RNS Number : 7999V
Newfound N.V.
03 June 2008
Newfound N.V.
Final audited results for the financial year ended 31 December 2007
Notice of AGM
Newfound N.V. ("Newfound" or the "Company") today announces its final audited results for the financial year ended 31 December 2007.
During 2007, and since the end of the year, key highlights have included:
- Equity raisings of �7 million and �3.6 million in December 2007 that allowed the Company to pursue its revised business strategy
- The restructuring of the management team
- A new initiative on vacation marketing for Humber Valley Resort, significant progress on the construction programme, awards for its
golf course and a new charter flight contract from the UK
- Progress on the master plan for the Pinney's Estate Resort beachfront development and submission of the environmental impact
assessment
- The commencement of construction at Ocean's Edge with continuing sales closures
For the year ended 31 December 2007, as shown in the final audited results, Newfound had revenues of US$34.1 million (2006: US$27.9
million) and an operating loss before exceptional items of US$14.1 million (2006: US$10.0 million) with the result that the adjusted basic
loss per share was US cents 11.0 per share (2006: loss of US cents 12.0 per share).
In conjunction with the publication of the Company's final audited results, the Board also announced today a proposed fundraising of
�15.0 million (before expenses) by way of the issue of �15.0 million 8 per cent. guaranteed secured notes due 2011 with warrants (the
"Issue") and the proposed appointment, conditional on the completion of the Issue, of Jayne McGivern as CEO to lead a new management team.
Further details of the Issue, including an update on current trading, are set out in such announcement.
The Issue is subject to approval by shareholders at the Annual General Meeting of the Company to be held at Schiphol Airport Meeting
Centre, 8th Floor, Havenmeesterweg 27, 1118 CB Schiphol Airport, The Netherlands at 1.00 pm (Central European Time) on 26 June 2008.
Notice of the AGM, a circular regarding the Issue and the Company's Annual Report and Accounts for the financial year ended 31 December
2007 ("Annual Report") will shortly be sent to shareholders.
All of these documents will also shortly be available to view on the Company's website: www.newfoundresorts.com.
Shareholders should be aware that, should completion of the Issue not occur for any reason, the proceeds of the Issue would not be
received and the Company would face a working capital shortfall in the near term which would have a material adverse effect on the Company's
operations. As noted in the auditors' report set out in the Annual Report, there is a material uncertainty in relation to the proposed
fundraising and therefore the ability of the Group to continue as a going concern, should completion of the Issue not occur.
Enquiries:
Newfound N.V.
Simon Longfield, CFO +44 (0) 20 7470 2490
Collins Stewart Europe Limited
Adrian Hadden +44 (0) 20 7523 8350
About Newfound:
Newfound is a creator and operator of international luxury resorts and destinations. The Company has a high quality portfolio of resort
projects at Humber Valley in Canada and in Nevis and St. Kitts in the Caribbean.
Humber Valley Resort, with 2,200 acres, currently has over 200 privately owned properties the majority of which are available for rent.
It is an all-season, luxury resort offering golf, world-class salmon fishing, sailing, skiing and a luxury spa.
Newfound has an integrated business model based on destination master-planning, which generates revenues from multiple sources,
including freehold land sales, construction and development, services to owners, the provision of leisure activities and the operation of
concessions.
Newfound is building an industry leading, world-class luxury lifestyle brand offering exceptional holiday experiences in luxurious
homes, situated in locations of outstanding natural beauty.
www.newfoundresorts.com
Chairman and CHIEF EXECUTIVE OFFICER's statement
I write to you as Chairman and interim CEO of Newfound N.V. during a period of transition in the Company's development.
2007 was a year of change and reorganisation as Humber Valley, our 2,200 acre resort in Newfoundland, reached critical mass,
construction commenced at our Ocean's Edge project in St Kitts and our major 430 acre site at Pinney's Estate Resort in Nevis progressed
through the planning process.
Newfound N.V. has significant assets in Humber Valley Resort and Pinney's Estate Resort with exciting development potential and, as
announced in our interim results in September 2007, were together valued at US$ 227 million. However, the Company's performance during 2007
has been disappointing resulting in an operating loss after extraordinary items of US$ 17.8 million (2006: US$ 22.8 million). The principal
reasons for these losses are a carry-over of loss making construction contracts at Humber Valley, greatly increased overheads, reduced land
sales and the general under capitalisation of the Group.
Your board has taken robust action to correct the situation and I am pleased to report that, subject to shareholder approval at the AGM
to be held on 26 June 2008, we have agreed the issuance of guaranteed secured loan notes of nearly US$ 30 million (� 15 million). We have
appointed Jayne McGivern as the Company's CEO conditional on the closing of the funding. Jayne was formerly CEO of Multiplex UK, one of the
UK's leading construction companies. She has extensive experience profitably managing large and complex property developments and is highly
regarded in the sector. Overheads and costs have been cut resulting in anticipated annual savings of US$ 4 million and management control
systems strengthened. The Board believes these changes will provide the foundation for significant enhancement of shareholder value in the
future.
We are operating in uncertain times for the real estate market as a result of the worldwide fall-out caused by the US sub-prime
problems. At this point in time it is uncertain what effect it will have on the second home market, but we believe that the upper end is
still holding out.
I stated at the outset that 2007 was a year of change. In December, to bolster the Company's finances we had a share issue resulting in
John Morgan and myself investing US$ 14.2 million (� 7.0 million) in new shares and other current shareholders investing a further US$ 7.3
million (� 3.6 million). Both John and I believe in the long term future of the Company and its assets.
At the end of the year, Brian Dobbin, the founder of Newfound, left the Company to pursue other interests but has retained his
shareholding. In January, William Thompson, the Sales and Marketing Director also left. We wish both of them well in their new endeavours.
Edwin Richards, the previous CFO left in September and was replaced by Simon Longfield who was previously Group Financial Controller. John
Theophilus, who joined the Company in June 2007 as an interim CFO and more recently the CEO, has managed the Group through this change and
has now left to take on other roles.
Financial
The results for the year were disappointing with an operating loss of US$ 14.1 million (2006: US$ 10.0 million) before exceptional costs
of US$ 3.7 million (2006: US$ 12.8 million) resulting in a total operating loss for the year of US$ 17.8 million (2006: US$ 22.8 million).
The Balance Sheet was enhanced by the share issue in December enabling the Company to pay the majority of the Group's longer term creditors
by the year end. Further analysis of the 2007 results is included in the CFO's report.
Humber Valley Resort
At the beginning of the year the sales strategy was altered to attract high net worth purchasers to Humber Valley Resort in
Newfoundland, Canada. This strategy has taken longer to deliver results than originally envisaged with new sales of US$ 4.7 million which
was below expectations, although in addition there were a number of re-sales. We believe that there is a market for our product at Humber
Valley at the US$ 750,000 level as evidenced by the re-sale market and from early 2008 this is where we have been concentrating our
marketing efforts.
Since the autumn we have focused on vacation marketing to Humber Valley. This is an important aspect of the business as it gives a
momentum throughout the year, increases our operational revenues and some of our vacationers have gone on to purchase property. We have now
signed agreements with a number of Tour Operators who can sell vacations to the resort. Most of these Tour Operators are based in Europe and
Canada, but due to the time lag in operators publishing their brochures and websites, we expect the main impact to be felt from the
2008/2009 ski season. Humber Valley Resort's occupancy in 2007 rose by 18% over 2006 resulting in an increase in operational revenues in
local currency of 16%. The first three months of 2008 showed further progress. Going forward, we are looking for further suitable agents for
the North American markets and focussing on the conversion of vacation leads and enquiries into real bookings as well as enhancing our web
based sales and marketing strategy.
Our current owners at Humber Valley are our best marketing avenue and we have been talking with many of them to see how we can improve
the operations there. This has resulted in a review of the way the accommodation rental pool is operated to make it more simple and
transparent. Priorities have been set for infrastructure capital spending that is required to benefit both owners and vacationers and
improve the existing facilities.
As mentioned in my statement last year, we have been addressing the construction issues and although some still remain we did achieve
our aim of accelerating the construction program during 2007 and we are making healthy margins on new build. During the year, we carried out
significant construction work on over 60 chalets resulting in an increase in revenue in local currency from construction and furnishings of
66% to US$ 21.3 million. We have nearly completed the construction backlog inherited at the time of the Newfound acquisition in 2006 and,
subject to suitable funding being in place, it is hoped that all of the remaining outstanding contracts will be started during 2008.
In 2007, the first full year of operation of the 18 hole golf course, we won four prestigious awards including Golf Magazine (golf.com)
Best New International Course 2007 and ScoreGolf Magazine's Best Canadian New Golf Course 2007. The credit for this must go to our Golf
manager and his team.
We have recently signed an agreement with Monarch Airlines to run a weekly Boeing 757 from Gatwick to Deer Lake to cover both the summer
and winter seasons, thus supporting the expected increase in vacation traffic. Although the charter at present makes a financial loss until
such time as vacation numbers increase, it is an important part of both the operations at Humber Valley Resort and its future development.
Pinney's Estate Resort
At Pinney's Estate Resort on the island of Nevis in the Caribbean, we are progressing with the design of the master plan for the 50 acre
beach development which is anticipated to consist of a 150 room five star hotel and over 80 branded residences. The overall master plan is
for the remaining 380 acres to be used for luxury villas. Discussions with a leading hotel operator continue. We are also meeting possible
joint venture and funding partners for this site.
The Environmental Impact Assessment on the villa master plan has been submitted and the public hearing successfully concluded. We are
expecting planning approval shortly and we maintain close contact and amicable relations with the Nevis Government. We have taken no revenue
or profit on the pre-launch sales that were made at the end of 2006.
Ocean's Edge
Our project at Ocean's Edge on St Kitts in the Caribbean started the first phase of construction of 16 hillside condominium apartments
in June 2007 and the first condominium block of this phase is about to be handed over to owners. A construction contract has now been signed
for phase 2 of a further 14 hillside and 16 beachfront apartments and a contract for the construction of the first 4 villas is expected to
be agreed shortly. New sales and reservations have been slower in the last six months due to the worldwide real estate turndown, but
nonetheless we are getting a steady level of enquiries and sales inspection trips that should enable us to continue the construction process
as planned.
The future
The changes I have mentioned earlier provide the necessary foundation for our aims of moving the Company forward and realising the value
inherent in the assets. The funding of nearly US$ 30 million (� 15 million), subject to shareholder approval, that is being announced
shortly together with the exciting appointment of Jayne McGivern is a major step towards realising these aims and should result in more
positive operational and financial news in the years ahead.
On behalf of the Board I would like to express my sincere thanks to all of our staff who have worked diligently and wish them well for
the year ahead and to thank our owners, partners and shareholders for their continued support.
Jeremy White
Chairman
2 June 2008
CHIEF FINANCIAL OFFICER'S report
This is the second annual report and accounts of Newfound as a public company. These non-statutory financial statements have been
compiled under the requirements of IFRS as adopted by the European Union.
