11th May 2007 07:01
Advent Capital (Holdings) PLC11 May 2007 Advent Capital (Holdings) PLC ("Advent" or the "Company") First Quarter Results Advent, the specialist Lloyd's insurer, today reports its results for the firstquarter of 2007. Key highlights • Market conditions are becoming competitive but remain attractive and within expectations. • Profit before tax of £0.5 million (Q1 2006: £0.4 million). • First quarter results for 2007 affected by: - Earlier purchase of Syndicate 780's reinsurance programme compared with 2006. - Changes in Syndicate 780's business mix due to its strategy of reducing peak exposures to major catastrophes resulting in later recognition of premium income. These factors are expected to substantially unwind in future quarters. • Gross premiums written of £57.9 million (Q1 2006: £63.6 million). • Low net notified loss ratio for 2007 year of account of 3.1% (on a comparable basis) (Q1 2006: 0.1%). • With approximately 75% of premiums written in US dollars, the weak US dollar will negatively impact premiums and earnings for 2007. • Financial summary In the first quarter of 2007, the Company adopted IFRS for the first time withapplication effective as at 1 January 2006. Comparatives have been restated toan IFRS basis. Three months (unaudited) Year Year Year 2007 2006 2006 2005 2004 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000Gross premiums written 57,902 63,588 115,356 100,550 74,749Net premiums written 42,510 61,944 88,201 62,949 63,734Net premiums earned 22,083 20,957 81,694 65,070 69,221Underwriting profit (loss) (907) (1,125) 21,064 (78,098) (846)Profit (loss) before tax 532 404 22,853 (74,185) 5,173Profit (loss) after tax 353 290 16,011 (51,922) 3,360Return on equity 0.4% 0.5% 25.1% (68.4%) 6.4% Three months (unaudited) Year Year Year 2007 2006 2006 2005 2004 Restated Restated Restated Restated £'000 £'000 £'000 £'000 £'000Per share amountsEarnings (loss)- basic and diluted 0.1p 0.1p 4.3p (30.3p) 3.2pDividend - - - 2.75p 2.75pNet assets 22.3p 17.4p 21.9p 16.0p 50.5pNet tangible assets 20.0p 15.9p 19.9p 13.6p 45.4p Operating ratiosClaims ratio 79% 87% 53% 191% 74%Expense ratio 25% 18% 21% 29% 29%Combined ratio 104% 105% 74% 220% 103%Notified loss ratio 3.1%* 0.1% 17% 134% 62%(by year of account) * On a comparable basis before the effect on net signed premium of buyingreinsurance at 1 January 2007 rather than at 1 April as in prior years. 11 May 2007 Advent Capital (Holdings) PLCKeith Thompson 020 7743 8200Chief Operating Officer Trevor Ambridge 020 7743 8200Chief Financial Officer Neil Ewing 020 7743 8250Investor Relations Pelham Public RelationsCharles Vivian 020 7743 6672Polly Fergusson 020 7743 6362 Financial Review For the three months ended 31 March 2007, the Company's profit before tax was£0.5 million, compared with a profit before tax of £0.4 million for the threemonths ended 31 March 2006. Results for the first quarter of 2007 compared withthe first quarter of 2006 have been affected by: • Change in premium writing and earning profile, following Syndicate 780's 2007 business plan to reduce the volatility of its portfolio, with a £13 million reduction in various lines of the Assumed account in the first quarter of 2007 compared with the first quarter of 2006. The increase in the 2007 plan premium is in the Property Insurance account, written over the year, and the Energy account, predominantly written in the second and third quarters of the year. • Reinsurance expense for the first quarter of 2007 reflects the decision to bring forward the purchase of reinsurance to 1 January 2007 and the run-off of certain Original Loss Warranty (OLW) policies purchased in mid 2006. The reinsurance expense for the first quarter of 2006 did not reflect the purchase of the 2006 reinsurance programme at 1 April 2006. • Weakening US dollar to an average rate of US$1.96/£ for the first quarter of 2007 from an average rate of US$1.75/£ for the first quarter of 2006, a 12% decrease, has adversely affected gross and net premiums, of which approximately 75% are written in US dollars, and underwriting profit. Earnings per share amounted to 0.1p for the first three months of 2007 comparedwith 0.1p for the first three months of 2006. For the three months ended 31 March 2007, the Company had an underwriting lossof £0.9 million and a combined ratio of 104.1% compared with an underwritingloss of £1.1 million and a combined ratio of 105.4% for the first quarter of2006. • At 31 March 2007, the 2007 underwriting year results reflect the changes in Syndicate 780's business mix and, as expected, a slower premium earnings pattern compared to the first quarter of 2006. • Claims in the first quarter of 2007 include European Windstorm (Kyrill) losses of £1.5 million. • The 2006 underwriting year had an underwriting profit of £1.3 million and a combined ratio of 85.2%. Net unearned premium amounted to £8.2 million at 31 March 2007, after a reduction during the quarter in ultimate premium, net of deferred acquisition costs, of £1.4 million principally in the Property Insurance account. There was no release of IBNR reserves held for attritional and catastrophe losses at 31 March 2007. • The 2005 underwriting year had an underwriting loss of £2.7 million predominately due to additional Energy claims of £2.2 million arising from Hurricane Rita. • Advent Re had no underwriting profit or loss on premiums written of US$2.8 million as it books conservative loss ratios on its catastrophe exposed business. For the three months ended 31 March 2006, the pre tax profit of £0.4 million wasaffected by adverse development, net of reinstatement premiums, of £3.1 million,principally from the 2005 hurricanes. Underwriting Review Changes to the gross and net premiums written and earned for the three monthsended 31 March 2007 compared with the first quarter of 2006 are due to thefollowing factors: • The reduction in gross premium income at this stage of the year arising from the change in Syndicate 780's business mix and consequently, its premium writing and earning profile. • The reduction in net income arising from the earlier purchase of the reinsurance programme at 1 January 2007. • The effect of the portfolio transfer premium (RITC) of £6.8 million (Q1 2006: £0.7 million) received from external Names on the closure at 31 December 2006 of Syndicate 780's 2004 year of account as a result of the increase in the Company's capacity on Syndicate 780's 2005 year of account to 53.8% from 47.7% for the 2004 year of account. • The reduction in reinstatement premiums on the 2005 hurricanes to £0.7 million for the first quarter of 2007 (Q1 2006: £5.4 million). • The weaker US dollar. The impact of these movements are summarised below: