.3 Insurance Liabilities - KX Re The Group's expected loss development is determined by the Group's internalactuaries based on historical claims analysis and projected trends. Actualreported losses may vary from expected loss development. Generally, as anunderwriting year matures the level of newly reported claims decreases. During the year the Group experienced an improvement in the prior year netreserves before discount excluding commutations of $1.9 million (2006: $45.0million). After discount the favourable reserves development during the year was$7.3 million (2006: $36.4 million) net of reinsurance and commutations. Profit & Loss The Group's operating segments are : Underwriting run-off - this segment comprises the results from the Group'sacquired run-off companies. In 2007 this was the result of KX Re. CX Re'sresults were included in 2006 when it was still a subsidiary of the Group, itbecame an associate on the 21 March 2006 when Tawa plc disposed of 87.35% of theshares held. Run-off management - this segment includes results of the operations ofsubsidiary Tawa Management Limited ('Tawa Management'), the Group's provider ofrun off management and consultancy services; and FINANCIAL REVIEW (continued) Other corporate activities - the segment reflects results from the acquisitionof KX Re, the Group's investment in its associated undertaking CX Re, the changein the deferred consideration attributable to the sale of 87.35% of the sharesof CX Re on 21 March 2006 and the costs of developing the business. Underwriting Run off The underwriting run-off profit for the period was $9.4 million. This representsKX Re's contribution to Group profits from 4 May 2007, the date of acquisition. The business of KX Re comprises a collection of mature portfolios of long tailliabilities, including exposure to asbestos, environmental and other latentclaims. The Group's objective for KX Re is to reduce the company's liabilitiesby accelerating the natural run off of the portfolio to enable the extraction ofcapital with regulatory approval. Asset and liability management in insurance entities (ALM) The Group's strategic principles for its ALM are to: • Provide liquid funds to finance liability and capital management ; • Mitigate exposure to changes in interest and forex rates; • Assume measured credit risk in line with agreed guidelines ; and • Invest the Group's surplus in line with agreed guidelines. The ALM return represents the increase in value to the Group balance sheet frominvestment activities after taking into account the unwind of the discount andfees. The KX Re ALM return for 2007 was $3.8 million. Yields achieved within the portfolio have been higher than in recent years. KXRe achieved an annualised post acquisition return of 8.2%. However, thesereturns include unrealised gains caused by significant decreases in interestrates across the short and medium terms of the yield curves. Correspondingly thediscount rate for liabilities has reduced, thus increasing the value of theliabilities. The ALM return takes into account the net impact of changes toassets and liabilities. Run - off management The revenue of Tawa Management comprises: • Management fees from and expenses recharged to CX Re and KX Re; • Income from consultancy services provided to a range of third party clients • Income from inspections performed on behalf of CX Re; and • Expenses recharged to Tawa plc in relation to acquisitions and business development. Revenue in 2007 was $30.6 million generating a profit for the period of $3.7m. FINANCIAL REVIEW (continued) Tawa Management continues to look for opportunities to enhance its offering inthe third party consulting market. It recently added to this business byrecruiting three asbestos claims experts from the London market. Other Corporate activities The profits generated from other corporate activities for the year were $25.8million. $mBusiness development & other expenses (9.0)Acquisition of KX Re 41.3Finance costs (2.8)Share in associate (0.8)Deferred consideration of CX Re and facilitation fee (2.9) 25.8 The net costs in developing the business and other expenses during the year were$9.0 million. A significant part of the 2007 costs are the management expensesrelated to the Group's admission to AIM and the Group's active acquisitionstrategy. The deferred consideration of CX Re is net of the CX Re transactionfacilitation fee of $2.7 million described above. Acquisition of KX Re On 4 May 2007, 100% of the issued share capital of KX Reinsurance CompanyLimited was acquired by KX Re Holdings Limited, a wholly owned subsidiary. Thetable below shows the consideration paid, the net assets at fair values(considered equal to carrying values) and the negative goodwill arising onacquisition. Analysis of assets and liabilities acquired Book value Fair value Fair value on adjustment acquisition $m $m $mAssetsCash and cash equivalents 111.2 111.2Investments: Debt and equity securities 75.8 75.8Loans and receivables including insurance receivables 8.2 8.2Reinsurers' share of technical provisions 19.4 19.4LiabilitiesCreditors arising out of reinsurance operations (3.4) (3.4)Other liabilities (0.8) (0.8)Technical Provisions (93.8) (8.7) (102.5) 116.6 (8.7) 107.9Goodwill on acquisition (41.3)Consideration paid 66.6 FINANCIAL REVIEW (continued) Acquisition of KX Re (continued) In