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21 SEPTEMBER 2009 JAPAN LEISURE HOTELS LIMITED (“Japan Leisure Hotels”, “JPLH” or “the Company”) Interim Report for the six months ended 30 June 2009

Japan Leisure Hotels (AIM: JPLH) announces its interim report for the six months ended 30 June 2009. JPLH’s current portfolio comprises 6 hotels with 242 rooms. Japan’s geography, culture and demographics place a premium on privacy, which results in adult couples of all ages continuing to visit leisure hotels, even in these challenging economic times. SUMMARY Continued high levels of occupancy* in excess of 240% EBITDA margin before asset management fees for H1 2009 increased to 39.7% from 33.2% in H1 2008 * The Company continues to generate profits before taxation Net cash generated from operations in H1 2009 of JP¥118.6 million (£0.86 million) Company remains in a strong financial position with a cash balance of approximately JP¥327 million (£2.1 million) as of 30 June 2009 Adjusted NAV of 76p (JP¥120) per share as at 30 June 2009 Many acquisition opportunities available on attractive terms *

Excludes non Bonita branded hotel in Yokkaichi, acquired in August 2008

Alan Clifton, JPLH’s Chairman, commented: “The first six months of 2009 saw our portfolio continue to perform well despite a challenging economic environment. This outcome supports the Board’s continued belief that the leisure hotel industry in Japan is well protected from recessionary forces. Increased media attention on the Japanese leisure hotel industry and our position within it has undoubtedly raised the Company’s profile and has led to increased levels of interest from a variety of sources. We continue to explore a range of options to secure appropriate funding to buy further hotels and remain confident of executing our long term growth strategy.” Stephen Mansfield, Asset Manager, commented: “These results underscore the value that can be released through strong management of leisure hotels in Japan. By building a recognised brand and delivering a consistently strong performance, we are demonstrating to investors that, if we had increased financial resources, we could amass and successfully operate a business many time the size of the existing Bonita portfolio.” A full copy of the 2009 Half Year Report is available in PDF format on the Company’s website, www.japanleisurehotels.com. Enquiries: Asset Manager Steve Mansfield

+81 3 4550 1808

Shore Capital (NOMAD to JPLH) Dru Danford Stephane Auton

020 7408 4090

Pelham Public Relations Archie Berens

020 7337 1509 or 07802 442486

1


JAPAN LEISURE HOTELS LIMITED HALF YEAR REPORT FOR 6 MONTHS ENDED 30 JUNE 2009 CHAIRMAN’S STATEMENT Introduction The first six months of 2009 saw Japan Leisure Hotels (“JPLH”) portfolio continue to perform well despite a challenging economic environment. This performance supports the Board’s continued belief that the leisure hotel industry in Japan is well protected from recessionary forces. The country’s geography, culture and demographics place a premium on privacy, which results in adult couples of all ages continuing to visit leisure hotels, no matter what the economic climate. As recent media coverage has demonstrated, the leisure hotel industry in Japan, which generates sales of more than £30 billion per year, is an accepted and mainstream part of Japanese life. Financial Performance JPLH’s portfolio of hotels continued to enjoy high levels of occupancy with the Bonita branded hotels 1 maintaining strong occupancy rates of more than 240%. Continued efficiency measures implemented by New Perspective combined with lower energy and food costs has improved the EBITDA margin 2 before asset management fees for the Bonita portfolio in the first 6 months ended 30 June 2009 to 39.5% compared to 33.2% in the corresponding period in 2008. Total sales for the 6 months ended 30 June 2009 was JP¥ 590.7 million (£4.1 million) 3, compared with JP¥563.6 million in the corresponding period in 2008. Excluding the hotel at Yokkaichi, which was not included in the figures for the first half of 2008 having only been acquired in August 2008, total sales for the Bonita portfolio were JP¥ 543.6 million. Thus, on a like for like basis, sales at the Bonita hotels fell by 3.8% a creditable performance, given that overall Japanese economic activity shrank by an average of 7.6%4 during the period. Cash arising from operations in the 6 months ended 30 June 2009 was JP¥ 118.6 million (£0.86 million), resulting in a cash position of JP¥ 327.0 million (£2.1 million)5 as at 30 June 2009, with no material debt. This shows that the portfolio continues to generate strong cash flows and supports the Board’s continued confidence that JPLH will be in a position to pay a dividend in respect of the year ending 31 December 2009. The Company’s Adjusted Net Asset Value (“NAV”) as at 30 June 2009 was 76p per share, compared with 91p as at 31 December 20085. The difference is entirely due to the movement of the exchange rate during the period - in Japanese yen the Adjusted NAV increased slightly from JP¥118.65 at 31 December 2008 to JP¥120.10. 1