Gross premiums Gross Net Net written earned premium premiums written premiums earned 2007 2006 2007 2006 2007 2006 2007 2006 (£m) (£m) (£m) (£m) (£m) (£m) (£m) (£m)2007 YOA 47.5 - 8.4 - 32.9 - 6.0 -2006 YOA 1.5 58.9 12.0 11.1 1.6 57.4 8.8 10.82005 and prior 0.3 (2.5) 0.9 5.0 0.2 (2.4) 0.6 4.1 Current Premium 49.3 56.4 21.3 16.1 34.7 55.0 15.4 14.9Reinstatements 0.4 6.5 0.4 6.5 0.2 6.2 0.2 5.42004 YOA RITC 6.8 0.7 6.8 0.7 6.2 0.7 6.2 0.7Advent Re 1.4 - 0.3 - 1.4 - 0.3 -Total 57.9 63.6 28.8 23.3 42.5 61.9 22.1 21.0 For the three months ended 31 March 2007, gross premiums written decreased to£57.9 million from £63.6 million in 2006. Excluding the impact of RITC andreinstatement premiums, gross premiums written decreased by 12.5% to £49.3million in the first quarter of 2007 from £56.4 million in the first quarter of2006 due to the change in business mix written in the first quarter and theweaker US dollar. Premiums written on the Assumed lines of business in thefirst quarter of 2007 decreased by approximately £13 million from the firstquarter of 2006. Syndicate 780's 2007 plan included an increase in Marineaccount premiums of £15.9 million predominantly written in the second and thirdquarters of 2007 and in Property Insurance account premiums of £14.7 millionwhich are written throughout 2007. Advent Re wrote gross premiums of US$2.8million (£1.4 million) during the first quarter of 2007. For the three months ended 31 March 2007, net premiums written decreased to£42.5 million from £61.9 million in 2006 principally due to the decision tobring forward the purchase of the majority of the 2007 reinsurance programme to1 January 2007 whereas the 2006 reinsurance programme was purchased at 1 April2006, and due to the weaker US dollar. For the three months ended 31 March 2007, net earned premiums increased to £22.1million from £21.0 million in 2006 which reflects: • Increase in net earned premiums on prior underwriting years, excluding RITC and reinstatement premiums, to £9.4 million in the first quarter of 2007 from £4.1 million in 2006, partially offset by; • Decrease in net earned premiums on the 2007 underwriting year to £6.0 million for the first quarter of 2007 from £10.8 million on the 2006 underwriting year for the first quarter of 2006, principally due to the change in premium mix and purchase of reinsurance at 1 January 2007 as referred to above; and • The weaker US dollar. Insurance Segment Review 31 March 2007 Non-Marine Property Reinsurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000Gross premiums written 40,134 6,822 8,281 2,665 57,902Net premiums written 29,401 4,662 5,800 2,647 42,510Net premiums earned 12,821 5,218 2,891 1,153 22,083Net claims incurred (10,753) (3,294) (3,363) 26 (17,384)Acquisition costs (1,330) (1,562) (652) (221) (3,765)Operating costs (1,276) (217) (263) (84) (1,840) Underwriting profit (loss) (538) 145 (1,387) 874 (906) Combined ratio 104.2% 97.2% 148.0% 24.2% 104.1% 31 March 2006 Non-Marine Property Reinsurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000Gross premiums written 49,120 5,776 6,766 1,926 63,588Net premiums written 48,608 5,660 5,830 1,845 61,943Net premiums earned 15,221 3,359 1,832 545 20,957Net claims incurred (15,424) (1,428) (1,446) 13 (18,285)Acquisition costs (1,280) (987) (339) (167) (2,773)Operating costs (791) (93) (109) (31) (1,024)Underwriting profit (loss) (2,274) 851 (62) 360 (1,125)Combined ratio 114.9% 74.7% 103.4% 33.8% 105.4% Non Marine Reinsurance Syndicate 780 The premium written for the 2007 underwriting year is currently 7% ahead of plan(at Lloyd's business plan exchange rates of US$1.77/£), with underwritingconditions in line with expectations. Catastrophe rates are generally holdingalthough we are seeing some minor rate reductions outside of the USA and greaterpressure on premium signings. Non-catastrophe rates are under more pressure andthere is a general softening in rates with, generally, low single digitreductions. For the three months ended 31 March 2007, the Non-Marine Reinsurance accountincurred an underwriting loss of £0.5 million principally due to the impact ofEuropean Windstorm Kyrill claims totalling £1.3 million. The underwriting lossof £2.2 million in 2006 resulted from adverse development in the 2005 hurricanesloss estimates. Advent Re For the three months ended 31 March 2007, Advent Re wrote US$2.8 million (£1.4million) of gross premiums. The low level of premiums written is principallydue to the fact that Advent Re only received its class 3 reinsurer licenceeffective 27 December 2006 and therefore missed the majority of the 1 January2007 renewals. Following 1 April 2007 renewals, Advent Re has currently writtenUS$11.8 million of gross premiums and US$11.0 million of premiums net ofbrokerage, principally from existing clients and relationships. With currentoutstanding quotes, Advent Re's premiums written net of brokerage, should amountto approximately US$11.4 million, slightly less than its plan of US$12 to US$13million but with most contracts having been written for only a nine month terminstead of for a full year. Advent Re has written US$30 million of its aggregate limits for USA earthquakeand wind losses, US$15 million of its aggregate limits for European wind lossesand US$10 million of its aggregate limits for Japanese losses. The riskswritten consist of Original Loss Warranty (OLW) policies for 23% of premiumswritten and traditional Ultimate Net Loss (UNL) policies for 77% of premiumswritten. The attachment points for the OLW's are in line with plan of US$20billion for USA Wind, US$15 billion for USA and Japanese quake and US$10 billionfor European wind. The attachment points for UNL policies are at a similarmarket loss and modelled return periods as for the OLW policies, recognisingthat the return modelled periods are derived from modelled data such that theattachment points are estimates in terms of the probability and size of themarket loss. We have been very pleased with Advent Re's commencement of operations in Bermudain terms of the support we have received from clients and brokers and in termsof the quality and spread of business we have been shown and we have written.Since 1 January 2007, we have seen significant changes in the market. In earlyFebruary 2007, the market was affected by a significant amendment to thestructure of the Florida Hurricane Cat Fund (FHCF) through State legislation,the full effects of which have not yet been reflected in the reinsurance market.The initial uncertainty over the effects of the change to the FHCF hasresulted in a reduced appetite from reinsurance and retrocession buyers which,combined with what appears to be an over capacity in the OLW market from "collaterised reinsurers", has