determining the fair value of KX Reinsurance Company Limited's assets andliabilities acquired, the technical provisions have been increased to include aninsurance risk premium which reflects management's consideration of theuncertainty of the technical provisions acquired. The risk premium was assessedas $8.7 million at acquisition but has been revised to $4.7 million at 31December 2007 and is expected to be released to profits over time if thevaluation of the technical provisions is proved to be correct. Finance costs The acquisition of KX Re was financed by a bridging loan of $35 million fromFinanciere Pinault S.C.A, the ultimate parent Societe en commandite par actionsof the Group, and bank facilities of $35 million. The bridging loan was repaidusing proceeds from the IPO in July 2007. Finance costs relating to thesefacilities during the period were $2.8 million. Share in associate and deferred consideration derived from the sale of CX Re The Group made a loss of $0.8 million from its share of losses of its associateCX Re. In addition through the deferred consideration following the sale of CXRe on the 21 March 2006, which is dependent upon the ultimate earn out value ofthe company, the Group's results are affected by changes in the net assets of CXRe. The change in the deferred consideration for the year resulted in a loss tothe Group of $5.1 million. During the year CX Re's net assets decreased from $98.1 million to $92.2million. This was after $4 million management fees were charged by TawaManagement. The reduction in net assets was principally driven by an increase tothe unallocated loss adjustment expense provision in CX Re of $6 million, tofund future commutations the benefits of which are expected to come through in2008. In addition CX Re, particularly in the last quarter, has been exposed to thespread widening experienced across the global investment markets. This exposurehas led to an unrealised underperformance within the investments supporting theliabilities of $4 million compared to the risk free return on which the discountof the liabilities is based. The fair value of CX Re's investments at the year end was $306 million.Investment yield for the year was 4.8% (21 March - 31 December 2006: 4.0%).This return reflects the combination of unrealised gains due to decreases ininterest rates across the yield curves and unrealised losses due to theunderperformance of spread products, most significantly commercialmortgage-backed securities ("CMBS"), asset-backed securities ("ABS") andcorporate bonds, in the last six months of the year. Compared to duration adjusted risk free assets, negative returns based on USLehman credit indices during 2007 were as follows: CMBS -4.35%; ABS -6.34%;corporate bonds -4.64% (financial institutions sector -6.87%). The Company'sexperience was broadly in line with these market indices. At the end of 2007,the portfolio comprised the following allocation by investment sector:Treasuries - 23%; Agencies - 2%; corporate bonds 37%; CMBS/ABS 25%; cash andcash equivalents 13%. This underperformance of spread products has continued into 2008 as liquidityconcerns reverberate around the global investment markets. Detailed and regularanalysis of the Company's investment portfolio has been carried out inconjunction with the investment managers to understand quality and nature of theunderlying exposures. FINANCIAL REVIEW (continued) Overall result The results of the business in 2007 clearly show that the major driver of valueis the acquisition of risk carriers. Some acquisitions, like CX Re are highlyvolatile and can impact earnings adversely; however they are purchased at alarge discount to NAV and carry heavy risk premiums with the profit being earnedover the period of the run-off. Other acquisitions, like KX Re, are much morestable; the purchase price discount to NAV is not so high but the risk premiumsare smaller - hence the fair value giving rise to negative goodwill which istaken to earnings. Nonetheless the real value comes in extracting surplusregulatory capital which remains trapped in the risk carriers until they havebeen able to demonstrate by the management techniques applied to the liabilityportfolios that their need for excessive capital has diminished. In a normal investment climate, given that most of the Group's investments sitin its regulated risk carrier entities, it should be expected that the Groupwill earn a modest return above risk free on its surplus. This hasn't happenedin 2007 primarily because of the widening of credit spreads causing unrealisedmarked to market losses which impact the overall return on the CX Re investmentportfolio. The good performance of KX Re has alleviated the CX Re position sothat overall the Group had a positive ALM result for the year. The turbulence in the global credit markets has continued into 2008. KX Reremains invested primarily in cash and treasuries which limits the Group'sexposure. CX Re's portfolio remains exposed to further widening of creditspreads but has not currently had to book realised losses. CONSOLIDATED INCOME STATEMENTFor the year ended 31 December 2007 Notes 31 Dec 2007 31 Dec 2006 $m $mContinuing operationsRevenue 4 30.6 21.9Investment return 5 11.5 0.6Other income - 0.1Net income 42.1 22.6 Insurance claims and loss adjustment expenses 5.0 -Insurance claims and loss