16th Sep 2005 07:01
Advent Capital (Holdings) PLC16 September 2005 Advent Capital (Holdings) PLC ("Advent" or the "Company") Interim Results for the six months ended 30 June 2005 Advent Capital (Holdings) PLC, the specialist Lloyd's insurer reports half yearresults. Key highlightsResults after IPO related adjustments of £8.5m as set out in Note 1 to the 2005interim Financial Statements. a. Profit before tax of £10.9m (£12.8m HY 2004) b. Net premium earned £32m (£24m HY 2004) c. Shareholders' funds £88.7m (£58.8m HY 2004) d. Hurricane Katrina initial assessment - cost to Group in the region of £32m e. Strong Group balance sheet: i. £61.8m of cash (£55.1m HY 2004) ii. £155.6m of investments (£121.1m HY 2004) Financial summary 2005 half year 2005 half year 2004 half before IPO year adjustmentProfit before tax £10.9m £2.5m £12.8 mEPS 6.1p 1.3p 8.3pNet premium earned £32.0m £32.3m £24.0 mCombined Ratio 75% 101% 57%Return on Equity 12.9% 2.7% 16.5%Net tangible assets 37.8p 37.8p 49.6pper share Outlook •Capital available to take advantage of market opportunities arising after Hurricane Katrina •Post Hurricane Katrina rates are expected to strengthen and provide new opportunities Brian Caudle, Executive Chairman commented: "I am excited about the potential opportunities and the long term outlook forour company". Friday, 16th September 2005For further information please contact:Advent Capital HoldingsKeith Thompson Tel: 020 7743 8200Chief Operating Officer Pelham Public RelationsJames Henderson Tel: 020 7743 6670Gavin Davis Advent Capital (Holdings) PLC, which listed on AIM in June 2005, is a leadingLloyd's insurer which manages and participates on Syndicate 780. The Syndicateis predominantly a short tail property reinsurance and insurance syndicatespecialising in catastrophe business. Notes: • Advent listed on AIM in June 2005 raising a total of £65 million. • The new capital is to be used to provide permanent support for the underwriting on Syndicate 780 for 2006 and onwards. • Advent manages and participates on Syndicate 780 through Advent Underwriting Limited (a Lloyd's managing agency) and Advent Capital Limited (a corporate member of Lloyd's). • Advent Underwriting Limited, which was formed in 1975, has operated in the Lloyd's market for thirty years. • Syndicate 780 has outperformed the Lloyd's market in 27 of the last 29 closed years of account returning an average profit of 18.5% compared with the Lloyd's average of 1.3%. • Syndicate 780's latest forecast results as at 30 June 2005 were: o 2003 account - profit 25% - 30% of underwriting capacity (total capacity £228 million) o 2004 account - loss 12.5% - 17.5% of underwriting capacity (total capacity £216 million) • Advent's management is led by Brian Caudle (Executive Chairman and Director of Underwriting) and Keith Thompson (Chief Operating Officer). CHAIRMAN'S STATEMENT The first six months of 2005 have been highly eventful and a period ofsignificant change for the Advent Group. On 3 June 2005 the Company achieved itsplan to raise £40 million of new equity and list on AIM via an Initial PublicOffer (IPO). At the same time, the Group further enhanced its available funds byissuing £25 million in unsecured 30 year long term debt. This debt was listed onthe Irish Stock Exchange on 28 June 2005. The capital raising and issue of debt provide Advent with the funds to supportits underwriting to potentially take advantage of any uplift in tradingconditions following Hurricane Katrina. We are therefore pleased to present our first half year statement as a quotedentity. Financial summary Six months 2005 (unaudited) Six months 12 months 2004 2004 Results Results after (audited)2 before IPO IPO related related adjustments1 (unaudited) adjustments £'000 £'000 £'000 £'000Gross premiums written 52,307 51,281 55,545 79,046Net premiums written 39,524 39,343 48,461 68,031Net premiums earned 32,278 32,066 24,090 69,221Earnings before tax 2,499 10,981 12,825 4,515Earnings after tax 1,574 7,511 8,692 2,702Return on equity 2.7% 12.9% 16.5% 5.1% Per share amountsEarnings 1.3p 6.1p 8.3p 2.6pDividend 2.75p 2.75p 2.75p 2.75pNet assets 40.4p 40.4p 55.6p 49.9pNet tangible assets 37.8p 37.8p 49.6p 44.2p Operating ratiosClaims ratio 80% 53% 32% 74%Expense ratio 21% 22% 25% 8%Combined ratio 101% 75% 57% 102% (1) Results after IPO related adjustments of £8.5 million relating to anincrease in the claims estimates for 2004 as discussed in Note 1 to the interimfinancial statements.