resulted in the first softening in pricing sincethe 2005 hurricanes. There is still very limited capacity for retrocessionpolicies written on a UNL basis such that prices and conditions remain firm.Hurricane forecasters are predicting another active wind season for 2007. Withonly a few months to go, we expect to see increased buying activity as insurersand reinsurers "batten down the hatches". Property Insurance The Property Insurance account has been targeted for growth in 2007 withpremiums written up by 18% over the first quarter of 2006. Currently, premiumswritten for the 2007 underwriting year stand at 82% of plan (at business planexchange rates). Rating levels and market conditions are in line with plan. For the three months ended 31 March 2007, the Property Insurance account earnedan underwriting profit of £0.1 million down from £0.9 million in 2006. Therewere new losses of £0.2 million emanating from the European Windstorm Kyrill. Marine For the three months ended 31 March 2007, the Marine account incurred anunderwriting loss of £1.4 million compared with an underwriting loss of £0.1million in 2006. The 2007 underwriting loss was impacted by a deterioration of£2.2 million on Hurricane Rita energy claims. For the 2006 year of account, thesegment is performing well with an underwriting profit of £1.3 million for thefirst quarter of 2007. The premiums written for the 2007 underwriting year are at 84% of plan (atbusiness plan exchange rates), with the new classes of business such as cargoand war, being slow to develop and with the Marine Excess of Loss accountexperiencing excess capacity in the market and general rate softening. TheEnergy account is a targeted area of growth for 2007 and continues to benefitfrom good underwriting terms and conditions and is currently on plan with anincrease in premiums written of 120% over the 2006 account at the same stage ofthe year. Other For the three months ended 31 March 2007, the Other account earned anunderwriting profit of £0.9 million up from £0.4 million in 2006. For the firstquarter of 2007, Syndicate 2 had an underwriting profit of £0.9 million arisingfrom favourable development principally on 2001 and prior years' aviation andenergy claims compared with an underwriting loss of £0.1 million in 2006. Theremaining business performed in line with plan. Syndicate 780 - Net notified loss ratio at 3 months (excluding IBNR) Year of 1993 1994 1995 1996 1997 1998 1999 2000account% netnotified 0.6% 9.6% 0.3% 1.7% 1.6% 7.7% 5.2% 0.8% Year of 2001 2002 2003 2004 2005 2006 2007account% netnotified 0.4% 0.1% 0.4% 3.6% 6.1% 0.1% 8.4%* * 3.1% excluding the impact of the reinsurance purchased at 1 January 2007 onnet signed premium income for the 2007 YOA. Reinsurance was purchased at 1April for the 1993 to 2006 YOA. The net notified loss ratio of 3.1% (on a comparable basis) was affected byEuropean Windstorm Kyrill losses and is a reasonably good start for the 2007underwriting year. Catastrophe Exposure At 1 April 2007, Syndicate 780's exposure to any one of the major Lloyd'sRealistic Disaster Scenarios (RDS) is summarised below compared with the 2007business plan: Florida Los Angeles European Wind Japan Quake Gulf of Mexico USA North East Wind Quake WindIndustry loss $101 bn $72 bn $31 bn $51 bn $101 bn $65 bnScenarioEstimated net loss 16% 16% 16% 9% 19% 19%as % of capacity(2007 plan) Actual 7% 4% 17% 11% 13% 11%1 April 2007 The RDS at 1 April 2007 includes certain peak aggregate exposures which will runoff during the second quarter of 2007 as well as the benefit of certain OLWswhich will expire over the same period. Taking into account these two factors,the RDS are expected to be in line with 2007 business plan guidelines except forJapanese quake, where the Syndicate increased its writing of Japanese businessas part of its diversification away from US catastrophe events. Expenses For the three months ended 31 March 2007, the underwriting expense ratio(excluding acquisition costs) was 8.3%, compared with 4.9% for the first threemonths of 2006, the latter largely driven by the effect of reinstatementpremiums received of £5.4 million and the profit on exchange of £1.1 millionreported in 2006. Investment Return For the three months ended 31 March 2007, the investment return increased to£2.9 million (Q1 2006: £2.7 million), reflecting an improved interest rateenvironment in the US and UK, despite a decrease in the Company's cash andfinancial investments of £37.3 million at 31 March 2007 compared with thebalances at 31 March 2006. Throughout the period, the US dollar portfolio duration was maintained short,between 0.69 and 0.83 years. The US dollar portfolio is now wholly invested ingovernment fully or government guaranteed paper, with an overall return on USbonds of 1.3% (annualised return of 5.2%). Neither of the syndicates nor theCompany invest in asset backed or mortgage securities, equities or derivatives. Sterling funds were held mainly in AA rated bank corporates (including Funds atLloyd's which are invested by Lloyd's) achieving a return of 1.3% (annualisedreturn of 5.2%). Our investment mix as at 31 March 2007 is shown below. 31 March 2007 31 March 2006 31 December 2006 (Restated) (Restated) Syndicate Corporate Total Total TotalInvestment mix £'000 £'000 £'000 £'000 £'000 Debt securities 65,119 - 65,119 111,824 78,838 Cash and cashequivalents 34,365 139,293 173,658 164,306 164,547 Total 99,484 139,293 238,777 276,130 243,385 Capital Management 31 March 2007 31 December 2006 £'000 £'000Long term debt- subordinated 24,735 24,675- senior 22,619 22,607 47,354 47,282 Shareholders' funds 89,399 88,986Debt to equity ratio 53% 53%Debt to total capital ratio 35% 35%Interest coverage 1.5 x 7.4 x The Company continues to maintain its debt to total capital ratio below 35% inaccordance with its stated policy. 