Summarised income statement
2007 2006 2005
US$'000 US$'000 US$'000
Revenue 34,051 27,879 52,213
Gross profit 9,627 10,007 22,962
Expenses (net) (23,681) (20,014) (15,439)
Operating (loss) / profit before exceptional (14,054) (10,007) 7,523
items
Exceptional items (3,740) (12,774) (3,263)
Operating (loss) / profit (17,794) (22,781) 4,260
Adjusted basic (loss) / earnings per share (US (11.0) (12.0) 5.2
cents)
Basic (loss) / earnings per share (US cents) (13.8) (23.1) 2.6
Revenue and gross margin
Revenue has increased by 22% in 2007 mainly as a result of the increase in construction activity during the year. During the latter half
of 2006, a significant number of contracts were entered into at Humber Valley Resort with external construction companies resulting in work
being carried out on over 60 individual units in 2007. Overall the gross margin from the development business decreased as a result of a
lower mix of land sales to other development activities.
On resort operations, an increase in revenue from all activities, but particularly from food and beverage, resulted in only a very
modest increase in gross margin. This was mainly as a result of additional losses from the charter flight from Gatwick to Humber Valley
Resort due to the increase in the frequency of flights from one per week to two.
Expenses
The 2006 results only included three full months as an AIM listed company. There was a significant increase in the Group's costs arising
from the transition to being a listed company, especially employee costs, office rent costs and professional fees. During the second half of
2007, as part of the restructuring of the sales offices and senior management team (see exceptional items below) significant savings are now
being made in the on-going costs to the Group - annual employee cost savings of over US$ 3 million alone have been made, which together with
planned reductions in travel costs, office rent and professional fees has resulted in a considerably lower cost base for the Group in 2008.
Exceptional items
The following exceptional items (as defined in the accounting policies and shown in greater detail in note 7) are included in the
results for 2007:
- a charge of US$ 1.5 million within administrative and sales and marketing
expenses in relation to a restructuring of the Group's corporate and sales
teams;
- a charge of US$ 1.5 million within cost of sales relating to construction
losses; and
- a charge of US$ 0.7 million relating to the write down of property, plant
and equipment.
The first of these exceptional items relates to the costs incurred for the changes that we have put in place in reorganising and
structuring the UK and US sales offices and in relation to the fundamental changes in the management team as already described in the CEO's
report.
For our first annual report for 2006 and its comparative results, a detailed exercise was carried out to identify losses on construction
contracts in Humber Valley Resort leading to exceptional items in those years. A further review has been carried out during this year in
relation to all of the Group's construction obligations with a resulting further provision for ongoing construction contracts of US$ 1.2
million. No additional future non-recurring costs in relation to this issue are anticipated.
Finally, the Group has considered its construction equipment needs going forward and has renegotiated a number of capital leases,
resulting in an annual reduction in the Group's future lease payments of US$ 1.4 million. However, mainly as a result of the renegotiation
of these leases, there has been a one-off write down in the value of equipment, that was disposed early in 2008, and other assets of US$ 0.7
million.
Earnings per share
Both the adjusted loss per share of 11.0 cents (2006: 12.0 cents) and the loss per share of 13.8 cents (2006: 23.1 cents) have decreased
compared to 2006 mainly as a result of the full year impact of the new shares issued as part of the AIM listing in September 2006 and the
further shares issued during 2007.
Dividends
No final dividend (2006: nil) has been proposed by the directors.
Seasonality
It should be noted that the Newfound business is seasonal with most sales of land and property at Humber Valley Resort occurring in the
summer and autumn.
Balance sheet
The balance sheet reflects the historical cost of the land and infrastructure owned by the Newfound group and does not include any
uplift for the independent valuation of our resorts by Humberts Leisure, the international leisure business consultants, that was announced
in the interim results in September 2007. If this uplift was added to the net assets of the Group's balance sheet, the net asset value of
the Group would be US$ 215 million giving a net asset value per share of US 92 cents (46 pence). This is a reduction since the interim
announcement in September 2007 due to the dilution from the equity raise in December 2007.
The increase in "Property, plant and equipment" of US$ 2.8 million during the year mainly reflects the continued investment in
infrastructure in Humber Valley Resort and the capitalisation of development costs relating to the Pinney's Estate Resort. This investment
totalling US$ 4.0 million is supplemented by an increase in the value of assets, mainly arising from the strengthening of the Canadian
dollar, of US$ 4.1 million, but is offset by depreciation and asset disposals of US$ 4.6 million.
There has been a reduction in the total of current and non-current "Trade and other receivables" of US$ 8.7 million, predominantly
reflecting the collection of US$ 4.5 million of deferred payments in relation to pre-launch sales of villa plots in the Pinney's Estate
Resort and other collections at Humber Valley Resort.
Borrowings, net of cash, stand at US$ 10.7 million as at the balance sheet date (2006: US$ 13.6 million). The reduction has arisen
mainly from the increase in cash from the equity raise in December 2007 offset by an increase in Newfound's share of the bank overdraft and
construction loan in Ocean's Edge due to its increased construction activity.
Total equity has increased during the year from share issues (mainly in December 2007) by a net US$ 22.1 million after issue expenses to
offset the losses of US$ 18.6 million resulting in an overall increase in net assets on the balance sheet after foreign exchange differences
of US$ 5.3 million.
Future funding
As will be announced shortly in a circular, the Company is seeking shareholder approval at the General Meeting on 26 June 2008 for the
raising of approximately US$ 30 million of guaranteed secured loan notes. This fundraising will enable the Company to accelerate the
development of Nevis and consolidate the resort in Newfoundland.
Directors, officers and their interests
The following directors and officers were in office throughout the whole of the year and to the date of this report, except where stated
otherwise:
Jeremy White Chairman and interim
Chief Executive
Officer
Brian Dobbin Director Resigned 31 December 2007
Edwin Richards Director Resigned 26 September 2007
John Morgan Non-executive
director
Robert Weisz Non-executive
director
William Thompson Director Appointed 13 June 2007, resigned 29
January 2008
John Theophilus Director Appointed 13 June 2007, resigned 17
April 2008
Simon Longfield Officer Appointed 26 September 2007
The Directors' interests are set out in note 31 to the financial statements on related party transactions.
Employees
During the year, Newfound had an average of 194 employees (2006: 163), but with considerable seasonal variances at Humber Valley
Resort.
Substantial shareholdings
Except for the holdings of Ordinary Shares and Special Voting Shares listed below, the Directors are not aware of any person holding 3%
or more of the votes of the Company at 28 May 2008, the latest practicable date prior to the issue of this report.
Name Number of votes Percentage
Brian Dobbin 50,011,082 21.4
John Morgan 46,909,482 20.1
Jeremy White 44,299,307 18.9
Scottish Widows 14,565,384 6.2
Artemis 10,650,434 4.6
William Thompson 9,356,957 4.0
James Cabourne 8,269,230 3.5
Philpot Realty Co Limited 7,602,366 3.3
By order of the board
Simon Longfield
Chief Financial Officer
2 June 2008
Registered Office:
Parkweg 2
2585 JJ Den Haag
The Netherlands
CORPORATE GOVERNANCE REPORT
The Board is committed to maintaining a high standard of corporate governance and intends to comply with the Combined Code in such
respects as are appropriate for a company of the size, nature and stage of development of the Company. The Company also intends to comply
with the standard governance provisions under Book 2 of the Dutch Civil Code, the majority of which are replicated in the Articles of
Association of the Company.
The Board does not consider it necessary at this time to establish an audit committee given the size, nature and stage of development of
the Company. The Board will undertake all functions that would normally be delegated to the audit committee including reviewing annual and
interim results, receiving reports from the auditors, agreeing auditors' remuneration and assessing the effectiveness of the audit and
internal control environment. Where necessary, the Board will obtain specialist external advice from either its auditors or other advisers.
For the same reasons, the Company does not intend at this time to establish remuneration and nomination committees. The Board will review
annually the remuneration of the Directors and agree a level of non-executive fees. Consideration will be given by the Board to future
succession plans for Board members as well as consideration as to whether the Board has the skills required to manage the Group
effectively.
The Company has adopted the Share Dealing Code for the Board and senior employees in accordance with Rule 21 of the AIM Rules and will
take steps to ensure compliance by the Board and relevant employees with the terms of this code.
How the Board operates
The Board's main roles are to create value to shareholders, to provide leadership of the Company, to approve the Company's strategic
objectives and to ensure that the necessary financial and other resources are made available to enable the Company to meet those objectives.
The Board, which meets at least 6 times a year, has all material matters reserved for its approval.
The Board sets Group strategy and approves an annual budget; reviews operational and financial performance; monitors the operating and
financial results against plans and budgets; approves acquisitions and capital expenditure; reviews the Group's systems of financial control
and risk management; approves appointments to the Board and approves policies relating to Director's remuneration and the severance of
Director's contracts; and ensures that a satisfactory dialogue takes place with shareholders.
Composition of the Board and Committees
As noted in the CEO's report, there has been significant change to the composition of the Board during 2007 and since the year end.
Brian Dobbin, William Thompson and Edwin Richards all left the Group as part of the management restructuring that took place in the latter
half of 2007 and shortly thereafter. In addition, John Theophilus stood down as the interim Chief Executive Officer on 17 April 2008, with
Jeremy White assuming the position from that date.
Simon Longfield was appointed as an Officer of the Company with the title of Chief Financial Officer on 26 September 2007.
Going Concern
After making due enquiries and taking into consideration the funds to be raised subsequent to the Company's annual general meeting, the
directors have a reasonable expectation that the Group has adequate resources to continue in operation for the foreseeable future. For this
reason they continue to adopt the going concern basis for preparing the financial statements.
Internal Controls
The Directors have continued to review the effectiveness of the Group's system of financial and non-financial controls, including
operational and compliance controls, risk management and the Company's high level internal control arrangements. The Directors believe that
the Company maintains an effective system of internal controls and complies with the Turnbull Report guidance.
The Audit Committee
The Board in its role as the Audit Committee monitors the integrity of the Company's financial statements and the effectiveness of the
external audit process. It is responsible for ensuring that an appropriate relationship between the group and the external auditors is
maintained, including reviewing non-audit services and fees. It also reviews annually the Group's systems of internal control and the
processes for monitoring and evaluating the risks facing the Group.
Auditor Independence and Provision of Non-Audit Services
The Board in its role as the Audit Committee monitors regularly the non-audit services being provided to the Group by its external
auditors, and has developed an Auditor Independence Policy to check this does not impair their independence or objectivity, and that the
Group maintains a sufficient choice of appropriately qualified audit firms. The policy sets out four key principles which underpin the
provision of non-audit services by the external auditors: the auditor should not audit its own firm's work; make management decisions for
the Group; have a mutuality of financial interest with the Group; or be put in the role of advocate for the Group. Activities that may be
perceived to be in conflict with the role of the external auditor must be submitted to the Board for approval prior to engagement,
regardless of the amounts involved. Prior approval of the Board is required for any services provided by the external auditors where the fee
is likely to be in excess of US$ 50,000.
