RNS Number : 1427E
Japan Leisure Hotels Ltd
24 September 2008
Japan Leisure Hotels Limited
("Japan Leisure Hotels", "JLH", or "the Company")
Interim Results for the six month financial period ended
30 June 2008
Japan Leisure Hotels Limited (AIM: JPLH), the company established to invest in leisure hotels in Japan, announces its interim results
for the financial period ending 30 June 2008.
Highlights:
* Stated strategy being executed not withstanding limited resources
* Hotel portfolio performing well;
* Implementation of further cost and efficiency controls
* EBITDA margin for hotel operations of 26.4%
* Cash remitted to JLH to date of approaching �1m
* Acquisition of Yokkaichi property increases portfolio to six properties and 242 rooms
* Company balance sheet strong with no debt
* Estimated NAV of 53.39 pence per share (using exchange rate of 196 as at 23 September 2008)
Alan Clifton, Non-Executive Chairman of Japan Leisure Hotels, commented:
"I am pleased that our performance over these six months has validated the business model laid out in the Admission Document, in
particular the strong cash generation from the portfolio.
"The potential value from investment in the leisure hotel industry continues to increase with the distress inflicted by current market
conditions. Even larger numbers of hotels are available at below replacement cost and by taking advantage of these opportunities and
executing our industry consolidation strategy significant long term gains are available for investors."
Steve Mansfield, CEO of New Perspective, the Asset Manager, commented:
"This is an exceptional time. It is presenting us with unparalleled opportunities to invest in further properties and supplements what
is already a compelling proposition: the consolidation of the leisure hotel industry in Japan. We continue to improve the operating
performance of our existing hotel portfolio and remain very confident and excited about the future."
For further information, please contact:
New Perspective (Asset Manager)
Steve Mansfield, CEO New Perspective, +81 3 4550 1808
Shore Capital (Nomad)
Dru Danford / Stephane Auton 020 7408 4090
West Hill Corporate Finance (Financial Adviser) 020 7464 8822
Alan Richards / John Terrando
Tavistock Communications (Financial PR) 020 7920 3150
Jeremy Carey / Simon Hudson / Paul Youens pyouens@tavistock.co.uk
Chairman's Statement
The Japanese economy has not escaped being buffeted by global economic forces, but even in these testing times Japan Leisure Hotels,
which was admitted to AIM on 16 January this year, has derived significant cash flow from the initial portfolio and has succeeded in
expanding its investment in the Japanese leisure hotel industry in line with its strategy detailed in the Admission Document.
It will be no surprise that inflation in utility costs and food and beverage have pressured margins, but a great deal of this has been
offset by strong management action aimed at reducing other costs. New Perspective, our portfolio Asset Manager, has also been focused on the
revenue side and has implemented some price increases. The impact of these is not evident in the results for the first half year's
performance but we would expect them to be reflected in the full year results. More details on these operational initiatives are provided in
the Asset Manager's report.
Demonstrating Japan Leisure Hotel's ability to execute its stated strategy, the Board is extremely pleased to have made an investment in
a hotel in Yokkaichi in central Japan. In addition to meeting our stringent criteria for acquisition, the Company was able to fund the
investment entirely from existing cash resources, negating the need to seek additional funding through equity or debt.
Our strategy of remaining unhedged with respect to the Japanese Yen has led to a significant increase in the NAV of the Company when
converted into Sterling due to the appreciation of the Japanese Yen. We intend to maintain our policy of not hedging any currency exposure
unless the Board perceives a material risk to the value of the portfolio and should any hedging transactions be deemed appropriate these
will be announced to the market prior to any transactions.
Further demonstrating a key investment tenet as laid out in the Admission Document, the cash generation from the underlying investments
is strong and to date Japan Leisure Hotels has received �178 million (�860,000) of distributions.
Investment Strategy and Outlook
New Perspective has reported that the current turmoil in the financial markets has impacted on a number of owners and operators in the
leisure hotel industry and that they expect this to continue in the months ahead. Two recent bankruptcies of medium sized real estate
companies in Japan are of particularly significant import as both of these companies have portfolios of leisure hotels that are operating
well but had been overleveraged by their owners. This opens up the possibility of purchasing good quality performing assets from distressed
owners.