2007 Business Plan update The first quarter is the key underwriting period for Syndicate 780 with premiumswritten (at business plan exchange rates) of £80.3 million or 94% of the premiumincome expected to be written at this stage, with the shortfall largely comingfrom the Property Insurance and Marine accounts. The premiums underwritten of£80.3 million consist of £51.9 million recognised as premiums written in theseinterim statements and £28.4 million which is in respect of "premiums writtenbut unincepted" business, principally relating to Property Insurance binders andReinsurance Treaty quota share accounts, where the premiums will be recognisedas written over 2007. Based on current projections, we expect to write premiums of approximately £120million to £125 million for the 2007 underwriting year (at business planexchange rates) or 92% to 96% of Syndicate 780's 2007 plan premium income of£130.5 million, with projected shortfalls in premium income from the PropertyInsurance account and from the Cargo, Terrorism and War accounts which are newclasses of business in 2007. Our premiums written, and ultimately underwriting profits, are likely to beadversely effected by the weaker US dollar with approximately 75% of premiumswritten denominated in US dollars. For Lloyd's planning and monitoringpurposes, Syndicate 780's 2007 business plan used an exchange rate of US $1.77/£1. At the 31 March 2007 exchange rate of US $1.96/£1, the current premiumincome forecast for Syndicate 780's 2007 year of account would range from £111million to £116 million. Outlook The insurance and reinsurance markets are undergoing significant change asparticipants react to legislative changes, changing distribution of insuranceproducts, the way in which insurers purchase reinsurance given pricing, termsand conditions and the geographical dynamics for the placement of reinsurancebusiness. Recognising these changing dynamics, Advent is well placed to takeadvantage of market opportunities through its long established Lloyd's platformand its recent entry into the Bermuda market. Market conditions remain favourable in our principal lines of business albeitwith some reductions in pricing on non catastrophe exposed business and withincreased competition on premium signings. The continuing weak US dollar willadversely impact profitability which could lead to increased competition forbusiness as non US market participants seek to make up the shortfall. If thereis a benign claims environment in 2007 as there was in 2006, with a low level ofcatastrophe losses, we would expect there to be further pressure on pricing,terms and conditions going into 2008. With forecasters predicting an above average hurricane season for 2007, it willbe some time before the competitive landscape for 2008 becomes clearer. We willbe alert to opportunities in the market place while maintaining underwritingdiscipline in the face of increased competition for business. Brian F Caudle Chairman 10 May 2007 CONSOLIDATED INCOME STATEMENT For the three months ended 31 March 2007 Note Three months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000IncomeGross premiums written 4 57,902 63,588 115,356Net premiums written 4 42,510 61,943 88,201Net premiums earned 4 22,083 20,957 81,694Investment income 5 2,916 2,722 12,681Other operating income 204 301 1,054Total Income 25,203 23,980 95,429 ExpensesNet claims incurred 4 (17,384) (18,285) (43,073)Acquisition costs (3,765) (2,773) (17,666)Operating expenses (1,783) (2,124) (6,882)Profit on exchange 251 1,076 4,041Other corporate costs (869) (634) (5,436)Total Expenses (23,550) (22,740) (69,016) Operating Result 1,653 1,240 26,413Interest on debt (1,121) (836) (3,560)Profit (loss) before tax 532 404 22,853Tax 7 (179) (114) (6,842)Profit (loss) for the periodattributable to equityshareholders 353 290 16,011 Earnings per ordinary share- Basic and diluted 6 0.1p 0.1p 4.3p CONSOLIDATED BALANCE SHEET At 31 March 2007 Note 31 March 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000AssetsCash and cash equivalents 5 173,658 164,306 164,547Financial investments 5 65,119 111,824 78,838Other receivables 13,646 6,349 9,520Insurance and reinsurance assets - Reinsurers' share of outstanding claims 4 27,752 71,236 33,317 - Reinsurers' share of unearned premiums 4 13,499 1,781 4,457 - Debtors arising from insurance and 73,274 96,890 45,321 reinsurance operationsDeferred tax asset 21,776 28,999 21,654Property and equipment 525 952 562Intangible assets 8 7,976 5,343 8,062Total assets 397,225 487,680 366,278 EquityShare capital 6 20,329 18,481 20,329Share premium account 60,662 53,527 60,662Capital redemption reserve 21,065 21,065 21,065Other reserves (2,826) (3,023) (2,886)Retained earnings (deficit) (9,831) (25,905) (10,184)Total shareholders' equity 89,399 64,145 88,986 LiabilitiesInsurance and reinsurance liabilities - Outstanding claims 4 185,638 300,219 193,101 - Unearned premiums 4 53,791 56,843 24,322 - Creditors arising out of insurance and 16,235 6,500 6,798reinsurance operationsTrade and other payables 4,808 6,175 5,789Syndicate bank loan - 12,199 -Long term debt 6 47,354 41,599 47,282Total liabilities 307,826 423,535 277,292 Total liabilities and shareholders' equity 397,225 487,680 366,278 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the three months ended 31 March 2007 Capital re- 31 March 31 March 31 Dec Share Share demption Other Retained 2007 2006 2006 capital premium reserve reserves earnings (unaudited) (unaudited) (unaudited) Restated Total Total Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Balance at 1 January 20,329 60,662 21,065 (2,886) (10,184) 88,986 34,581 34,581 Profit (loss) for the - - - - 353 353 290 16,011periodProceeds from issue ofshares (Note 6) - - - - - - 29,268 38,251 Share based payments - - - 60 - 60 6 143 Balance at end of 20,329 60,662 21,065 (2,826) (9,831) 89,399 64,145 88,986period CONSOLIDATED CASH FLOW STATEMENT For the three months ended 31 March 2007 Note Three months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000Net cash (outflow) inflow fromoperating activities 9 7,926 119 (5,954) Interest received 2,344 303 4,206Interest paid (1,133) (763) (3,427)Net taxation received - - 150Net purchased tangible fixed assets (26) (196) (421)Purchase of syndicate capacity - - (1,499)Net cash (outflow) inflow before financing 9,111 (537) (6,945) Cash inflow from financingIssue of ordinary share capital - 30,000 39,582Share issue expenses - (732) (1,331)Issue of loan notes - 15,073 25,277Loan note issue expenses - (453) (792)Syndicate bank loan - 12,199 - - 56,087 62,736 Net increase in cash and cash equivalents 9,111 55,550 55,791Cash and cash equivalents at beginning of period 164,547 108,756 108,756Cash and cash equivalents at end of period 5 173,658 164,306 164,547 NOTES TO THE INTERIM FINANCIAL STATEMENTS 1. BASIS OF PREPARATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS These interim consolidated financial statements should be read in conjunctionwith the Company's consolidated financial statements for the year ended 31December 2006 as set out on pages 40 to 75 of the 2006 Report and Accounts. The Company has adopted International Financial Reporting Standards (IFRS) forthe first time in preparing these interim consolidated financial statements witheffective application from 1 January 2006. Accordingly, the comparativefinancial information presented has been restated to an IFRS basis. As requiredupon the adoption of IFRS, note 10 sets out the reconciliations of the balancesheets at 1 January 2006 (the opening IFRS balance sheet) and at 31 December2006 (the