The Board reviews all services being provided by the external auditors to review the independence and objectivity of the external
auditors, taking into consideration relevant professional and regulatory requirements, so that these are not impaired by the provision of
permissible non-audit services. Details of the amounts paid to the external auditors during the year for audit and other services are set
out in the notes to the attached financial statements.
The Board
Brief biographies of the Board are as follows:
Jeremy White (aged 53), Chairman and Chief Executive Officer
Jeremy White was previously executive Chairman of Nettec from November 1995 until May 2001, a non-executive director of Nettec from 1
June 2003 and Chairman from 1 October 2003 to the conclusion of the reverse takeover of Nettec plc by Newfound. He was appointed Chief
Executive Officer in April 2008. Mr White is a board member of Pepperdine University in the USA and a trustee of the Prince of Wales Award
for Innovation. He holds an MBA from City University, London and an MA.
Simon Longfield FCA (aged 41), Chief Financial Officer
Simon Longfield joined Newfound in October 2006 shortly after the listing of Newfound N.V. on the Alternative Investment Market and its
acquisition of the Newfound group of companies. He was initially recruited as the Group Financial Controller and was promoted to Chief
Financial Officer in September 2007. After leaving Durham University, he was with PricewaterhouseCoopers for 18 years in the UK and
Australia in a variety of roles including assurance, transaction services and corporate finance. He advised multi-national listed and
private companies in the technology, telecoms, leisure and manufacturing industries.
John Morgan (aged 52), Non-Executive Director
John Morgan is Executive Chairman of Morgan Sindall plc and non-executive chairman of Genetix plc. He co-founded Morgan Lovell in 1977
which became part of Morgan Sindall with the reverse takeover of William Sindall plc in 1994. He is a Chartered Surveyor with an MBA.
Robert Weisz (aged 58), Non-Executive Director
Robert Weisz is a partner and Managing Director of Timevest, a European commercial property investment company. He was previously a
partner and Managing Director of DBN Group, a commercial property company operating in the Netherlands and the US. He has over 30 years'
experience in commercial property, including five years as Deputy Managing Director of Wereldhave, the Dutch quoted international property
investment company. Since 2004, Mr Weisz has been visiting professor at the Technical University of Eindhoven's Urban Planning Design Group
and is a guest lecturer in property finance and valuation at the Amsterdam School of Real Estate and University of Groningen. He is the
co-author of three textbooks on property investment.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
It is the responsibility of the Directors to prepare financial statements for each financial year that give a true and fair view of the
state of affairs and of the profit or loss of the Group for that year. In preparing those financial statements, directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgments and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial statements;
and
- prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the Company and of the Group. They are also responsible for maintaining an appropriate system on internal control and ensuring
that the financial statements comply with IFRS as adopted for use in the European Union. They have general responsibility for taking such
steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for compliance with laws and regulations that apply to its activities and for preventing non-compliance
and detecting any that occurs.
The Directors are responsible for the maintenance and the integrity of the Newfound website. Legislation in the Netherlands or the AIM
Rules governing the preparation and dissemination of financial statements may differ from the legislation in other jurisdictions.
ADVISERS
During the year the Directors were assisted in carrying out certain of their responsibilities by advice from the Group's external
independent advisers who are:
Chartered Accountants and Registered BDO Stoy Hayward LLP
Auditors 55 Baker Street
London W1U 7EU
Bankers HSBC plc
60 Queen Victoria Street
London EC4N 4TR
Registrars Computershare Investor Services PLC
PO Box 82, The Pavilions
Bridgwater Road
Bristol BS99 7NH
Legal advisers to the Company Jones Day
21 Tudor Street
London EC4Y 0DJ
Nominated Adviser and Broker Collins Stewart Europe Limited
88 Wood Street
London EC2V 7QR
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF NEWFOUND N.V.
Report on the non-statutory financial statements
We have audited the accompanying non-statutory financial statements of Newfound N.V. which comprise the consolidated balance sheet at 31
December 2007 and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow
statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management's responsibility for the non-statutory financial statements
Management is responsible for the preparation and fair presentation of these non-statutory financial statements in accordance with
International Financial Reporting Standards as adopted by the European Union. This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material
misstatement, whether due to fraud or error or; selecting and applying appropriate accounting policies; and making accounting estimates that
are reasonable in the circumstances.
Auditors' responsibility
Our responsibility is to express an opinion on these non-statutory financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform
the audit to obtain reasonable assurance whether the non-statutory financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the non-statutory financial
statements. The procedures selected depend on the auditor's judgement, including assessment of the risks of material misstatement of the
non-statutory financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity's preparation and fair presentation of the non-statutory financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal
control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
This report is made solely to the Company's members, as a body in accordance with our engagement letter with the Company dated 5 March
2008. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in
an audit report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Opinion
In our opinion the non-statutory financial statements give a true and fair view of the financial position of Newfound N.V. as of 31
December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Emphasis of matter - going concern
In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosures made in
note 2a to the financial statements concerning the Group's ability to complete its fundraising. Shareholder approval is required at the
annual general meeting on 26 June 2008 to enable the completion of a refinancing of the Group in the form of the issuance of approximately
US$ 30 million of guaranteed secured loan notes. Whilst the Directors have to date received undertakings from approximately 71% of the
shareholders, the refinancing is dependent upon the fulfilment of certain specific conditions precedent contained in the subscription
agreement and approval from 75% of the shareholders that vote at the annual general meeting. These conditions, along with other matters
disclosed in note 2a to the financial statements, indicate the existence of a material uncertainty in relation to the fundraising and
therefore the ability of the Group to continue as a going concern. The financial statements do not include any adjustments that may result if the Group was unable to complete the fundraising and hence continue
as a going concern.
BDO STOY HAYWARD LLP
Chartered Accountants and Registered Auditors
London
2 June 2008
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 2007 2007 2006 2006 2006
Before Before
exceptio Exceptional exceptio Exceptional
nal items nal items
items (note 7) Total items (note 7) Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue 5 34,051 - 34,051 27,879 - 27,879
Cost of sales (24,424) (1,489) (25,913) (17,872) (2,457) (20,329)
Gross profit / (loss) 9,627 (1,489) 8,138 10,007 (2,457) 7,550
Administrative expenses (20,899) (1,598) (22,497) (14,070) (17,210) (31,280)
Sales and marketing expenses (2,814) (653) (3,467) (5,945) - (5,945)
Other income 32 - 32 1 6,893 6,894
Operating loss 7 (14,054) (3,740) (17,794) (10,007) (12,774) (22,781)
Finance income 9 47 - 47 154 - 154
Finance costs 10 (910) - (910) (770) (1,143) (1,913)
Loss before tax 7 (14,917) (3,740) (18,657) (10,623) (13,917) (24,540)
Taxation credit / (charge) 11 56 - 56 (554) 887 333
Loss for the year (14,861) (3,740) (18,601) (11,177) (13,030) (24,207)
Attributable to:
Equity holders of the Company (14,847) (3,740) (18,587) (11,091) (10,308) (21,399)
Minority interests (14) - (14) (86) (2,722) (2,808)
(14,861) (3,740) (18,601) (11,177) (13,030) (24,207)
Loss per share from loss US cents US cents
attributable to equity holders
of the Company
- basic and diluted 13 (13.8) (23.1)
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2007
2007 2006
Note US$'000 US$'000
Restated
(note
2u)
ASSETS
Non-current assets
Property, plant and equipment 14 34,031 31,226
Trade and other receivables 15 543 10,518
Deferred tax assets 25 1,318 1,118
35,892 42,862
Current assets
Inventories 16 29,506 23,182
Trade and other receivables 17 25,337 24,070
Current tax assets - 1,207
Customer deposits 18 166 633
Cash and cash equivalents 19 8,647 3,789
63,656 52,881
LIABILITIES
Current liabilities
Trade and other payables 20 (27,774) (31,208)
Deferred revenue (4,103) (16,240)
Borrowings 22 (12,868) (9,364)
Class B and Class C share liability 26 (1,747) -
Provisions 24 - (859)
(46,492) (57,671)
Net current assets / (liabilities) 17,164 (4,790)
Non-current liabilities
Other payables 21 (337) -
Deferred tax liabilities 25 (1,574) (1,335)
Deferred revenue (21,230) (9,174)
Borrowings 22 (6,478) (8,012)
Class B and Class C share liability 26 (517) (1,941)
(30,136) (20,462)
Net assets 22,920 17,610
EQUITY
Share capital 28 3,179 1,585
Premium on shares issued 42,831 22,371
Redemption reserve 29 7,211 7,211
Translation reserve 29 1,246 (611)
Retained loss (41,438) (22,851)
Group restructuring reserve 29 9,891 9,891
Equity attributable to equity holders of the 22,920 17,596
Company
Minority interests in equity 29 - 14
Total equity 22,920 17,610
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2007
Share Premium on Redemption (Loss) / retained
capital shares reserve Translation earnings
issued reserve
Note US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2006 959 - 317 (182) 1,004
Newfound acquisition 2 - - - - (100)
Issue of capital 28 626 22,371 - - -
Transfer 26 - - 6,893 - (6,893)
Foreign exchange translation - - 1 (429) -
difference
Share based payments 7 - - - - 14,488
Loss for the year - - - - (21,399)
Dividends 12 - - - - (9,951)
Balance at 31 December 2006 1,585 22,371 7,211 (611) (22,851)
Issue of capital 28 1,594 20,460 - - -
Foreign exchange translation - - - 1,857 -
difference
Loss for the year - - - - (18,587)
Balance at 31 December 2007 3,179 42,831 7,211 1,246 (41,438)
Group Equity Minority Total
restruct holders interest equity
uring s
reserve
Note US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2006 (953) 1,145 - 1,145
Newfound acquisition 10,844 10,744 100 10,844
Issue of capital - 22,997 - 22,997
Transfer - - - -
Foreign exchange translation - (428) - (428)
difference
Share based payments - 14,488 2,722 17,210
Loss for the year - (21,399) (2,808) (24,207)
Dividends - (9,951) - (9,951)
Balance at 31 December 2006 9,891 17,596 14 17,610
Issue of capital 28 - 22,054 - 22,054
Foreign exchange translation - 1,857 - 1,857
difference
Loss for the year - (18,587) (14) (18,601)
Balance at 31 December 2007 9,891 22,920 - 22,920
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 2006
Note US$'000 US$'000
Cash flows from operating activities
Cash used in operations 32 (17,579) (16,936)
Interest received 47 154
Interest paid (643) (1,945)
Tax received / (paid) 1,309 (1,487)
Net cash used in operating activities (16,866) (20,214)
Cash flows from investing activities
Acquisition of Nettec plc - 1,568
Acquisition of joint venture - (500)
Proceeds from other loans repayments - 128
Purchase of property, plant and equipment (3,628) (8,238)
Disposal of property, plant and equipment 417 1,189
Net cash used in investing activities (3,211) (5,853)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 28 22,522 26,463
Proceeds from issuance of Class B and Class C 186 485
preference shares
Proceeds from overdraft borrowings 1,126 920
Proceeds from issuance of borrowings 3,136 18,178
Repayment of borrowings (87) (13,823)
Finance lease principal payments (1,894) (2,099)
Redemptions of Class B and Class C preference shares (208) (915)
Payment of subsidiary preference share dividends - (127)
Cash flow generated from financing activities 24,781 29,082
Net increase in cash and cash equivalents 4,704 3,015
Exchange gains on cash 154 51
Cash and cash equivalents at beginning of the year 3,789 723
Cash and cash equivalents at end of the year 19 8,647 3,789
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. General information
Newfound N.V. ("the Company") and its subsidiaries (together "the Group")
is a creator and operator of international luxury resorts and destinations.