This current opportunity in the market is fortuitous if we are able to take advantage of it as the long term investment metrics for the
consolidation strategy we are pursuing remains unchanged: a highly fragmented industry, exceptionally high occupancy rates and a lack of
professional management standards. By purchasing good performing assets from distressed sellers at discounted prices these returns can be
further enhanced.
Our intention is to invest in further properties. These investments would be funded through means that will not jeopardise the stability
of Japan Leisure Hotels and will provide our shareholders with enhanced value.
Alan Clifton
Chairman
Japan Leisure Hotels
23 September 2008
Asset Manager's Report
Overview
The current economic climate has not left Japan untouched. This has created both challenges and opportunities for the hotels and for the
future investment climate. The demand for use of leisure hotels in Japan has a low correlation to the performance of the economy;
furthermore the demand for leisure hotels may increase as consumers choose cheaper leisure alternatives, such as domestic travel, rather
than more expensive foreign travel. This is apparent in resilient sales at the hotels under management, operated under the Bonita brand, in
the period covered by this report. It is further demonstrated by a surge in sales over the summer months. However, there are worrying signs
for the Japanese economy and there is a risk that further decline will lead to deeper cuts in leisure spending impacting on sales at the
hotels under management.
The current economic environment also impacts the investments of Japan Leisure Hotels in other ways: commodity inflation globally has
naturally led to increased energy and food costs at the hotels; the paucity of credit means greater difficulty in raising debt financing to
aid the expansion of the portfolio; however, the difficulties experienced by other hotel owners in refinancing their assets means there is
an increasing number of hotels available for sale at attractive prices for a buyer that has the resources. As the asset manager for Japan
Leisure Hotels, New Perspective will seek to meet the challenges and seize the opportunities to maximise the value to Japan Leisure Hotels.
Financial Results
Japan Leisure Hotels acquired the current portfolio on its Admission to AIM on 16 January 2008. New Perspective, the Asset Manager, has
managed the portfolio since it was assembled in 2005 and 2006 meaning there is continuity in the management of the hotels and a history of
comparable trading results by which to measure the performance of the portfolio.
Presented below are unaudited statements of EBITDA for each of the hotels for the six month period ended 30 June 2008. As can be seen
from the table, EBITDA from the operation of the hotels for the period was �154m (�744,000). Although costs in connection with operating the
listed company reduced this to �115m (�556,0002), cash flow for the period before costs associated with the listed company was a healthy
�146m (�705,0002), bringing total cash at the end of the period to �609m.
Even with the acquisition in Yokkaichi (see below) cash levels are comfortably sufficient to cover all currently scheduled capital
expenditure. The refurbishment and rebranding of Yokkaichi is currently under planning and will be undertaken at the appropriate time.
Asset Manager's Report
Operating performance of the hotels for the 6 months ended 30 June 2008
Bonita Bonita Bonita Bonita Sendai Bonita Total
Komaki Isawa Matsusa Yamagat
ka a
�'000 �'000 �'000 �'000 �'000 �'000
Revenue 70,516 61,612 131,775 246,890 54,293 565,086
Raw materials and consumables -9,613 -8,699 -14,550 -18,169 -7,129 -58,160
Employee benefits costs -19,525 -17,612 -30,383 -50,313 -14,351 -132,184
Utilities and maintenance -9,175 -9,014 -15,807 -30,738 -6,260 -70,994
Management charges -6,589 -6,084 -12,642 -26,194 -5,129 -56,638
Property tax, insurance and -6,081 -5,740 -7,861 -13,152 -5,095 -37,929
professional fees
Other expenses -11,270 -7,108 -13,095 -17,974 -5,821 -55,268
Operating expenses -62,253 -54,257 -94,338 -156,540 -43,785 -411,173
EBITDA (�'000) 8,263 7,355 37,437 90,350 10,508 153,913
EBITDA (�'000) 40 36 181 436 51 744
EBITDA comprises earnings before interest, tax, depreciation and amortisation. The information in the table above is an extract from the
unaudited IFRS results of the TK Operators. The difference between the total EBITDA above and the operating profit before exceptional item
per the Consolidated Income Statement on page 14 is depreciation and amortisation of �105,793,000 (�511,077) and operating expenses of the
Guernsey companies of �39,274,000 (�189,729).
The following key performance indicators further illustrate the growth and performance of the portfolio:
2005 2006 2007 2008 1H
RevPAR �10,506 �15,350 �16,572 �15,949
Occupancy 160% 239% 254% 253%
EBITDA Margin (43.5%) 25.5% 28.7% 26.4%
RevPAR: average revenue per available room per day.