2

3 4 5

The Bonita portfolio refers to the five hotels that are operating under the Bonita brand located at Sendai, Yamagata, Isawa, Komaki and Matsusaka. EBITDA comprises earnings before interest, tax, depreciation and amortisation and excludes the operating expenses of the Guernsey companies. EBITDA margin is EBITDA expressed as a percentage of revenue. Average exchange rate of 142.68 yen per pound Sterling during the six months ended 30 June 2009. Source: Trading Economics. Exchange rate of 158 yen per pound Sterling at 30 June 2009, compared with 131 yen per pound Sterling at 31 December 2008. 2


There is a large tax charge of JP¼30 million which has adversely affected the results as shown on the income statement. This has arisen as a consequence of a difference between income calculated for Japanese tax purposes and that reported under IFRS and the payment of Japanese withholding tax on distributions of profit paid to the Company from the SPEs in respect of both last year and the current financial period. Note 5 provides further details. We view EBITDA as the best gauge to measure the performance of the portfolio. Despite challenging trading conditions, EBITDA has increased and the portfolio generated more cash in comparison to the corresponding period of 2008. This amply illustrates the robustness of the leisure hotel industry compared to other business sectors and the strength of the management team on the ground. In contrast, there remain many leisure hotels whose owners are either experiencing financial difficulties or in these testing times regard their hotels as non-core, presenting an opportunity for JPLH to invest in them on very attractive terms. Our challenge is to find a way of exploiting this unique investment opportunity. Increased media attention on the Japanese leisure hotel industry and JPLH’s position within it has undoubtedly raised the Company’s profile and has led to increased levels of interest from a variety of sources. We continue to explore a range of options to secure appropriate funding to buy further hotels and remain confident of executing our long term growth strategy. Alan Clifton Chairman Japan Leisure Hotels 18 September 2009

3


JAPAN LEISURE HOTELS LIMITED HALF YEAR REPORT FOR 6 MONTHS ENDED 30 JUNE 2009 ASSET MANAGER’S REPORT The Japanese Economy Japanese GDP declined by 14.2%1 in the first quarter of 2009, its worst performance on record. However, analysts predict that Japan is likely to be one of the first major economies to return to positive growth and this is supported by the most recent economic statistics from Japan that show a 0.6%1 increase in GDP in the second quarter of 2009. Exports and industrial production have showed positive growth and factory output has rebounded to 8.3% in the second quarter of 2009, compared to a fall of 22.1%1 in the first quarter. Exports also rose by 6.3%1 between April and June, the first quarterly increase since January 2008. This recovery is largely due to the government stimulus package which has helped many factories and small businesses through the financial crisis. The stimulus package, which is focussed on subsidies and tax breaks, has supported industry and encouraged consumer spending, helping the recovery of world’s second-largest economy. It is too soon to say with any confidence whether these tentative signs of revival will take hold and turn into a sustainable recovery. On several occasions during the 1990s Japan’s economy showed signs of recovery which transpired to be false dawns; therefore we are cautious about predicting a swift return to sustained economic growth. However, as noted in the Chairman’s Statement, the leisure hotel industry is proving especially resilient in times of economic downturn; Japanese consumers remain relatively affluent and less burdened with debt than their Western counterparts. Historical figures show that there has always been a steady demand for leisure hotels in Japan which gives us confidence that our business model need not be dependent on broader economic growth for its success. 1

Source: Trading Economics

Financial Results Presented below are unaudited statements of EBITDA for the 6 months ended 30 June 2009. Bonita Branded Hotels 6 months to 30 June

Revenue Variable operating expenses Fixed operating expenses EBITDA

Yokkaichi 6 months to 30 June

Total 6 months to 30 June

2009 JP¥'000

2008 JP¥'000

2009 JP¥'000

2008 JP¥'000

2009 JP¥'000

2008 JP¥'000

540,615

563,641

50,047

-

590,662

563,641

(272,842) (101,707)

(300,484) (109,298)

(32,281) (17,071)

-

166,066

153,859

695

4

(305,122) (300,485) (118,778) (109,298) -

166,761

153,858


The difference between the total EBITDA above and the operating profit before exceptional item per the Consolidated Income Statement is depreciation and amortisation of JP¥114.9 million, operating expenses of the Guernsey companies of JP¥35.7 million and other expenses of JP¥0.2 million. The cash flow from operations of the hotels in the six months ended 30 June 2009 was JP¥178 million which is greater than EBITDA due to a reduction in working capital. The following key performance indicators further illustrate the performance of the Bonita portfolio. 2

