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2009 INTERIM REpoRT
Japan Leisure Hotels Limited Interim Report and Unaudited Condensed Consolidated Financial Statements for the period 1 January 2009 to 30 June 2009
Company Registration Number: 47899
Color
Monochrome Type
Chairman’s Statement
1
Asset Manager’s Report
3
Independent Review Report
9
Consolidated Income Statement (unaudited)
10
Consolidated Balance Sheet (unaudited)
11
Consolidated Statement of Changes in Equity (unaudited)
12
Consolidated Cash Flow Statement (unaudited)
13
Condensed Notes to the Consolidated Financial Statements (unaudited)
15
Management and Administration
25
Contents
JLH Interim Report 2009
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; this
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 hotels1 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 margin2
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 were 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.
01
Chairman’s Statement
Japan Leisure Hotels' portfolio of hotels continued to enjoy high levels of
occupancy. The Bonita branded hotels maintained occupancy rates of more
than 240%.
1 The Bonita portfolio refers to the five hotels that are operating under the Bonita brand located at Sendai, Yamagata, Isawa, Komaki and Matsusaka2 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 revenue3 Average exchange rate of 142.68 yen per pound Sterling during the six months ended 30 June 2009.4 Source: Trading Economics5 Exchange rate of 158 yen per pound Sterling at 30 June 2009, compared with 131 yen per pound Sterling at 31 December 2008
JLH Interim Report 2009
02
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.
There is a large tax charge of JP¥30 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 on page 17 and 18 provides further details.
Current Trading and outlook
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 Limited
21 September 2009
Bonita Yamagata
JLH Interim Report 2009
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.
Financial Results
Presented on the next page are unaudited statements of EBITDA
for the 6 months ended 30 June 2009.
03
Asset Manager’s Report
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.
1 Source: Trading Economics
JLH Interim Report 2009
04
The difference between the total EBITDA above and the operating
profit before exceptional item per the Consolidated Income
Statement on page 10 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.
04
2005 2006 2007 2008 H1 2009
REVPAR2 JP¥10,506 JP¥15,350 JP¥16,572 JP¥16,206 JP¥15,401
Occupancy rate 160% 239% 254% 257% 243%
EBITDA Margin3 (41.7)% 25.8% 32.0% 34.5% 39.7%
2 REVPAR: Daily Revenue per available room
3 Before asset management fees
The following key performance indicators further illustrate the performance of the Bonita portfolio:
Bonita Branded Hotels Yokkaichi Total6 months to 30 June 6 months to 30 June 6 months to 30 June
2009 2008 2009 2008 2009 2008JP¥'000 JP¥'000 JP¥'000 JP¥'000 JP¥'000 JP¥'000
Revenue 540,615 563,641 50,047 - 590,662 563,641
Variable operating expenses (272,842) (300,484) (32,281) - (305,123) (300,485)
Fixed operating expenses (101,707) (109,298) (17,071) - (118,778) (109,298)
EBITDA 166,066 153,859 695 - 166,761 153,858
JLH Interim Report 2009
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
JP¥154 million to JP¥167million. 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.
05
Asset Manager’s Report
JLH Interim Report 2009
06
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
Bonita Sendai Lobby
JLH Interim Report 2009
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 Robert Marshall
Director Director
New Perspective Y.K. New Perspective Y.K.
18 September 2009 18 September 2009
07
Asset Manager’s Report
Yokkaichi room
JLH Interim Report 2009
08
Bonita Sendai
JLH Interim Report 2009
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
09
IndependentReview Report
JLH Interim Report 2009
10
01.01.2009 to 30.06.2009 01.01.2008 to 30.06.2008(Unaudited) (Unaudited)
(Restated - Note 3)
Note Jp¥’000 Jp¥’000
Revenue 590,662 563,641
Total revenue 590,662 563,641
Raw materials and consumables (55,273) (58,644)
Personnel costs (137,200) (132,184)
Depreciation and amortisation (114,868) (105,793)
Other expenses 4 (270,081) (258,174)
Total expenses (577,422) (554,795)
Operating profit before exceptional item 13,240 8,846
Exceptional item
Negative goodwill 6 - 801,250
profit on operations 13,240 810,096
Interest income 217 8,607
Net foreign currency gain/(loss) 681 (13,451)
Cost of warrants - (2,364)
898 (7,208)
profit before taxation 14,138 802,888
Taxation 5 (30,149) (82)
(Loss)/profit for the period (16,011) 802,806
Attributable to:
Equity shareholders (17,494) 801,482
Minority interest 1,483 1,324
(16,011) 802,806
(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.The accompanying condensed notes form an integral part of these consolidated financial statements.