last UK GAAP balance sheet) and the profit for the year ended 31December 2006 between IFRS and UK GAAP, together with explanations for thechanges made. Accounting policies With the exception of the specific accounting policies listed below, theaccounting policies applied under IFRS are unchanged from the accountingpolicies applied under UK GAAP in the preparation of the Company's consolidatedfinancial statements for the year ended 31 December 2006 and which are set outon pages 46 to 49 of the 2006 Report and Accounts. The application of IFRS has changed the format and presentation of the primaryfinancial statements resulting in some terminology changes. The profit and lossaccount which was previously classified between a technical account and anon-technical account under UK GAAP has been renamed as the Income Statementunder IFRS with no further reference to the technical or non-technical account. Financial investments The Company currently holds short term government or government guaranteedsecurities. Accordingly, all financial investments have been classified as "fair value through income" on the basis that short term assets are bought withthe intention to resell. Purchases and sales of investments are recognised onthe trade date, being the date at which a commitment to buy or sell the assethas been made. Investments are initially recognised at fair value, and aresubsequently re-measured at fair value based upon quoted bid prices. Changes tothe fair value are included in the income statement for the period in which theyarise. If the Company decides to purchase long term fixed income or equity securities,management expects that these securities will be classified as "held for sale"with any changes in fair value being included as a separate component ofshareholders' equity as "Unrealised gain or loss on investments, net of tax"during the period in which they arise. Foreign currency translation All monetary assets and liabilities expressed in foreign currencies aretranslated into sterling at the closing rates of exchange at the balance sheetdate. Non-monetary assets and liabilities, including unearned premiums anddeferred acquisition costs, are translated into sterling at historic rates ofexchange. Foreign currency transactions are translated at the average rate ofexchange during the year. Assets and liabilities of foreign subsidiaries are translated at the period endexchange rate. Exchange differences arising from the retranslation of suchassets and liabilities are recorded as a separate component of shareholders'equity in the "Currency Translation Account". To the extent that such netassets have been effectively hedged by the Company's long term debt as is thecase with the Company's investment in Advent Re, any currency differences on theretranslation of the long term debt are also recorded in equity. Other foreignexchange gains or losses are reported in the Income Statement. Hedging Transactions are classified as hedging transactions when the followingconditions for hedge accounting can be met: • there is a formal designation and documentation of the hedging relationship and the Company's risk management objective and strategy for undertaking the hedge; • the hedge is expected to be highly effective in achieving offsetting changes in fair value attributable to the hedged risk, consistent with the originally documented risk management strategy for that hedging relationship; and • the effectiveness of the hedge can be reliably measured. Cash and cash equivalents Cash at bank, short term bank deposits and any highly liquid short terminvestments with a maturity date of 90 days or less at the date of purchase thatare generally not subject to risk of changes in fair value are categorised asCash and Cash Equivalents in the balance sheet at fair value. Intangible assets Purchased capacity Purchased syndicate capacity is considered to have an indefinite life and, assuch, is not subject to annual amortisation, but is reviewed annually for anyimpairment in value. Any such impairment will be charged to the incomestatement in the period during which it is identified. The purchased syndicate capacity has been initially recognised at cost andsubjected to an impairment review. The carrying value is the original cost lessaccumulated impairment losses. The consideration payable of £1.2 million to third party capital providers on 30June 2008 is a finite life asset and accordingly, is amortised to expenses asthe gross premium income is earned on the 2007 year of account to which thepayment relates. Goodwill The goodwill is included on the basis of deemed cost which is considered to bethe carrying value under UK GAAP at the date of transition to IFRS, less anysubsequent impairment losses. These unaudited interim consolidated financial statements have been prepared inaccordance with the accounting policies set out above and do not include alldisclosures required for statutory accounts. In management's opinion, thefinancial statements include all disclosures necessary for the fair presentationof the Company's interim results. Conversion to IFRS Since IFRS became mandatory for fully listed public companies in 2005, UK GAAPhas converged with IFRS such that the only adjustment relates to theamortisation of indefinite life intangible assets and goodwill. In accordancewith IAS 38, 'Intangible Assets', all intangible assets with an indefinite lifeare no longer amortised, but are subject to an annual impairment review. Thedirectors, having regard to currently available information, consider that thenet book value of the intangible assets at 1 January 2006 represents therecoverable amount. The effect of this change in accounting policy, in respectof purchased capacity, has been to increase net earnings for the year ended 31December 2006 by £0.1 million, while opening retained earnings as of 1 January2006 are unchanged. For goodwill, as permitted on the first time adoption of IFRS, the Company haschosen to not restate the historical merger basis of combination for AdventUnderwriting to an acquisition basis as the transaction occurred prior to 31March 2004. Any subsequent business combinations will be accounted for underthe acquisition method. The effect of the change in accounting policy forgoodwill has been to increase net earnings for the year ended 31 December 2006by £0.5 million, while opening retained earnings as of 1 January 2006 areunchanged. Under UK GAAP, Deposits with Credit Institutions, which are of a short termnature, were included as part of Investments. IAS 7 'Cash Flow Statements',defines cash equivalents as short term, highly liquid investments that aresubject to insignificant risk of change in value and are readily convertible