REVPAR Occupancy rate EBITDA Margin3 2 3

2005 JP¥10,506 160% (41.7)%

2006 JP¥15,350 239% 25.8%

2007 JP¥16,572 254% 32.0%

2008 JP¥ 16,206 257% 34.5%

H1 2009 JP¥ 15,401 243% 39.7%

REVPAR: Daily Revenue per available room Before asset management fees

Review of Operations As the Company’s Chairman makes clear, we believe that the leisure hotel industry is relatively well protected from recessionary forces. We must, however, recognise that our guests are individuals whose finances, like those of consumers all around the world, are under greater stress than ever before. This has meant that sales and visitor numbers have not been as high as they might have been in more benign economic conditions. The caution of consumers has manifested itself in many different ways but to give an example, we have seen a discernable move by guests to choose lower priced rooms rather than our high end rooms. At our hotels in the Chubu region, there has also been a noticeable impact from the downturn in exports, in particular the closure of factories in the area by Toyota, the area’s largest employer. However, with Toyota resuming full operations at most of its factories in the second quarter, we have started to see an improvement in visitor numbers at these hotels. We have reacted to these changes in guest behaviour by being very price conscious and seeking to deliver the best value for money, principally by focussing on delivering high quality services. Our objective is to ensure that the Bonita brand is associated with both quality and value. We have launched a number of promotional offers and have also worked hard to use web-based marketing initiatives to attract and retain guests. Concurrently we have continued to work on maximising our margins; measures have included more efficient procurement of food, beverages and other consumables; a centralised inventory management system; more laundry being done in-house; and a tighter system of working shifts, thereby reducing staff costs. We also benefited from reduced utility costs as a result of the lower oil price. All of this has meant that we were able to increase EBITDA from JPY154 million to JPY167million. EBITDA margins before asset manager fees for all six properties were 37.2%, compared to 33.2% for the 6 months ended 30 June 2008.

5


Planning for the Yokkaichi renovation is moving forward on plan. Bids have been solicited for the renovation work and we are now in the process of selecting the favoured firm and scheduling the work. As we have noted previously, the planning and execution of this renovation is taking considerably longer than we would expect normally, due to our desire to review all processes, costs and expenses for all aspects of the operation and, where efficiencies can be achieved, to incorporate these into the design. This continues to take quite a considerable amount of time but will stand us in good stead for the future. The Opportunity As we noted in the 2008 Annual Report, the leisure hotel industry is highly fragmented and many hotel owners are experiencing severe financial distress that has been exacerbated by the economic downturn; in particular, owners are unable to refinance long term debt as it comes due. These are the two primary drivers of the opportunity for JPLH to grow its portfolio of hotels and become a dominant player in a stable and established industry which produces around £30 billion of revenue each year. Since JPLH’s listing in early 2008, New Perspective has consistently demonstrated its ability to manage successfully and profitably a portfolio of hotels under a single brand, generating healthy levels of cash. The performance of the Bonita portfolio has amply demonstrated our ability to source, renovate and manage these assets in Japan. Significant growth will not be achieved organically, based on broader economic recovery, but instead will rely on our ability to grow the portfolio of hotels. We have explained previously the importance of operating under a respectable, well regarded brand and we believe our performance to date has met this objective; this has been aided by recent media coverage that has heightened the overall awareness of our brand and further reinforced our position as a quality operator in this industry. By building a recognised brand and delivering consistently strong performance, we are demonstrating to investors that, if we had increased financial resources, we could amass and successfully operate a business many times the size of the existing Bonita portfolio. By accumulating a large number of hotels which are available at low prices in the current environment, the profits available for distribution will increase materially, by implementing strong management systems across the portfolio and by leveraging the economies of scale that will accrue to a larger operation. This is the opportunity which we continue to discuss with potential investors. There is no lack of choice for someone who wishes to acquire a number of hotels on very attractive terms but we believe we are extremely well placed to identify the very best hotels to acquire and operate them to their full potential. The general economic outlook remains uncertain and this is likely to remain so. That said the current large number of hotels for sale in the market will not continue indefinitely. We remain firmly committed to securing the necessary funding as soon as possible to seize this opportunity. Outlook We have shown that a portfolio of well managed assets can generate creditable returns even during times of deep recession. Recent economic signs have been more encouraging, which can only improve the prospects for the existing portfolio. We believe that our performance in these conditions should provide plenty of comfort for anyone considering an investment to allow us to take advantage of the consolidation opportunity outlined above. We continue to explore a range of financing options and look forward to reporting progress. Stephen Mansfield Director New Perspective Y.K. 18 September 2009

