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18 MAY 2009

JAPAN LEISURE HOTELS LIMITED

('Japan Leisure Hotels', 'JPLH' or 'the Company')

Final Results for the year ended 31 December 2008

Japan Leisure Hotels (AIM: JPLH) announces its final results for the year ended 31 December 2008. JPLH's current portfolio comprises 6 hotels with 242 rooms.

SUMMARY

• Successful first full year of trading notwithstanding current economic climate; occupancy rates of the portfolio over 250% for 2008 *

• EBITDA margin before asset management fees increased to 34.5% in 2008 from 32% in 2007 *

• Cash from operations in 2008 of JP¥213 million (£1.1 million); cash position of approximately JP¥260 million (£2.0 million) as at 31 December 2008 with no debt

• Adjusted NAV of 91p (JP¥119) per share as at 31 December 2008

• Economic downturn presenting many acquisition opportunities on attractive terms

  *    Excludes hotel in Yokkaichi, acquired in August 2008

Alan Clifton, JPLH's Chairman, commented:

'This was a very satisfactory opening year for the Company with good progress achieved in implementing our strategy.  The current state of the financial markets continues to present our asset manager with a range of excellent opportunities to invest in additional hotels. We believe that with further funding and an expanded portfolio there is scope to achieve a significant increase in both capital value and distributable income as economies of scale are brought to bear.'

Stephen Mansfield, Asset Manager, commented:

'The dynamics of the leisure hotel industry in Japan remain unchanged.  This is a multi-billion pound industry with no single dominant player.  There is a significant opportunity in the market for JPLH to become the catalyst for consolidation in a £31 billion a year industry. Our cash flow from operations reflects what can be achieved through strong management and efficient processes.'  

A full copy of the 2008 Annual Report is available in PDF format on the Company's website, www.japanleisurehotels.com. The Annual Report is expected to be posted to shareholders by the end of May 2009.

Enquiries:

Asset Manager	020 7337 1509 (for week commencing 18 May 2008)
Steve Mansfield	+81 3 4550 1808 (thereafter)
Shore Capital (NOMAD to JLH)	020 7408 4090
Dru Danford
Stephane Auton
Pelham Public Relations	020 7337 1509 or 07802 442486
Archie Berens

  

JAPAN LEISURE HOTELS LIMITED

('Japan Leisure Hotels', 'JPLH' or 'the Company')

Final Results for the year ended 31 December 2008

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that in 2008 Japan Leisure Hotels has continued to execute its strategy of managing and expanding its leisure hotels business, notwithstanding the steadily worsening economic conditions in Japan. Geographic, demographic and cultural factors combine to make the leisure hotel industry relatively less vulnerable to the macroeconomic environment than other areas of the economy. Japan is a densely populated country, whose people tend to live predominantly in urban areas. Combined with the high cost of living, this means that young adults tend to stay with their families comparatively longer than in other countries. The resulting lack of privacy is one of the main reasons why the leisure hotel industry thrives in Japan. 

Financial Performance

JPLH's investment hotels continued to enjoy high levels of occupancy with the Bonita branded portfolio enjoying occupancy rates in excess of 250%. New Perspective, the Asset Manager, continues to implement measures designed to reduce costs and thus minimise the effects of inflation which meant that, with room prices remaining stable, the overall effect was that EBITDA margin 1 before asset management fees for the Bonita portfolio 2 increased to 34.5% compared to 32% in 2007.  

Sales for the portfolio for the full year were JP¥1.183 billion (£6.1 million). For the Bonita portfolio, which excludes Yokkaichi, sales were JP¥1.15 billion (£5.9 million). Excluding the impact of Yokkaichi which was acquired in August 2008 and has yet to be rebranded a Bonita hotel, EBITDA for 2008 was JP¥317 million (£1.6 million).

The net income of JPLH has been significantly boosted by the exceptional item reflecting negative goodwill of JP¥801 million (£4.1 million). This represents the discount achieved on the purchase of the Bonita branded portfolio at the time of the listing. 

Cash from operations in 2008 was JP¥213 million (£1.1 million) resulting in a cash position as at 31 December 2008 of approximately JP¥263 million (£2.0 million); as a result, JPLH remains free of debt and continues to generate strong cash flow from operations.

JPLH's portfolio of 6 leisure hotels was valued by Colliers International (Hong Kong) Ltd at 31 December 2008 at JP¥5,026,000,000. Combined with the cash resources at the Company's disposal the Adjusted Net Asset Value 3 as at 31 December 2008 was JP¥5,233 million (£40 million) 4 or 91p per share compared to the placing price of 50p at the time of listing. A significant proportion of this appreciation, when stated in Sterling, is due to foreign exchange rate movements.  

Acquisitions

There have been two significant transactions in 2008. The first was the investment in the portfolio of the five Bonita branded hotels at the time of admission to AIM.  The portfolio was further expanded by investing in a hotel in Yokkaichi in central Japan in August 2008. This expansion was funded entirely from existing cash resources; planning for the refurbishment is progressing well and this hotel will be brought under the umbrella of the Bonita brand in late 2009 or early 2010.

1	EBITDA comprises earnings before interest, tax, depreciation and amortisation and excludes the operating expenses of the Guernsey companies. EBITDA margin is EBITDA expressed as a percentage of revenue
2	The Bonita portfolio refers to the five hotels that are operating under the Bonita brand located at Sendai, Yamagata, Isawa, Komaki and Matsusaka
3	Adjusted net asset value per share is based on the total assets were property and equipment have been revalued, as per the Colliers International (Hong Kong) Ltd valuation detailed in note 8, and the number of shares in issue at the end of the year
4	FX rate of 131 yen per pound Sterling at 31 December 2008

Current Trading and Outlook

Trading to date in 2009 has been satisfactory. The Directors are therefore optimistic with regard to prospects for the current year, although the economic environment requires a certain degree of caution. In the longer term, the Board is confident of achieving the objectives set out at the time of the Company's admission to AIM.

The current economic environment in Japan has led to a number of distressed situations which provides an excellent opportunity to invest in additional leisure hotels on attractive terms. 