adjustment expenses recovered from reinsurers 1.2 -Net insurance claims 6.2 - Cost of services (27.3) (18.6)Administrative expenses (12.9) (4.3)Expenses (40.2) (22.9)Results of operating activities 8.1 (0.3) Share of results of associates 21 (0.8) 5.6Negative goodwill recognised 29 41.3 -Profit before finance costs 48.6 5.3 Finance costs 6 (2.8) (0.2)Profit before tax 45.8 5.1 Taxation 7 - -Profit for the year from continuing operations 45.8 5.1 (Loss) / profit for the period from discontinued 8 (2.9) 47.9operations Profit for the year 9 42.9 53.0 Attributable to:Equity holders of the Group 42.9 53.0 Earnings per shareFrom continuing and discontinued operations 14Basic: Ordinary shares (dollars per share) 0.4 0.5Diluted: Ordinary shares (dollars per share) 0.4 0.5 From continuing operations 14Basic: Ordinary shares (dollars per share) 0.4 0.1Diluted: Ordinary shares (dollars per share) 0.4 0.1 CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the year ended 31 December 2007 Notes 31 Dec 31 Dec 2007 2006 $m $m Currency translation differences 3.7 1.1 Net income recognised directly in equity 3.7 1.1 Profit for the year 42.9 53.0 Total recognised income and expense for the yearattributable to equity holders of the Group 46.6 54.1 CONSOLIDATED BALANCE SHEET As at 31 December 2007 Notes 31 Dec 2007 31 Dec 2006 $m $m AssetsCash and cash equivalents 15 38.5 5.7Investments: Debt and equity securities 16 165.0 -Loans and receivables including insurance receivables 17 18.8 3.7Reinsurers' share of technical provisions 18 18.1 -Property, plant and equipment 19 0.1 0.8Deferred assets 20 104.3 106.0Interests in associates 21 11.8 12.6Goodwill 22 18.2 18.2Total assets 374.8 147.0 EquityShare capital 23 20.0 57.2Share premium 24 85.2 -Retained earnings 25 131.9 85.3Total equity attributable to equity holders 237.1 142.5 LiabilitiesCreditors arising out of reinsurance operations 4.5 -Other liabilities 26 6.8 4.5Financial liabilities - borrowings 27 35.0 -Technical provisions 18 91.4 -Total liabilities 137.7 4.5 Total liabilities & equity 374.8 147.0 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2007 31 Dec 2006 Notes 31 Dec Contin- Discon- Total 2007 uing tinued $m $m $m $m Cash used in operating activities 28 (12.1) (4.2) (46.3) (50.5) Cash payments to acquire equity and debt securities - - (88.0) (88.0)Cash receipts from sale of equity and debt - - 125.6 125.6securitiesCash transferred from investing activities (89.2) - - -Cash receipts from interest 6.5 0.7 - 0.7Acquisition of subsidiary net of cash and cash 29 44.6 - - -equivalentsCash (used in) / generated from investingactivities (38.1) 0.7 37.6 38.3 Proceeds from issue of equity shares 48.0 - - -Proceeds from financial borrowings 70.0Repayments of financial borrowings (35.0) - - -Cash flows generated from financing activities 83.0 - - - Net decrease in cash and cash equivalents 32.8 (3.5) (8.7) (12.2) Cash and cash equivalents at beginning of year 5.7 9.2 14.3 23.5 Cash disposed on sale of subsidiary - - (5.6) (5.6) Cash and cash equivalents at end of year 38.5 5.7 - 5.7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended 31 December 2007 1. General information Tawa plc, formerly Tawa UK limited (the "Company") and its subsidiaries(together the "Group") are engaged in two principal business activities: • The acquisition and run-off of insurance companies that have ceased underwriting, and; • The provision of run-off management services to acquired insurance companies. The Group acquired the entire share capital of KX Reinsurance Company Limited ("KX Re") (formerly Continental Management Services Limited) on 4 May 2007. On 21 March 2006, the Company disposed of the majority of its 100% shareholdingin CX Reinsurance Company Limited ("CX Re"). As a result of the disposal, theclassification of the Company's shareholding in CX Re changed from "subsidiary"to "associate" as the Group retains 49.95% of the voting power. Consequently,the operating results, assets and liabilities have been treated as discontinuedfor all years up to the date of sale. The profit on disposal has been includedin "Profit for the year from discontinued operations" in the Income Statement.Deferred consideration related to the disposal of CX Re has been recorded in thebalance sheet. Any adjustments to deferred consideration will be accounted foras adjustments to the profit on disposal in the years in which the adjustmentsto the deferred consideration arise. 2. Basis of preparation, and critical accounting judgements and estimates The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards ("IFRS") adopted for use in the European. Thefinancial statements also comply with those parts of the Companies Act 1985applicable to companies reporting under IFRS. The Company has not previously prepared Group accounts so reconciliations arenot required for the Group's transition from UK GAAP to IFRS. The consolidated financial statements are presented in millions of US dollars,rounded to the nearest hundred-thousand. They have been prepared under thehistorical cost convention, as modified by the revaluation of financial assetsat fair value through the income statement. The preparation of financial statements in conformity with IFRS requiresmanagement to exercise its judgement in making estimates and assumptions thataffect the application of the Group's