Robert Marshall Director New Perspective Y.K. 18 September 2009

6


Independent Review Report to the Members of Japan Leisure Hotels Limited Introduction We have been engaged by the Company to review the condensed set of financial statements in the interim financial report for the six months ended 30 June 2009 which comprises the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of Changes In Equity, Consolidated Cash Flow Statement and related Condensed Notes. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. Directors’ responsibilities The interim financial report is the responsibility of, and has been approved by, the Directors. As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting”, as adopted by the European Union. Our Responsibility Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim financial report based on our review. Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading on the AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability. Scope of Review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, “Review of Interim Financial Information performed by the Independent Auditor of the Entity” issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with the basis of preparation as set out in note 1 and in accordance with the AIM rules issued by the London Stock Exchange. BDO Novus Limited Chartered Accountants Place du Pré, Rue du Pré, St Peter Port, Guernsey 18 September 2009 7


JAPAN LEISURE HOTELS LIMITED Consolidated Income Statement (Unaudited) For the period 1 January 2009 to 30 June 2009 01.01.2009 to 30.06.2009 (Unaudited)

01.01.2008 to 30.06.2008 (Unaudited) (Restated - Note 3)

JP¥’000

JP¥’000

Revenue

590,662

563,641

Total revenue

590,662

563,641

Raw materials and consumables

(55,273)

(58,644)

(137,200)

(132,184)

(114,868)

(105,793)

(270,081)

(258,174)

(577,422)

(554,795)

13,240

8,846

-

801,250

13,240

810,096

Interest income

217

8,607

Net foreign currency gain/(loss)

681

(13,451)

-

(2,364)

898

(7,208)

14,138

802,888

(30,149)

(82)

(16,011)

802,806

(17,494)

801,482

1,483

1,324

(16,011)

802,806

Note

Personnel costs Depreciation and amortisation Other expenses

4

Total expenses Operating profit before exceptional item Exceptional item Negative goodwill

6

Profit on operations

Cost of warrants

Profit before taxation Taxation

5

(Loss)/profit for the period Attributable to: Equity shareholders Minority interest

(Loss)/earnings per share – basic (Yen)

7

(0.40)

19.81

(Loss)/earnings per share – diluted (Yen)

7

(0.31)

15.15

Adjusted (loss)/earnings per share – basic (Yen)

7

(0.40)

0.01

Adjusted (loss)/earnings per share – diluted (Yen)

7

(0.31)

0.01

All items in the above statement are derived from continuing operations.

8


The accompanying condensed notes form an integral part of these consolidated financial statements.

JAPAN LEISURE HOTELS LIMITED Consolidated Balance Sheet (Unaudited) At 30 June 2009

Note

30.06.2009

31.12.2008

(Unaudited)

(Audited)

JP¥’000

JP¥’000

ASSETS: Non-current assets Intangible assets

8

25,633

3,872

Property, plant and equipment

9

4,975,240

5,055,240

3,220

3,420

5,004,093

5,062,532

22,182

18,354

14,996

62,805

326,956

263,369

364,134

344,528

5,368,227

5,407,060

(121,751)

(145,260)

(687)

-

TOTAL LIABILITIES

(122,438)

(145,260)

TOTAL NET ASSETS

5,245,789

5,261,800

97,121

97,121

4,365,514

4,365,514

754,034

771,528

EQUITY ATTRIBUTABLE TO SHAREHOLDERS

5,216,669

5,234,163

Minority interest TOTAL EQUITY

29,120 5,245,789

27,637 5,261,800

JP¥ 118.95

JP¥ 119.32

Rental deposits Total non-current assets Current assets

10

Inventory

11

Trade and other receivables

12

Cash and cash equivalents Total current assets TOTAL ASSETS

13

Current liabilities - trade and other payables

14

Non-current liabilities - loans payable

15

Share capital Distributable reserve Retained earnings

NET ASSET VALUE PER SHARE

16

DILUTED NET ASSET VALUE PER SHARE

16

JP¥ 108.44

JP¥ 106.05

The accompanying condensed notes form an integral part of these consolidated financial statements. The consolidated financial statements were approved by the Board of Directors on the 18 September 2009 and signed on its behalf by: Alan Clifton Director

Sarah Evans Director

9


JAPAN LEISURE HOTELS LIMITED Consolidated Statement of Changes in Equity (Unaudited) For the period 1 January 2009 to 30 June 2009 For the period from 1 January 2009 to 30 June 2009 Share Capital