The Board believes that there is currently a unique opportunity to capture a significant share of the leisure hotel market in Japan particularly, as the Asset Manager reports, there are a number of hotels whose owners are in severe financial difficulties or who no longer view these assets as core to their business. In order to take advantage of these current opportunities to acquire additional leisure hotels at attractive values, the Company is exploring the possibility of raising additional capital.

Dividends

The Board has recommended that no dividend be paid for the year ended 31 December 2008 but currently anticipates paying a dividend for the year ended 31 December 2009.  

Annual Meeting 

We look forward to discussing our current strategy and recent performance with shareholders at the Annual General Meeting, to be announced in due course. This will be held at the registered office of the Company, Heritage Hall, Le Marchant Street, St. Peter Port, Guernsey.

Chairman

Alan Clifton

  

JAPAN LEISURE HOTELS LIMITED

('Japan Leisure Hotels', 'JPLH' or 'the Company')

Final Results for the year ended 31 December 2008

ASSET MANAGER'S REPORT

The Japanese Economy

The most recent economic statistics in Japan may not provide much encouragement to investors; in the last quarter of 2008 real GDP shrank at an annualised rate of 12.1%. Additionally, overseas demand for Japanese products has weakened, causing Japanese exports to collapse, with merchandise export revenue falling by 46% year on year in January 2009 and 49% in February 2009. As a result, Japan's trade figures have rapidly deteriorated with an annualised trade deficit for the six months to January 2009 of JP¥4 trillion compared with a surplus of almost JP¥11 trillion a year earlier. 

By contrast, the leisure hotel sector relies on domestic consumption as its driver and that appears to be holding up better than Japanese exports. There are many reasons for us to remain cautiously optimistic. First and foremost is the government's determination to support the economy. Like many governments around the world the Japanese government is committed to supporting domestic spending. In order to achieve this, the Japanese government has announced three separate supplemental budgets amounting to JP¥27,000 billion (approx. £206 billion) or approximately 5% of GDP. Furthermore, unlike many Western economies, the Japanese consumer is not burdened by large levels of personal debt. Unemployment is rising modestly, mainly affecting temporary and migrant workers, with those in permanent jobs less vulnerable. One of the stated aims of the government stimulus is to create two million jobs over the next two years. More immediately, the strength of the Japanese Yen and the fact that almost all of Japan's energy is imported means that both businesses and consumers are benefiting from falling import prices and, more specifically, falling energy prices.  

The stimulus to spending provided by the government is expected to increase both the number of jobs and the level of demand. When this is combined with a consumer base with a relatively high proportion of disposable income, it is reasonable to anticipate that spending in the leisure hotel industry will remain resilient, as it has in previous recessionary periods.  

Leisure Hotel Industry

The Japanese leisure hotel industry consists of approximately 25,000 hotels, with an average of 24 rooms per hotel. Each room is, on average, occupied more than twice each day and the average spend per guest is currently JP¥6,456 (£49), only marginally down on JP¥6,639 (£51) a year ago. 

The industry has revenues in excess of JP¥4,000 billion (£31 billion) annually and yet no single operator or owner controls more than 100 hotels; in fact 90% of all owners have five or fewer hotels. It is our intention to provide the guidance and management at all levels to ensure that Japan Leisure Hotels will be a key player in the consolidation and maturation of the Japanese leisure hotel market.

Many challenges remain ahead. The biggest issue facing the industry is its fragmentation.  This fragmentation leads to an opaque market with few, if any, operators who have the size and financial resources to invest in the business that would result in the scale, transparency and accountability necessary to allow this industry to develop to a more mature state and one appropriate to an industry of this size.

More recently we have seen a number of trends, which we have spoken about previously, accelerated by the current financial turmoil. One of Bonita's key strengths is the high standards that we maintain at our properties that encourage guests to return time and again. Only committed owners with a strong operating ethos and robust balance sheets are able to maintain their competitive position. Weaker owners without a strong operating framework and those that are highly geared continue to struggle. In competitive areas of Japan we have seen owners forced into liquidation and others who have merely decided to mothball their operations. This is a trend we expect to see continue and perhaps even accelerate, which will ultimately drive the consolidation process we expect to occur over the coming years. 

 Financial Results

Presented below are statements of EBITDA, based on audited figures, for each of the hotels for the year ended 31 December 2008.

	Bonita Branded Hotels			Yokkaichi			Total
	2008	2007		2008	2007		2008	2007
	JP¥'000	JP¥'000		JP¥'000	JP¥'000		JP¥'000	JP¥'000
Revenue	1,153,491	1,177,271		34,066	-		1,187,557	1,177,271
Variable operating expenses	(608,013)	(649,750)		(30,125)	-		(638,138)	(649,750)
Fixed operating expenses	(228,065)	(186,511)		(23,380)	-		(251,445)	(186,511)
EBITDA	317,413	341,010		(19,439)	-		297,974	341,010

The difference between the total EBITDA above and the operating profit before exceptional item per the Consolidated Income Statement on page 8 is depreciation and amortisation of JP¥217 million (£1.1 million) and operating expenses of the Guernsey companies of JP¥69 million (£370,000) and other expenses of JP¥2million (£10,700).

For the Bonita portfolio the number of guests increased by 1.4% for the year, while net sales decreased by 2%. The decrease in sales was not unexpected: as hotels typically start their life cycle with increasing sales for the first two years following a major renovation before reducing to a more sustainable level, this combined with increased members' benefits that accrue over time results in the slight decline in revenue.  

In sharp contrast to the slight decline in sales there has been a significant drop in the operating expenses of the Bonita portfolio. In most categories, operating expenses declined by 10% or more, reflecting improved operational efficiency and only high energy costs prevented this reduction from being greater. Overall, operating expenses, excluding asset management fees, declined by 5.7% resulting in an increase in EBITDA margin, before asset management fees, from 32% in 2007 to 34.5% in 2008. 

These operating figures exclude the impact of the purchase of the Yokkaichi hotel in August 2008. The operations of this hotel are discussed further below. Suffice to note here that while the hotel was loss-making overall in 2008, it was generating a positive monthly cash flow by the end of 2008.