accounting policies and reported amountsof assets and liabilities, income and expenses. The estimates and associatedassumptions are based on historical experience and various other factors thatare believed to be reasonable under the circumstances, the results of which formthe basis of making the judgement about the carrying values of assets andliabilities that are not readily available from other sources. Actual resultsmay differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the periods in which theestimates are revised if the revisions affect only those periods or in theperiods of the revision and future periods if applicable. Judgements made by management in the application of IFRS that have a significanteffect on the consolidated financial statements and estimates with a significantrisk of material adjustments in following years include: 2. Basis of preparation, and critical accounting judgements and estimates(continued) Outstanding claims provisions and related reinsurance recoveries There is uncertainty as regards the eventual outcome of the claims and relatedreinsurance recoveries that have occurred by the balance sheet date but remainunsettled. This includes claims that may have occurred but have not yet beennotified and those that are not yet apparent to the insured. Significant delaysoccur in the notification of certain claims and a substantial measure ofexperience and judgement is involved in assessing outstanding liabilities, theultimate cost of which cannot be known with certainty at the balance sheet date. In particular, estimates of technical provisions inevitably contain inherentsignificant uncertainties because extensive periods of time may elapse betweenthe occurrence of an insured loss, the reporting of that claim and the paymentof the claim and the receipt of reinsurance recoveries. Basis of discounting The Group's net technical provisions will be paid over a period of many yearsdependent upon the nature of the underlying risk, the claims outstanding and therelated reinsurance recoveries. The net future liabilities have been reduced or"discounted" by an amount representing an estimate of future investment incomefrom income-producing assets set aside to meet net claims liabilities. Thepayment patterns for claims outstanding are derived by the Group's actuariesfrom analysis of historical patterns experienced by the Group and othercomparable companies in run-off. The Group's investment portfolio has beenstructured to minimise interest rate exposure such that the maturity profile ofthe fixed income investments matches the maturity profile of the technicalprovisions. The discount rate, hence anticipated future investment income, hasbeen calculated with reference to relevant dates on the yield curve for Treasurybonds in the currencies in which the investments are held. This is consistentwith a mark-to-market value for the invested assets of the Group at the balancesheet date. The use of discounted technical provisions in representing the economic positionof the Group necessarily depends upon the accuracy of the estimate of: (i) future claims and expense payments and associated reinsurance recoveries; (ii) the payment profiles attributable to claims payments and relatedreinsurance recoveries; and (iii) the future rate of return expected on invested assets. Fair value of financial assets- measurement considerations Active market: quoted price A financial instrument is regarded as quoted in an active market if quotedprices are readily and regularly available from an exchange, dealer, broker,industry group, pricing service or regulatory agency, and those prices representactual and regularly occurring market transactions on an arm's length basis. Theappropriate quoted market price for an asset held is usually the current bidprice. When current bid prices are unavailable, the price of the most recenttransaction provides evidence of the current fair value as long as there has notbeen a significant change in economic circumstances since the time of thetransaction. If conditions have changed since the time of the transaction (e.g.a change in the risk-free interest rate following the most recent price quotefor a corporate bond), the fair value reflects the change in conditions byreference to current prices or rates for similar financial instruments, asappropriate. Revenue recognition - Deferred consideration The deferred consideration carried in the balance sheet is linked to the netasset value of the Group's associate, CX Re. A number of risks impact the fairvalue of CX Re and any changes in the fair value of CX Re will have a directimpact on the value of deferred consideration carried in the balance sheet. Thefair value of CX Re is deemed to be its net asset value. 2. Basis of preparation, and critical accounting judgements and estimates(continued) As IFRS are limited in specifying full insurance-specific guidelines to therequirements of IFRS 4 'Insurance Contracts' pending completion of the secondphase of the IASB's project on insurance contracts, accounting policies forinsurance contracts have been selected with primary consideration to existing UKGAAP as permitted by IFRS 4. 