tocash. As a result, these assets are now included in 'Cash and Cash Equivalents'on the balance sheet resulting in a reclassification of £1,599,000 fromInvestments to Cash and Cash Equivalents on the IFRS balance sheet at 31December 2006. Status of the interim financial statements The interim financial statements have been reviewed by the Company's auditorsPricewaterhouseCoopers LLP. These interim financial statements do notconstitute accounts as defined in section 240 of the Companies Act 1985 ("theAct"). The results for the year ended 31 December 2006 are based on the Company's UKGAAP statutory accounts. These accounts have subsequently been converted toIFRS as set out above and in note 10. The IFRS comparatives have not beensubject to audit. The UK GAAP accounts received an unqualified audit opinionfrom the Company's auditors, and did not contain a statement under section 237(2) or (3) of the Act. The Company accounts for the year ended 31 December 2006have been filed with the Registrar of Companies. 2. FOREIGN EXCHANGE RISK MANAGEMENT The principal exchange rates used in translating foreign currency assets,liabilities, income and expenditure in the preparation of these accounts were: 31 March 2007 31 March 2006 31 December 2006 Period Period Period Period Period Period average End average end average end rate rate rate rate rate rateUS dollar 1.96 1.96 1.75 1.73 1.84 1.96Euro 1.49 1.47 1.46 1.43 1.47 1.48Canadian dollar 2.29 2.26 2.02 2.02 2.09 2.28 The Company had foreign exchange gains and losses which were recorded in theconsolidated income statement as follows: Three months Three months Year 2007 2006 2006 £'000 £'000 £'000Underwriting activities (57) 1,100 6,991Corporate activities 308 (24) (2,950)Net gain (loss) 251 1,076 4,041 At 31 March 2007, the Company's asset and liability positions in its majorforeign currencies were as follows: 31 March 2007 (unaudited) US$m £m CDN$m •mTotal assets 476.5 134.0 26.6 12.2Total liabilities (479.3) (47.8) (14.3) (13.4)Net assets (net liabilities) (2.8) 86.2 12.3 (1.2) 31 December 2006 (unaudited) US$m £m CDN$m •mTotal assets 467.5 109.4 20.2 12.3Total liabilities (434.7) (41.3) (9.9) (13.4)Net assets (net liabilities) 32.8 68.1 10.3 (1.1) 3. BUSINESS SEGMENT Three months Three months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000Underwriting profit Syndicate 780 - Non MarineUnderwriting Year of Account2007 - open (209) - -2006 - open 1,296 3,399 20,3752005 - open (2,719) (3,481) 1,5242004 and prior closed (897) (706)Total Syndicate 780 (1,632) (979) 21,193 Syndicate 2 - MarineUnderwriting Year of Account2002 - run-off (192) (8) 992001 - run-off 1,039 (138) (228)Total Syndicate 2 847 (146) (129) Advent Re operating costs (122) - - Managing AgencyAgency fees 149 184 301Recharged to Syndicates 55 117 753 204 301 1,054 OtherInvestment income 2,916 2,722 12,681Interest on debt (1,121) (836) (3,560)Corporate expenses (868) (634) (5,436)Corporate foreign exchange gain (loss) 308 (24) (2,950) Profit before tax 532 404 22,853 4. INSURANCE RISK MANAGEMENT Insurance segment results The underwriting results of Advent Re are included in the Non Marine Reinsurancesegment from 1 January 2007, the date it commenced writing business. The othersegment includes the results of Syndicate 2. Acquisition costs representingbrokerage, are allocated to each segment on a direct basis while operating costsare allocated based on gross premiums written. Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000Three months 2007 (unaudited)Gross premiums written 40,134 6,822 8,281 2,665 57,902Net premiums written 29,401 4,662 5,800 2,647 42,510Net premiums earned 12,821 5,218 2,891 1,153 22,083Net claims incurred (10,753) (3,294) (3,363) 26 (17,384)Acquisition costs (1,330) (1,562) (652) (221) (3,765)Operating expenses (1,276) (217) (263) (84) (1,840)Underwriting profit (loss) (538) 145 (1,387) 874 (906)Combined ratio 104.2% 97.2% 148.0% 24.2% 104.1% Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000Three months 2006 (unaudited,restated)Gross premiums written 49,120 5,776 6,766 1,926 63,588Net premiums written 48,608 5,660 5,830 1,845 61,943Net premiums earned 15,221 3,359 1,832 545 20,957Net claims incurred (15,424) (1,428) (1,446) 13 (18,285)Acquisition costs (1,280) (987) (339) (167) (2,773)Operating expenses (791) (93) (109) (31) (1,024)Underwriting profit (loss) (2,274) 851 (62) 360 (1,125)Combined ratio 114.9% 74.7% 103.4% 33.8% 105.4% Non-Marine Property Re-insurance Insurance Marine Other Total £'000 £'000 £'000 £'000 £'000Year 2006(unaudited, restated)Gross premiums written 73,104 26,422 14,129 1,701 115,356Net premiums written 52,599 22,621 11,205 1,776 88,201Net premiums earned 54,639 15,963 9,378 1,714 81,694Net claims incurred (25,837) (8,947) (7,857) (432) (43,073)Acquisition costs (9,260) (5,663) (2,365) (379) (17,666)Operating expenses 69 25 13 2 109Underwriting profit (loss) 19,611 1,378 (831) 905 21,064Combined ratio 64.1% 91.4% 108.9% 47.2% 74.2% Provision for claims (a) Net incurred claims Three Three months months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 Paid claims - Gross amount 25,148 47,720 157,141 - Reinsurers' share (5,828) (25,358) (61,475) 19,320 22,362 95,666 Change in provision for claims - Gross amount (7,505) (26,159) (105,387) - Reinsurers' share 5,569 22,082 52,794 (1,936) (4,077) (52,593)Net incurred claims 17,384 18,285 43,073 (b) Outstanding claims Unearned Claims Total premiums outstanding £'000 £'000 £'000GrossAt 1 January 2007 (audited) 24,322 193,101 217,423Exchange adjustments 42 42Movement in provisions- current year 29,469 16,013 45,482- prior year 1,630 1,630- paid claims (25,148) (25,148)At 31 March 2007 (unaudited) 53,791 185,638 239,429 Reinsurance amountAt 1 January 2007 (unaudited) 4,457 33,317 37,774Exchange adjustments 3 3Movement in provisions- current year 9,042 570 9,612- prior year (310) (310)- paid recoveries (5,828) (5,828)At 31 March 2007 (unaudited) 13,499 27,752 41,251 NetAt 31 March 2007 (unaudited) 40,292 157,886 198,178At 31 December 2006 (audited) 19,865 159,784 179,649At 31 March 2006 (unaudited) 55,062 228,983 284,045 For the three months ended 31 March 2007, adverse development on claims, net ofreinstatement premiums, amounted to £1.9 million (2006: £3.1 million). The net claims outstanding are further analysed between notified outstandingclaims and incurred but not reported claims (IBNR) below: 31 31 31 March March December 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000Notified outstanding claims 113,148 173,114 114,653Claims incurred but not reported 44,738 55,869 45,131Claims outstanding 157,886 228,983 159,784 The breakdown of the gross and net claims reserves by category of claims is setout below. 