After adjusting for actual capital expenditure and movements in working capital, the cash flow from operations of the hotels in 2008 was JP¥295 million (£1.5 million). 

 The following key performance indicators further illustrate the growth and performance of the Bonita portfolio which was acquired by Japan Leisure Hotels Limited (JPLH) in January 2008:

	2005	2006	2007	2008
REVPAR 5	JP¥10,506	JP¥15,350	JP¥16,572	JP¥ 16,206
Occupancy rate	160%	239%	254%	257%
EBITDA Margin	(43.5)%	25.5%	28.7%	27.5%
5     REVPAR: Revenue per available room

Operating Commentary

Overall, the hotels operating under the Bonita brand turned in a satisfactory performance in the face of a challenging operating environment. Pressure on margins was felt as a result of the high utility costs, although this eased somewhat in the first quarter of 2009 and should provide a little tailwind going forward.  

The hotel at Yokkaichi was acquired in August 2008. The hotel struggled initially as the effect of measures introduced by new management take time to have any material impact. Yokkaichi is one of Japan's largest industrial cities, so is especially susceptible to negative impact from local factory layoffs and closures. Some of the cost control measures that are standard in the Bonita portfolio started to have an impact at Yokkaichi towards the end of the year and we have also seen an increase in guest numbers.  

Planning continues at a good speed for the renovation of Yokkaichi, and we expect to commence work towards the end of the fourth quarter of 2009 or the first quarter of 2010. Currently the plan is to finance the renovation work from internally generated cash. It is taking longer to execute this renovation than with previous hotels but there are good reasons for this; this additional time is being utilised to review fundamentally the design of the hotel with particular effort being expended on reducing energy consumption and improving operational efficiencies within the property, including a new operation and management system. We are excited about the significant steps we are taking and the benefits that will be seen initially in Yokkaichi after the renovation and the portfolio as a whole over time. 

Cost controls will continue to be an ongoing theme of our annual and semi-annual reports to the shareholders of JPLH. This is an area that was highlighted in JPLH's Admission Document and one on which we intend to focus for many years to come. As our portfolio grows we are able to bring more leverage and scale not just to the purchasing process but also to inventory management, staff productivity and resource management in the hotels - many of these developments will be designed in from inception with our Yokkaichi property. We have made good progress in 2008 in improving across a wide range of costs, but we see 2009 as a critical year as we seek to introduce technology to control and track expenditures more accurately across the portfolio. This will result in less impressive cost reductions in 2009 than we have seen in 2008, but with significant improvement towards the end of 2009 as the technology becomes fully functional and staff become more familiar with it.  

Our marketing initiatives have helped to maintain a steady demand from our guests with occupancy rates continuing to exceed 250%. We continue to develop our membership scheme to engender customer loyalty and encourage repeat business. One of our key marketing tools is the Hotel Bonita website (www.hotel-bonita.jp) which continued to experience excellent levels of traffic; in particular we were pleased with the impact that our mobile phone website has had. We intend to build upon this success, with a view to increasing the number of people who are signed up to our e-mail marketing scheme. 

The Current Opportunity

The initial effects of the global financial crisis may have missed the Japanese banks but it has had a substantial negative impact on the middle market of real estate companies in Japan. These secondary effects appear to be having a material impact on Japanese banking. Urban Corporation and Sebon, both midsized real estate companies, both filed for civil rehabilitation under court supervision in the second half of 2008. This was an explicit and very public example of the collapse of lending to small and medium sized real estate companies. Since then, real estate prices have fallen as companies have sought to raise cash to repay loans and avoid bankruptcy. Banks and other financial institutions are increasingly reluctant to provide finance to real estate investors and this has drastically reduced the number of property transactions. This trend is illustrated by a recent Bank of Japan survey that reported that domestic banks advanced JP¥1.5 trillion to real estate firms in the last quarter of 2008, down 36% from the prior year.  

Bankruptcies are inevitably rising, which is reflected in the statistic that corporate bankruptcies in March 2009 were at a six year high. More specifically, according to Teikoku Databank Limited, 54 real estate companies in Japan having debts of at least JP¥10 million (£76,400) went bankrupt in January 2009, 80% more than in January 2008. Bankruptcies also rose sharply in February 2009 and were on the upward trend in March.  

It should therefore come as no surprise that a large number of owners and operators in the Japanese leisure hotel industry are experiencing severe financial difficulties. Many lenders are also seeking to reduce their exposure to the leisure hotel sector, which inevitably places yet more leisure hotels on to the market. It seems likely that the pressure on both borrowers and lenders will continue to increase in the coming months, which should in turn create opportunities at ever more attractive prices. 

The worsening state of the Japanese economy has increased the scale of both the challenges ahead of us, and the opportunities available to us. As we have previously stated, the demand for use of leisure hotels in Japan is less impacted by the macro-economic environment than other sectors, even within the broader leisure industry. On any given day, 2% of the adult population in Japan visits a leisure hotel and this proportion is not changing significantly in the current economic climate.

However, maintaining and improving financial performance is not without its challenges. Costs of essential resources, such as electricity, gas and food, have risen and we have therefore sought to operate as efficiently as possible to minimise the impact of this. We continue to examine new systems and technologies to improve operating efficiencies still further, which should act as a buffer against continued macroeconomic pressures. We expect the renovation at our Yokkaichi property to set a new benchmark in terms of efficiencies going forward.

We have to recognise, though, that our hotels will inevitably be affected by the developments in the broader economy. We are working on putting plans in place so that we can react appropriately as conditions develop, focusing on cost control, marketing and maintaining high standards.  

As noted earlier, our marketing initiatives have produced excellent results, especially in the area of mobile web commerce. Our ability to maintain standards will be crucial in winning customers disaffected with the standards of our struggling competitors. We are continually re-evaluating all aspects of the business to seek to further improve our product offering and cost base to provide a higher quality service in the most cost effective manner.