3. Segmental information Primary segment information - operating results by operating segment The Group has 3 primary segments: • Underwriting run-off • Run-off management services • Other corporate activities Depreciation and capital expenditure related solely to the run-off managementsegment: 31 Dec 2007 31 Dec 2006 $m $m Depreciation 0.7 0.4Capital expenditure - 0.2 3. Segmental information (continued) Primary segment information - operating results by operating segment (continued) For the year ended 31 December 2007 Under - Run-off Other Elimi-nations Total writing manage-ment corporate run-off activities $m $m $m $m $mContinuing operationsRevenue - 41.1 - (10.5) 30.6Investment return 10.1 0.6 0.8 - 11.5Other income - - - - -Net income 10.1 41.7 0.8 (10.5) 42.1 Insurance claims and loss adjustment expenses (1.9) - - 6.9 5.0Insurance claims and loss adjustment expenses 1.2 - - - 1.2recovered from reinsurersNet insurance claims (0.7) - - 6.9 6.2 Cost of services - (34.9) - 7.6 (27.3)Administrative expenses - (3.1) (9.8) - (12.9)Expenses - (38.0) (9.8) 7.6 (40.2)Results of operating activities 9.4 3.7 (9.0) 4.0 8.1 Share of results of associates - - (0.8) - (0.8)Negative goodwill recognised - - 41.3 - 41.3Profit / (loss) before finance costs 9.4 3.7 31.5 4.0 48.6 Finance costs - - (2.8) - (2.8)Profit / (loss) before tax 9.4 3.7 28.7 4.0 45.8 Income tax - - - - -Profit / (loss) for the period from continuingoperations 9.4 3.7 28.7 4.0 45.8 (Loss) / profit for the period fromdiscontinued operations - - (2.9) - (2.9) Profit / (loss) for the period 9.4 3.7 25.8 4.0 42.9 3. Segmental information (continued) Primary segment information - operating results by operating segment (continued) For the year ended 31 December 2006 Under- Run-off Other Elimi-nations Total manage-ment corporate writing activities run-off $m $m $m $m $mContinuing operationsRevenue - 28.6 - (6.7) 21.9Investment return - 0.6 - - 0.6Other income - - 0.1 - 0.1Net income - 29.2 0.1 (6.7) 22.6 Cost of services - (24.3) - 5.7 (18.6)Administrative Expenses - (4.3) - - (4.3)Expenses - (28.6) - 5.7 (22.9)Results of operating activities - 0.6 0.1 (1.0) (0.3) Share of results of associates - - 5.6 - 5.6Finance Costs - (0.2) - - (0.2)Profit / (loss) before tax - 0.4 5.7 (1.0) 5.1 Income Tax - - - - - Profit / (loss) for the year from continuingoperations - 0.4 5.7 (1.0) 5.1 (Loss) / profit for the year from discontinuedoperations (9.7) - 57.6 - 47.9 (Loss) / profit for the period (9.7) 0.4 63.3 (1.0) 53.0 3. Segmental information (continued) Primary segment information - balance sheet by operating segment As at 31 December 2007 Under- Run-off Other Total manage-ment corporate writing activities run-off $m $m $m $m Investments 165.0 - - 165.0Reinsurers' share of technical provisions 18.1 - - 18.1Property, plant and equipment - 0.1 - 0.1Other assets 38.0 6.6 147.0 191.6Total assets 374.8 Technical provisions 91.4 - - 91.4Other liabilities & equity 4.6 - 278.8 283.4Total liabilities & equity 374.8 As at 31 December 2006 Under- Run-off Other Total manage-ment corporate writing activities run-off $m $m $m $m Investments - - - -Reinsurers' share of technical provisions - - - -Property, plant and equipment - 0.8 - 0.8Other assets - 9.4 136.8 146.2Total assets 147.0 Technical provisions - - - -Other liabilities & equity - 4.3 142.7 147.0Total liabilities & equity 147.0 Secondary segment information - Geographical analysis All of the Group's revenue is derived from providing services to UK entities andthe assets and liabilities are not managed on a geographical basis. Accordinglyno geographical segmental information has been provided. 4. Revenue Revenue comprises fees related to the provision of insurance run-off managementand related consultancy services. 31 Dec 2007 31 Dec 2006 $m $m Management and consultancy fees 4.7 3.3Expense recharges 25.9 18.6Revenue 30.6 21.9 5. Investment return 31 Dec 2007 31 Dec 2006 $m $m Cash and cash equivalents interest income 6.5 0.6Realised gains on investments 1.1 -Unrealised gains on investments 3.9 -Investment revenue 11.5 0.6 6. Finance costs 31 Dec 2007 31 Dec 2006 $m $m Interest on borrowings (2.8) (0.2)Finance costs (2.8) (0.2) 7. Taxation UK corporation tax is calculated at 30% (2006: 30%) of the estimated assessableUK profit for the year. The tax charge for the periods presented varied from thestated rate of UK corporation tax as explained below: 31 Dec 2007 31 Dec 2006 Continuing operations $m $m Profit on ordinary activities before taxation 45.8 5.1 At standard corporation tax of 30% 13.7 (1.5) Factors affecting tax charge:Expenses not deductible for tax purposes 2.2 -Capital allowances less than depreciation 0.1 -Non taxable income (14.2) -Utilisation of tax losses in respect of which no deferred tax assetswere provided (1.8) 1.5Tax recoverable for the year - - Discontinued Operations 31 Dec 2007 31 Dec 2006 $m $m Loss on ordinary activities before taxation (2.9) (12.0) At standard corporation tax of 30% (0.9) (3.6) Factors affecting tax charge:Expenses not deductible for tax purposes 0.9 -Section 107 interest - (1.4)Change in technical reserves disclaimed under FA2000 s107(4) - (2.7)Movement in unrecognised deferred tax asset - 8.1Group / consortium relief recoverable at non-standard rates - (0.4)Adjustment in respect of prior periods - (2.3)Tax credit for the year - (2.3) The Group has not recognised any deferred tax assets or liabilities. At 31 December 2007 the Group had unrecognised deferred tax assets of $1.7million (2006: $nil) in respect of tax losses carried forward. 