EBITDA Margin: earnings before interest, tax, depreciation and amortisation as a percentage of revenues.
Operating Performance Commentary
While the EBITDA Margin has fallen compared to the corresponding period in the previous year, this decline is due almost entirely to a
change in the basis of calculating the asset management fees which occurred on the listing of Japan Leisure Hotels.
Guest traffic has remained resilient through the first half of 2008, and is now on target to see an increase over 2007 for the full
year. However, this is not translating into an increase in revenue because the additional guests are generally coming for shorter stays at
some hotels at the expense of overnight guests, leading to a fall in RevPAR of more than 3%. This trend is partially driven by the increase
in time we offer guests without an increase in price to remain competitive, specifically at Bonita Isawa and Bonita Yamagata. Both of these
hotels are experiencing strong competition and is possibly a reflection of a decline in these local economies.
Offsetting these trends, we introduced price increases at Bonita Sendai in May 2008, in addition to introducing some new and innovative
products for the industry; these have already produced positive results. The changes at Bonita Sendai have been followed up with price and
timetable changes at Bonita Komaki and Bonita Matsusaka in July and August 2008 respectively. We are continuing to use the data we collect
from these changes to refine the process of setting prices and will be implementing further changes across the portfolio where we can
identify opportunities. With the changes implemented for these three hotels we exceeded our revenue budget for the total portfolio in both
July and August.
Energy and food costs have been a particular challenge over the first half of the year; utilities have increased by 13% on an annualised
basis from 2007, but we have sought to mitigate these pressures by managing reductions in other areas; raw materials and consumables costs
fell by 25% on an annualised basis from 2007 and personnel costs fell by 8% by the same comparison.
Building on this success in cost management, we are implementing a central ordering and inventory management system. This will provide
significantly greater control over purchasing decisions, better data tracking for specific items and allow more purchasing to be carried out
across the portfolio rather than on a hotel by hotel basis thereby achieving greater economies of scale.
It is worth drawing attention to certain specific highlights from some of the properties within the portfolio.
Bonita Matsusaka exceeded its internal forecasts for the number of guests, while expenses were in line with forecast, further cost
savings are expected to flow through in the second half of this year.
Bonita Komaki, which was the first property New Perspective took under management in 2005, underwent a modest refurbishment in the first
half of 2008. During this process a number of value enhancing upgrades were implemented, all fixtures and fittings were checked and replaced
as necessary and the whole property refreshed. This is an ongoing process across the portfolio and Matsusaka is scheduled to receive the
same treatment in November. As part of the process the price structure was fundamentally reviewed and this is already providing positive
results as noted above.
Bonita Sendai was the first property which underwent a fundamental pricing review: this was introduced in May, along with the
introduction of our '24hr' stay price. Both the price changes and the introduction of 24hr stay plan have been received very favourably by
our guests. This has been reinforced by the increase in the number of reservations that the hotel has received.
New Perspective
New Perspective retains a strong focus on corporate governance and has the core objective of earning the best possible returns for
investors over the life of each hotel asset.
With a team of nine, New Perspective has a vast array of experience, both of the leisure hotel industry and investment activities in
Japan. At present, a key role for the team is ensuring that investment continues to be made in the control and management systems for the
hotels in order to tightly manage costs. In turn, New Perspective seeks to convert this into improved returns to investors.
Investment activity
It is gratifying to have managed the first investment by Japan Leisure Hotels since it joined AIM increasing the portfolio to six hotels
accounting for a total of 242 rooms. The acquired property, located in Yokkaichi in central Japan, was purchased for a consideration of �410
million (approximately �2 million) excluding costs associated with the transaction and was funded entirely by Japan Leisure Hotels.
The property was built in 1987 and is located within 5 kilometres of the city centre of Yokkaichi in Mie-ken. It is easily accessible by
road and rail and very visible from a major highway. During the 12 months to May 2008 the 47 room hotel generated EBITDA of approximately
�38 million (�169,6434) from a turnover of approximately �162 million (�723,2144).
This property has a great deal of potential. In order to maximise that potential we are intent on ensuring that we incorporate all the
knowledge we have acquired from managing the other five hotels. This will result in a longer and more detailed planning process so we expect
to be operating the property in its current condition for longer than has been our practice in the past.