31 March 2007 (unaudited) 31 March 2006 31 December 2006 (unaudited) (unaudited) Gross Net Gross Net Gross Net £'000 £'000 £'000 £'000 £'000 £'000Large catastrophe provisions, recently incurred 56,019 43,021 154,486 100,136 66,308 44,800All other short tail provisions 53,425 49,110 54,679 53,928 50,372 49,647Long-tail provisions (casualty) 26,312 26,312 27,953 27,953 24,311 24,311Syndicate 2 provisions 49,882 39,443 63,101 46,966 52,110 41,026Total 185,638 157,886 300,219 228,983 193,101 159,784 Reinsurance recoverable At 31 March 2007, the Company's reinsurance recoverable on outstanding claimsamounted to £27.8 million with reinsurers with the following risk ratings by AMBest (or equivalent S&P rating in the absence of an AM Best rating): Risk Rating Reinsurance recoverable £'000 %A+ 9,001 32.4Lloyd's 2,881 10.4A 9,156 33.0A- 366 1.3Trust fund backed 2,903 10.5BBB or below and Non Rated 3,445 12.4 Total 27,752 100.0 Included in other debtors are the following reinsurer balances. Syndicate 780 Syndicate 2 Total £'000 £'000 £'000Due on paid losses 3,221 8,516 11,737Provision for uncollectible reinsurance - (3,830) (3,830) Net 3,221 4,686 7,907 The total provision for uncollectible reinsurance amounted to £4.1 million at 31March 2007 (£4.3 million at 31 December 2006), of which £3.8 million was inrespect of paid losses (£3.9 million at 31 December 2006) and £0.3 million wasin respect of outstanding losses £0.4 million at 31 December 2006. 5. FINANCIAL RISK MANAGEMENT NET INVESTMENT INCOME Three months Three Months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000Investment IncomeIncome 2,761 2,839 12,092Gain on sale of investments 43 14 504Unrealised gains on investments 165 91 517 2,969 2,944 13,113Investment expenses and chargesInvestment management expenses (24) (16) (105)Loss on sale of investments (16) (38) (281)Unrealised losses on investments (13) (168) (46) (53) (222) (432)Net investment income 2,916 2,722 12,681 FINANCIAL INVESTMENTS Three months Three Months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000Fair Value Debt securities and other fixed income securities- government and government guaranteed 65,119 86,007 75,930- corporate and other - 23,333 2,908- asset backed securities - 2,484 - 65,119 111,824 78,838 Purchase Price Debt securities and other fixed income securities- government and government guaranteed 64,705 86,418 75,490- corporate and other - 23,402 2,976- asset backed securities - 2,485 - 64,705 112,305 78,466 All financial investments are held by the Company's managed syndicates. Alldebt securities and other fixed income securities are listed on recognised stockexchanges. All financial investments are classified as fair value throughincome including short term fixed maturity securities. CASH AND CASH EQUIVALENTS 31 March 31 March 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000 Corporate cash at bank 6,076 16,520 5,541Corporate funds held by Lloyd's 113,902 125,581 113,541Advent Re cash at bank 19,315 - 19,132Syndicates' cash at bank 30,452 15,486 21,195Syndicates' overseas deposits 3,342 3,697 3,539Syndicates' deposits with credit institutions 571 3,022 1,599Total cash and cash equivalents 173,658 164,306 164,547 6. CAPITAL MANAGEMENT SHARE CAPITAL Authorised Allotted, Called-Up and Fully Paid 31 31 31 31 31 March 31 March March December March December 2007 2006 2006 2007 2006 2006 £'000 £'000 £'000 £'000 £'000 £'000Ordinary shares of 5p each 50,000 50,000 50,000 20,329 18,481 20,329Number of shares ('000s) 1,000,000 1,000,000 1,000,000 406,570 369,609 406,570 EARNINGS PER ORDINARY SHARE Three months Three months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated RestatedProfit (loss) after tax for the period (£'000) 353 290 16,011Weighted average number of shares in issue 406,570 361,275 369,579Basic and diluted earnings per share 0.1p 0.1p 4.3p LONG TERM DEBT 31 March 31 March 31 December 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000 US$34 million due 3 June 2035 16,825 19,050 16,821Euro 12 million due 3 June 2035 7,910 8,122 7,854 Total subordinated notes 24,735 27,172 24,675 US$26 million due 15 January 2026 12,749 14,427 12,742US$20 million due 15 December 2026 9,870 - 9,865 Total senior notes 22,619 14,427 22,607 Total loan notes 47,354 41,599 47,282Weighted average interest rate 9.22% 8.67% 9.19% The Company's US$34 million and Euro 12 million aggregate principal amount ofunsecured subordinated notes (the "USD Subordinated Notes" and "EuroSubordinated Notes" respectively) are due 3 June 2035 and are callable by theCompany at any time, in whole or in part, after 3 June 2010. The notes bear interest at 3 month EURIBOR plus 3.85% for the Euro SubordinatedNotes (7.78% at 31 March 2007) and 3 month USD Libor plus 3.9% for the USDSubordinated Notes (9.25% at 31 March 2007). Payment of interest may, at theoption of the Company, be deferred for up to 20 consecutive quarters. The Subordinated Notes rank on a winding-up of the Company in priority todistributions on all classes of share capital and rank pari passu with eachother but are subordinated in right of payment to the claims of allunsubordinated creditors of the Company (including, where applicable, allpolicyholders of the Syndicate). The Company's senior loan notes of US$26 million, (the "Senior Notes tranche 1")are due 15 January 2026 and are callable by the Company at any time, in whole orin part, after 16 January 2011. The Senior Notes tranche 1 bear interest at 3month USD Libor plus 4.5% (9.85% at 31 March 2007). The Company's senior loan notes of US$20 million (the "Senior Notes tranche 2")are due 15 December 2026 and are callable by the Company at any time, in wholeor in part, after 15 December 2011. The Senior Notes tranche 2 bear interest at3 month USD Libor plus 4.15% (9.50% at 31 March 2007). The Senior Notes and the Senior Notes tranche 2 rank on a winding-up of theCompany in priority to distributions on all classes of share capital andsubordinated loan notes, and rank pari passu with each other but aresubordinated in right of payment to the claims of all unsubordinated creditorsof the Company (including, where applicable, all policyholders of theSyndicate). The Subordinated Notes and Senior Notes are listed on the Channel Islands StockExchange. FUNDS AT LLOYD'S (FAL) The Funds held by Lloyd's represent monies deposited with the Corporation ofLloyd's (Lloyd's) to support the Company's underwriting activities. These fundsare subject to a Lloyd's deposit trust deed which gives Lloyd's the right toapply these monies in settlement of any claims arising from the Company'sunderwriting at Lloyd's. In addition to the Company's FAL of £113.9 million at 31 March 2007, a majorshareholder, Fairfax Financial Holdings Limited (Fairfax), has deposited FAL of£65.2 million at 31 March 2007 to support the Company's underwriting for the2001 to 2005 underwriting years pursuant to a Funding Agreement dated 16November 2000. Any underwriting profits arising from the business supported bythe Fairfax FAL are receivable by the Company which is also responsible for thepayment of any losses arising. The FAL and the overseas deposits are not available for use by the Company forordinary cash flow purposes. The Company will pay its share of Syndicate 780's cash call on the 2004 year ofaccount of £19.4 million from its FAL on 30 June 2007. Syndicate 780 hasdeclared an interim profit distribution on its 2006 year of account of 9% ofcapacity. The Company will receive £11.1 million which will be held in holdingcompany cash available to pay the remaining 2005 year of account losses in June2008. 