(2) As reported in our statutory financial statements for the year ended 31December 2004 as adjusted for FRS21. Interim results statement Note 1 to the interim financial statements explains the IPO related adjustmentsof £8.5 million relating to an increase in claims estimates made in April 2005for the 2004 hurricanes ("the IPO related adjustments"). These adjustments havebeen separately disclosed in the profit and loss account and the commentary inthis report is by reference to the Group's results excluding this increase inclaims estimates. For the first six months of 2005, after IPO related adjustments, the Groupprofit on ordinary activities before tax was £11.0 million, a decrease of 14.4%from the prior year's first half profit of £12.8 million. Earnings per share of6.1p for the first six months of 2005 were down from 8.3p for the first half of2004 reflecting the lower after tax profit and the impact of the 3 June 2005share issue. The reason for the reduced profit is further reserve strengthening of £6 millionin respect of the 2004 catastrophe losses partially offset by a release of £3.6million from 2003 and prior reserves, and a reduction in profit commission as aresult of the forecast loss on the 2004 account of Syndicate 780. Dividend policy In line with previous practice we are not proposing to pay an interim dividend. Underwriting review Underlying gross premium written increased to £59.4 million from £55.5 millionfor the same period in 2004. However, a change to the method of recognisingwritten premium attaching to facility contracts, primarily affecting theproperty insurance division, has resulted in gross premium written as reportedbeing lower at £51.3 million. The technical result is unaffected by this changeas the decrease in gross premiums written is matched by a reduction in unearnedpremiums. Net earned premium for the six month period was £32.1 million, an increase of£8.0 million over the same period last year. Approximately £4.9 million of thisincrease arises from the portfolio transfer premium received from external Nameson the closure at 31 December 2004 of Syndicate 780's 2001 and 2002 years ofaccount as a result of the increase in Advent's capacity on the 2003 year ofaccount of Syndicate 780. The gross underwriting result from the Group's participation on Syndicate 780analysed by principal divisions is as follows: Non-Marine Property Marine Other Total Reinsurance InsuranceGross premiums written 42,039 3,752 3,887 1,469 51,147Gross premiums earned 26,922 5,284 2,633 1,301 36,140Gross claims incurred (18,747) (1,962) 2,160 (898) (19,447)Gross claims ratio 70% 37% (82%) 69% 54%Gross claims ratio 33% 39% 56% 46% 36%(excluding developmenton prior years) The Reinsurance division gross claims ratio of 70% reflects the increase inclaims from the 2004 catastrophe losses. Advantage has been taken of the ratingconditions in the first half of the year, margins remain excellent and lossincidence has been low in the period. The Marine division's negative claims ratio reflects the release of reservesfrom prior years as referred to above. The business is predominantly short tail property reinsurance and insurancespecialising in catastrophe business, which depending on the frequency andseverity of catastrophe losses is capable of producing profits over the mediumto long term. Where specific accounts have suffered significant 2004 hurricanelosses, rates have been increased. The average renewal retention ratio for theperiod was 98% and our focus has remained on gross underwriting profit from ourexisting core accounts. Expenses The underwriting expense ratio at 30 June 2005 was 22%, compared with 25% forthe prior period. Investment return The half year investment return increased by 45% to £2.6 million (H1 2004: £1.8million) reflecting an improved investment environment, particularly in the USfollowing the increases in the Federal Reserve Rate. Throughout the period the US dollar portfolio duration was maintained short,between 0.70 and 0.75 years. Government paper remains the dominant asset class(about 85% of US investments) and an overall return on US Bonds of 1.1% wasachieved. Sterling funds were held mainly in AA rated bank corporates achieving a yield of2.4%. In addition, significant sterling cash balances were held on which areturn of 2.7% was achieved. Our investment mix as at 30 June 2005 is shown below. 