Outlook

Most importantly our challenge and stated goal is to deliver the highest returns possible to JPLH and support JPLH in its goal of becoming the key player in consolidating this highly fragmented industry. We believe our management track record together with the increasing number of hotels available for sale at low prices are factors that will enable JPLH to secure the necessary finance to achieve this objective. Many hotel owners in Japan are, in several cases, in severe difficulties, and this is our opportunity.  

With the debt markets effectively closed, the Board of JPLH has indicated its intent to secure the appropriate finance from equity investors to whom we can demonstrate a number of attractively priced assets, whose performance can be enhanced through rebranding under our management.  

Conclusion

Opportunity presents itself when crises are at their most severe and steady analysis is applied rather than emotion or fear. Japan is the second largest economy in the world and its government's latest package of tax cuts and government spending will provide a massive fiscal boost relative to GDP. Moreover, the leisure hotel industry has proven resilient over the last ten years as shown by the steady cash flows from JPLH's investments. Here is a consolidation story where the winner will be leading a £31 billion a year industry 

There are many challenges to face in the coming year but the events of the last 12 months have merely amplified the opportunity and further verified the whole basis for investing in JPLH. We remain very excited and confident about the future. 

Stephen Mansfield Director New Perspective Y.K.

Robert Marshall Director New Perspective Y.K.

  

JAPAN LEISURE HOTELS LIMITED

Consolidated Income Statement

For the year ended 31 December 2008

		Note	01.01.2008 to 31.12.2008		17.10.2007 to 31.12.2007
			JP¥'000		JP¥'000
Revenue			1,183,950		-
Total revenue			1,183,950		-
Raw materials and consumables			(124,648)		-
Personnel costs			(276,242)		-
Depreciation and amortisation			(217,141)		-
Other expenses		3	(556,306)		(5,027)
Total expenses			(1,174,337)		(5,027)
Operating profit/(loss) before exceptional item			9,613		(5,027)
Exceptional items
Negative goodwill		5	801,250		-
Profit/(loss) on operations			810,863		(5,027)
Interest income			11,487		-
Cost of warrants			(2,364)		-
Net loss on sale of tangible assets			(3,068)		-
Net foreign currency loss			(36,410)		-
			(30,355)   (30,355)		-
Profit/(loss) before taxation			780,508		(5,027)
Taxation		4	(1,711)		-
Profit/(loss) for the year/period			778,797		(5,027)
Attributable to:
Equity shareholders			776,555		(5,027)
Minority interest			2,242		-
			778,797		(5,027)
Earnings per share - basic		6	JP¥18.36		JP¥ (2,513)
Earnings per share - diluted		6	JP¥14.19		-
Adjusted earnings per share - basic		6	JP¥ (0.58)		-
Adjusted earnings per share - diluted		6	JP¥ (0.45)		-

All items in the above statement, apart from the exceptional item, are derived from continuing operations.

The notes on pages 12 to 22 form an integral part of these consolidated financial statements.

  

JAPAN LEISURE HOTELS LIMITED

Consolidated Balance Sheet

As at 31 December 2008

	Note		31.12.2008		31.12.2007
			JP¥'000		JP¥'000
ASSETS:
Non-current assets
Intangible assets	7		3,872		-
Property, plant and equipment	8		5,055,240		-
Rental deposits			3,420		-
Total non-current assets			5,062,532		-
Current assets
Inventory	9		18,354		-
Trade and other receivables	10		62,805		-
Cash and cash equivalents	11		263,369		-
Total current assets			344,528		-
TOTAL ASSETS			5,407,060		-
Current liabilities
Trade and other payables	12		(145,260)		(5,027)
Total current liabilities			(145,260)		(5,027)
TOTAL LIABILITIES			(145,260)		(5,027)
TOTAL NET ASSETS			5,261,800		(5,027)
EQUITY
Share capital	13		97,121		-
Distributable reserve			4,365,514		-
Retained earnings			771,528		(5,027)
EQUITY ATTRIBUTABLE TO SHAREHOLDERS			5,234,163		(5,027)
Minority interest			27,637		-
TOTAL EQUITY			5,261,800		(5,027)

Net asset value per share	14	JP¥119.32		JP¥ (2,513.50)

The notes on pages 12 to 22 form an integral part of these consolidated financial statements.

The consolidated financial statements were approved by the Board of Directors and authorised for issue on 15 May 2009

Alan Clifton                            Sarah Evans

Chairman                                Director

  

JAPAN LEISURE HOTELS LIMITED

Consolidated Statement of Changes in Equity 

For the year ended 31 December 2008

		Share Capital	Share Premium	Distributable Reserve	Retained Earnings	Total Shareholders Equity	Minority Interest	Total Equity
	Note	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 share capital	13	94,757	4,643,102	-	-	4,737,859	-	4,737,859
Share issue expenses	13	-	(277,588)	-	-	(277,588)	-	(277,588)
Conversion of share premium account	13	-	(4,365,514)	4,365,514	-	-	-	-
Profit for the year		-	-	-	776,555	776,555	2,242	778,797
Cost of warrants	13	2,364	-	-	-	2,364	-	2,364
Minority interest in pre-acquisition reserves	1	-	-	-	-	-	25,395	25,395
As at 31 December 2008		97,121	-	4,365,514	771,528	5,234,163	27,637	5,261,800

For the period from 17 October 2007 to 31 December 2007 

		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
Issue of share capital		-	-	-	-	-	-	-
Loss for the period		-	-	-	(5,027)	(5,027)	-	(5,027)
At 31 December 2007		-	-	-	(5,027)	(5,027)	-	(5,027)

The notes on pages 12 to 22 form an integral part of these consolidated financial statements. 