8. Discontinued operations On 21 March 2006, the Company sold a significant proportion (87.35%) of its "A"shareholding in CX Re to a consortium in which Tawa plc participates. Followingdisposal, the equity accounting method has been adopted. The majority of theconsideration receivable is in the form of deferred consideration. The incomestatement, balance sheet and cash flow information arising from discontinuedoperations are presented on the following pages.Income statement 31 Dec 2007 31 Dec 2006 $m $m Insurance premium revenue - 0.2Insurance premium ceded to reinsurers - - - 0.2Investment income - (1.7)Other income - 2.6Total income - 1.1 Insurance claims and loss adjustment expenses - (12.5)Insurance claims and loss adjustment expenses recovered from reinsurers - (0.6)Net insurance claims - (13.1) Results of operating activities - (12.0)Finance costs - -Loss before tax - (12.0)Tax charge - 2.3Loss for the year after tax - (9.7)(Loss) / profit on sale of investment (5.1) 38.2Other income on sale of investment (see below) 2.2 19.4(Loss) / profit for the year (2.9) 47.9 Other income on the sale of investment related to the receipt of a transactionfacilitation fee by the Group with regards to sale of shares in CX Re. No tax ispayable on the profit on sale of investment or other income on the sale ofinvestment.Cash flow information 31 Dec 2007 31 Dec 2006 $mCash used in operations - (46.3)Income tax paid - -Net cash used in operating activities - (46.3) Cash payments to acquire equity and debt securities - (88.0)Cash receipts from sale of equity and debt securities - 125.6Cash receipts from interest and dividends - -Net cash generated from investing activities - 37.6 Cash flows generated from financing activities - - Net decrease in cash and cash equivalents - (8.7) Cash and cash equivalents at beginning of year - 14.3 Cash and cash equivalents at end of year - 5.6 9. Profit for the year Profit for the year has been arrived after charging: 31 Dec 2007 31 Dec 2006 $m $m Depreciation of property, plant and equipment 0.7 0.4Staff costs (see note 12) 19.9 17.9Amortisation of risk premium 4.0 - 10. Directors' emoluments31 Dec 2007 Fees as Other emoluments Company pension Total Highest paid directors contributions directors' emoluments $m $m $m $m $m Services as directors of thecompany 0.7 0.8 0.3 1.8 0.4Services as directors ofsubsidiaries - 0.1 - 0.1 0.6 0.7 0.9 0.3 1.9 1.0 31 Dec 2006 Fees as Other emoluments Company pension Total Highest paid directors contributions directors' emoluments $m $m $m $m $m Services as directors of thecompany 0.5 - - 0.5 0.1Services as directors ofsubsidiaries - - - - - 0.5 - - 0.5 0.1 11. Auditors' remuneration The following fees were incurred directly by the Group in respect of audit andrelated services set out below and paid to Deloitte & Touche LLP: 31 Dec 2007 31 Dec 2006 $m $m Fees payable to the Company's auditors for theaudit of the Company's annual accounts 0.7 0.4Fees payable to the Company's auditors and theirassociates for other services to the Group 0.1 -Total audit fees 0.8 0.4 Valuation & actuarial 0.3 0.2ServicesCorporate finance - In connection with theservices Company's admission to 1.0 - AIM - Other 0.2 -Total non-audit fees 1.5 0.2 12. Staff costs The average monthly number of employees (including executive directors) was: 31 Dec 2007 31 Dec 2006Claims and commutations management 31 35Reinsurance 6 6Consulting 3 5Actuarial 6 6Executive and management 17 11Support 33 34Number of employees 96 97 Their aggregate remuneration comprised: 31 Dec 2007 31 Dec 2006 $m $m Wages and salaries 14.5 13.5Social security costs 1.8 1.9Other pension costs 2.3 1.6Training, entertaining & other 1.3 0.9Staff costs 19.9 17.9 13. Dividends 31 Dec 2007 31 Dec 2006 $m $mProposed final dividend for the year ended 31 December 2007 of 1.5p (2006:nil) per share. 3.1 - The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. 14. Earnings per share During the financial year the Group undertook a capital restructure as detailedin note 23. For the purposes of this note the comparative figures have beenrestated. Earnings 31 Dec 31 Dec 2007 2006 $m $m Earnings for the purposes of basic earnings per share fromcontinuing and discontinued operations being net profit attributableto equity holders of the Group 42.9 53.0 Earnings for the purposes of basic earnings per share fromcontinuing operations being net profit attributable to equityholders of the Group 45.8 5.1 Number of shares 31 Dec 31 Dec 2007 2006 Weighted average number of ordinary shares for the purposes of basicearnings per share 101,891,017 101,891,017Effect of dilutive potential ordinary shares:Share options 1,015,000 - Weighted average number of ordinary shares for the purposes ofdiluted earnings per share 102,906,017 101,891,017 Basic earnings per share 31 Dec 31 Dec 2007 2006 $ $From continuing and discontinued operationsBasic: Ordinary shares (dollars per share) 0.4 0.5Diluted: Ordinary shares (dollars per share) 0.4 0.5 From continuing operationsBasic: Ordinary shares (dollars per share) 0.4 0.1Diluted: Ordinary shares (dollars per share) 0.4 0.1 15. Cash and cash equivalents Cash and cash equivalents are comprised of the following: 31 Dec 2007 31 Dec 2006 $m $m Cash at bank and in hand 38.5 5.7 The Director's believe that the carrying amount approximates its fair value. 