The last few months have been an interesting time to be a buyer of leisure hotels in Japan. As we remarked in the annual report there
has been an unprecedented number of hotels available for sale and this theme has continued with New Perspective being able to review some
exceptional properties.
August brought some clarity to the situation and provided some explanation for the plethora of opportunities. Within a week of each
other Urban Corporation and Sebon, both medium sized real estate companies and owners of reasonably sized leisure hotel portfolios, filed
for court protection from their creditors. Vanilla, which is a subsidiary of Sebon and the main operating entity of its leisure hotels also
filed for court protection at the same time. New Perspective is familiar with the hotels that form each of these portfolios and knows that
they include some quality properties. These are examples of quality assets now becoming available from distressed sellers - an excellent
opportunity.
In contrast to many in the market our portfolio of hotels remains debt free. This is something we are willing to change provided that by
leveraging the portfolio we will increase value to Japan Leisure Hotels. Clearly this is a difficult task in the current environment but we
are in discussions with a number of potential lenders and hope to have a positive update in the not too distant future.
Outlook
This is an exceptional time, it is presenting us with unparalleled opportunities to invest in further properties and, even without the
current market opportunity, investment in the consolidation of the leisure hotel industry in Japan remains a compelling proposition. The
challenge for the portfolio is the one facing many businesses around the world: how to access capital.
As the portfolio is performing well, our need is not capital to survive, but capital to grow and that is what we are intent on
achieving. We continue to pursue opportunities to leverage the portfolio so that we may seize some of the opportunities presenting
themselves. We continue to work with less distressed sellers to seek to invest in hotels through share transactions and we continue to speak
with equity investors about the current opportunities.
We are focussed on capitalising on the exceptional opportunities that are presenting themselves and remain very confident and excited
about the future.
Stephen Mansfield Robert Marshall
Director Director
New Perspective Y.K. New Perspective Y.K.
23 September 2008 23 September 2008
Independent Review Report
to the Members of Japanese Leisure Fund Limited
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six
months ended 30 June 2008 which comprises the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of
Changes In Equity, Consolidated Statement of Cash Flows and related Condensed Notes. We have read the other information contained in the
half-yearly 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 half-yearly 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 half-yearly 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 half-yearly 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 its responsibilities in
respect to half-yearly financial reporting in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial
Services Authority 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
half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European Union.
BDO Novus Limited
Chartered Accountants
Elizabeth House, St Peter Port, Guernsey
23 September 2008
Consolidated Income Statement (Unaudited)
For the period 1 January 2008 to 30 June 2008
Note 01.01.2008 to 30.06.2008 17.10.2007 to 31.12.2007
(Unaudited) (Audited)
�'000 �'000
Revenue 563,641 -
Total revenue 563,641 -
Raw materials and consumables (58,644)
Personnel costs (132,184)
Depreciation and amortisation (105,793)
Other expenses (258,174) (5,027)
Total expenses (554,795) (5,027)
Operating profit before 8,846 (5,027)
exceptional item
Exceptional item
Negative goodwill 5 156,663 -
-
Profit/(loss) on operations 165,509 (5,027)
Interest income 8,607 -
Net foreign currency loss (4,473) -
4,134 -
Profit/(loss) before taxation 169,643 (5,027)
Corporate tax expense (82) -
Profit/(loss) for the period 169,561 (5,027)
Attributable to:
Equity shareholders 168,237 (5,027)
Minority interest 1,324 -
169,561 (5,027)
Earnings per share - basic 6 4.16 (2,513)
(Yen)
Earnings per share - diluted 6 3.18 -
(Yen)
Adjusted earnings per share - 6 0.29 -
basic (Yen)
Adjusted earnings per share - 6 0.22 -
diluted (Yen)
All items in the above statement are derived from continuing operations
Consolidated Balance Sheet (Unaudited)
As at 30 June 2008
Note 30.06.2008 31.12.2007