JAPAN LEISURE HOTELS LIMITED

Consolidated Cash Flow Statement 

For the year ended 31 December 2008

	Note	01.01.2008 to 31.12.2008		17.10.2007 to 31.12.2007
		JP¥'000		JP¥'000
Cash flows from operating activities
Profit/(loss) before taxation		778,797		(5,027)
Adjustments for:
Depreciation and amortisation		217,141		-
Interest income		(11,487)		-
Loss on disposal of assets		3,068		-
Cost of warrants		2,364		-
Taxation		1,711		-
Increase in deferred income		6,561		-
Negative goodwill	5	(801,250)		-
Changes in working capital		4,523		(5,027)
Cash inflows from operations		201,428		-
Interest received		11,546		-
Tax paid		(189)		-
Cost on disposal of assets		(100)		-
Net cash inflows from operating		212,685		-
activities
Cash flows from investing activities
Purchase of plant, property and equipment		(474,172)		-
Increase in rental deposits		(200)		-
Cash acquired on acquisition		91,730		-
Net cash generated from investing activities		(382,642)		-
Cash flows from financing activities
Share proceeds	13	655,350		-
Share issue costs	13	(222,024)		-
Net cash generated from financing activities		433,326		-
Net increase in cash
and cash equivalents		263,369		-
Cash and cash equivalents at the beginning
of the year		-		-
Cash and cash equivalents at the end
of the year		263,369		-

The notes on pages 12 to 22 form an integral part of these consolidated financial statements.

JAPAN LEISURE HOTELS LIMITED

Notes to the Consolidated Financial Statements

For the year ended 31 December 2008

General Information

Japan Leisure Hotels Limited is a company incorporated and registered in Guernsey under the Companies (Guernsey) Law, 1994. This law was replaced by the Companies (Guernsey) Law, 2008 on the 1 July 2008.  The address of the registered office is given in the Management and Administration section at the beginning of this report. The Company has been established to derive cashflow and capital gains by investing in Japanese leisure hotels.

 

The Company was listed and admitted to trading on AIM, the market of that name operated by the London Stock Exchange, on 16 January 2008. On admission 44,100,000 shares were issued at £0.50 per share resulting in gross proceeds of £22,050,000.

Group Structure

The Group comprises the Company, its wholly-owned subsidiaries and those special purpose entities 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 are owned by Special Purpose Entities ('SPEs') 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. The TK Investor's investment is referred to herein as its 'TK Interest'. Further information regarding the group structure is available on the Company's website www.japanleisurehotels.com.

1. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied throughout the current period, unless otherwise stated.

Basis of accounting

The financial statements of the Group have been prepared in accordance with IFRS, which comprise standards and interpretations issued by the International Accounting Standards Board ('IASB') and the International Financial Reporting Interpretations Committee ('IFRIC') approved by the International Accounting Standards Committee ('IASC') that remain in effect, to the extent that they have been adopted by the European Union.

IFRS requires management to make judgments, estimates and assumptions that affect the application of the reported amounts in these financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Basis of consolidation

The consolidated interim financial statements incorporate the financial statements of the Company, its subsidiaries and 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 that hold and operate property, plant and equipment.

Segmental reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those segments operating in other economic environments.

The Directors are of the opinion that the Group is engaged in a single segment of business, being investment in the purchase and operation of leisure hotels and related business and a single geographical area, namely Japan. Therefore, no segmental information has been presented.

Financial instruments

Financial assets

Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'trade and other receivables'.  Trade and other receivables are measured at cost.

Financial liabilities

Financial liabilities are classified as 'trade and other payables' and are measured initially at fair value, net of transaction costs and subsequently measured at cost.

Foreign currency translation

Functional and presentation currency

Items included in the financial statements of the Group are measured using Japanese Yen which is the currency of the primary economic environment in which the Group operates (the 'functional currency'). 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. 

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.  

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.

Acquisitions and business combinations

Where properties are acquired through corporate acquisition and there are no significant assets or liabilities other than property, the acquisition is treated as an asset acquisition. In all other cases the acquisition is accounted for as a business combination, in which case, the assets and liabilities of a subsidiary or joint venture are measured at their estimated fair value at the date of acquisition. The cost of acquisition is measured as the fair vale of the consideration given together with any liabilities incurred or assumed at the date of acquisition, plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.

Negative goodwill, being the excess of the value of the net assets acquired in a business acquisition over the price paid by the acquiring entity, arising on acquisition of the TK Interests is credited to the Consolidated Income Statement in the year in which it arises.

By virtue of the TK structure entered into during the year, the Company is a passive investor. The Group's investments have been made solely in leisure hotel assets in Japan. 

2. NEW STANDARDS AND INTERPRETATIONS NOT APPLIED

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') and International Financial Reporting Interpretations Committee ('IFRIC'), interpretations as endorsed by the European Union ('EU') and with those parts of The Companies (Guernsey) Law, 2008 applicable to companies reporting under IFRS. The Financial Statements have been prepared in Japanese Yen and rounded to the nearest thousand, which is the presentational currency of the Group. 

The Financial Statements have been prepared in accordance with IAS 1 (revised) 'Presentation of Financial Statements'. Application of IAS 1 (revised) did not impact on the Net Assets or Income for year ended 31 December 2007. Apart from formatting and the titles of primary statements there have been no other changes.

Note 1 sets out a description of the significant accounting policies of the Group. The accounting policies are consistent with those applied in the year ended 31 December 2007, and amended to reflect the adoption of the new standards, amendments to standards or interpretations which are mandatory for the first time for the financial year ended 31 December 2008.

The preparation of Financial Statements in conformity with IFRS requires the use of estimates and

assumptions for certain categories of assets and liabilities that affect the reported amounts at the date of the Financial Statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those estimates.

(a) Standards, interpretations and amendments to published standards effective in 2008 but which are not relevant to the Group

The following standards, amendments and interpretations to published standards are mandatory for

accounting periods beginning on or after 1 January 2008 but are currently not relevant to the Group's operations:

• Amendments to IAS 39 and IFRS 7: Reclassification of Financial Instruments (effective for accounting periods beginning on or after 1 July 2008).

• IFRIC 7, Applying the restatement approach under IAS 29, Financial Reporting in Hyperinflationary Economies (effective for accounting periods beginning on or after 1 March 2006). 

• IFRIC 11, IFRS 2 - Group and Treasury Share Transactions (effective for accounting periods beginning on or after 1 March 2007). 

• IFRIC 12, Service Concession Arrangements (effective for accounting periods beginning on or after 1 January 2008). 

(b) Standards, amendments and interpretations to published standards not yet effective 

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting periods beginning after 1 January 2008 or later periods and which the Group has decided not to adopt early. 