7. INCOME TAXES 31 31 31 December March March 2007 2006 2006 (unaudited) (unaudited) (unaudited) Restated Restated £'000 £'000 £'000Analysis of charge in periodOverseas taxation - - (718)Deferred tax 179 114 7,560Total taxation 179 114 6,842 On 21 March 2007, the UK government announced in its Finance Bill that it willrepeal section 107 on the disclaimer of reserves with transitional rules thatwill allow a final disclaimer of reserves, likely for the year ending 31December 2007, and which will be capped at 10% of the net technical reserves atthat date. HM Revenue and Customs has also announced technical changes to Lloyd's specifictax rules to ensure that trading losses can be transferred between companiesunder common control. As a result, management expects that losses incurred onthe 2005 and prior years of account, for which Advent Capital Limited providedunderwriting support, will be transferable to the 2006 and onwards years ofaccount for which Advent Capital (No. 3) Limited provided underwriting support.If these legislative charges are enacted into law as currently intended by theUK government, this should largely eliminate the uncertainty referred to in note6 of the 2006 Report and Accounts relating to the period over which the Companywould have the technical ability to recover 2005 and prior tax losses. The UK government also announced that the corporate tax rate will be reducedfrom 30% to 28% effective 1 April 2008. Had this proposed change in tax ratebeen enacted as of 31 March 2007, then the deferred tax asset and shareholders'equity would have been reduced by £1.4 million. 8. INTANGIBLE FIXED ASSETS Goodwill Purchased on Acquisition Capacity Total £'000 £'000 £'000Fair ValueAt 31 March 2007 (unaudited) 4,148 3,828 7,976At 31 December 2006 (unaudited, restated) 4,148 3,914 8,062At 31 March 2006 (unaudited, restated) 4,148 1,195 5,343 The consideration payable of £1.2 million to third party capital providers on 30June 2008 is a finite life asset and accordingly, is amortised to expenses asthe gross premium income is earned on the 2007 year of account to which thepayment relates. The accounting treatment of intangible assets is discussed further in Note 10. 9. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES Three months Three months Year 2007 2006 2006 (unaudited) (unaudited) (unaudited) £'000 £'000 £'000Profit before tax 532 404 22,853Movement in:- insurance and reinsurance receivables (31,430) (5,255) 81,557- other receivables (4,952) 7,000 5,148- in insurance and reinsurance payables 31,443 (1,773) (141,114)- trade and other payables (1,271) 3,057 1,856Debt interest 1,122 836 3,560Investment income (1,518) (1,525) (6,747)Unrealised investment return 150 (78) (470)Net (purchase) sale of investments 13,569 (2,722) 30,656Depreciation 63 294 909Amortisation of debt issue costs 20 12 69Amortisation of capacity 86 - -Amortisation of share option costs 60 6 143Foreign exchange movements on financing 52 (137) (4,374) 7,926 119 (5,954) 10. RECONCILIATION OF BALANCE SHEET AND INCOME STATEMENTS PREPARED UNDER IFRS TO THOSE PREVIOUSLY PREPARED UNDER UK GAAP The table below sets out the changes, as discussed in note 1, to the reportedprofit for the year ended 31 December 2006 and a reconciliation of the balancesheet at 31 December 2006. There is no change to reserves at 31 December 2005. Reported Adjustment for Adjustment to Reported under UK GAAP intangible recoverable under IFRS asset amount amortisation £'000 £'000 £'000 £'000Profit after tax 15,352 1,656 (997) 16,011Purchased capacity 3,773 1,138 (997) 3,914Goodwill 3,630 518 - 4,148Total assets 365,619 1,656 (997) 366,278Total shareholders equity 88,327 1,656 (997) 88,986Total liabilities and shareholders 365,619 1,656 (997) 366,278equity In accordance with IFRS, the book value of goodwill at the date of transition toIFRS has been used as fair value. The original cost of capacity has beenreviewed and impaired to the value shown in the balance sheet. Independent review report to Advent Capital (Holdings) PLC Introduction We have been instructed by the company to review the financial information forthe three months ended 31 March 2007 which comprises the Consolidated IncomeStatement, Consolidated Balance Sheet, Consolidated Statement of Changes inEquity and Consolidated Cash Flow Statement for the three months then ended andrelated notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directors areresponsible for preparing the interim report in accordance with the AIM Rulesfor Companies. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of management and applying analyticalprocedures to the financial information and underlying financial data and, basedthereon, assessing whether the disclosed accounting policies have been applied.A review excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit and therefore provides a lower level of assurance. Accordingly we do notexpress an audit opinion on the financial information. This report, includingthe conclusion, has been prepared for and only for the company for the purposeof the AIM Rules for Companies and for no other purpose. We do not, in producingthis report, accept or assume responsibility for any other purpose or to anyother person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the three monthsended 31 March 2007. PricewaterhouseCoopers LLP Chartered Accountants London 10 May 2007 Notes: (a) The maintenance and integrity of the Advent Capital (Holdings) PLC web siteis the responsibility of the directors; the work carried out by the auditorsdoes not involve consideration of these matters and, accordingly, the auditorsaccept no responsibility for any changes that may have occurred to the interimreport since it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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