Consolidated Income Statement (Unaudited)
For the period 1 January 2009 to 30 June 2009
JLH Interim Report 2009
11
FinancialStatements
30.06.2009 31.12.2008(Unaudited) (Audited)
Note 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
Rental deposits 3,220 3,420
Total non-current assets 5,004,093 5,062,532
Current assets
Inventory 10 22,182 18,354
Trade and other receivables 11 14,996 62,805
Cash and cash equivalents 12 326,956 263,369
Total current assets 364,134 344,528
ToTAL ASSETS 5,368,227 5,407,060
Current liabilities - Trade and other payables 13 (121,751) (145,260)
Non-current liabilities - Loans payable 14 (687) -
ToTAL LIABILITIES (122,438) (145,260)
ToTAL NET ASSETS 5,245,789 5,261,800
Share capital 15 97,121 97,121
Distributable reserve 4,365,514 4,365,514
Retained earnings 754,034 771,528
EQUITY ATTRIBUTABLE To SHAREHoLDERS 5,216,669 5,234,163
Minority interest 29,120 27,637
ToTAL EQUITY 5,245,789 5,261,800
NET ASSET VALUE pER SHARE 16 Jp¥ 118.95 Jp¥ 119.32
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 Sarah EvansChairman Director
Consolidated Balance Sheet (Unaudited)
At 30 June 2009
JLH Interim Report 2009
12
For the period from 1 January 2008 to 30 June 2008 (Restated - Note 3)
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
As at 1 January 2008 - - - (5,027) (5,027) - (5,027)
Issue of Ordinary Share capital
94,757 4,643,102 - - 4,737,859 - 4,737,859
Share issue costs - (277,588) - - (277,588) - (277,588)
Conversion of share premium account
- (4,365,514) 4,365,514 - - - -
Profit for the period - - - 801,482 801,482 1,324 802,806
Minority interest in pre-acquisition reserves
- - - - - 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
The accompanying condensed notes form an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
For the period 1 January 2009 to 30 June 2009
For the period from 1 January 2009 to 30 June 2009
Share Capital Distributable Reserve
Retained Earnings
Total Shareholders
Equity
Minority Interest
Total Equity
Jp¥’000 Jp¥’000 Jp¥’000 Jp¥’000 Jp¥’000 Jp¥’000
As at 1 January 2009 97,121 4,365,514 771,528 5,234,163 27,637 5,261,800
(Loss)/profit for the period
- - (17,494) (17,494) 1,483 (16,011)
As at 30 June 2009 97,121 4,365,514 754,034 5,216.669 29,120 5,245,789
JLH Interim Report 2009
01.01.2009 to 30.06.2009
01.01.2008 to 30.06.2008
(Unaudited) (Unaudited)
(Restated - Note 3)
NoteJp¥’000 Jp¥’000
Cash flows from operating activities
(Loss)/Profit for the period (16,011) 802,806
Adjustments for:
Depreciation and amortisation 114,868 105,793
Interest income (217) (8,607)
Cost of warrants - 2,364
Taxation 30,149 82
Decrease in deferred income (1,026) -
Negative goodwill 6 - (801,250)
Changes in working capital 22,278 (2,259)
Cash inflows from operations 150,041 98,929
Interest received 217 8,385
Tax paid (31,677) (82)
Net cash inflows from operating activities 118,581 107,232
Cash flows from investing activities
Purchase of intangible assets (20,899) -
Purchase of freehold land (10,756) -
Purchase of equipment, fixtures and fittings (23,539) (22,889)
Decrease in rental deposits 200 -
Cash acquired on acquisition of SPEs - 91,730
Net cash movement from investing activities (54,994) 68,841
Cash flows from financing activities
Share proceeds - 655,350
Share issue costs - (222,024)
Net cash generated from financing activities - 433,326
Net increase in cash and cash equivalents 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
The accompanying condensed notes form an integral part of these consolidated financial statements.