The following is a brief description of those standards, amendments and interpretations, not yet effective, that the Group believes are relevant and whose impact it is currently assessing:

- IAS 27, Consolidated and Separate Financial Statements (effective for accounting periods beginning on or after 1 July 2009). This amendment relates in particular to acquisitions of subsidiaries achieved in stages and disposals of interests, with significant differences in the accounting depending on whether control is gained or not, or a transaction simply results in a change in the percentage of the controlling interest. The amendment does not require the restatement of previous transactions. The amendment to IAS 27 must be adopted at the same time as IFRS 3 (revised). The Group is currently assessing the impact of IAS 27 on the Financial Statements.

- IFRIC 13, Customer Loyalty Programmes (effective for accounting periods beginning on or after 1 July 2008). IFRIC 13 is still to be endorsed by the EU. IFRIC 13 addresses sales transactions in which the entities grant their customers award credits that, subject to meeting any further qualifying conditions, the customers can redeem in the future for free or discounted goods or services. The Group is currently assessing the impact of IFRIC 13 on the Financial Statements.

- IFRIC 15, Agreements for the Construction of Real Estate (effective for accounting periods beginning on or after 1 January 2009). This interpretation clarifies the definition of a construction contract, the interaction between IAS 11 and IAS 18 and provides guidance on how to account for revenue when the agreement for the construction of real estate falls within the scope of IAS 18. For some entities, the interpretation may give rise to a shift from the recognition of revenue using the percentage of completion method to the recognition of revenue at a single time (e.g. at completion, upon or after delivery). The Group is currently assessing the impact of IFRIC 15 on the Financial Statements.

- Amendment to IFRS 2 , Share-based payments: vesting conditions and cancellations (effective for accounting periods beginning on or after 1 January 2009). This amendment is still to be endorsed by the EU. The amendment to IFRS 2 is of particular relevance to companies that operate employee share save schemes because it results in an immediate acceleration of the IFRS 2 expense that would otherwise have been recognised in future periods should an employee decide to stop contributing to the savings plan,. The Group is currently assessing the impact of IFRS 2 on the Financial Statements.

- Revised IFRS 3, Business Combinations and complementary Amendments to IAS 27,'Consolidated and separate financial statements (both effective for accounting periods beginning on or after 1 July 2009). This revised standard and the amendments are still to be endorsed by the EU. The revised IFRS 3 and amendments to IAS 27 arise from a joint project with the Financial Accounting Standards Board ('FASB'), the US standards setter, and result in IFRS being largely converged with the related, recently issued, US requirements. The Group is currently assessing the impact of IFRS 3 on the Financial Statements.

- IFRS 8, Operating Segments (effective for accounting periods beginning on or after 1 January 2009). This standard requires an entity to adopt the 'management approach' to reporting on the financial performance of its operating segments. Generally, the information to be reported would be what management uses internally for evaluating segment performance and deciding how to allocate resources to operating segments. Such information may be different from what is used to prepare the income statement and balance sheet. The standard also requires explanations of the basis on which the segment information is prepared and reconciliations to the amounts recognised in the Consolidated Statements of Comprehensive Income and Consolidated Statements of Financial Position. The Group is currently assessing the impact of IFRS 8 on the Financial Statements. 

- Improvements to IFRSs (April 2009) (effective for accounting periods beginning on or after 1 January 2010). On 16 April 2009, the International Accounting Standards Board ('IASB') issued Improvements to IFRSs 2009 - incorporating amendments to 12 International Financial Reporting Standards (IFRSs). This collection of amendments issued under the annual improvements process, which is designed to make necessary, but non-urgent, amendments to IFRSs. The Group is currently assessing the impact of the Improvements to IFRSs (April 2009) on the Financial Statements.

The following is a list of those standards, amendments and interpretations, not yet effective, that the Group believes are not relevant to it:

• IAS 32 and IAS 1, Puttable Financial Instruments and Obligations Arising on Acquisition (effective for accounting periods beginning on or after 1 January 2009). 

• IAS 23, Borrowing Costs (revised) (effective for accounting periods beginning on or after 1 January 2009). 

• IFRS 1 and IAS 27, Cost of an Investment in a subsidiary, jointly-controlled entity or associate (effective for accounting periods beginning on or after 1 January 2009). 

• IAS 39, Financial Instruments: Recognition and Measurement: Eligible Hedged Items (effective for accounting periods beginning on or after 1 July 2009). 

• IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for accounting periods beginning on or after 1 January 2008). 

• IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective for accounting periods beginning on or after 1 October 2008). 

• IFRIC 17, Distributions of Non-cash Assets to Owners (effective for accounting periods beginning on or after 1 July 2009). 

• IFRIC 18, Transfer of Assets from Customers (effective for accounting periods beginning on or after 1 July 2009). 

• IAS 40, Investment Property (effective for accounting periods beginning on or after 1 January 2009). 

• IAS 41, Agriculture (effective for accounting periods beginning on or after 1 January 2009).

3.  OTHER EXPENSES	01.01.2008 to 31.12.2008		17.10.2007 to 31.12.2007
	JP¥'000		JP¥'000
Operating lease payments	5,673		-
Utilities	108,381		-
Property tax	24,566		-
Cleaning	39,182		-
Marketing	23,110		-
Repairs and maintenance	37,733		-
Hotel operators' fees	50,073		-
Asset Manager's fees	86,925		-
Due diligence	6,654		-
Professional services	55,732		-
Auditors' remuneration - audit services	11,616		1,346
Administrator's fees	15,587		-
Directors' fees	16,931		3,681
Other expenses	74,143		-
	556,306		5,027

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 (JP¥ 78,513).

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.