30 June 2005 30 June 2004 31 December 2004Half Year 2005 Syndicate Corporate Total Total Totalinvestment mix £'000 £'000 £'000 £'000 £'000Debt Securities 81,129 - 81,129 104,080 94,556Cash and cash 43,794 92,494 136,288 72,110 63,228equivalents Total 124,923 92,494 217,417 176,190 157,784 Appointment of new auditors PricewaterhouseCoopers LLP were appointed as auditors of the Company on 15September 2005 following the resignation of CLB Littlejohn Frazer. Outlook and 2006 underwriting Results for the second half of the year will be severely impacted by HurricaneKatrina. Our initial assessment of the potential level of claims from this eventis estimated to be a net cost, after reinsurance recoveries and reinstatementpremiums, to Syndicate 780 of £61 million (US$112 million). Based upon thisassessment the net cost, after reinsurance recoveries and reinstatementpremiums, to the Group is in the region of £32 million (US$59 million). Theremust be a note of caution to this early assessment as it will take a significantlength of time to establish a more accurate insured loss figure given thecomplexities of this event. We now expect to see improving terms and pricing across all major sectors of ourbusiness and now is the time to take full advantage of our expertise in thesespecialist classes. We will be alert to new opportunities and are ready to flexour plans as the market reacts. B F CaudleChairman16 September 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNTGROUP GENERAL BUSINESS TECHNICAL ACCOUNTfor the six months ended 30 June 2005 Note Six months 2005 (unaudited) Six months 12 months 2004 2004 (unaudited) (audited)2 Results IPO related Results before IPO adjustments1 after IPO related related adjustments adjustments £'000 £'000 £'000 £'000 £'000Written premiumsGross premiums 3 52,307 (1,026) 51,281 55,545 79,046writtenNet premiums 39,524 (181) 39,343 48,461 68,031written Earned premiumsGross premiums 3 37,256 (982) 36,274 28,403 81,708earnedNet premiums 32,278 (212) 32,066 24,090 69,221earnedAllocated net 5 1,556 - 1,556 956 2,614investment incometransferred fromthe non-technicalaccountTotal technical 33,834 (212) 33,622 25,046 71,835income Claims incurred,net ofreinsuranceClaims paid- gross amount 3 (36,214) - (36,214) (29,886) (68,134)- reinsurers' 8,857 - 8,857 5,692 12,195share (27,357) - (27,357) (24,194) (55,939)Change in theprovision forclaims- gross amount 3 3,880 12,948 16,828 24,264 2,841- reinsurers' (2,442) (4,078) (6,520) (7,860) 1,784share 1,438 8,870 10,308 16,404 4,625 Claims incurred, (25,919) 8,870 (17,049) (7,790) (51,314)net ofreinsuranceNet operating (5,973) (176) (6,149) (7,857) (18,753)expensesTotal technical (31,892) 8,694 (23,198) (15,647) (70,067)chargesBalance on the 6technical accountfor general 1,942 8,482 10,424 9,399 1,768business (1) IPO related adjustments are discussed in Note 1 to the interim financialstatements. (2) As reported in our statutory financial statements for the year ended 31December 2004 as adjusted for FRS 21. Consolidated Profit and Loss AccountGroup Non-Technical AccountFor the six months ended 30 June 2005 Note Six months 2005 (unaudited) Six months 12 months 2004 2004 (unaudited) (audited)2 Results IPO related Results after before IPO adjustments1 IPO related related adjustments adjustments £'000 £'000 £'000 £'000 £'000Balance on the 6 1,942 8,482 10,424 9,399 1,768general businesstechnicalaccountInvestment 5 3,231 - 3,231 3,061 6,603incomeInvestment 5 (589) - (589) (1,234) (2,100)expenses andcharges Allocated 5 (1,556) - (1,556) (956) (2,614) investmentreturntransferredto the generalbusinesstechnicalaccount Other income 1,381 - 1,381 4,891 4,563 Other charges (1,910) - (1,910) (2,336) (3,705) Profit on 2,499 8,482 10,981 12,825 4,515ordinaryactivitiesbefore tax Tax on profit 7 (925) (2,545) (3,470) (4,133) (1,813)on ordinaryactivities Profit on 1,574 5,937 7,511 8,692 2,702ordinaryactivitiesafter taxDividends 8 (2,896) - (2,896) (2,896) (2,896) Profit and loss 29,281 (5,937) 23,344 29,475 29,475account broughtforward Profit and loss 27,959 - 27,959 35,271 29,281account carriedforwardEarnings perordinary share- Basic and 13 1.3p - 6.1p 8.3p 2.6pdilutedDividend per 8 2.75p - 2.75p 2.75p 2.75pordinary share All of the operations are continuing. There are no recognised gains or losses other than the profit stated above. (1) IPO related adjustments are discussed in Note 1 to the interim financialstatements. (2) As reported in our statutory financial statements for the year ended 31December 2004 as adjusted for FRS 21. Consolidated Balance sheet at 30 June 2005 Note 30 June 30 June 31 December 2005 2004 2004 (unaudited) (unaudited) (audited)1 £'000 £'000 £'000AssetsIntangible assets 9 5,672 6,330 6,002Investments 10Debt securities and other fixed 81,129 104,080 94,556income securitiesDeposits with credit institutions 74,446 16,967 5,276Deposits with cedants 22 38 17 155,597 121,085 99,849Reinsurers' share of technical 15provisionsProvision for unearned premiums 10,052 6,576 2,200Claims outstanding 