16. Investments: Debt and equity securities 31 Dec 2007 31 Dec 2006 $m $m Investments carried at fair valueRedeemable notes 165.0 - The investments included above represent investments in listed debt securities.The fair values of these investments are based on bid market prices. Fair valueadjustments were made through the income statement. The average duration of the portfolio in the year was 10.37 years (2006: nil). 17. Loans and receivables including insurance receivables 31 Dec 2007 31 Dec 2006 $m $m Debtors arising out of reinsurance operations 10.3 -Accrued income & prepayments 1.6 0.8Other debtors 6.9 2.9Total loans and receivables including insurance receivables 18.8 3.7 Due within one year 18.8 3.7 None of these assets are secured against Letters of Credit or are pledged, theGroup also holds no security or collateral against these balances. Accrued income and other debtors are considered current. Debtors arising out of reinsurance operations past due are $1.2 million and netof bad debt $0.6 million. The average credit period is detailed below and thesebalances are reviewed on a monthly basis, any issues arising are escalated tothe management team. 0-6 Months 6-12 Months 12-24 Months > 24 Months Grand Total -0.1% 1.6% 70.6% 27.9% 100.0% The Director's believe that the carrying amount approximates its fair value. 18. Technical provisions 31 Dec 2007 31 Dec 2006 $m $m Gross claims outstandingProvision for claims outstanding, reported and not reported 110.7 -Discount (35.5) - 75.2 -Claims handling provisions 11.5 - 86.7 -Risk premium adjustment 4.7 -Total gross claims outstanding 91.4 - ReinsuranceProvision for claims outstanding, reported and not reported 27.4 -Discount (9.3) -Total reinsurers' share of claims outstanding 18.1 - Undiscounted claims outstanding, net of reinsurance 99.5 -Discount (26.2) -Claims outstanding net of reinsurance 73.3 - Security held for reinsuranceLetters of credit held 7.7 -Total collateral held 7.7 - The technical provisions are all within KX Re, a wholly owned subsidiaryacquired on 4 May 2007. Whilst the Directors consider that the gross provision for claims and therelated recoveries are fairly stated on the basis of the information currentlyavailable to them, due to the nature of the insurance industry there is inherentuncertainty in these estimates. This uncertainty is such that the ultimateliability, which will vary as a result of subsequent information and events, mayresult in adjustments to the amount provided. Adjustments to the amount of theprovisions are reflected in the financial statements for the period in which theadjustments are made. Reserve development The Group's expected loss development is determined by the Group's internalactuaries based on historical claims analysis and projected trends. Actualreported losses may vary from expected loss development. Generally, as anunderwriting year matures the level of newly reported claims decreases. During the year the Group experienced an improvement in the prior year netreserves before discount excluding commutations of $1.9 million (2006: $45million). After discount the favourable reserves development during the year was$7.3 million (2006: $36.4 million) net of reinsurance and commutations. 18. Technical provisions (continued) Reserve development (continued) The following table presents the development of the Group's outstanding claimsand claims handling expense reserves net of reinsurance and after discounting. 31 Dec 2007 31 Dec 2006 $m $m Net discounted reserves at beginning of year - 559.3Acquisition of subsidiary 74.4 -Impact of changes in foreign exchange rates 0.8 21.0Net claims paid 5.4 (299.0)Decrease in ultimates for net claims before discounting (1.9) (45.0)Change in the impact of discounting (5.4) 81.4Sale of subsidiary - (317.7)Net discounted reserves at end of year 73.3 - 19. Property, plant and equipmentCost or Valuation Computer Fixtures and Total equipment fittings $m $m $mAt 1 January 2006 0.5 1.1 1.6Additions 0.2 - 0.2 At 1 January 2007 0.7 1.1 1.8 At 31 December 2007 0.7 1.1 1.8 Accumulated depreciation and impairment Computer Fixtures and Total equipment fittings $m $m $mAt 1 January 2006 0.3 0.3 0.6Charge for the year 0.2 0.2 0.4 At 1 January 2007 0.5 0.5 1.0Charge for the year 0.1 - 0.1Impairment - 0.6 0.6 At 31 December 2007 0.6 1.1 1.7 Carrying amountAt 31 December 2007 0.1 - 0.1At 31 December 2006 0.2 0.6 0.8 20. Deferred assets Deferred assets relate to the consideration outstanding on the disposal of asubsidiary CX Re, as described in note 1. Part of the deferred consideration isrelated to the net asset value of CX Re and is subject to net asset valueadjustments through the income statement. Deferred consideration consists of$23.8 million in respect of a transaction facilitation fee and $80.5 million ofproceeds on the disposal of CX Re, a total of $104.3 million (2006: $106million). 