JLH 2009 Interim Report

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


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


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


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


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


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



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


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


Yokkaichi room


08

Bonita Sendai


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


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


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


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


Consolidated Statement of Changes in Equity


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


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


Consolidated Cash Flow Statement (Unaudited)


13

FinancialStatements


14


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

http://www.japanleisurehotels.com


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


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


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


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:


01.01.2009 to 30.06.2009

01.01.2008 to 30.06.2008


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


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


Jp¥’000 Jp¥’000

Goods held for re-sale 22,182 18,354


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


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


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


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


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


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


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

Documents

JLH 2009 Interim Report