The Group continues to operate and develop Humber Valley Resort in Canada
and is currently developing a further resort in each of St Kitts and Nevis
in the Caribbean.
The Company is a public limited liability company incorporated in, and
registered under the law of, The Netherlands with registered number N.V.
1386624. The principal legislation under which the Company was formed, and
operates, and under which the shares in the Company have been and will be
issued is the Dutch Civil Code and regulations made under the law of The
Netherlands. The address of its registered office is Parkweg 2, 2585JJ Den
Haag, The Netherlands.
In September 2006, the Group achieved a listing on the Alternative
Investment Market ("AIM") of the London Stock Exchange through the reverse
take-over of Nettec plc, an AIM listed company, a Scheme of Arrangement
under
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have
been consistently applied to both years presented, unless otherwise stated.
* Basis of preparation
*
The consolidated financial statements of Newfound N.V. have been prepared
in accordance with International Financial Reporting Standards as adopted
a. by the European Union ("EU IFRS"). The consolidated financial statements
have been prepared under the historical cost convention.
The preparation of financial statements in conformity with EU IFRS requires
the use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the Group's
accounting policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in note 4.
The Group made an ope
- IFRS 8 'Operating Segments' (effective for accounting periods beginning on
or after 1 January 2009). This standard sets out requirements for the
disclosure of information about an entity's operating segments and also
about the entity's products and services, the geographical areas in which it
operates, and its major customers. It replaces IAS 14, Segmental Reporting.
The Group expects to apply this standard in the accounting period beginning
on 1 January 2009. As this is a disclosure standard it will not have any
impact on the results or net assets of the Group. IFRS 8 has been endorsed
for use in the European Union.
- Amendments to IAS 1 'Presentation of financial statements: A revised
presentation' (effective for accounting periods beginning on or after 1
January 2009). This standard sets out revised requirements for the
presentation of the Group's primary statements. It replaces IAS 1
'Presentation of Financial Statements (revised 2003)'. The Group expects to
apply this standard in the accounting period beginning on 1 January 2009. As
this is a disclosure standard it will not have any impact on the results or
net assets of the Group. The amendment to IAS 1 has not yet been endorsed
for use in the European Union.
- IAS 23 'Borrowing Costs (revised)' (effective for accounting periods
beginning on or after 1 January 2009). The main change from the previous
version of the standard is the removal of the option of immediately
recognising as an expense borrowing costs that relate to qualifying assets,
broadly being assets that take a substantial period of time to get ready for
use or sale. The Group is currently assessing its impact on the financial
statements. The revised IAS 23 has not yet been endorsed for use in the
European Union.
- Revision of IFRS 3 'Business Combinations' and the complementary amendment
of IAS 27 'Consolidated and Separate Financial Statements'. This amendment
is effective for business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or
after 1 July 2009. The revisions introduce significant changes in the
accounting for business combination including the immediate expensing of
acquisition costs, contingent consideration being measured at fair value as
at the date of acquisition with all subsequent measurement changes
recognised in profit or loss and changes in the accounting for minority
interests and stepped acquisitions. The revised IFRS 3 and IAS 27 have not
yet been endorsed for use in the European Union.
In addition to the new standards, and amendments and interpretations to existing standards, noted above, the following new standards,
and amendments and interpretations to existing standards, have also been published and are mandatory for the Group's accounting periods
beginning on or after 1 January 2008 or later. Unless otherwise indicated, they have not yet been endorsed for use in the European Union;
their adoption is not expected to have a significant impact on the Group:
- IFRIC 11 'IFRS 2 Group and Treasury Share Transactions' (effective for
accounting periods beginning on or after 1 March 2007). IFRIC 11 has been
endorsed for use in the European Union.
- IFRIC 12 'Service Concession Arrangements' (effective for accounting periods
beginning on or after 1 January 2008).
- IFRIC 13 'Customer Loyalty Programmes' (effective for accounting periods
beginning on or after 1 July 2009).
- IFRIC 14 'IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction' (effective for accounting periods
beginning on or after 1 January 2008).
- Amendment to IFRS 2 'Share Based Payments: Vesting Conditions and
Cancellations' (effective for accounting periods beginning on or after 1
January 2009).
- Amendment to IAS 32 'Financial Statements: Puttable Financial Instruments
and Obligations Arising on Liquidation' and the complementary amendment to
IAS 1 'Presentation of Financial Statements' (effective for accounting
periods beginning on or after 1 January 2009).
b. Consolidation
Subsidiaries
Subsidiaries are all entities (including special purpose entities) over
which the Group has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the
voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether
the Group controls another entity. Subsidiaries are included in the
consolidated financial statements from the date on which control is
transferred to the Group, until the date that control ceases.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated. Unrealised losses are also
eliminated but are considered as an impairment indicator of the asset
transferred. Accounting policies of subsidiaries have been changed where
necessary to ensure consistency with the policies adopted by the Group.
Joint ventures
The Company determines the existence of joint control
c. Revenue recognition
Revenues are recognised on land sales when the risks and rewards of
ownership have been transferred to the buyer and the Company has no further
substantial acts to complete under the contract - generally, this is on the
transfer of land title. Revenue from fixed price chalet construction
contracts is recognised on the percentage-of-completion method. This method
is used as expended costs are the best available measure of progress on
these contracts.
Contract costs include all direct material and labour costs and those
indirect costs related to contract performance, such as indirect labour,
supplies, tools, repairs and depreciation. Selling, general and
administrative costs are charged to the income statement as incurred.
Provisions for estimated losses on uncompleted construction contracts are
made in the period in which such losses are determined.
Revenue is recognised from the sale of merchandise and rental of assets
when goods have been exchanged or rentals provided for cash o
d. Property, plant and equipment
Property, plant and equipment are recorded at cost. Land is not
depreciated. Depreciation and amortisation on other assets is calculated
using the declining balance method to allocate their cost over their
estimated useful lives, as follows:
Golf course and buildings 4% p.a.
Computer equipment 30 to 45% p.a.
Golf course equipment, snowmobiles, and vehicles 20 to 30% p.a.
Office equipment and furnishings 20 to 33% p.a.
Machinery and equipment 20 to 30% p.a.
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date. An asset's carrying amount is
written down immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable amount. Gains and losses
on disposals are determined by comparing the proceeds with the carrying
amount and are recognised within administrative expenses in the income
statement.
e. Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are
different from those of other business segments. A geographical segment is
engaged in providing products and services to customers within a particular
economic environment that are subject to risks and returns that are
different from those of customers in other economic environments.
f. Impairment of long-lived assets
Long-lived assets, excluding deferred tax assets, are reviewed for
impairment upon the occurrence of events or changes in circumstances
indicating that the value of the assets may not be recoverable, as measured
by comparing their net book value to the estimated discounted cash flows
generated by their use. Impaired assets are recorded at their recoverable
amount, determined principally using discounted future cash flows expected
from their use and eventual disposition.
g. Inventory
Land inventory is carried at the lower of cost and estimated net realisable
value. Cost includes the cost of land and an allocation of infrastructure
costs (including road, utility, water and bridge). Work in progress and
other inventories are valued at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary course
of business, less applicable variable selling expenses.
h. Leases
Leases are classified as finance leases whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the
lessee. All other leases are classified as operating leases. Assets held
under finance leases and the related lease obligations are recorded in the
balance sheet at the fair value of the leased assets at the inception of
the leases. The excess of each lease payment over the recorded lease
obligations is treated as a finance charge which is amortised over each
lease term to give a constant rate of charge on the remaining balance of
the obligation.
Rental costs under operating leases are charged to the income statement in
equal annual amounts over the periods of the leases.
i. Taxation
The tax expense represents the sum of the tax currently payable and
deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the income statement because
it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated by using
tax rates that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amount of assets and liabilities in the
balance sheet and the corresponding tax bases used in the computation of
taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be availa
j. Foreign currency translation
Items included in the financial statements of each of the Group's entities
are measured using the currency of the primary economic environment in
which the entity operates ('the functional currency'). The consolidated
financial statements are presented in 'United States Dollars' ("US$") which
is the Company's presentation currency. Group entities that have a
functional currency other than US$ have been translated into the
presentation currency as follows:
(a) assets and liabilities for each balance sheet presented at the closing
rate at the date of that balance sheet;
(b) income and expenses for each income statement at a rate that
approximates the rate at the date of the entities' transactions; and
(c) all resulting exchange differences are recognised in the translation
reserve as a separate component of equity.
Foreign currency trading transactions are translated at the rate ruling at
the time of the transaction and foreign currency monetary assets and
liabilities ar
k. Financial assets
Trade and other receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective interest
method, less provision for impairment. A provision for impairment of trade
and other receivables is established when there is objective evidence that
the Group will not be able to collect all amounts due according to the
original terms of the receivables.
The amount of the provision is the difference between the asset's carrying
amount and the present value of estimated future cash flows, discounted at
the original effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account and the amount of the loss
is recognised in the income statement within sales and marketing expenses.
When a trade and other receivable is uncollectible, it is written off
against the allowance account for trade and other receivables. Subsequent
recoveries of amounts previously written off are credited against sales and
marketing
Loans receivable
Loans receivable are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than 12 months
after the balance sheet date. These are classified as non-current assets.
Loans receivable are classified as trade and other receivables in the
balance sheet.
l. Cash and cash equivalents
Cash and cash equivalents include cash on hand, bank balances and
short-term deposits. Customer deposits and the overdraft borrowing in the
joint venture are not included in cash and cash equivalents as the use of
these funds is restricted.
m. Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost with any
difference between the amount initially recognised and the redemption value
being recognised in the income statement over the period of the borrowings
using the effective interest rate method.
Preference shares, which are mandatorily redeemable on a specific date, are
classified as liabilities. Any dividends on preference shares are
recognised in the applicable period in accordance with the policy on
borrowing costs (note o). The difference between the redemption value of
preference shares and their carrying value is taken through the income
statement.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liabilities for at least 12
months after the balance sheet date.
n. Accounts payable and accruals
Trade payables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method.
o. Borrowing costs
Gross borrowing costs relating to direct expenditure on land and work in
progress for property under construction are capitalised. Interest
capitalised is calculated using the Group's weighted average cost of
borrowing. Interest is capitalised from the date of acquisition of the
land, or commencement of construction, until the date of practical
completion.