Total Shareholders Equity

Minority Interest

JP¥’000

JP¥’000

JP¥’000

JP¥’000

771,528

5,234,163

27,637

5,261,800

-

(17,494)

(17,494)

1,483

(16,011)

97,121

4,365,514

754,034

5,216,669

29,120

5,245,789

Share Capital

Share Premium

Distributable Reserve

Retained Earnings

Total Shareholders Equity

Minority Interest

Total Equity

JP¥’000

JP¥’000

JP¥’000

JP¥’000

JP¥’000

JP¥’000

JP¥’000

-

-

-

(5,027)

(5,027)

-

(5,027)

94,757

4,643,102

-

-

4,737,859

-

4,737,859

Share issue costs Conversion of share premium account

-

(277,588)

-

-

(277,588)

-

(277,588)

-

(4,365,514)

4,365,514

-

-

-

-

Profit for the period Minority interest in pre-acquisition reserves

-

-

-

801,482

801,482

1,324

802,806

-

-

-

-

-

23,979

23,979

Warrants issued

2,364

-

-

-

2,364

-

2,364

At 30 June 2008

97,121

-

4,365,514

796,455

5,250,090

25,303

5,284,393

At 1 January 2009 (Loss)/profit for the period At 30 June 2009

At 1 January 2008 Issue of Ordinary Share capital

Distributable Reserve

Retained Earnings

JP¥’000

JP¥’000

97,121

4,365,514

-

The accompanying condensed notes form an integral part of these consolidated financial statements.

10

Total Equity


JAPAN LEISURE HOTELS LIMITED Consolidated Cash Flow Statement (Unaudited) For the period 1 January 2009 to 30 June 2009 01.01.2009 to 30.06.2009

01.01.2008 to 30.06.2008

(Unaudited)

(Unaudited) (Restated – Note 3)

Note

JP¥’000

JP¥’000

(16,011)

802,806

114,868

105,793

(217)

(8,607)

-

2,364

30,149

82

Cash flows from operating activities (Loss)/profit for the period Adjustments for: Depreciation and amortisation Interest income Cost of warrants Taxation Decrease in deferred income

(1,026)

-

-

(801,250)

Changes in working capital

22,278

(2,259)

Cash inflows from operations

150,041

98,929

217

8,385

Tax paid

(31,677)

(82)

Net cash inflows from operating activities

118,581

107,232

Purchase of intangible assets

(20,899)

-

Purchase of freehold land

(10,756)

-

Purchase of equipment, fixtures and fittings

(23,539)

(22,889)

6

Negative goodwill

Interest received

Cash flows from investing activities

Decrease in rental deposits

200

-

-

91,730

(54,994)

68,841

Share proceeds

-

655,350

Share issue costs

-

(222,024)

Net cash generated from financing activities

-

433,326

63,587

609,399

Cash and cash equivalents at the beginning of period

263,369

-

Cash and cash equivalents at the end of period

326,956

609,399

Cash acquired on acquisition of SPEs Net cash movement from investing activities Cash flows from financing activities

Net increase in cash and cash equivalents

The accompanying condensed notes form an integral part of these consolidated financial statements.

11


JAPAN LEISURE HOTELS LIMITED Condensed Notes to the Consolidated Financial Statements (unaudited) For the period from 1 January 2009 to 30 June 2009 General Information Japan Leisure Hotels Limited was incorporated in Guernsey on 17 October 2007 and commenced operations on 7 January 2008. The Company is a closed ended investment company and registered under the provisions of the Companies (Guernsey) Law, 2008. The address of the registered office is given in the Management and Administration section at the beginning of this report. The Company has been established to derive cashflow and capital gains by investing in Japanese leisure hotels. The Company was listed and admitted to trading on AIM, the market of that name operated by the London Stock Exchange, on 16 January 2008 (the “Placing”). On admission 44,100,000 shares were issued at £0.50 per share resulting in gross proceeds of £22,050,000. Group Structure The Group comprises the Company, its wholly-owned subsidiaries and those special purpose entities (“SPEs”) which invest in hotels in Japan. The funds raised in the Placing have been invested through wholly-owned subsidiary companies of the Company, which are also Guernsey registered companies: JLH 1 Limited and JLH 2 Limited (the “Subsidiaries”). These companies are responsible for investing in properties in the Japanese leisure hotel sector. The hotels and other assets are owned by SPEs all of which are Japanese corporations. The Company, through its Subsidiaries, has invested in the SPEs by entering into Tokumei Kumiai agreements (“TK Agreements”). A TK Agreement is a contractual relationship whereby one party, the “TK Investor”, agrees to contribute capital to the other party, the “TK Operator” or SPE, to undertake an agreed business and receives a share of the economic benefits of investment in that business. The TK Investor’s investment is referred to herein as its “TK Interest”. Further information regarding the group structure is available on the Company’s website www.japanleisurehotels.com. 1. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied throughout the current period, unless otherwise stated. Basis of accounting The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union under the historical cost convention. The condensed interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34 “Interim Financial Reporting”. The condensed interim financial statements do not include all the information and disclosures required in annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2008. The presentation of the interim financial statements is consistent with the annual financial statements. Intangible assets All intangible assets are held for the purpose of running the business of the SPEs. Intangible assets comprise of software and trademarks. The estimated useful life of software is 3 years and amortisation is charged on a straight line basis to operating expenses. Trademarks are deemed to have an indefinite life and therefore are not amortised but are tested annually for impairment.