Japanese taxation

The reasons for the difference between actual tax charge for the year and the standard rate of tax in Japan for the year are as follows:

	01.01.2008 to  31.12.2008			17.10.2007 to 31.12.2007
	Gross  JP¥'000	Tax effect at 42%  JP¥'000		Gross  JP¥'000	Tax effect at 42%  JP¥'000
Profit before taxation	780,508	327,813		-	-
Income not subject to tax	(812,737)
Other items deductible for tax purposes	(79,455)			-
Accelerated depreciation	10,653			-
Expenses not deductible for tax purposes	112,592			-
Taxable income before brought forward tax losses	11,561	4,856		-	-
Tax losses brought forward	(7,890)			-
Net taxable income	3,671	1,542		-	-
Minimum tax charge on SPE's with nil taxable income		169			-
Tax charge		1,711			-

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 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 has been credited to the Consolidated Income Statement in the year; 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.

6. EARNINGS PER SHARE

	01.01.2008 to 31.12.2008		17.10.2007 to 31.12.2007
	Number of Shares		Number of Shares
Weighted average number of shares in issue during the year/period	42,292,623		2
Dilutive potential shares	12,420,500		-
	54,713,123		2

Basic earnings per share

Basic earnings per share is based on the profit attributable to equity shareholders and on the weighted average number of shares in issue during the year/period.

Diluted earnings per share

Diluted earnings per share is based on the profit attributable to equity shareholders and on the weighted average number of shares in issue during the year/period and also taking into account the effect of the potential shares which would arise in the event of the warrants being exercised.

Adjusted basic earnings per share - before exceptional items and after tax

Adjusted basic earnings per share - before exceptional items and after tax is based on the profit attributable to equity shareholders before exceptional items and after tax and on the weighted average number of shares in issue during the year/period.

Adjusted diluted earnings per share - before exceptional items and after tax

Adjusted diluted earnings per share - before exceptional items and after tax is based on the profit attributable to equity shareholders before exceptional items and after tax and on the weighted average number of shares in issue during the year/period and also taking into account the effect of the potential shares which would arise in the event of the warrants being exercised.

7. INTANGIBLE ASSETS

	01.01.2008 to 31.12.2008		17.10.2007 to 31.12.2007
Software	JP¥'000		JP¥'000
Cost
At beginning of the year/period	-		-
Additions	4,765		-
At end of the year/period	4,765		-
Amortisation
At beginning of the year/period	-		-
Provided for in the year/period	(893)
As at 31 December 2008 / 31 December 2007	(893)		-
Net book value as at 31 December 2008 / 31 December 2007	3,872		-

8. 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 year/period	-	-	-	-
Additions	1,162,699	3,114,065	997,692	5,274,456
Disposals	-	-	(3,241)	(3,241)
At end of the year/period	1,162,699	3,114,065	994,451	5,271,215
Depreciation
At beginning of the year/period	-	-	-
Provided for in the year	-	(105,651)	(110,597)	(216,248)
Disposals	-	-	273	273
At end of the year/period	-	(105,651)	(110,324)	(215,975)
Net book value
As at 31 December 2008	1,162,699	3,008,414	884,127	5,055,240
As at 31 December 2007	-	-	-	-

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, which is JP¥29,240 lower than the net book value above. 

9. INVENTORY

	31.12.2008		31.12.2007
	JP¥'000		JP¥'000
Goods held for re-sale	18,354		-

10. TRADE AND OTHER RECEIVABLES

	31.12.2008		31.12.2007
	JP¥'000		JP¥'000
Trade receivables	6,083		-
Prepayments	41,426		-
Consumption tax refund	13,112		-
Other receivables	2,184		-
	62,805		-

11. CASH AND CASH EQUIVALENTS

	31.12.2008		31.12.2007
	JP¥'000		JP¥'000
Cash held at hotels	32,963		-
Cash at banks	230,406		-
	263,369		-

12. TRADE AND OTHER PAYABLES

	31.12.2008		31.12.2007
	JP¥'000		JP¥'000
Trade payables	62,374		5,027
Accrued expenses	39,546		-
Accrued consumption tax	21,666		-
Deferred income	14,237		-
Accounts payable fixed assets	3,140		-
Current tax liabilities	1,662		-
Other payables	2,635		-
	145,260		5,027

13. 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: 

	31.12.2008		31.12.2007
	Number	JP¥'000	Number	JP¥'000
Allotted, called up and fully paid
Ordinary Shares of £0.01 each	44,100,002	97,121	2	0.5

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 JP¥655 million (£3.05 million). 

Share issue expenses

Share issue expenses incurred in the initial launch of the Company amounted to JP¥277.6 million (£1.3 million). They have been treated as a deduction from equity and written off against the share premium account.  JP¥55.6 million (£0.3 million) 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 JP¥222 million (£1.0 million). 

Share premium account & distributable reserve

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 Company 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 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 Warrants issued 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.

 

14. 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 year. 

	31.12.2008		31.12.2007
	JP¥'000		JP¥'000
Net asset value per Consolidated Balance Sheet	5,261,800		(5,027)
Difference between the net book value and the independent valuation of plant, property and equipment as shown in note 8	(29,240)		-
Adjusted net asset value, incorporating plant, property and equipment as shown in note 8	5,232,560		(5,027)
Net asset value per share	JP¥119.32		JP¥ (2,513.50)
Net asset value per share	£0.91		£(11.21)
Adjusted net asset value per share	JP¥118.65		JP¥ (2,513.50)
Adjusted net asset value per share	£0.91		£(11.21)

15. COMMITMENTS UNDER OPERATING LEASES

Although the TK Operators 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:

	31.12.2008		31.12.2007
	JP¥'000		JP¥'000
Not later than one year	6,237		-
Later than one year and not later than five years	24,949		-
Later than five years	31,186		-

 

16. RELATED PARTIES & MATERIAL CONTRACTS

Mark Huntley, Director of the Company, is also a director of the Company's administrator, Heritage International Fund Managers Limited. During the year Mr. Huntley earned JP¥2,616,995 by way of a Director's fee of which JP¥490,709 was outstanding at the year end. Heritage International Fund Managers Limited earned JP¥13,189,930 in administration fees of which JP¥2,453,546 was outstanding at the year end.

New Perspective, the Group's Asset Manager, earned JP¥86,925,267 by way of asset management fees and JP¥11,379,343 for accounting and other services during 2008. Of these fees there was JP¥6,947,403 outstanding at the year end.  