All other borrowing costs are recognised in the Group's income statement in
the period in which they are incurred.
p. Class B and Class C share liability
Class B and Class C preference shares are classified as liabilities. The
difference between their redemption value and their carrying value is taken
through the income statement. Further details on these shares can be found
in note 26.
q. Provisions
Provisions are measured at the present value of the expenditures expected
to be required to settle the obligation using a pre-tax rate that reflects
current market assessments of the time value of money and the risks
specific to the obligation. The increase in the provision due to passage of
time is recognised as an interest expense.
r. Share-based compensation
The fair value of the services received in exchange for share based
payments or the grant of shares options is recognised as an expense. The
amount expensed in relation to the shares issued is determined by reference
to the fair value of the shares issued. The total amount to be expensed
over the vesting period of share options is determined by reference to the
fair value of the options granted, excluding the impact of any non-market
vesting conditions. The proceeds received net of any directly attributable
transaction costs are credited to share capital and premium on shares
issued when the options are exercised.
s. Exceptional items
Exceptional items are events or transactions that fall within the
activities of the Group and which by virtue of their size or incidence have
been disclosed in order to improve the reader's understanding of the
financial statements.
t. Dividend
Dividends to the Company's shareholders are recognised as liabilities in
the Group's financial statements in the period in which the dividends are
approved by the Company's shareholders. Interim dividends are recognised
when they are paid to shareholders.
u. Prior period adjustment
The balance sheet at 31 December 2006 has been restated to show an
additional US$ 10.0 million of land inventory that in error was classified
within property, plant and equipment. This adjustment has no impact on
either the equity of the Group or the income statement.
3 Financial risk management
The Group's activities expose it to a variety of financial risks: market
risk (including currency risk, fair value interest rate risk and cash flow
interest rate risk), credit risk and liquidity risk. The Group's overall
risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group's
financial performance.
Financial risk factors
(a) Market risk
(i) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the
Canadian dollar and the UK pound. Foreign exchange risk arises from future
commercial transactions and recognised assets and liabilities. Wherever
possible the Group seeks to limit its exposure to foreign exchange risk by
settling transactions in the same currency in which the asset or liability
arose. Group entities do not generally hold significant balances in
currencies other than their functional currency and the Group's UK
management company makes payments in other currencies on their behalf. The
Group does not hedge any of its future anticipated cash flows and funds
raised through equity raising by the Company in sterling are retained in
sterling until such time as they are required to be converted into other
currencies.
(ii) Cash flow and fair value interest rate risk
As the Group has no significant interest bearing assets, the Group's income
and operating cash flows are substantially independent of changes in market
rates. The Group's interest rate risk arises from long-term borrowings.
Borrowings issued at variable rates expose the Group to cash flow interest
rate risk. Borrowings issued at fixed rates expose the Group to fair value
interest rate risk. Currently the Group does not have any significant
borrowings at variable rates and its fixed rate borrowings are not traded
and are held at amortised cost. No hedging of interest rate risk is carried
out.
(b) Credit risk
Credit risk is managed on a Group basis. Credit risk arises from cash and
cash equivalents and deposits with banks and financial institutions, as well
as credit exposures on property mortgages and loans and trade receivables
from retail customers.
The credit risk on liquid funds is limited because the counterparties are
banks with high credit-ratings assigned by international credit-rating
agencies. For customers, the credit quality of the customer is considered
taking into account their financial position, past experience and other
factors. The Group also manages credit risk by holding properties as
security until full payment is received for properties under construction. A
portion of the Operations' business sales to retail customers are settled in
cash or using major credit cards.
The Directors are of the opinion that the Group is not exposed to any
significant credit risks or interest rate risks arising from its financial
instruments.
(c) Liquidity risk
Prudent liquidity risk management includes maintaining sufficient cash and
the availability of funding from an adequate amount of committed credit
facilities. Management monitors rolling forecasts of the Group's liquidity
reserve on the basis of expected cash flows. Any cash that is forecast to be
surplus to the Group's requirements in the short term is placed on deposit
with reputable banks.
Capital risk management
The Group's objectives when managing capital are to safeguard the Group's
ability to continue as a going concern in order to provide returns for
shareholders and benefits for other stakeholders and to maintain an optimal
capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust
the amount of dividends paid to shareholders, return capital to shareholders,
issue new shares or sell assets to reduce borrowings.
Fair value estimation
The carrying value less impairment provision of current trade receivables and
payables are assumed to approximate their fair values due to the short-term
nature of trade receivables. The fair value of financial liabilities for
disclosure purposes is estimated by discounting the future contractual cash
flows at the current market interest rate that is available to the Group for
similar financial instruments
4 Accounting estimates and judgments
Estimates and judgments are continually evaluated and are based on
historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Significant accounting estimates
The Group makes estimates and assumptions concerning the future. The
resulting accounting estimates will, by definition, rarely equal the related
actual results. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities are outlined below.
(a) Taxation
The Group is subject to taxation on income in a number of jurisdictions. Tax
regulations generally are complex and in some jurisdictions agreeing tax
liabilities or refunds can take several years. Where the final outcome of
these matters is different from the amounts that were initially recorded,
such differences will impact the tax charge and deferred tax provisions in
the period in which such determination is made. Deferred tax assets mainly
represent past tax losses that the Group expects to recover in the
foreseeable future and by their nature the amounts recorded are therefore
dependent on management's judgment about future events.
(b) Long term borrowings
The Group has a significant level of non-current borrowings for which the
fair value is determined by valuation techniques including discounted cash
flow analysis. The carrying amount of the borrowings would be higher or
lower if the discounted rate used in the analysis were to differ from
management's estimates. A 1% movement in discount rates approximates to a
movement in non-current borrowings of US$ 90,000 (2006: US$ 100,000).
(c) Revenue recognition
The Group uses the percentage-of-completion method in accounting for its
fixed price construction contracts. Use of the percentage-of-completion
method requires the Group to estimate the costs incurred to date as a
proportion of the total costs to be incurred. Were the
proportion of costs incurred to total costs to differ by 1% from
management's estimates across all of the Group's construction contracts that
are in progress at the year end, the amount of revenue recognised in the
year would be increased or decreased by approximately US$ 0.2 million (2006:
US$ 0.1 million).
(d) Impairment of property, plant and equipment
Asset impairments have the potential to significantly impact the income
statement. The Group has a large value of property, plant and equipment
including assets in the course of construction as is to be expected for a
resort development business. Property, plant and equipment is reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets exceeds its recoverable amount. Where such
factors exist, the Group estimates the recoverable amount of the assets which
is based on the higher of value in use or fair value less cost to sell.
Changes in estimates and the discount rates used, either in the calculation
of the projected future discounted cash flows, or in any estimates used by
external surveyors estimating fair value less cost to sell, may result in
adjustment of the carrying values of assets used by the Group. However, at
the current and previous balance sheet dates, the head room indicated by
these valuat
Significant accounting judgments in applying the Group's accounting policies
(a) Construction losses
The Group has a number of fixed price construction contracts that are loss
making. These losses, which are calculated based on the excess of the
expected total construction costs over the related revenue, are provided for
by the Group in the period that they are identified. The estimation of future
costs to be incurred on these contracts requires management judgment and is
subject to change depending on future construction and material costs.
(b) Revenue recognition
The Group has entered into a number of land sale agreements in Pinney's
Estate Resort for which title has not transferred to the buyer by the year
end. The assessment of whether or not these sales should be recorded as
revenue requires management judgment to assess whether the risks and rewards
of ownership have been transferred and other requirements for revenue
recognition have been met in accordance with IAS 18 and the Group's
accounting policy. The Directors did not consider that these requirements had
been met on these agreements and therefore the revenues of US$ 22.8 million
have been deferred to future periods.
(c) Basis of preparation
In 2006, a group of companies under the common control of Dolphin Holdings
Limited were combined to form the Newfound group. The accounting for
combinations of businesses which are under common control is not directly
addressed by EU IFRS and, in consequence, the Directors had to use their
judgment in formulating an appropriate accounting policy. Further details in
respect of this judgment and the policy adopted can be found in note 2a.
5 Revenue
An analysis of the Group's revenue is as follows:
2007 2006
US$' US$'
000 000
Construction 18,269 10,666
Land sales and other development revenue 9,284 11,470
Resort operations 5,761 4,736
Other 737 1,007
34,051 27,879
6. Business and geographical segments
Business segments
For management purposes, the Group is currently organised into 2 segments - Development and Operations. These segments are the basis on
which the Group reports its primary segment information. The principal activities are as follows:
Development: land sales and construction and sale of chalets, villas and apartments.
Operations: resort property rental, flight revenue and costs, activities income and sales of food and beverages.
Information about these business segments is presented below.
Business segments Development Operations Other Total
US$'000 US$'000 US$'000 US$'000
2007
Revenue 28,282 5,769 - 34,051
Operating loss before exceptional (1,526) (7,039) (5,489) (14,054)
items
Exceptional items (2,534) (391) (815) (3,740)
Operating loss (4,060) (7,430) (6,304) (17,794)
Net finance costs (863)
Loss before tax (18,657)
Taxation credit 56
Loss for the year (18,601)
Segment assets 63,129 27,357 90,486
Corporate assets 9,062
Total assets 99,548
Segment liabilities (65,110) (7,573) (72,683)
Corporate liabilities (3,945)
Total liabilities (76,628)
Capital expenditure 2,795 1,152 52 3,999
Depreciation 1,092 1,037 9 2,138
2006
Revenue 23,159 4,720 - 27,879
Operating loss before exceptional (1,285) (5,945) (2,777) (10,007)
items
Exceptional items 4,436 - (17,210) (12,774)
Operating profit / (loss) 3,151 (5,945) (19,987) (22,781)
Net finance costs (1,759)
Loss before tax (24,540)
Taxation credit 333
Loss for the year (24,207)
Segment assets 71,381 21,870 - 93,251
Corporate assets 2,492
Total assets 95,743
Segment liabilities (71,497) (3,679) - (75,176)
Corporate liabilities (2,957)
Total liabilities (78,133)
Capital expenditure (restated 8,766 1,007 8 9,781
note 2u)
Depreciation 957 1,316 - 2,273
Geographical segments
The Group's businesses are principally located in Canada and the Caribbean.