12


Impairment of assets Assets, other than inventories, trade and other receivables and certain financial assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount (being the higher of its fair value less cost to sell and its value in use), an impairment loss is recognised in the Consolidated Income Statement. 2. NEW STANDARDS AND INTERPRETATIONS NOT APPLIED No new IFRS, interpretations or amendments to existing standards have been adopted early; however it is unlikely that any such standards or interpretations or amendments issued, when adopted, will result in changes to the recognition and measurement accounting policies. 3. RESTATEMENT OF PRIOR PERIOD FIGURES The negative goodwill reported in the 30 June 2008 Interim Report as an exceptional item was JP¥156,663,000. On completion of the 31 December 2008 Annual Report this was changed to JP¥801,250,000. Accordingly the profit for the period ended 30 June 2008 has been increased by JP¥644,587,000. The reason for the restatement was a change in the method for calculating the reserves held by the SPEs in connection with the TK Interests; these reserves had previously been calculated with respect to the profits and losses of the SPEs under Japanese GAAP as required under the TK Agreements; at 31 December 2008 this was changed to reflect the profits and losses of the SPEs under IFRS. This resulted in an increase in these reserves that in turn resulted in an increase in the amount of negative goodwill. Additionally in the financial statements as at 31 December 2008 recognition of the costs of warrants issued has resulted in a reduction in profit for the period ended 30 June 2008 of JP¥2,364,000. At the time of the 30 June 2008 Interim Report the functional currency of the Company was Sterling; this was changed at 31 December 2008 to JP¥ causing the elimination of the foreign currency translation reserve and a corresponding increase in foreign exchange loss of JP¥8,978,000 in the Consolidated Income Statement for the period ended 30 June 2008. The table below shows the effect of these restatements on the results of the Company for the period ended 30 June 2008:

As per Interim Report 2008 JP¥’000

Effects of restatement JP¥’000

As restated in this report JP¥’000

156,663

644,587

801,250

Cost of warrants

-

(2,364)

(2,364)

Elimination of currency translation reserve

-

(8,978)

(8,978)

156,663

633,245

798,908

169,561

633,245

802,806

168,237

633,245

801,482

Restated item Exceptional item - negative goodwill

Profit for the period Attributable to: Equity shareholders Earnings per share – basic (Yen)

4.16

19.81

Earnings per share – diluted (Yen)

3.18

15.15

13


4. OTHER EXPENSES

01.01.2009 to 30.06.2009

01.01.2008 to 30.06.2008

JP¥’000

JP¥’000

Hotel operating costs Asset Manager’s fees Professional services Auditors’ remuneration Administrator’s fees Directors’ fees

135,767 53,003 21,707 6,818 6,976 7,568

138,862 33,457 28,460 6,587 8,856 8,644

Other expenses

38,242 270,081

33,308 258,174

5. TAXATION Japanese taxation There are two components of the Japanese tax charge, withholding tax and corporation tax:

Withholding tax Corporation tax

2009 JP¥’000

2008 JP¥’000

29,998 151 30,149

82 82

Withholding tax Withholding tax is levied at 20% on distributions of profit as calculated for Japanese tax purposes that were made during the period from the SPEs to the Guernsey holding companies as shown below: 2009 JP¥’000

2008 JP¥’000

Relating to profits of prior periods

19,809

-

Relating to the profits of the current period

10,189

-

29,998

-

Withholding tax at 20% on distributions made during the period:

Total withholding tax Corporation tax Corporation tax is calculated at 42% of taxable profits.