(Unaudited)) (Audited)
�'000 �'000
ASSETS:
Non-current assets
Intangible assets 7 1,224 -
Property, plant and equipment 8 4,717,686 -
Deposits with suppliers 3,220 -
Total non-current assets 4,722,130 -
Current assets
Inventory 9 22,467
Trade and other receivables 10 36,825 -
Cash and cash equivalents 11 609,399 -
Total current assets 668,691 -
TOTAL ASSETS 5,390,821 -
Current liabilities
Trade and other payables 12 (106,428) (5,027)
Current
Total current liabilities (106,428) (5,027)
TOTAL LIABILITIES (106,428) (5,027)
TOTAL NET ASSETS 5,284,393 (5,027)
Share capital 13 94,757 -
Distributable reserve 4,365,514 -
Foreign currency translation reserve (8,978) -
Retained earnings 163,210 (5,027)
EQUITY ATTRIBUTABLE TO SHAREHOLDERS 4,614,503 (5,027)
Minority interest 669,890 -
TOTAL EQUITY 5,284,393 (5,027)
The consolidated financial statements were approved by the Board of Directors and signed on its behalf by:
Alan Clifton Sarah Evans
Chairman Director
Japan Leisure Hotels Ltd Japan Leisure Hotels Ltd
23 September 2008 23 September 2008
Consolidated Statement of Changes in Equity (Unaudited)
For the period from 1 January 2008 to 30 June 2008
Share Capital Share Premium Distributable Foreign Currency Retained Earnings Total
Shareholders Minority Interest Total Equity
Reserve Translation Reserve
Equity
�'000 �'000 �'000 �'000 �'000
�'000 �'000 �'000
As at 1 January 2008 - - - - (5,027)
(5,027) - (5,027)
Issue of Ordinary Share 94,757 4,643,102 - - -
4,737,859 - 4,737,859
capital
Share issue costs - (277,588) - - -
(277,588) - (277,588)
Conversion of share premium - (4,365,514) 4,365,514 - -
- - -
account
Profit for the period - - - - 168,237
168,237 1,324 169,561
Foreign currency translation - - - (8,978) -
(8,978) - (8,978)
differences
Minority interest in - - - - -
- 668,566 668,566
pre-acquisition reserves
As at 30 June 2008 94,757 - 4,365,514 (8,978) 163,210
4,614,503 669,890 5,284,393
For the period from 17 October 2007 to 31 December 2007 (Audited)
Share Capital Share Premium Distributable Foreign Currency Retained Earnings Total
Shareholders Minority Interest Total Equity
Reserve Translation Reserve
Equity
�'000 �'000 �'000 �'000 �'000
�'000 �'000 �'000
Issue of Ordinary Share - - - - -
- - -
capital
Loss for the period - - - - (5,027)
(5,027) - (5,027)
At 31 December 2007 - - - - (5,027)
(5,027) - (5,027)
Consolidated Cash Flow Statement
For the period 1 January 2008 to 30 June 2008
Note 01.01.2008 to 30.06.2008 17.10.2007 to 31.12.2007
(Unaudited) (Audited)
�'000 �'000
Cash flows from operating
activities
Profit/(loss) before taxation 169,561 (5,027)
Adjustments for:
Depreciation and amortisation 3 105,793 -
Interest income (8,607) -
Foreign currency translation (8,978) -
differences
Negative goodwill 5 (156,663) -
Changes in working capital (2,259) (5,027)
Cash inflows/(outflows) from 98,847 -
operations
Interest received 8,385 -
Net cash inflows/(outflows) 107,232 -
from operating
activities
Cash flows from investing
activities
Purchase of furniture and (22,889) -
fittings
Cash acquired on acquisition 91,730 -
Net cash generated from 68,841 -
investing activities
Cash flows from financing
activities
Share proceeds 13 655,350 -
Share issue costs 13 (222,024) -
Net cash generated from 433,326 -
financing activities
Net increase/(decrease) in
cash
and cash equivalents 609,399 -
Cash and cash equivalents at
the beginning
of period - -
Cash and cash equivalents at
the end
of period 609,399 -
Condensed Notes to the Unaudited Consolidated Financial Statements
For the period from 1 January 2008 to 30 June 2008
General Information
Japan Leisure Hotels Limited is a company incorporated and registered in Guernsey under the Companies (Guernsey) Law, 1994. The address
of the registered office is given in the Management and Administration section. 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. On admission 44,100,000 shares were issued at �0.50 per share resulting in gross proceeds of �22,050,000.
Group Structure
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.
These hotels are owned and operated in Japan by Yugen Kaishas ("YK"), a form of Japanese corporation. The Company, through its wholly
owned subsidiaries, has invested in YKs 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", to undertake an
agreed business and receives a share of the economic benefits of investment in that business.
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 of Japan Leisure Hotels Limited are prepared in accordance with IFRS. The set of condensed financial
statements included in this interim financial report has been prepared in accordance with International Accounting Standards 34 'Interim
Financial Reporting'.