21. Interests in associates On 21 March 2006, the Group disposed of 87.35% of its shareholding in CX Re. Theretained shareholding of 12.65% has been accounted for under the equity methodsince that date. The Group retains 49.95% of the voting shares. The tableprovides a summary of the financial results and position of CX Re for the year: 31 Dec 2007 31 Dec 2006 $m $m Gross premiums written 3.5 2.8 (Loss) / profit for the year (5.9) 44.0 Group's share of (losses) / profits of associate at 12.65% (0.8) 5.6 Total assets 410.4 569.3Total liabilities (318.3) (471.3)Net assets 92.2 98.0 Group's share of net assets of associate at 12.65% 11.8 12.6 22. Goodwill 31 Dec 2007 31 Dec 2006 $m $m Cost at 1 January 18.2 18.2Balance at 31 December 18.2 18.2 The goodwill is in Tawa plc arising from its acquisition of Tawa AssociatesLimited which is now represented by the business of Tawa Management Limited.Goodwill acquired in a business combination is allocated, at acquisition, to thecash generating units (CGUs) that are expected to benefit from that businesscombination. Before recognition of impairment losses, the carrying amount ofgoodwill had been allocated to the run-off services segment. The Group testsgoodwill annually for impairment or more frequently if there are indicationsthat goodwill might be impaired. The recoverable amounts of the CGUs aredetermined from value in use calculations. 23. Share capital 31 Dec 2007 31 Dec 2006 Number '000 $m Number '000 $mAuthorised:Preferred shared of £0.10 - - 1,499,990 293.9Deferred shares of £0.10 - - 10 -Ordinary shares of £0.10 200,000 40.0 - -Total authorised 200,000 40.0 1,500,000 293.9 Allotted, called up and fully paid:Preferred shared of £0.10 - - 292,001 57.2Deferred shares of £0.10 - - 2 -Ordinary shares of £0.10 101,891 20.0 - -Total allotted, called up and fully paid 101,891 20.0 292,003 57.2 On the 26 July 2007 the Company was admitted on the AIM Stock Exchange andunderwent a share capital restructure. Authorised 1,499,990,000 preferred sharesof £0.10 and 10,000 deferred shares of £0.10 were redesignated as ordinaryshares. At the same time the Company's issued share capital was altered to101,891,017 £0.10 ordinary shares. 24. Share premium 31 Dec 2007 31 Dec 2006 $m $m Premium arising on issue of equity shares 90.9 -Expenses of issue on equity shares (5.7) -Balance at 31 December 85.2 - 25. Retained earnings 31 Dec 2007 31 Dec 2006 $m $m Balance at 1 January 85.3 31.2Profit for the period 42.9 53.0Translation gain 3.7 1.1Balance at 31 December 131.9 85.3 26. Other liabilities 31 Dec 2007 31 Dec 2006 $m $m Accruals 2.0 0.7Other creditors 4.8 3.8Balance at 31 December 6.8 4.5 27. Financial liabilities - borrowings 31 Dec 2007 31 Dec 2006 $m $m Bank loan falling due after more than one year 35.0 - The bank loan is from Natixis bank and is due to be repaid in 2011. During theyear interest payable was 3 month LIBOR plus 2%. The spread above 3 month LIBORfor future payments will be determined by the asset cover of KX ReinsuranceCompany Limited and the rate will range between 2% and 3% over LIBOR. TheDirector's believe that the carrying amount of the bank loan approximates itsfair value. 28. Cash used in operating activities 31 Dec 2007 31 Dec 2006 Contin- Discon- Total Contin- Discon- Total uing tinued uing tinued $m $m $m $m $m $m Profit for the year 45.8 (2.9) 42.9 5.1 47.9 53.0Adjustments for:- share of profit of associates 0.8 - 0.8 - - -- loss on discontinued operations - 2.9 2.9 - - -- depreciation 0.7 - 0.7 0.4 - 0.4- (additions) / disposals of fixed asset (41.3) - (41.3) 25.3 - 25.3- amortisation of risk premium (4.0) - (4.0) - - -- investment return for the yeartransferred to investing activities (11.5) - (11.5) - (6.3) (6.3)- profit on foreign exchange 2.8 - 2.8 (0.1) 7.6 7.5 (6.7) - (6.7) 30.7 49.2 79.9Change in operating assets and liabilitiesNet decrease in insurance liabilities (2.7) - (2.7) - (42.1) (42.1)Net increase in loans and receivables (4.2) - (4.2) (35.1) (54.2) (89.3)Net increase in other operating 1.5 - 1.5 0.2 0.8 1.0liabilitiesCash used in operations (12.1) - (12.1) (4.2) (46.3) (50.5) 29. Business combinations On 4 May 2007, 100% of the issued ordinary shares of KX Reinsurance CompanyLimited was acquired by KX Holdings Company Limited, a wholly owned subsidiary.The table below shows the consideration paid, the net assets at fair values(considered equal to carrying values) and the negative goodwill arising onacquisition. Analysis of assets and liabilities acquired Book value Fair value Fair value on adjustment acquisition $m $m $mAssetsCash and cash equivalents 111.2 111.2Investments: Debt and equity securities 75.8 75.8Loans and receivables including insurance receivables 8.2 8.2Reinsurers' share of technical provisions 19.4 19.4LiabilitiesCreditors arising out of reinsurance operations (3.4) (3.4)Other liabilities (0.8) (0.8)Technical Provisions (93.8) (8.7) (102.5) 116.6 (8.7) 107.9Goodwill on acquisition (41.3)Consideration paid 66.6 Consideration paid net of cash and cash equivalents (44.6) In determining the fair value of KX Reinsurance Company Limited's assets andliabilities acquired, the technical provisions have been increased to include aninsurance risk premium which reflects management's consideration of theuncertainty of the technical provisions acquired. The risk premium onacquisition was $8.7 million and has been assessed at $4.7 million as at 31December 2007. Since acquisition, the acquired company and its subsidiary have contributedprofits of $7.0 million after the elimination of intra-group income andexpenses. Annual impairment reviews are undertaken and the Group's directors aresatisfied that the trading prospects of the subsidiaries support the currentcarrying values. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ACH.L