Consolidated Cash Flow Statement (Unaudited)
For the period 1 January 2009 to 30 June 2009
13
FinancialStatements
JLH Interim Report 2009
14
JLH Interim Report 2009
Condensed Notes to the Consolidated Financial Statements (unaudited)
For the period from 1 January 2009 to 30 June 2009
General InformationJapan 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 end 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.
Group StructureThe 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 accountingThe 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 assetsAll 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. Impairment of assetsAssets, 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.
15
CondensedNotes
JLH Interim Report 2009
16
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
Effects of restatement
As restated in this report
Jp¥’000 Jp¥’000 Jp¥’000
Restated item
Exceptional item - negative goodwill 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
profit for the period 169,561 802,806
Attributable to:
Equity shareholders 168,237 633,245 801,482
Earnings per share – basic (Yen) 4.16 19.81
Earnings per share – diluted (Yen) 3.18 15.15
JLH Interim Report 2009
4. oTHER EXpENSES
01.01.2009 to 30.06.2009
01.01.2008 to 30.06.2008
Jp¥’000 Jp¥’000
Hotel operating costs 135,767 138,862
Asset Manager’s fees 53,003 33,457
Professional services 21,707 28,460
Auditors’ remuneration 6,818 6,587
Administrator’s fees 6,976 8,856
Directors’ fees 7,568 8,644
Other expenses 38,242 33,308
270,081 258,174
5. TAXATIoN
Japanese taxationThere are two components of the Japanese tax charge, withholding tax and Japanese corporation tax.
2009 2008
Jp¥’000 Jp¥’000Withholding tax 29,998 -
Corporation tax 151 82
30,149 82
Withholding taxWithholding 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 2008
Jp¥’000 Jp¥’000
Withholding tax at 20% on distributions made during the Relating to profits of prior periods 19,809 - Relating to the profits of the current period 10,189 -
Total withholding tax 29,998 -
17
CondensedNotes
JLH Interim Report 2009
18
Corporation taxCorporation 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:
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)
Other items deductible for tax purposes (95,782) (50,231)
Accelerated depreciation 27,996 8,574
Delayed recognition of expenses - (2,970)
Expenses not deductible for tax purposes 20,223 2,402
Net taxable income (12,495) 804
Tax losses utilised - (804)
Tax losses carried forward (12,495)
Actual corporation tax charge being the minimum tax charge on SpEs with nil taxable income 151 82
Guernsey taxationThe 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 goodwillNegative 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 on the next page:
JLH Interim Report 2009
01.01.2009 to 30.06.2009
01.01.2008 to 30.06.2008
(Unaudited) (Unaudited)
Number of Shares Number of Shares
Weighted average number of shares in issue during the period 44,100,000 40,465,385
Dilutive potential shares from warrants 12,420,500 12,420,500
56,520,000 52,885,885
WarrantsFor 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 ASSETS30.06.2009 31.12.2008
(Unaudited) (Audited)
Jp¥’000 Jp¥’000
Cost
At beginning of the period/year 4,765 -
Additions 22,297 4,765
At end of the period/year 27,062 4,765
Amortisation
At beginning of the period/year (893) -
Provided for in the period/year (536) (893)
As at 30 June 2009/31 December 2008 (1,429) (893)
Net book value as at 30 June 2009/31 December 2008 25,633 3,872
19
CondensedNotes
JLH Interim Report 2009
20
9. pRopERTY, pLANT AND EQUIpMENT
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 1,162,699 3,114,065 994,451 5,271,215
Additions 10,756 - 23,576 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 - 105,651 110,324 215,975
Provided for in the period - 55,313 59,019 114,332
At end of the period - 160,964 169,343 330,307
Net book value
As at 30 June 2009 (unaudited) 1,173,455 2,953,101 848,685 4,975,240
As at 31 December 2008 (audited) 1,162,699 3,008,414 884,127 5,055,240
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 a 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 31.12.2008
(Unaudited) (Audited)
Jp¥’000 Jp¥’000
Goods held for re-sale 22,182 18,354
JLH Interim Report 2009
11. TRADE AND oTHER RECEIVABLES
30.06.2009 31.12.2008(Unaudited) (Audited)
Jp¥’000 Jp¥’000
Trade receivables 5,130 6,083
Prepayments 8,127 41,426
Consumption tax refund 1,122 13,112
Other receivables 617 2,184
14,996 62,805
12. CASH AND CASH EQUIVALENTS
30.06.2009 31.12.2008
(Unaudited) (Audited)
Jp¥’000 Jp¥’000
Cash held at hotels 23,924 32,963
Cash at banks 303,032 230,406
326,956 263,369
13. TRADE AND oTHER pAYABLES
30.06.2009 31.12.2008
(Unaudited) (Audited)
Jp¥’000 Jp¥’000
Trade payables 51,126 62,374
Accrued expenses 31,674 39,546
Accrued consumption tax 8,701 21,666
Deferred income 13,211 14,237
Accounts payable fixed assets 4,644 3,140
Current tax liabilities 134 1,662
Loans payable 916 -
Other payables 11,345 2,635
121,751 145,260
14. NoN-CURRENT LIABILITIES
21
CondensedNotes
JLH Interim Report 2009
22
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 31.12.2008
(Unaudited) (Audited)
Number Jp¥’000 Number Jp¥’000
Allotted, called up and fully paid
Ordinary Shares of £0.01 each 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.