17.    FINANCIAL INSTRUMENTS

The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes or to hedge its exposure to risks. However, in the course of its operations the Group acquires financial assets and liabilities that expose it to various risks including credit risk, liquidity risk and market risk, specifically with respect to foreign exchange and interest rates. The nature of these risks, the extent of the risks and the Group's objectives and procedures for managing these risks are disclosed below.

Financial risk management objectives 

The Group's objectives in managing these risks are to:

• safeguard the financial assets of the Group;

• minimise the potential impact of market rate movements on the value and earning potential of financial assets and liabilities of the Group;

• ensure the Group has sufficient liquid resources to satisfy its financial liabilities.

In order to satisfy these objectives, the Asset Manager provides advice to the TK Operators and the Administrator provides advice to the Company which allows the Group to monitor and manage financial risks relating to its operations through internal risk reports which analyse exposures by degree and magnitude of risks. The Asset Manager and the Administrator report to the Directors on a quarterly basis regarding the nature and degree of financial risks.

The risks relating to the Group's operations include the following:

Credit risk 

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. Financial assets held by the Group consist of cash and cash equivalents and trade and other receivables.

The table below shows the cash balances held at the balance sheet date and the relevant credit rating for the counter party:

 

			Carrying amount
Counterparty	Location	Rating	31.12.2008 JP¥'000	31.12.2007 JP¥'000
Bank of Tokyo-Mitsubishi UFJ Ltd	Japan	AA	131,304	-
77 Bank	Japan	AA	504	-
Yamagata Bank	Japan	A+	450	-
Yamanashi Chuo Bank	Japan	A+	148	-
Barclays Bank plc	UK	AA-	98,000	-

Liquidity risk

The Group's financial liabilities consist of trade and other payables which are all due within one year. The Group adopts a prudent approach to liquidity management and maintains sufficient cash reserves to meet its obligations.

The following table details the Group's expected maturity for its payables and receivables. The tables below have been drawn up based on the undiscounted contractual maturities of the financial assets (excluding interest earned).

	2008	2007
	JP¥'000	JP¥'000
Financial assets - current
Trade and other receivables - maturity less than 1 year	62,805	-
Cash and cash equivalents - maturity less than 1 year	263,369	-
	326,174	-
Financial liabilities - current
Trade and other payables - maturity less than 1 year	145,260	(5,027)

Market Risk

The Group is exposed to market risk through its holding of cash and cash equivalents. Specifically, the Group is subject to interest rate risk through its interest bearing deposits with bank and foreign exchange risk due to a portion of these holdings being denominated in foreign currencies. These are discussed in more detail below.

Foreign currency exchange rate risk 

Foreign currency exchange rate risk arises in financial instruments that are denominated in a currency other than the functional currency in which they are measured ('foreign currency'). Therefore, the Group will be exposed to risk of a movement in the rate of exchange for financial instruments that are denominated in a currency other than Japanese Yen.  Foreign currency exchange rate risk does not arise from financial instruments that are non-monetary items or from financial instruments denominated in the functional currency, Japanese Yen.  

Cash and cash equivalents held in a foreign currency are held on a short term basis in order to meet obligations with respect to operating and administering the Group. Broadly, only sufficient cash is held in foreign currencies that is expected to be required to meet those obligations that are denominated in that foreign currency and therefore it is the opinion of management that the Group is not exposed to any significant risk of loss from currency exchange rate fluctuations.

The table below summarises the Group's exposure to foreign currency risk. The Group's assets and liabilities are included in the table, categorised by their currency at their carrying amount in Yen. Other than Yen the Group has only Sterling assets or liabilities as shown in the following table:

	31.12.2008 JP¥'000	31.12.2007 JP¥'000
	JP¥'000	JP¥'000
Financial assets
Cash and cash equivalents	16,966	-
Trade and other receivables	1,479	-
Financial liabilities Trade and other payables	(3,566)	(5,027)

Foreign currency exchange rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to foreign exchange rates of financial instruments at the balance sheet date. For foreign currency denominated financial assets and financial liabilities, the analysis has been prepared assuming the amount of asset or liability outstanding at the balance sheet date was outstanding for the whole year. Management believes that a 40% increase or decrease is a reasonably possible change in foreign exchange rates.

If Sterling had strengthened/weakened by 40% against Japanese Yen and all other variables held constant, the annual change in the Group's Consolidated Income Statement based on the year-end balances of assets and liabilities in foreign currency would be as follows:

• profit for the year would have been JP¥5,952,000 higher/lower;

• there would be no impact on other equity reserves.

Cash flow interest rate risk

The Group's exposure to interest rate risk on financial assets is affected by general economic conditions which may affect the level and volatility of interest rates and the extent and timing of investor participation in the asset markets. Unexpected volatility or illiquidity in the markets in which the Group holds positions can impair the its ability to conduct its business or cause it to incur losses.

The Group's interest rate risk is managed by the Manager in accordance with policies and procedures in place. The Group's overall positions and exposures are monitored on a quarterly basis by the Board of Directors.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates for financial assets at the balance sheet date. For floating rate financial assets, the analysis has been prepared assuming the amount of asset outstanding at the balance sheet date was outstanding for the whole year. In the opinion of management a 1.5% increase or decrease is a reasonably possible change in interest rates.

An increase of 1.5% in interest rates as at the reporting date would have increased the net assets attributable to the Company's equity-holders and changes in net assets by JP¥172,305 (2007: JP¥ nil). A decrease of 1.5% would have had an equal but opposite effect.

Capital risk management 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns to shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group has no borrowings and accordingly the Group has a nil gearing ratio. The Group is not subject to any capital requirements.

18.    POST BALANCE SHEET EVENTS

Subsequent to the end of the fiscal year covered by these accounts, the Group entered into the following contracts: to purchase land adjacent to its hotel in Yokkaichi for the amount of JP¥12,000,000; and to purchase the Bonita trademark from Bonita Services Limited for JP¥15,000,000. 

    

Apart from the above, there have been no significant events subsequent to the balance sheet date. 

ENDFR SFDFDWSUSEII