40,940 33,185 41,088 50,992 39,761 43,288 DebtorsDebtors arising out of directinsurance operations- Intermediaries 2,553 7,597 778Debtors arising out of reinsurance 64,056 62,281 45,902operationsPortfolio premium receivable - - 4,297Other debtors 18,019 10,906 13,688 84,628 80,784 64,665Other assetsTangible assets 1,275 1,218 1,485Cash at bank 11 61,820 55,105 43,617Overseas deposits 4,339 4,668 4,352 67,434 60,991 63,772 Prepayments and accrued incomeAccrued income 4,556 4,084 3,904Deferred acquisition costs 6,380 7,672 3,583Prepaid expenses 1,015 1,388 1,015 11,951 13,144 8,502Total assets 376,274 322,095 286,078 Liabilities and reservesCalled-up share capital 12 10,981 26,331 26,331Share premium account 31,755 - -Profit and loss account 27,959 35,271 29,281Capital redemption reserve 21,065 - -Other reserves (3,081) (3,059) (3,081)Equity shareholders' funds 14 88,679 58,543 52,531Technical provisions 15Provision for unearned premiums 37,830 52,977 22,293Claims outstanding 199,074 178,816 191,925 236,904 231,793 214,218Deposits received from reinsurers 1,112 - 1,165Long term debt 16 26,229 - -CreditorsCreditors arising out of direct 555 1,998 290insurance operationsCreditors arising out of 18,591 15,113 9,822reinsurance operationsOthers creditors including 3,336 13,859 7,250taxation and social security 22,482 30,970 17,362Accruals and deferred income 868 789 802Total liabilities 376,274 322,095 286,078 (1) As reported in our statutory financial statements for the year ended 31December 2004 as adjusted for FRS 21. Consolidated Cash Flow Statement for the six months ended 30 June 2005 Note 30 June 2005 Six months 12 months (unaudited) 2004 2004 (unaudited) (audited)1 £'000 £'000 £'000Net cash inflow/ (outflow) from 17 (528) 9,519 (8,675)operating activitiesInterest received 1,120 682 1,655Net taxation paid (1,726) 129 (49)Net purchased tangible fixed (49) (18) (650)assets (1,183) 10,312 (7,719) Equity dividend paid (2,896) (2,896) (2,896)Net cash inflow/(outflow) before (4,079) 7,416 (10,615)financing Cash inflow from financingIssue of share capital net of 37,470 - -expensesIssue of long term debt net of 26,229 - -expenses 63,699 - -Net cash inflow/(outflow) 59,620 7,416 (10,615) Cash flows were invested asfollows:Increase/(decrease) in cash 18 3,872 (7,022) (3,606)holdingsNet portfolio investmentFixed income securities (13,427) 4,420 (4,413)Deposits with credit institutions 69,170 10,037 (2,556)Deposits with cedants 5 (19) (40) 55,748 14,438 (7,009)Net investment of cash flows 59,620 7,416 (10,615) 1. BASIS OF PREPARATION OF INTERIM CONSOLIDATED FINANCIAL STATEMENTS Accounting PoliciesThese interim consolidated financial statements should be read in conjunctionwith the Group's consolidated financial statements for the year ended 31December 2004 as set out on pages 12 to 38 of the company's 2004 Report andAccounts. These unaudited interim consolidated financial statements have been prepared inaccordance with the accounting policies set out in the consolidated financialstatements for the year ended 31 December 2004, except as noted, and althoughthey do not include all disclosures required for statutory accounts, inmanagement's opinion, they include all disclosures necessary for the fairpresentation of the Group's interim results. In these interim financial statements the group has adopted Accounting Standardsapplicable for accounting periods starting on or after 1 January 2005 asfollows: FRS17 - Retirement Benefits;FRS21 - Events after the balance sheet date;FRS22 - Earnings Per Share FRS17 and FRS22 have not had any impact on either the results or the assets andliabilities of the Group. However, prior to the adoption of FRS21, dividendsdeclared in respect of the years ended 31 December 2003 and 2004 were accrued aspayable as at 31 December 2003 and 2004 even though the dividends were notdeclared by the Board as payable until the subsequent years. Under FRS21, thedividends are accrued when they are approved for payment by the shareholders. IPO related adjustments subsequent to publication of the 2004 Annual ReportUnderwriting technical results for Syndicate 780's 2004 year of account wereseverely impacted by the worst level of natural catastrophe losses on record.The Syndicate was impacted by the four hurricanes which hit the South-easternUnited States in the third quarter of 2004. Following completion of the Groupaccounts for the year ended 31 December 2004 on 29 March 2005, the Syndicatereceived further claims information in respect of 2004. This led to a revisionto the estimate of the ultimate claims exposure of the Syndicate. Having theadvantage of this