30.06.2009 31.12.2008
(Unaudited)) (Audited)
Jp¥’000 Jp¥’000
Net asset value per Consolidated Balance Sheet 5,245,539 5,261,800
Difference between the opening net book value and the independent valuation carried out at 31 December 2008 of plant, property and equipment as shown in note 9. 50,760 (29,240)
Adjusted net asset value, incorporating the valuation of plant, property and equipment 5,296,549 5,232,560
Basic NAV Diluted NAV
30.06.2009 31.12.2008 30.06.2009 31.12.2008
Net asset value per share - Yen JP¥118.95 JP¥119.32 JP¥108.44 JP¥106.05
Net asset value per share - Sterling £0.75 £0.91 £0.69 £0.81
Adjusted net asset value per share - Yen JP¥120.10 JP¥118.65 JP¥109.33 JP¥105.53
Adjusted net asset value per share - Sterling £0.76 £0.91 £0.69 £0.81
JLH Interim Report 2009
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:
30.06.2009 31.12.2008
(Unaudited)) (Audited)
JP¥’000 JP¥’000
Not later than one year 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.
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.
23
CondensedNotes
JLH Interim Report 2009
24
Bonita Matsusaka
Directors
Alan Clifton, Chairman
William Hunter
Sarah Evans
Mark Huntley
Registered office
Heritage Hall
Le Marchant Street
St. Peter Port
Guernsey GY1 4HY
Asset Managers
New Perspective
7F Fukuyoshicho Bldg
2-2-6 Roppongi
Minato-ku, Tokyo
106-0032
Administrator and Secretary
Heritage International Fund Managers Limited
Heritage Hall
PO Box 255
Le Marchant Street
St. Peter Port
Guernsey GY1 4HY
Nominated Adviser
Shore Capital and Corporate Limited
Bond Street House
14 Clifford Street
London W1S 4JU
Broker
Shore Capital Stockbrokers Limited
Bond Street House
14 Clifford Street
London W1S 4JU
Independent Auditors
BDO Novus LimitedPlace du Pré
Rue du Pré
St. Peter Port
Guernsey GY1 3LL
Legal Advisers to the Company
As to English Law
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
As to Japanese Law
Ashurst Tokyo Law Office
Shiroyama Trust Tower
30th Floor
4-3-1 Toranomon
Minato-Ku
Tokyo 105-6030
Japan
Registrars
Capita Registrars (Guernsey) Limited
2nd Floor
No. 1 Le Truchot
St. Peter Port
Guernsey GY1 4AE
Bankers
Barclays Private Clients International Limited
International Banking
P.O. Box 41
Le Marchant House
Le Truchot
St Peter Port
Guernsey
GY1 3BE
Valuers
Colliers International (Hong Kong) Ltd
5701 Central Plaza
18 Harbour Road
Wanchai, Hong Kong
Websites
www.japanleisurehotels.com
www.japanleisurehotels.gg
* New Perspective is the Asset Manager to the underlying Special Purpose Entities (“SPEs”)
25
Management &Administration
Color
Monochrome Type
www.japanleisurehotels.com