The same accounting policies, presentation and methods of computation are followed in this set of condensed financial statements as
applied in the Company's latest annual audited financial statements for the period ended 31 December 2007. The interim report should be read
in conjunction with the financial statements for the period ended 31 December 2007. Additional policies and disclosures are provided below
for items not covered in the latest annual audited financial statements.
Basis of consolidation
The consolidated interim financial statements incorporate the financial statements of the Company, its subsidiaries and special purpose
entities ("SPEs") meeting the requirements of SIC-12 Consolidation - Special Purpose Entities to be treated as subsidiaries. The Company
through its subsidiaries is party to TK Agreements with SPEs through which property, plant and equipment is held.
Exceptional item
Exceptional items refer to those items considered by the Directors to be significant items which are unusual and non-recurring in nature
and therefore requiring separate disclosure.
Goodwill
Negative goodwill arising on acquisition of the TK Interests is credited to the Consolidated Income Statement in the period.
Intangible assets
Intangible assets, which comprise software, are stated at cost and are amortised on the straightline method over their estimated useful
lives. All intangible assets are held for the purpose of running the business of the TK Operators. The estimated useful life of intangible
assets is 3 years and amortisation is charged to operating expenses.
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 income.
Property, plant and equipment
Property plant and equipment are stated at cost and are depreciated on the straight line method over their estimated useful lives. All
property has been held for the purpose of running the business of the TK Operators. No land or building is held for the sole purpose of
earning rentals or for capital appreciation.
Apart from certain immaterial exceptions, the estimated useful lives of depreciable assets are as follows:
Buildings and structures 15-30 years
Fixtures and fittings 3-10 years
Land Not depreciated
Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to
the lessee. All other leases are classified as operating leases.
Operating leases
Where substantially all of the risks and rewards incidental to ownership are retained by the lessor (an "operating lease"), the total
rentals payable under the lease are charged to the income statement on a straightline basis over the lease term.
Inventory
In accordance with IAS 2 inventories have been stated at the lower of purchase cost or net realisable value.
Revenue recognition
Revenue is recognised at the time that customers check out of their room. Revenue comprises room rental income, service charges and
other revenues from customers of the hotels.
Revenue arising from the sale of assets is recognised when the significant risks and returns have been transferred to the buyer. In the
case of sales of properties, this is generally on unconditional exchange except where payment or completion is expected to occur
significantly later than exchange. For conditional exchanges, sales are recognised when all of the conditions are satisfied. Sales of
investment and other fixed asset properties, which are not included in revenue, are recognised on the same basis.
The TK Operators operate a membership programme which allows members to accumulate points on hotel visits and receive exclusive offers
and other special benefits. The Group has elected to adopt early IFRIC 13 "Customer Loyalty Programmes". Assumptions are made, based on
general customer behaviour, regarding the likelihood of a customer redeeming points. The revenue attributable to the points in issue, and
likely to be redeemed, is deferred and recognised as revenue on redemption of the points by the customers. The incremental cost of providing
free goods is recognised when the points are redeemed.
Personnel costs
The Group has no employees and no employee benefits have been recognised in the financial statements. All hotel staff are employed by
hotel operators and all related costs (including wages, social security and employee taxes) are charged by the hotel operators to the TK
Operators.
Foreign currency translation
Functional and presentation currency
Items included in the financial statements of the Company and its Subsidiaries are measured using Sterling which is the currency of the
primary economic environment in which each Subsidiary operates (the "functional currency"). This is the currency in which shares were issued
and dividends will be paid. The consolidated financial statements are presented in Japanese Yen. The Directors have chosen Japanese Yen as
the presentation currency as this is the currency of the underlying TK Interests.
Foreign currency translation
Transactions and balances
Assets and liabilities denominated in currencies other than Japanese Yen are translated to Japanese Yen at the rate prevailing on the
balance sheet date. Income and expenses denominated in currencies other than Japanese Yen are translated to Japanese Yen at the rate
prevailing at the date of the transaction. Foreign currency non-monetary items are translated at the rate prevailing at the date of the
transaction. Foreign currency translation differences arising from the translation of foreign currency balances into Japanese Yen are
recognised as a separate component of equity.
Share issue costs
The preliminary expenses of the Company directly attributable to the issue and listing of shares are charged to the share premium
account as a deduction from the proceeds of issue.