new information, the 2004 result reported in the financialinformation included in the Group's Placing and Admission to AIM document dated27 May 2005, was reduced by a net £5.94 million after tax, and net technicalreserves in the balance sheet increased by £8.5 million, when compared with thestatutory accounts already published for the same period. The publishedstatutory accounts for the year ended 31 December 2004 did not need to berestated. However, the interim results for the period ended 30 June 2005,including the analysis of the interim results disclose the results of the Groupas if this strengthening of reserves had taken place at 31 December 2004. Status of the interim financial statementsThe interim financial statements have been reviewed by the Company's auditorsPricewaterhouseCoopers LLP. These interim financial statements do not constitutestatutory accounts as defined in section 240 of the Companies Act 1985 ("theAct"). The results for the year ended 31 December 2004 are based on the statutory Groupaccounts adjusted as noted above, which received an unqualified audit opinionfrom the Group's auditors at that time, CLB Littlejohn Frazer, and did notcontain a statement under section 237(2) or (3) of the Act. The 31 December 2004Group accounts have been filed with the Registrar of Companies. 2. PRINCIPAL EXCHANGE RATES The principal exchange rates used in translating foreign currency assets,liabilities, income and expenditure in the preparation of these accounts were: Six months 2005 Six months 2004 12 months 2004 Period Period Period Period Period Period average end average end average end rate rate rate rate rate rateUs Dollar 1.87 1.79 1.82 1.81 1.83 1.92Euro 1.46 1.48 1.49 1.49 1.47 1.41Canadian 2.31 2.20 2.44 2.43 2.38 2.30Dollar 3. SEGMENTAL ANALYSIS Syndicate 780 Syndicates Total 2 & 506 Non-Marine Property Marine Other Reinsurance Insurance £'000 £'000 £'000 £'000 £'000 £'000Six months 30 June2005 (unaudited) (1) Gross premiums written 42,039 3,752 3,887 1,469 134 51,281Gross premiums earned 26,922 5,284 2,633 1,301 134 36,274Gross claims incurred (18,747) (1,962) 2,160 (898) 61 (19,386)Gross underwriting 8,175 3,322 4,793 403 195 16,888resultReinsurance balance (1,871)Gross and net (6,149)operating expensesAllocated investment 1,556returnTechnical result 10,424 (1) Results after IPO related adjustments as discussed in Note 1, whichprimarily affect the Non-Marine Reinsurance results. Syndicate 780 Syndicates Total 2 & 506 Non-Marine Property Marine Other Reinsurance Insurance £'000 £'000 £'000 £'000 £'000 £'000Six months 30 June 2004(unaudited)Gross premiums written 40,938 10,208 5,550 2,022 (3,173) 55,545Gross premiums earned 17,810 4,300 6,195 1,464 (1,366) 28,403Gross claims incurred (5,061) (307) (1,109) 17 838 (5,622)Gross underwriting result 12,749 3,993 5,086 1,481 (528) 22,781Reinsurance balance (6,481)Gross and net operating (7,857)expensesAllocated investment return 956Technical result 9,399 Syndicate 780 Syndicates Total 2 & 506 Non-Marine Property Marine Other Reinsurance Insurance £'000 £'000 £'000 £'000 £'000 £'00012 months 31 December 2004(audited) (2)Gross premiums written 63,062 11,260 7,550 2,545 (5,371) 79,046Gross premiums earned 57,744 10,875 13,412 3,245 (3,568) 81,708Gross claims incurred (49,920) (5,583) (9,222) (1,821) 1,253 (65,293)Gross underwriting result 7,824 5,292 4,190 1,424 (2,315) 16,415Reinsurance balance 1,492Gross and net operating (18,753)expensesAllocated investment return 2,614Technical result 1,768 The reinsurance balance represents the credit/(charge) to the technical accountfrom the aggregate of all items relating to reinsurance outwards. It is notallocated by segment as reinsurance is mainly purchased on a whole accountbasis. All premiums are written in the United Kingdom. 4. BUSINESS SEGMENT Six months 2005 (unaudited) Six months 12 months 2004 2004(2) (unaudited) (audited) Before IPO After IPO related related adjustments Adjustments1 £'000 £'000 £'000 £'000UnderwritingTechnical account 1,942 10,424 9,399 1,768 Managing AgencyAgency fees 472 472 701 849Profit commission 687 687 3,453 3,178 1,159 1,159 4,154 4,027Other Investment income on 1,085 1,085 871 1,889corporate fundsOther income - - - 73Other expenses (1,910) (1,910) (2,336) (3,705)Recharges to 223 223 737 463SyndicatesProfit before tax 2,499 10,981 12,825 4,515 (1) Results after IPO related adjustments as discussed in Note 1. (2) As reported in our statutory financial statements for the year ended 31December 2004. 