The following table provides an analysis of the Group's sales based on the
location of the customer and the location of the Group's assets:
Geographical segments UK Ireland Canada Caribbean Other Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
2007
Revenue 21,855 4,074 3,573 375 4,174 34,051
Segment assets 605 49 51,420 38,352 60 90,486
Corporate assets 9,062
99,548
Capital expenditure 130 1 1,059 2,807 2 3,999
2006
Revenue 16,820 5,072 4,294 375 1,318 27,879
Segment assets 722 261 47,976 44,056 236 93,251
Corporate assets 2,492
95,743
Capital expenditure 20 22 2,380 7,331 28 9,781
(restated note 2u)
7 Loss before taxation
Loss before taxation has been arrived at after charging / (crediting):
2007 2006
US$' US$'
000 000
Net foreign exchange losses/(gains) 14 (20)
Cost of inventories recognised in cost of sales 2,350 3,677
Depreciation and amortisation
- owned assets 949 1,277
- leased assets 1,188 996
Profit on disposal of property, plant and equipment (196) (343)
Employee benefit expense (note 8) 11,217 24,235
Amounts payable to the auditors, BDO Stoy Hayward LLP and their associates,
in respect of both audit and non-audit services.
2007 2006
US$' US$'
000 000
Audit services 392 196
Tax services 29 -
Other services not included above 272 -
693 196
Amounts payable to other audit firms and their associates in respect of both audit and non-audit services.
2007 2006
US$' US$'
000 000
Audit services 272 450
Tax services
- compliance services 340 99
Other services not included above - 1,586
612 2,135
Other services relate to the costs of the Newfound and Nettec acquisitions and the Group restructuring.
Exceptional items
Exceptional items are defined in note 2, accounting policies.
The following exceptional items are included in the results for 2007:
- a charge of US$ 1.5 million (2006:nil) within administrative and sales and marketing expenses in relation to restructuring the Group's
corporate and sales teams;
- a charge of US$ 1.5 million (2006: US$ 2.5 million) within cost of sales relating to construction losses together with a related
deferred tax credit of nil (2006:US$ 0.9 million); and
- charge of US$ 0.7 million (2006:nil) relating to the write down of property, plant and equipment.
In addition, in 2006 the following exceptional items were included:
- a charge of US$ 17.2 million within administrative expenses relating to the issue of shares to employees and key management prior to
the acquisition of the Newfound group by the Company (note 8);
- a credit of US$ 6.9 million within other income relating to the loss of redemption rights on preference shares (note 26); and
- a charge of US$ 1.1 million within finance costs relating to a conversion premium and interest payable on loans repaid out of the
proceeds of the new shares issued by the Company.
8 Employee benefit expense
2007 2006
US$' US$'
000 000
Wages and salaries 10,983 6,577
Social security costs 234 448
Share based payments - 17,210
11,217 24,235
During the year ended 31 December 2006, share based payments were made to 5 employees (2007: none) including one member of key
management (note 31) in recognition of their services to the former Newfound group companies. Shares were awarded in three different
entities within the Group in recognition of services to the Newfound group of companies as part of the Group restructuring. A total of
14,792,476 shares were exchanged either for shares in the Company or for Exchangeable Securities (note 28) at the date of the Newfound
acquisition. In accordance with IFRS2 "Share-based payment", the fair value of the original shares awarded was based on the eventual price
of the Company's share on their admission to the AIM, but with a reduction of 5% in fair value in recognition of the lock-in period of one
year relating to the shares. The charge to the income statement shown above was disclosed within exceptional items (note 7).
9 Finance income
2007 2006
US$' US$'
000 000
Interest on bank balances 47 52
Interest on other loans - 102
47 154
10 Finance costs
2007 2006
US$' US$'
000 000
Interest on bank overdrafts and loans 977 2,075
Interest on obligations under finance leases 176 244
Preference shares dividend 62 55
1,215 2,374
Less: interest capitalised (305) (461)
910 1,913
Borrowing costs included in the cost of assets capitalised during the year arose on specific borrowings at a variety of interest rates.
Interest on bank overdrafts and loans includes an exceptional charge of US$ 1.1 million in 2006 (note 7).
11 Taxation
An analysis of the taxation credit in the period is as follows:
2007 2006
US$'000 US$'000
Loss before taxation (18,657) (24,540)
Canadian Federal and Provincial statutory taxation (2007: (6,717) (8,864)
36%; 2006: 36%)
Effects of:
Difference between accounting and tax treatment of (1,076) 74
amortisation
Non-taxable gains (38) (2,567)
Non-deductible expenses 590 117
Differences in tax rates 1,641 1,909
Non-deductible share based payment - 6,216
Unrelieved losses 5,771 2,827
Brought forward losses utilised (226) (60)
Other (1) 15
Taxation credit as reported in the consolidated income (56) (333)
statement
Components of the taxation credit:
Current taxation credit (56) (1,285)
Deferred taxation charge - 952
Taxation credit as reported in the consolidated income (56) (333)
statement
At 31 December 2007, the Group had gross tax losses carried forward accumulating in certain Group entities in the aggregate of US$ 26.0
million (2006: US$ 8.4 million). Deferred tax has not been recognised as these losses may not be utilised to offset taxable profits
elsewhere in the Group as they have arisen in Group entities that have not shown a history of taxable profits and/or the amount of the
losses are greater than the expected profit in the foreseeable future.
12 Dividends
2007 2006
US$' US$'
000 000
Interim dividends paid - 9,951
As part of the Group restructuring prior to the Newfound acquisition, Humber Valley Resort Corporation and Humber Valley Interiors
Limited paid dividends to the former parent entity of the Newfound group of companies, Dolphin Holdings Limited ("Dolphin"), such that all
balances with Dolphin, and other related companies of Dolphin that are no longer part of the Group, were eliminated.
13 Loss per share
2007 2007 2006 2006
Adjusted Total Adjusted Total
US$'000 US$'000 US$'000 US$'000
Loss attributable to (14,847) (18,587) (11,091) (21,399)
equity shareholders
Number Number Number Number
Basic weighted average 134,470,002 134,470,002 92,778,204 92,778,204
number
of shares
US cents US cents US cents US cents
Basic loss per share (11.0) (13.8) (12.0) (23.1)
With the exception of new shares issued as part of the Newfound acquisition, the weighted average number of shares has been calculated
as if the shares now held by the former shareholders of the Newfound group of companies had always been in existence prior to the Newfound
acquisition.
In calculating the dilutive earnings per share, the weighted average number of shares would be adjusted for the dilutive effect of the
1,160,221 (2006: 1,893,555) outstanding share options calculated by comparing the exercise price of the options against the average market
price of the Company's Ordinary shares. However, the potential exercise of options has an antidilutive effect on the adjusted and total loss
per share for 2007 due to the loss for the year. The adjusted loss per share is calculated from the loss attributable to equity shareholders
excluding exceptional items.
In relation to the contingently issuable shares under the acquisition agreement (note 28), no dilution has been assumed as the
conditions necessary for the issue of the shares have not been met at the balance sheet date.
14 Property, plant and equipment
Golf course Office
Golf course equipment, equipment Equipment Machinery
and snowmobiles and under and
buildings and vehicles furnishings capital equipment Construction
US$'000 US$'000 US$'000 leases US$'000 in progress
Land US$'000 US$'000 Total
US$'000 US$'000
Cost:
At 1 January 2006 3,307 14,582 1,421 779 7,656 668 478 28,891
Additions (restated 6,993 802 42 197 80 1 1,666 9,781
note 2u)
Business - 72 - - - - 113 185
acquisitions
Disposals - - (196) (20) (1,409) (150) - (1,775)
Transfers - - - - 283 (283) - -
Foreign exchange (30) 19 6 13 50 12 1 71
At 31 December 2006 10,270 15,475 1,273 969 6,660 248 2,258 37,153
Additions 836 76 - 197 93 - 2,797 3,999
Transfer to - - - - - - (678) (678)
inventory
Disposals (1,872) (13) (359) (6) (1,213) (4) (223) (3,690)
Transfers - 331 2 - (207) 170 (296) -
Foreign exchange 917 2,787 179 148 1,071 59 40 5,201
At 31 December 2007 10,151 18,656 1,095 1,308 6,404 473 3,898 41,985
Accumulated
depreciation:
At 1 January 2006 - 807 431 292 2,900 166 - 4,596
Provided during the - 688 134 153 996 92 210 2,273
year
Disposals - - (97) (14) (764) (54) - (929)
Transfers - - - - 79 (79) - -
Foreign exchange - (16) - 3 2 2 (4) (13)
At 31 December 2006 - 1,479 468 434 3,213 127 206 5,927
Provided during the - 671 100 174 1,188 5 - 2,138
year
Disposals - (7) (273) (3) (717) (2) (223) (1,225)
Transfers - 18 1 - (183) 164 - -
Foreign exchange - 323 62 77 598 37 17 1,114
At 31 December 2007 - 2,484 358 682 4,099 331 - 7,954
Net book value at 10,151 16,172 737 626 2,305 142 3,898 34,031
31 December 2007
Restated net book 10,270 13,996 805 535 3,447 121 2,052 31,226
value at 31 December
2006
The net book value of the Group's fixtures and equipment includes an amount of US$ 2.3 million (2006: US$ 3.4 million) in respect of
assets held under finance leases.
The Group has pledged land and buildings having a net book value of approximately US$ 19.4 million (2006: US$ 19.8 million) as security
for certain of the Group's financial liabilities.
Depreciation expense of US$ 2.1 million (2006: US$ 2.3 million) has been wholly charged to administration expenses.
15 Trade and other receivables - non-current
2007 2006
US$' US$'
000 000
Trade receivables - 9,875
Other loans receivable 543 643
543 10,518
Other non-current loans receivable of US$ 0.5 million and current loans receivable of US$ 0.7 million (note 17) have interest rates from
prime plus 3%, with maturing dates varying from 2009 to 2024 and total annual principal instalments 2007-2009: US$ 99,000; 2010-2014: US$
86,000; and 2015-2024 US$ 4,000
16 Inventories
2007 2006
US$' US$'000
000 Restated
Land 20,988 12,275
Work-in-progress 8,341 662
Supplies 177 245
29,506 13,182
Restatement to land inventories (note 2u) 10,000
Restated balance 23,182
The land inventory relates to land available for resale and work-in-progress
relates to property under development.
Inventories with a carrying amount of US$ 24.7 million (2006: US$ 21.6
million) have been pledged as security for certain of the Group's financial
liabilities.
17 Trade and other receivables - current
2007 2006
US$' US$'
000 000
Trade receivables 19,194 15,465
Receivable from joint venture 61 37
Amounts due from customers on construction contracts 882 732
Sales tax receivable 1,569 585
Mortgage and other loans receivable 744 1,051
Prepayments, accrued income and other receivables 2,887 6,200
25,337 24,070
An allowance is held for estimated irrecoverable amounts from the sale of goods and services of US$ 616,000 (2006: US$ 96,000). This
allowance has been determined by reference to past default experience and has been increased by the bad debt charge during the year of US$
580,000 less amounts utilised of US$ 60,000.
The Directors consider that the carrying amount of current trade and other receivables approximates their fair value.
Amounts due from customers on construction contracts comprise gross amounts due from customers of US$ 4.3 million (2006: US$ 2.5
million) less payments on account of US$ 3.4 million (2006:US$ 1.8 million).