Share capital
Ordinary shares are classified as equity where there is no obligation to transfer cash or other assets.
2*NEW STANDARDS AND INTERPRETATIONS NOT APPLIED
There are a few new standards, interpretations and amendments to existing standards that are effective for periods subsequent to 2008.
However, management believes that these are not relevant to the Company's operations at this period and will have no material impact on the
Company's recognition and measurement policies.
3*PROFIT / (LOSS) ON OPERATIONS
01.01.2008 to 30.06.2008 17.10.2007 to 31.12.2007
�'000 �'000
(Unaudited) (Audited)
Depreciation 105,361 -
Amortisation of intangible 432 -
assets
Operating lease payments 2,659 -
Net foreign currency loss 4,473 -
Inventory recognised as an 58,644 -
expense
Utilities 52,416 -
Property tax 11,374 -
Hotel operator fees 23,180 -
Asset manager fees 33,457 -
Professional services 28,460 -
Auditors' remuneration - audit 6,037 1,346
services
Administration fees 8,856 -
Directors' fees 8,644 3,681
4*TAXATION
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.
Japanese taxation
The reasons for the difference between actual tax charge for the year and the standard rate of tax in Japan applied to the results of
the TK Operators for the year are as follows:
01.01.2008 to 17.10.2007 to 31.12.2007
30.06.2008
(Unaudited) (Audited)
�'000 �'000
Profit before taxation of the 44,231 -
Japanese entities
Expected tax charge based on 18,578 -
Japanese tax of 42%
Other items (21,097) -
assessable/(deductible) for
tax purposes
Accelerated depreciation 3,601 -
Delayed recognition of (1,247) -
expenses
Expenses not deductible for 504 -
tax purposes
Taxable income /(loss) before 338
carried forward tax losses
Tax charge (82) -
5*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 cannot be recognised as a liability on the balance sheet and should be recognised in the income statement as it
arises. The negative goodwill of �156,663,000 arising on the acquisition of the TK Interests has been credited to the Consolidated Income
Statement in the period.
6*EARNINGS PER SHARE
01.01.2008 to 17.10.2007 to
30.06.2008 31.12.2007
(Unaudited) (Audited)
Number Number
Weighted average number of 40,465,385 2
Ordinary Shares
Dilutive potential Ordinary 12,420,500 -
Shares
52,885,885 2
�'000 �'000
Profit attributable to equity 168,237 (5,027)
shareholders
Profit attributable to equity 11,574 -
shareholders before
exceptional item
Basic earnings per share (Yen) 4.16 (2,513)
Diluted earnings per share 3.18 -
(Yen)
Adjusted basic earnings per 0.29 -
share - before exceptional
item and after tax (Yen)
Adjusted diluted earnings per 0.22 -
share - before exceptional
item and after tax (Yen)
Basic earnings per share
Basic earnings per share is based on the profit attributable to equity shareholders per weighted average Ordinary Share.
Diluted earnings per share
Diluted earnings per share is based on the profit attributable to equity shareholders per weighted average Ordinary Share and also
taking into account the effect of the potential ordinary shares which would arise in the event of the warrants being exercised.
Adjusted basic earnings per share - before exceptional item and after tax
Adjusted basic earnings per share - before exceptional item and after tax is based on the profit attributable to equity shareholders
before exceptional item and after tax per weighted average Ordinary Share.
Adjusted diluted earnings per share - before exceptional item and after tax
Adjusted diluted earnings per share - before exceptional item and after tax is based on the profit attributable to equity shareholders
before exceptional item and after tax per weighted average Ordinary Share and also taking into account the effect of the potential ordinary
shares which would arise in the event of the warrants being exercised.