5. INVESTMENT RETURN Six months Six months 12 months 2005 2004 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000Investment incomeIncome from investments and bank 3,231 3,061 6,603deposits Investment expenses and chargesInvestment management expenses (23) (37) (129)Net realised and unrealised (566) (1,197) (1,971)losses on investments (589) (1,234) (2,100) Net investment return 2,642 1,827 4,503 Six months Six months 12 months 2005 2004 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000Analysed between: Investment income transferred to 1,579 993 2,743the general business technicalaccountInvestment expenses transferred (23) (37) (129)to the general business technicalaccountAllocated net investment return 1,556 956 2,614transferred to the generalbusiness technical accountInvestment income included in the 1,086 871 1,889non-technical accountNet investment return 2,642 1,827 4,503 6. BALANCE ON TECHNICAL ACCOUNT Under the annual basis of accounting the Group's share of the syndicates'technical accounts by years of account has been accounted for as follows: Six months 2005 (unaudited) Six months 12 months 2004 2004(2) (unaudited) (audited) Before IPO After IPO related related adjustments Adjustments1 £'000 £'000 £'000 £'000Syndicate 780 - Non Marine Underwriting Year of Account2005 - open 7,001 7,001 - -2004 - open (10,000) (1,518) 4,237 (5,032)2003 - open 4,069 4,069 6,239 9,5332002 and prior closed - 1,971 1,244Balance on technical account 1,070 9,552 12,447 5,745 Syndicate 2 - Marine Underwriting Year of Account2002 - run-off 802 802 (1,990) (2,294)2001 - run-off 70 70 (220) (559)Balance on technical account 872 872 (2,210) (2,853) Syndicate 506 - Non-Marine Underwriting Year of Account2001 - run-off - - (838) (1,124) Total balance on technical 1,942 10,424 9,399 1,768account The figures above exclude profit commission and agency fees payable to theGroup's managing agency. 7. TAX ON PROFIT ON ORDINARY ACTIVITIES Six months 2005 (unaudited) Six months 12 months 2004 2004(2) (unaudited) (audited) Before IPO After IPO related related adjustments Adjustments1 £'000 £'000 £'000 £'000 Analysis of charge inperiod UK corporation tax 196 196 345 111Overseas taxation 96 96 - 2,003Deferred tax 633 3,178 3,788 (301)Total taxation 925 3,470 4,133 1,813 (1) Results after IPO related adjustments as discussed in Note 1.(2) As reported in our statutory financial statements for the year ended 31December 2004. 8. EQUITY DIVIDENDS Six months Six months 12 months 2005 2004 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000Final dividend - 2.75p per New 2,896 2,896 2,896Ordinary share (2004: 2.75p) 9. INTANGIBLE FIXED ASSETS Goodwill on Capacity Auction Total Acquisition capacity £'000 £'000 £'000 Cost 9,858 2,193 12,051 AmortisationAt 31 December 2004 5,192 857 6,049(audited)Charge for 2005 259 71 330At 30 June 2005 5,451 928 6,379(unaudited) Net Book ValueAt 30 June 2005 4,407 1,265 5,672(unaudited)At 31 December 2004 4,666 1,336 6,002(unaudited)At 30 June 2004 4,925 1,405 6,330(unaudited) 10. FINANCIAL INVESTMENTS 30 June 30 June 31 2005 2004 December (unaudited) (unaudited) 2004 (audited) £'000 £'000 £'000Carrying Value Debt securities and other fixed income 81,129 104,080 94,556securitiesDeposits with credit institutions 36,881 4,177 5,276Deposits with credit institutions - 37,565 12,790 -corporateDeposits with cedants 22 38 17 155,597 121,085 99,849 Purchase PriceDebt securities and other fixed income 86,860 111,028 95,325securitiesDeposits with credit institutions 36,881 4,170 5,276Deposits with credit institutions - 37,565 12,790 -corporateDeposits with cedants 22 38 17 161,328 128,026 100,618 All financial investments are held by the Company's managed syndicates except asnoted. All debt securities and other fixed income securities apart from asset-backed securities are listed on recognised stock exchanges. (1) As reported in our statutory financial statements for the year ended 31December 2004. 11. CASH AT BANK AND INVESTMENTS 30 June 2005 30 June 2004 31 December 2004 £'000 £'000 £'000 Corporate cash at bank 40,232 1,897 15,227Corporate funds held by 14,697 33,839 33,474Lloyd'sCorporate financial 37,565 12,790 -investmentsSyndicates' cash at bank 6,891 19,369 9,234Syndicates' financial 118,032 108,295 99,849investmentsTotal cash and investments 217,417 176,190 157,784 The Funds held by Lloyd's represent monies deposited with the Corporation ofLloyd's (Lloyd's) to support the Group'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 Group'sunderwriting at Lloyd's. The reduction in these funds is primarily due to thepayment of 2001 account syndicate losses partially offset by the receipt of the2002 account profit and an early release of the 2003 account forecast profit. In addition to the Group's Funds at Lloyd's (FAL) of £14.7 million at 30 June2005, a major shareholder, Fairfax Financial Holdings Limited (Fairfax), hasdeposited Funds at Lloyd's of £110 million at 30 June 2005 to support theGroup's underwriting for the 2001 to 2005 underwriting years pursuant to aFunding Agreement dated 16 November 2000. Any underwriting profits arising fromthe use of the Fairfax FAL are receivable by the Group which is also responsiblefor the payment of any losses arising. The increase in corporate cash is mainly due the net proceeds of the debt andequity raising of £63.7 million. 