18 Customer deposits
2007 2006
US$' US$'
000 000
Customer deposits 166 633
Customer deposits relate to refundable deposits made by customers towards the
purchase of land and construction and are set aside in bank accounts with
restricted use.
19 Cash and cash equivalents
2007 2006
US$' US$'
000 000
Cash at bank and in hand 8,647 3,789
Bank balances and cash comprise cash in hand and short-term deposits. The
Directors consider that the carrying amount of these assets approximates to
their fair value.
20 Trade and other payables
2007 2006
US$' US$'
000 000
Trade payables 21,511 20,528
Amounts due to customers on construction contracts 5,910 9,539
Sales tax payable 78 488
Other payables 275 653
27,774 31,208
The Directors consider that the carrying amount of trade payables approximates to their fair value.
Amounts due to customers on construction contracts comprise gross amounts due to customers of US$ 38.3 million (2006: US$ 33.5 million)
less payments on account of US$ 32.4 million (2006: US$ 24.0 million).
21 Other non current payables
2007 2006
US$' US$'
000 000
Other payables 337 -
337 -
The other payables are due to be repaid over four years at 0% interest, the current portion of these payables is disclosed in note 20
above. The payable has been discounted using the Group's weighted average cost of borrowing of 12%.
22 Borrowings
2007 2006
US$' US$'
000 000
2,076 949
Bank overdraft at 9.5% interest per annum, repayable on
demand and a maximum facility (Newfound's share) of US$ 2.0
million.
2,043 -
Construction loan at 9.5% interest per annum, repayable out
of proceeds from unit sales and a maximum facility
(Newfound's share) of US$ 3.45 million.
2,446 2,891
Government of Newfoundland and Labrador, capital land
lease, US$ 2.8 million (2006: US$ 3.3 million) at 0%
interest, repayable in annual principal payments of US$ 1.3
million, maturing in 2010. The capital land lease has been
discounted using the Group's weighted average cost of
borrowing of 12% (2006: 8%). Interest is being applied over
the term of the capital land lease.
5,954 8,130
Government of St Christopher and Nevis, loan of US$ 6.6
million (2006: US$ 8.6 million) at 0% interest, repayable
in six monthly principal instalments of US$ 2.9 million
maturing in 2008. The loan has been discounted using the
Group's weighted average cost of borrowing of 12%. Interest
is being applied over the term of the loan.
2,835 -
Unsecured loans from minority shareholders in Pinney's
Estate Nevis, repayable on 31 January 2012 and bearing
interest of 12% per annum payable annually in arrears.
2,031 3,395
Capital leases at interest rates ranging from 0.8% to 13.0%
per annum with maturity dates to 2012 and an average
weighted interest rate of 8.0% per annum.
251 293
Atlantic Canada Opportunity Agency unsecured loans at 0%
interest, maturing in 2008 and 2011, repayable in equal
monthly principal instalments of US$ 1,607 and US$ 5,116
respectively.
1,710 1,718
Newfound's share of preference shares in Cable Bay Hotel
Development Corporation ("CBHDC"): US$ 0.9 million 7% per
annum cumulative redeemable December 2009 (or at any time
earlier at the discretion of CBHDC); and US$ 0.8 million
non-interest bearing redeemable through the declaration of
dividends (US$ 1 for every US$ 2 of CBHDC's ordinary share
dividends) and discounted using the Group's weighted
average cost of borrowing of 12%.
19,346 17,376
As security for these borrowings, the Group has pledged security over specific equipment and land. In particular:
- the bank overdraft and construction loan are secured by the bank's fixed and floating charge over the assets of Cable Bay Hotel
Development Corporation;
- the government land lease and loan are secured by a charge over the relevant land assets or parts thereof; and
- the Group's obligations under finance leases are secured by the lessor's charge over the leased assets.
The fair value of the loans does not differ significantly to their carrying value.
The principal repayments are estimated as follows:
2007 2006
US$' US$'
000 000
Within one year 12,868 9,364
Within one to five years 6,478 8,012
In more than five years - -
19,346 17,376
The timing of the undiscounted principal payments and interest in relation to these borrowings is as follows:
2007 2006
US$' US$'
000 000
Repayable within one year 15,918 10,010
Repayable within one to two years 3,615 7,171
Repayable within two to three years 799 2,847
Repayable within three to four years 754 470
Repayable within four to five years 3,513 347
24,599 20,845
Within the balances repayable within one year, US$ 3.2 million is payable on demand.
23 Obligations under finance lease
Minimum lease payments Present value of minimum
Lease payments
2007 2006 2007 2006
US$'000 US$'000 US$'000 US$'000
Amounts payable
under finance
leases:
Within one year 1,648 1,682 1,535 1,517
In the second to 542 1,971 496 1,878
fifth years
inclusive
After five years - - - -
2,190 3,653 2,031 3,395
Less future finance (159) (258)
charges
Present value of 2,031 3,395
lease obligations
(1,535) (1,517)
Less: Amounts due for settlement within 12 months (shown under current
liabilities)
Amounts due for settlement after 12 months 496 1,878
The Group leases certain of its fixtures and equipment under finance leases. The average lease term is 4.1 years (2006: 3.7). For 2007,
the average effective borrowing rate was 8.0% (2006: 6.3%). Interest rates are fixed at the contract date. All leases are on a fixed
repayment basis and no arrangements have been entered into for contingent rental payments. The Directors consider that the fair value of the
Group's lease obligations approximates their carrying amount.
24 Provisions
Commissions Total
US$'000 US$'
000
At 1 January 2007 859 859
Used during the year (859) (859)
At 31 December 2007 - -
25 Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 36% (2006: 36%).
The movement on the deferred tax account is as shown below:
2007 2006
US$'000 US$'000
At 1 January 2007 (217) 737
Tax credit - (952)
Foreign exchange (39) (2)
At 31 December 2007 (256) (217)
Deferred tax assets - tax losses 1,318 1,118
Deferred tax liabilities - temporary differences on
property, plant and equipment (1,574) (1,335)
(256) (217)
Deferred tax assets have been recognised in relation to tax losses carried forward in one of the Group's entities. This entity made
losses during 2007, but is expected to make taxable profits in future years based on detailed budgets and sales forecasts.
No deferred tax has been recognised on the un-remitted earnings of overseas subsidiaries and joint ventures as no tax is expected to be
paid on them in the foreseeable future. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of
offset and there is an intention to settle the balances net.
26 Class B and Class C share liability
Authorised share capital
Class B preference shares - 160 3% non-cumulative, non-transferable, non-voting, class B preference shares. These shares are redeemable
for a property upon payment of full subscription. The Group has the right to retract each share for US$ 0.2 million three years following
the date of substantial completion of the property.
Class C preference shares - an unlimited number of non-cumulative, non-transferable, non-voting, class C preference shares. These shares
are redeemable at US$ 0.1 million each upon payment of full subscription and until such time as the condominium unit is substantially
complete or on or after 1 January 2008, whichever is the earlier. The Group does not have the right to retract the share until the
condominium unit is substantially complete or on or after 1 January 2008, whichever is the earlier.
Issued
On 16 June 2006, pursuant to the Class B shares subscription agreements, the Group notified all Class B shareholders, who had not made
the required second instalment within the contracted period, that the Group was terminating its agreement with the shareholders. Pursuant to
the subscription agreements, the shareholders were advised that all sums paid to the Group were forfeited by the shareholders and that the
shareholders had no further beneficial right to the Class B share. As a result, the shares can no longer be redeemed for a property and
control of the shares has reverted to the Group.
With the loss of their redemption rights effective 16 June 2006, the shares, which remained outstanding and were now under control of
the Group, have been taken as an exceptional credit through the income statement in accordance with IAS 39 Financial Instruments:
Recognition and Measurement. The credit through the income statement of nil (2006: US$ 6.9 million) has subsequently been transferred from
the retained earnings reserve to the redemption reserve.
2007 2006
US$' US$'
000 000
Class B preference shares - 7 (2006: 8) 846 824
Class C preference shares - 12 (2006: 10) 1,418 1,117
2,264 1,941
Of which current amounts:
Class B preference shares 329 -
Class C preference shares 1,418 -
1,747 -
Of which non-current amounts:
Class B preference shares 517 824
Class C preference shares - 1,117
517 1,941
27 Financial instruments
The Group has estimated the fair market value of its financial instruments,
which include cash and cash equivalents, accounts receivable, other loans
receivable, bank indebtedness, payables and accruals, payables to companies
under common control, borrowings and Class B and Class C shares. The Group
used valuation methodologies and market information available as at the
year end and has determined that the carrying amounts of such financial
instruments approximate their fair market value in all cases except as
noted.
Even though the Group's reporting currency is the US dollar,
non-consolidated financial statements of the individual entities are
prepared based on their respective functional currencies being the Canadian
dollar for Canadian operations, the US dollar for US operations and
operations in Saint Christopher and Nevis, Pounds Sterling for UK
operations and Euros for operations based in the Netherlands and Ireland.
28 Share capital
The authorised share capital of the Company consists of two separate
classes of shares being Ordinary Shares and Special Voting Shares. Both
classes of share have a par value of EUR0.01 each. The Special Voting
Shares rank pari passu in all respects with the Ordinary Shares, other than
in respect of the right to receive dividends and distributions. Holders of
the Special Voting Shares are entitled to receive only the nominal minimum
dividend required by Dutch law requirements and are not entitled to any
distribution on liquidation.
As part of the Newfound acquisition, certain Canadian shareholders of the
former Newfound group companies elected to receive Exchangeable Securities
by way of consideration. The Exchangeable Securities comprise:
- Exchangeable Shares being Canadian dollar denominated securities issued
by Exchangeco, a wholly owned subsidiary of Callco, which itself is a
wholly owned subsidiary of the Company; and
- Exchangeable LP Units being limited partnership interests
2007 2006 2007 2006
Number Number US$' US$'
000 000
Authorised:
Ordinary Shares of EUR0.01 each 300,000,000 300,000,000 3,956 3,956
Special Voting Shares of EUR0.01 each 200,000,000 200,000,000 2,637 2,637
Allotted, called up and fully paid:
Ordinary shares of EUR0.01 each 179,709,687 70,889,679 2,492 898
Exchangeable Securities and Special 54,174,928 54,174,928 687 687
Voting Shares of EUR0.01 each
233,884,615 125,064,607 3,179 1,585
During the year ended 31 December 2007, the following shares of the Company were issued:
- on 23 February 2007, the Company issued 733,333 new Ordinary Shares pursuant to the exercise of options as noted below raising gross
proceeds of US$ 0.7 million;
- on 31 May 2007, the Company issued 2,278,713 new Ordinary Shares raising gross proceeds of US$ 2.3 million; and
- in December 2007, the Company issued 105,807,962 new Ordinary Shares under a private placement at 10 pence each for cash of US$ 19.0
million, net of expenses.