7*INTANGIBLE ASSETS
01.01.2008 to 30.06.2008 17.10.2007 to 31.12.2007
(Unaudited) Audited
Software �'000 �'000
Cost
As at 1 January 2008 -
Additions 1,656 -
As at 30 June 2008 1,656 -
Amortisation
At beginning of the year - -
Provided for in the year (432)
As at 30 June 2008 / 31 (432) -
December 2007
Net book value as at 30 June 1,224 -
2008 / 31 December 2007
8...PROPERTY, PLANT AND EQUIPMENT
Land Buildings and Fixtures and fittings Total
structures
�'000 �'000 �'000 �'000
Cost
As at 1 January 2008 - - - -
Additions 990,316 3,250,237 582,494 4,823,047
As at 30 June 2008 990,316 3,250,237 582,494 4,823,047
Depreciation
As at 1 January 2008 - - -
Provided for in the year - (66,702) (38,659) (105,361)
As at 30 June 2008 - (66,702) (38,659) (105,361)
51,576)
Net book value
As at 30 June 2008 990,316 3,183,535 543,835 4,717,686
As at 1 January 2008 - - - -
The net book value of land and buildings may be analysed as:
30.06.2008 31.12.2007
(Unaudited) (Audited)
�'000 �'000
Freehold 4,173,851 -
There are no significant commitments to expenditure in future accounting periods.
9*INVENTORY
30.06.2008 31.12.2007
(Unaudited) (Audited)
�'000 �'000
Goods held for resale 22,467 -
10... TRADE AND OTHER RECEIVABLES
30.06.2008 31.12.2007
(Unaudited) (Audited)
�'000 �'000
Trade receivables 4,774 -
Other receivables 32,051 -
36,825 -
11*CASH AND CASH EQUIVALENTS
30.06.2008 31.12.2007
(Unaudited) (Audited)
�'000 �'000
Cash held at hotels 42,186
Cash at banks 567,213 -
609,399 -
12...TRADE AND OTHER PAYABLES
30.06.2008 31.12.2007
(Unaudited) Audited
�'000 �'000
Trade payables 57,401 5,027
Other payables 49,027 -
106,428 5,027
13...SHARE CAPITAL
The authorised share capital of the Company is 160 million Ordinary shares of �0.01 each.
The issued share capital of the Company is comprised as follows:
30.06.2008 31.12.2007
Number �'000 Number �'000
Allotted, called up and fully paid
Ordinary Shares of �0.01 each 44,100,002 94,757 2 477
Share capital
On 16 January 2008 the Company issued 44.1 million Ordinary Shares at �0.50 per share. 38 million of these were in exchange for the TK
Interests. Therefore the resulting cash proceeds of the issue, before share issue expenses, amounted to �655 million (�3.05 million)
Share issue expenses
Share issue expenses incurred in the initial launch of the Company amounted to �277.6 million (�1,291,898). They have been treated as a
deduction from equity and written off against the share premium account. �55.6 million (�258,595) of share issue expenses were paid by the
TK Operators prior to the acquisition therefore the cash flow relating to share issue expenses in the period was �222 million (�1,033,303).
Share premium account
By way of a special resolution passed on 7 January 2008, it was resolved that the amount standing to the credit of the share premium
account of the Group following completion of the issue (net of formation and initial expenses set off against the share premium account) be
cancelled and the amount so cancelled be credited as a distributable reserve. This resolution was approved by the Royal Court of Guernsey on
14 March 2008.
Warrants
For every Ordinary Share subscribed in the placing, the Company issued 2 Warrants. Accordingly, 12.2 million Warrants have been issued
to subscribers. A further 220,500 Warrants have been issued to Shore Capital in part payment of its fees in connection with the placing.
Each Warrant entitles the holder to subscribe for one new Ordinary Share at �0.45. The Warrants will be exercisable from 31 January 2009
until 31 January 2013.
14*COMMITMENTS UNDER OPERATING LEASES
Although the TK Operators hold freehold title to most of the properties owned, there are some parcels of land used for car parking that
are rented. The total future minimum lease payments are due as follows:
30.06.2008 31.12.2007
�'000 �'000
Not later than one year 4,620 -
Later than one year and not later than five years 18,480 -
Later than five years 62,170 -
15*RELATED PARTIES
Mark Huntley, director of the Company, is also a director of the Company's administrator, Heritage International Fund Managers Limited.
During the period Mr Huntley earned �1,536,909 by way of a director's fee of which �794,323 was outstanding at the period end. Heritage
International Fund Managers Limited earned �7,431,774 in administration fees of which �3,971,616 was outstanding at the period end.
16*POST BALANCE SHEET EVENTS
On 4 August 2008 the Company purchased loan notes from JLH 2 Limited. The funds received by JLH 2 Limited were subsequently transferred
to Y.K Chubu Revitalisation via a TK Agreement. On 25 August 2008 Chubu Revitalisation acquired Kukku no Omocha Hotel for a consideration of
�410 million plus taxes and expenses.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR KXLFLVKBZBBF
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