12. CALLED-UP SHARE CAPITAL Authorised Allotted, Called-Up and Fully Paid 30 June 30 June 31 December 30 June 30 June 31 December 2005 2004 2004 2005 2004 2004 £'000 £'000 £'000 £'000 £'000 £'000Ordinary shares of 16,555 - - 10,981 - -5p eachOrdinary shares of - 29,112 29,112 - 26,331 26,33125p eachNumber of shares 331,109,320 116,448,908 116,448,908 219,608,771 105,323,057 105,323,057 Share capital reorganisationOn 17 May 2005 each issued Ordinary Share of 25 pence of the Company wasconverted and subdivided into one New Ordinary Share of 5 pence and one DeferredShare of 20 pence and each existing unissued Ordinary Share of 25 pence in thecapital of the Company was converted and subdivided into five New OrdinaryShares of 5 pence, each New Ordinary Share and each Deferred Share having thesame rights and being subject to the restrictions set out in the New Articles ofAssociation of the Company adopted on the same date. The authorised sharecapital of the Company was increased to £37.620 million on the same date by thecreation of 170,157,000 Ordinary Shares of 5 pence each, such new shares to havethe rights attached thereto in the New Articles of Association of the Company.As a result of the share capital reorganisation, £21.065 million was transferredfrom called-up share capital to capital redemption reserve. On 26 May 2005, the Deferred Shares were acquired by the Company and cancelled,as a result of which the Company's authorised share capital reduced by £21.065million from £37.620 million to £16.555 million. Share issue On 3 June 2005, the Company issued 114,285,714 New Ordinary Shares of 5 penceeach at 35 pence per share, pursuant to an equity offering fully underwritten byNumis Securities Limited (Numis) for cash proceeds of £40 million less expensesof issue of £2.53 million, of which £5.715 million has been included incalled-up share capital and £31.755 million has been included in the sharepremium income account. Pursuant to the Placing Agreement the Company has granted to Numis an option tosubscribe for up to 2,196,087 Ordinary Shares at 35p per share, exercisable atany time, in whole or in part, up to 3 June 2010. Share Option Schemes In the periods included in this report, the Company operated two share optionsschemes. The 1998 Scheme, which was open to all employees, and the 1999Executive Share Option Scheme. Both schemes were superseded in 2005 by the newAdvent Share Option Plans. All option holders under the 1998 were sent a letterof cancellation by the Company on 21 April 2005 and have acknowledgedcancellation of that scheme. No options were exercised under this scheme. Thetwo option holders under the 1999 Scheme waived their rights under that Schemeon 4 May 2005. The Company has established two share option plans: the Unapproved Plan whichwas adopted by the Board of Directors on 20 April 2005; and the Approved Planwhich was adopted by the Board of Directors on 29 March 2005 (collectivelyreferred to as the "Advent Share Option Plans"). The Advent Share Option Planshave been set up to enable employees and Directors of the Company to be grantedoptions to acquire Ordinary Shares of the Company ("Options"). As at 3 June 2005, options over an aggregate of 4,629,000 Ordinary Share hadbeen awarded to Directors and Employees of the Advent Group, pursuant to theAdvent Share Option Plans. These awards have been granted at the placing priceof 35p per share and are not subject to performance conditions. The 2,323,996 options granted under the Approved Scheme have an exercise periodbetween three and ten years from the date of grant, whereas the 2,305,004options granted under the Unapproved Scheme have an exercise period between oneand ten years following the date of grant. 13. EARNINGS PER ORDINARY SHARE Six months 2005 (unaudited) Six months 12 months 2004 2004(2) (unaudited) (audited) Before IPO After IPO related related adjustments Adjustments1 £'000 £'000 £'000 £'000Profit for the period £1.574m £7.511 £8.692m £2.702mWeighted average number of 123.0m 123.0m 105.3m 105.3mshares in issueBasic and diluted earnings per 1.3p 6.1p 8.3p 2.6pshare (1) Results after IPO related adjustments as discussed in Note 1. (2) As reported in our statutory financial statements for the year ended 31December 2004. 14. RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS Six months Six months 12 months 2005 2004 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000Profit for the year 1,574 8,692 2,702Dividend (Note 8) (2,896) (2,896) (2,896)Share issue (Note 12) 37,470 - -Merger reserve adjustments - - (22)Net addition/(reduction) to 36,148 5,796 (216)equity shareholders' funds Opening equity shareholders' 52,531 52,747 52,747 funds Closing equity shareholders' 88,679 58,543 52,531funds 15. TECHNICAl PROVISIONS Provision Claims Total for Outstanding unearned premiums £'000 £'000 £'000Gross At 1 January 2005 (audited) 22,293 191,925 214,218Exchange adjustments - 11,029 11,029Movement in provisions 15,537 (3,880) 11,657At 30 June 2005 (unaudited) 37,830 199,074 238,904 Reinsurance amountAt 1 January 2005 (unaudited) 2,200 41,088 43,288Exchange adjustments - 2,294 2,294Movement in provisions 7,852 (2,442) 5,410At 30 June 2005 (unaudited) 10,052 40,940 50,992 NetAt 30 June 2005 (unaudited) 27,778 158,134 185,912At 31 December 2004 (audited) 20,093 150,837 170,930At 30 June 2004 (unaudited) 46,401 145,631 191,032 The net claims outstanding balance is further analysed between notifiedoutstanding claims and incurred but not reported claims (IBNR) below: Six months Six months 12 months 2005 2004 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000Notified outstanding claims 111,807 91,270 93,584Claims incurred but not reported 46,327 54,361 57,253Claims outstanding 158,134 145,631 150,837 16. LONG TERM DEBT On 3 June 2005, the Company raised US$34 million (£19.0 million at 30 June 2005)and Euro 12 million (£8.1 million at 30 June 2005) aggregate principal amount ofunsecured subordinated notes (the "USD Notes" and "Euro Notes" respectively),due 3 June 2035 and callable by the Company at any time, in whole or in part,after 3 June 2010. Expenses incurred in connection with the issue of the debtreduced net proceeds to £26.2 million. The notes bear interest at 3 month EURIBOR plus 3.85% for the Euro Notes (5.97%at 30 June 2005) and 3 month USD Libor plus 3.9% for the USD Notes (7.25% at 30June 2005). Payment of interest may, at the option of the Company, be deferredfor up to 20 consecutive quarters. Proceeds of the debt issue have been maintained in US dollars and Euro cashdeposits so that the Company is not exposed to exchange rate fluctuations. The Notes rank on a winding-up of the Company in priority to distributions onall classes of share capital 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). On 28 June 2005, the Notes were listed on the Irish Stock Exchange. 17. RECONCILIATION OF PROFIT BEFORE TAX TO NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES Six months Six months 12 months 2005 2004 2004 (unaudited) (unaudited) (audited) £'000 £'000 £'000Profit before tax 2,499 12,825 4,515(Increase)/decrease in debtors (24,269) (6,523) 22,799and prepaymentsIncrease/(decrease) in creditors 6,756 (2,185) (16,358)and accrualsIncrease/(decrease) in net 14,982 5,620 (19,779)technical provisionsInvestment income (1,085) (871) (1,889)Unrealised investment return - - 691Depreciation 259 323 688Amortisation 330 330 658 (528) 9,519 (8,675)18. MOVEMENT IN CASH HOLDINGS At 31 Cash flow At 30 June December 2005 2004 £'000 £'000 £'000Corporate funds held by Lloyd's 33,474 (18,777) 14,697Corporate cash at bank 15,227 39,323 40,232Syndicates' cash at bank 9,234 (2,343) 6,891Syndicates' overseas deposits 4,352 (13) 4,339 62,287 18,190 66,159 INDEPENDENT REVIEW REPORT TO ADVENT CAPITAL (HOLDINGS) PLC IntroductionWe have been instructed by the Company to review the financial information forthe six months ended 30 June 2005 which comprises the consolidated interimbalance sheet as at 30 June 2005 and the related consolidated interim GroupTechnical Account, Group Non-Technical Account and cash flows for the six monthsthen ended and related notes. We have read the other information contained inthe interim report and considered whether it contains any apparent misstatementsor material inconsistencies with the financial information. Directors' responsibilitiesThe 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 conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. PricewaterhouseCoopers LLPChartered AccountantsLondon15 September 2005 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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