Share options
The table below presents the awards outstanding:
Date of grant Exercise Exercise period 2007 2006
price Number Number
pence
8 October 1999 5 8 Oct 2009 26,888 26,888
23 November 2005 43 In equal one-third tranches in the 800,000 800,000
three years prior to 5 Sep 2009, 5
Sep 2010 and 5 Sep 2011
23 November 2005 and 15 50 23 November 2008 333,333 1,066,667
December 2005
1,160,221 1,893,555
On 23 February 2007, 733,333 options were exercised resulting in the issue of 733,333 Ordinary Shares at US 98 cents (50 pence) each.
The related weighted average share price at the time of exercise was US 112 cents (57 pence).
Contingently issuable shares
Under the terms of the Newfound acquisition, the Company will issue shares to certain of the vendors subject to the achievement of
adjusted EBITDA targets. The 2007 targets have not been met and therefore no shares have or will be issued in respect of this year.
29 Reserves
The redemption reserve comprise the redemption of Class B shares for amounts less than or greater than their stated value. The
translation reserve arises on consolidation of businesses reporting in other currencies. The Group restructuring reserve represents the
balance of the amount attributable to equity in the balance sheet as a result of the accounting entries arising from the Newfound
acquisition. The minority interests relate to the share of net assets of Cable Bay Hotel Development Corporation and Newfound Pinneys
Limited held by external shareholders.
30 Commitments
Operating leases arrangements
2007 2006
US$' US$'
000 000
Minimum lease payments under operating leases recognised as
an expense 509 209
The Group has outstanding commitments under non-cancellable operating leases, which fall due as follows:
2007 2006
US$' US$'
000 000
Within one year 208 287
In the second to fifth years inclusive 141 85
349 372
Operating lease payments represent rentals payable by the Group for certain of its properties and equipment.
Capital commitments
2007 2006
US$' US$'
000 000
Contracts placed for future expenditure not provided in the
financial statements 2,641 1,134
The Group also has a commitment to the Government of Newfoundland and Labrador as part of the terms of the capital land lease (note 22).
For each lot of land included in Phase 2 of the resort development, the Group must pay a fee to the Government in the amount of 6% of the
sales value of the land upon the sale of a lot.
31 Related party transactions
The following transactions were carried out with related parties:
Sale and purchase of goods and services to / (from) joint venture
2007 2006
US$' US$'
000 000
Commission revenue from joint venture 1,518 25
Management fees from joint venture 750 750
Costs recharged to the Group by joint venture (24) (24)
Amounts owed by joint venture to the Group (note 17) 61 37
Other related parties
Dolphin Other related
parties
2007 2006 2007 2006
US$' US$' US$' US$'
000 000 000 000
Sales of goods and services - 991 1,863 1,043
Purchases of goods - 550 - 2,010
Management fees payable to Dolphin - 1,031 - -
Dolphin is a related party of the Group because prior to 26 September 2006 it was the majority shareholder of the companies formerly
comprising the Newfound Group and since that date it exerts significant influence over the Group through its majority shareholder.
In addition to the Group's entities, the Group is also related to Strawberry Hill Resort Limited, Canex Development Corporation Limited,
Newfound Productions Limited, Applecore Interactive Inc, Northern Cod Ventures Limited, Northern Aquaculture Corporation, 11296 Newfoundland
Inc., 11297 Newfoundland Inc., The Sunday Independent (NL) Inc., and Cottles Island Lumber Company Limited, due to the parties being under
Dolphin's control.
Sales of goods to related parties were made at the Group's standard list prices. The 2007 transaction is in relation to a sale of land
inventory at Humber Valley Resort to one of the Directors. The sales in 2006 to Dolphin include the sale of a chalet to Dolphin for US$ 0.9
million. The sales to other related parties include the sale of a chalet to Brian Dobbin for US$ 1.0 million. Purchases were made at market
price discounted to reflect the quantity of goods purchased. The purchases from other related parties includes a payment of US$ 1.8 million
in relation to the purchase of the land, buildings and equipment at Strawberry Hill as part of the Newfound acquisition agreement.
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the
categories specified in IAS 24 Related Party Disclosures.
2007 2006
US$' US$'
000 000
Salary 1,498 543
Payments arising from termination of employment contract 800 -
Share based payments - 10,890
2,298 11,433
For the period prior to 26 September 2006, the remuneration of two members of key management was paid by Dolphin and recharged to the
Group as management charges payable to Dolphin. Since 26 September 2006, all remuneration for key management was paid by the Group.
As part of the Group reorganisation prior to the Newfound acquisition, one member of key management was granted shares in Newfound
Pinneys Limited. These shares were exchanged for Ordinary Shares in the Company on acquisition. The share based payment above relates to the
charge arising calculated in accordance with IFRS 2 "Share-based payment" (note 8).
Directors' and officers' interests
The interests of the Directors and officers in the share capital of the Company at 31 December 2007 and the prior year (or at their date
of appointment, if later) are set out below:
Ordinary Shares
2007 2006
Number Number
J White 44,299,307 14,099,307
J Morgan 46,909,482 4,630,769
R Weisz - -
S Longfield* 34,197 14,197
Note* S Longfield has been appointed an officer of the Company with the title Chief Financial Officer
The significant movements in Directors' interests relate to:
- the subscription by J White for 30,000,000 Ordinary Shares as part of the private placement in December 2007 and the exercise of
200,000 options; and
- the subscription by J Morgan for 40,000,000 Ordinary Shares as part of the private placement in December 2007 and the issue of
2,278,713 Ordinary Shares to J Morgan on 31 May 2007 (note 28).
Details of options over Ordinary Shares held by Directors are set out below. All of these options relate to options previously held over
Nettec plc shares (note 27) and were exchanged for options over Ordinary Shares at the date of the Newfound acquisition:
Date of grant Exercise Earliest Latest exercise date 2007 2006
price exercise Number Number
pence date
J White
23 November 2006 50 23 November 23 November 333,333 533,333
2006 2008
J White exercised 200,000 options on 23 February 2007.
32 Cash flows from operating activities
Reconciliation of loss for the year to cash used in operations
2007 2006
US$'000 US$'000
Loss for the year (18,601) (24,207)
Adjustments for:
Tax credit (56) (333)
Finance costs 910 1,913
Finance income (47) (154)
Depreciation 2,137 2,273
Loss / (profit) on disposal of property, plant and 196 (343)
equipment
Share based payments - 17,210
Other non-cash movements 137 (6,725)
Changes in working capital:
Decrease / (increase) in customer deposits 467 (633)
Decrease / (increase) in trade and other receivables 13,325 (23,257)
(Increase) in inventory (6,214) (7,374)
(Decrease) / increase in trade and other payables (8,294) 4,160
(Decrease) in provisions (932) -
(Decrease) / increase in deferred revenue (607) 20,534
Cash used in operations (17,579) (16,936)
33 Contingent liabilities
Class B preference shares
The Group has a contingent obligation to construct chalet properties for Class B preference shareholders. The obligation is based on the
Class B preference shareholders complying with the terms of their Class B preference shares and making a formal request to have a specific
chalet constructed on a designated building lot. Construction of the chalets does not provide incremental proceeds to the Group and are thus
completed at the cost of the Group. The provision of the chalet to the shareholder is considered a full redemption of the shareholder's
interest in the Group. At 31 December 2007, there was an obligation to construct one chalet (2006: one chalet) and the difference between
the expected construction cost and the value of the related Class B preference share has been provided in the accounts.
Legal matters
In the normal course of operations, the Group is involved in various claims. The Directors are of the opinion that at 31 December 2007,
there were no such claims requiring detailed disclosures not otherwise included in the consolidated financial information. The Directors are
of the opinion that adequate provisions are contained in the financial information, where required, and that, on resolution, there will not
be a material adverse affect on the financial position of the Group.
Guarantees and security
The Group has given a number of performance guarantees or security over assets to certain suppliers in the ordinary course of business.
In addition, the following more significant guarantees or security over assets have been provided:
- A second ranking mortgage has been given over a parcel of land in Nevis in relation to performance on an agreement for the acquisition
of an interest in plots of land in Nevis for US$ 6.0 million (2006: US$ 6.0 million);
- Mortgages have been given over parcels of land in Humber Valley in relation to performance on agreements for the acquisition of
interests in plots of land in Nevis for US$ 5.5 million (2006: US$ 3.3 million);
- Mortgages have been given over parcels of land and infrastructure assets in Humber Valley in relation to performance on construction
contracts for US$ 8.3 million (2006: US$ 8.0 million); and
- A first ranking mortgage has been given over a parcel of land in Nevis in relation to performance on agreements for the acquisition of
interests in plots of land in Nevis for US$ 7.9 million.
34 Post balance sheet event
The Group is about to issue a circular dated 2 June 2008 for the raising of nearly US$ 30 million (� 15 million) of guaranteed secured
loan notes, subject to shareholders' approval at the Annual General Meeting of the Company on 26 June 2008 (see note 2 for further
details).
35 Principal subsidiary undertakings and joint ventures
Subsidiary undertakings
The following companies are the principal subsidiary undertakings of the Group and have all been included in the consolidated financial
statements. These entities, with the exception of Newfound UK Limited, were also included in the combined financial information for the
period up to the date of the Newfound acquisition.
Country of incorporation Nature of business
Entity Shares held
Humber Valley Resort Canada 100% ordinary Resort operator
Corporation 0% preference
Humber Valley Construction Ltd Canada 100% ordinary Resort operator
Newfoundland Travel and Canada 100% ordinary Resort operator
Tourism Corporation
Newfound Developers Saint Christopher and 100% ordinary* Management company
International Ltd Nevis
Newfound Pinneys Ltd Saint Christopher and 75% ordinary* Resort operator
Nevis 82% preference
Newfound UK Limited United Kingdom 100% ordinary* Management company
Newfound Property United Kingdom 100% ordinary Sales company
International Ltd
Newfound Property USA 100% ordinary Sales company
International (USA) Inc.
Note: * held directly by the Company
Joint venture
The Group also has a joint venture, Cable Bay Hotel Development Corporation ("CBHDC"), in which the Group holds 50% of the Ordinary
shares through a subsidiary undertaking, in which the Group holds 80% of the Ordinary Shares. The Group therefore controls 50% of the voting
rights in CBHDC. CBHDC is incorporated in Saint Christopher and Nevis.
The following amounts represent the 50% share of the assets and liabilities, shown in the balance sheet, and of the results of CBHDC,
shown in the income statement.
2007 2006
US$'000 US$'000
Non-current asset 65 850
Current assets 6,188 2,211
6,253 3,061
Current liabilities (3,530) (1,180)
Non-current liabilities (3,943) (1,900)
(7,473) (3,080)
Net liabilities (1,220) (19)
Revenue - 124
Expenses (1,201) (554)
Loss after tax (1,201) (430)
There are no contingent liabilities relating to the Group's interest in the joint venture, and no contingent liabilities of the joint
venture itself.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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