The reasons for the difference between actual corporation tax charge for the period and the standard rate of tax in Japan applied to the profits for the period are as follows:

14


01.01.2009 to 30.06.2009

01.01.2008 to 30.06.2008

JP¥’000

JP¥’000

(Unaudited)

(Unaudited)

Profit before taxation

14,138

802,888

Income not subject to tax

20,930

(759,859)

(95,782)

(50,231)

27,996

8,574

Other items deductible for tax purposes Accelerated depreciation Delayed recognition of expenses Expenses not deductible for tax purposes Net taxable income Tax losses utilised Tax losses carried forward Actual corporation tax charge being the minimum tax charge on SPEs with nil taxable income

-

(2,970)

20,223

2,402

(12,495)

804

-

(804)

(12,495)

-

151

82

Guernsey taxation The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinances, 1989 to 1992, and is charged an annual exemption fee of £600 (JP¥ 77,419) included in other expenses. The Company is a Collective Investment Scheme and has applied for and been granted exempt status under the revised company income tax regime that came into effect in 1 January 2008. 6. EXCEPTIONAL ITEM Negative goodwill Negative goodwill arises when the net assets acquired in a business acquisition exceed the price paid by the acquiring entity. Under IFRS 3, negative goodwill should be recognised in the Consolidated Income Statement as it arises. The negative goodwill of JP¥801,250,000 arising on the acquisition of the TK Interests was credited to the Consolidated Income Statement in the year ended 31 December 2008; this reflects the difference between the net asset value in the books of the SPEs acquired and the value of the shares issued in exchange for the TK Interests. As per note 3 this figure has been changed from that disclosed in the Interim Report 2008. 7. EARNINGS PER SHARE Earnings per share is based on profits after tax attributable to equity shareholders and the number of shares in issue during the period as shown below: 01.01.2009 to 01.01.2008 to 30.06.2009 30.06.2008 (Unaudited)

(Unaudited)

Weighted average number of shares in issue during the period

Number of Shares 44,100,000

Number of Shares 40,465,385

Dilutive potential shares from warrants

12,420,500

12,420,500

56,520,500

52,885,885

15


Warrants For every share subscribed in the placing, the Company issued 2 warrants. Accordingly, 12.2 million warrants have been issued to subscribers. Each warrant entitles the holder to subscribe for one new share at £0.45. The warrants will be exercisable from 31 January 2009 until 31 January 2013. A further 220,500 warrants have been issued to Shore Capital in part payment of its fees in connection with the placing. The fair value of the issued warrants to Shore Capital as payment for services is estimated to be JP¥2.3 million (£11,025) and was recognised as an expense of the Company at the time of the placing. Therefore there are 12,420,500 potential ordinary shares should the warrants be exercised, which would bring the total number of ordinary shares to 56,520,500. 8. INTANGIBLE ASSETS 30.06.2009

31.12.2008

(Unaudited) JP¥’000

(Audited) JP¥’000

Cost At beginning of the period/year Additions

4,765 22,297

4,765

At end of the period/year

27,062

4,765

(893) (536)

(893)

At 30 June 2009/31 December 2008

(1,429)

(893)

Net book value at 30 June 2009/31 December 2008

25,633

3,872

Freehold Land

Freehold Buildings and Structures

Equipment, Fixtures and Fittings

Total

JP¥’000

JP¥’000

JP¥’000

JP¥’000

Cost At beginning of the period Additions

1,162,699 10,756

3,114,065 -

994,451 23,576

5,271,215 34,332

At end of the period

1,173,455

3,114,065

1,018,027

5,305,547

Depreciation At beginning of the period Provided for in the period

-

105,651 55,313

110,324 59,019

215,975 114,332

At end of the period

-

160,964

169,343

330,307

Net book value At 30 June 2009 (unaudited)

1,173,455

2,953,101

848,684

4,975,240

At 31 December 2008 (audited)

1,162,699

3,008,414

884,127

5,055,240

Amortisation At beginning of the period/year Provided for in the period/year

9. PROPERTY, PLANT AND EQUIPMENT

16


As stated above, the Group’s property, plant and equipment are stated at cost and are depreciated on the straight line method over their estimated useful lives. In compliance with the AIM admission document an annual valuation has been prepared by Colliers International (Hong Kong) Ltd, an independent valuer, in accordance with RICS standards. Colliers International (Hong Kong) Ltd estimated the value of the Group’s property, plant and equipment at 31 December 2008 to be JP¥5,026 million. 10. INVENTORY 30.06.2009 (Unaudited) JP¥’000

31.12.2008 (Audited) JP¥’000

22,182

18,354

Goods held for re-sale

11. TRADE AND OTHER RECEIVABLES

Trade receivables Prepayments Consumption tax refund Other receivables

30.06.2009 (Unaudited) JP¥’000

31.12.2008 (Audited) JP¥’000

5,130 8,127 1,122 617 14,996

6,083 41,426 13,112 2,184 62,805

30.06.2009 (Unaudited) JP¥’000

31.12.2008 (Audited) JP¥’000

23,924 303,032 326,956

32,963 230,406 263,369

12. CASH AND CASH EQUIVALENTS

Cash held at hotels Cash at banks

17


13. TRADE AND OTHER PAYABLES 30.06.2009 (Unaudited) JP¥’000

31.12.2008 (Audited) JP¥’000

51,126 31,674 8,701 13,211 4,644 134 916 11,345 121,751

62,374 39,546 21,666 14,237 3,140 1,662 2,635 145,260

Trade payables Accrued expenses O Accrued consumption tax Deferred income Accounts payable fixed assets Current tax liabilities Loans payable Other payables

14. NON-CURRENT LIABILITIES The non-current liabilities arose due to the deferred payment for the purchase of project management software for the renovation of Yokkaichi and maintenance of all hotels. The total payment is JP¥2.16 million of which JP¥687,000 is due within more than one year. 15. SHARE CAPITAL All authorised and allotted shares are Ordinary Shares. The authorised share capital of the Company is 160 million shares of £0.01 each. The issued share capital of the Company is comprised as follows: 30.06.2009

Allotted, called up and fully paid Ordinary Shares of £0.01 each

31.12.2008

Number

(Unaudited) JP¥’000

Number

(Audited) JP¥’000

44,100,002

97,121

44,100,002

97,121

16. NET ASSET VALUE PER SHARE Net asset value per share is based on net asset values and the number of shares in issue at the end of the period, which was 44,100,000. The diluted net assets values are based on the total number shares if all the warrants were exercised (note 7). There are 12,420,500 potential ordinary shares should the warrants be exercised, which would bring the total number of ordinary shares to 56,520,500.

18


Net asset value per Consolidated Balance Sheet Difference between the net book value and the independent valuation carried out at 31 December 2008 of plant, property and equipment as shown in note 9.

Adjusted net asset value, incorporating the valuation of plant, property and equipment

Net asset value per share – Yen

31.12.2008

(Unaudited)) JP¥’000

(Audited) JP¥’000

5,245,789

5,261,800

50,760

(29,240)

5,296,549

5,232,560

Basic NAV 30.06.2009 31.12.2008

Diluted NAV 30.06.2009 31.12.2008

JP¥118.95

JP¥119.32

JP¥108.44

JP¥106.05

£0.75

£0.91

£0.69

£0.81

JP¥120.10

JP¥118.65

JP¥109.33

JP¥105.53

£0.76

£0.91

£0.69

£0.81

Net asset value per share – Sterling Adjusted net asset value per share – Yen

30.06.2009

Adjusted net asset value per share – Sterling

17. COMMITMENTS UNDER OPERATING LEASES Although the SPEs hold freehold title to most of the properties, there are some parcels of land used for car parking that are rented. The total future minimum lease payments are due as follows:

Not later than one year

30.06.2009

31.12.2008

(Unaudited)

(Audited)

JP¥’000

JP¥’000

5,112

6,237

Later than one year and not later than five years

18,480

24,949

Later than five years

58,225

31,186

18. RELATED PARTIES & MATERIAL CONTRACTS Mark Huntley, a Director of the Company, is also a director of the Company’s administrator, Heritage International Fund Managers Limited. During the period Mr. Huntley earned JP¥1,126,671 (2008: JP¥1,536,909) by way of a Director’s fee, of which JP¥591,950 (2008: JP¥794,323) was outstanding at the period end. Heritage International Fund Managers Limited earned JP¥6,976,020 (2008: JP¥7,431,774) in administration fees in the period of which JP¥2,959,747 (2008: JP¥3,971,616) was outstanding at the period end.

19


New Perspective, the Group’s Asset Manager, earned JP¥53,112,357 by way of asset management fees and JP¥5,568,202 for accounting and other services during the period. Of these fees there was JP¥578,407 outstanding at the period end, together with a further JP¥2,103,524 of expenses to be reimbursed by the Company. During the period, the Group entered into a contract to purchase the Bonita trademark from Bonita Services Limited for JP¥15,000,000. 19. POST BALANCE SHEET EVENTS There have been no significant events subsequent to the balance sheet date.

20

Japan Leisure Hotels  

Half year results from business operating leisure hotels in Japan.

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