Japan Leisure Hotels: Final Results | Company Announcements

Wednesday 05 May, 2010

Japan Leisure Hotels

Final Results

RNS Number : 3288L

Japan Leisure Hotels Ltd

05 May 2010

5 MAY 2010

JAPAN LEISURE HOTELS LIMITED

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

Final Results for the year ended 31 December 2009

Japan Leisure Hotels (AIM: JPLH) announces its final results for the year ended 31 December 2009. JPLH's current portfolio comprises 6 hotels with 242 rooms. This announcement does not constitute the Company's full Annual Report. It consists of extracts from the Company's Annual Report for the year ended 31 December 2009: the Chairman's Statement, Asset Manager's Report, Financial Statements and Abridged Notes.

SUMMARY

· Continued steady trading during a severe recession; daily occupancy rates of the portfolio remain in excess of 240%

· Recommendation of interim dividend of 1p per share in respect of 2009, in line with previously stated intention

· EBITDA margin before asset management fees increased to 38.2% in 2009 from 34.5% in 2008 *

· Cash from operations in 2009 increased to JP¥243 million (£1.7 million) (2008: JP¥213 million (£1.1 million))

· Cash position of approximately JP¥413 million (£2.8 million) with no debt, compared to JP¥263 million at the end of 2008

· Adjusted NAV of JP¥108.41 (74p ) per share as at 31 December 2009

· Refurbishment and rebranding of Yokkaichi expected to be complete by the end of May 2010, on time and within budget

· Numerous attractive acquisition opportunities continue to be available

Alan Clifton, JPLH's Chairman, commented:

"I am pleased to report that Japan Leisure Hotels performed well in 2009 despite the deepest global recession in living memory. This has enabled us to deliver on our promise of recommending a cash dividend in respect of 2009. Trading to date in 2010 continues to be very challenging, but JPLH's performance during the last two years provides comfort that it can perform well even in a difficult environment. The Directors are therefore cautiously optimistic with regard to prospects for the current year."

Stephen Mansfield, Asset Manager, commented:

"There is a growing awareness of the opportunity in the Japanese leisure hotel industry. The challenge is to grow the business so that operational efficiencies will generate further improvements in margins. Our progress to date provides us with every confidence that we can move to the next stage of our development."

A full copy of the 2009 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 2010.

* Excludes Yokkaichi hotel

Enquiries:

Asset Manager	+81 3 4550 1808
Steve Mansfield

Shore Capital (NOMAD to JPLH)	020 7408 4090
Dru Danford
Stephane Auton

Pelham Bell Pottinger	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 2009

CHAIRMAN'S STATEMENT

Introduction

I am pleased to report that in 2009, Japan Leisure Hotels ('JLH') performed well in the face of the deepest global recession in living memory, the impact of which was particularly severe in Japan. To have withstood these headwinds and not only managed to maintain the revenues of the business in a deflationary environment but also to have increased the free cash flow from the business is testament not only to the leisure hotel industry's relative insulation from recessionary forces but also our management team's abilities. If we look at the performance in real terms, taking account of deflation in 2009 of 3%, revenues have effectively increased by 4% compared to 2008.

As we have previously observed, it is the lack of privacy in Japan that is the key driver that underpins the leisure hotel industry. Nevertheless, commercial skill and high standards are required to operate successfully and we are fortunate to have a team who exhibit these qualities in abundance.

Financial Performance

Last year, our portfolio of leisure hotels continued to enjoy high levels of occupancy, albeit not quite as high as historically. Revenue for the portfolio for the full year grew marginally to JP¥ 1.20 billion (£8.2 million), compared to JP¥1.18 billion (£6.1 million) in 2008. REVPAR¹, however, declined from JP¥14,215 (using annualised figures for Yokkaichi) to JP¥13,568.

Careful management of the operations, and a significant reduction in energy costs from 2008, resulted in increased operating profit before exceptional items of JP¥33.3 million compared to JP¥9.6 million in 2008. Similarly, cash from operations in 2009 was JP¥243 million (£1.7 million), compared to JP¥213 million (£1.1 million) in 2008, resulting in a cash position as at 31 December 2009 of JP¥413 million (£2.8 million) (2008: JP¥263 million). Our company is free of debt and continues to generate strong cash flows.

JLH's portfolio of 6 leisure hotels was valued by Colliers International (Hong Kong) Ltd at 31 December 2009 at approximately JP¥4,632 million. When this is combined with other net assets, including cash, the Adjusted Net Asset Value as at 31 December 2009 was JP¥4,780 million (£32.5 million) or JP¥108.41 (74p) per share.

The Directors concluded that a change in the application of its accounting policy was necessary to ensure that tax liabilities are recognised in the same period as income for accounting purposes. As a result of this change in policy, the 2008 figures have been restated in two important areas: the amount of negative goodwill was reduced to reflect the tax that would ultimately be incurred if that benefit were actually realised; and the tax expense was increased.

¹ REVPAR: revenue per available room per day

Dividend

It is gratifying to announce that, as a result of the Group's cash resources having been built up to a sufficient level, an interim dividend will be recommended in respect of 2009. This is in line with our previously stated intention. An interim dividend of 1p per share will be paid on 20 August 2010 to shareholders on the register as at 7 July 2010 and the record date will be 9 July 2010.

The Board hopes again to be in a position to recommend a dividend payment at this point next year, subject to a continued resilient business performance by our hotels.

Management and Administration

During the year, Mark Huntley resigned from the Board as a non-executive director. We thank Mark for his contribution and the role he played in the listing of the company on AIM.

Since the year end, we have appointed Praxis Property Fund Services Limited as the Company's Administrator in place of Heritage International Fund Managers Limited.

Current Trading and Outlook

Trading to date in 2010 continues to be very challenging and revenue levels are falling short of 2009. However, there is hope that with the improvements in the Japanese economy, greater confidence will filter through to consumers in general and they will become more willing to spend during the remainder of the year. JLH's performance during the last two years provides comfort that it can perform well even in a difficult environment. The Directors are therefore cautiously optimistic with regard to prospects for the current year. In the longer term, the Board is steadfast in its intention to pursue its goal of delivering sustained cash returns to investors through pursuit of its declared corporate objectives.

We remain convinced that the opportunity still exists to become a major consolidator in the leisure hotel market in Japan. We believe that having successfully demonstrated our ability to grow earnings and cash, and pay a dividend, we are an even more attractive proposition to potential investors. Not all owners and operators of leisure hotels have managed their way through the recession as astutely as our Asset Manager, resulting in plenty of distressed assets becoming available on attractive terms. We continue to investigate ways of raising the necessary finance to take advantage of these opportunities to grow our portfolio. Our intention would be to renovate and rebrand them, as we have successfully achieved with our first acquisition. This would provide worthwhile economies of scale, enhance the value of our brand and increase our ability to generate cash, thus offering the prospect of improved levels of dividend payments.

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, Praxis Property Fund Services Limited, Sarnia House, St. Peter Port, Guernsey, Channel Islands.

Chairman

Alan Clifton

JAPAN LEISURE HOTELS LIMITED

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

Final Results for the year ended 31 December 2009

ASSET MANAGER'S REPORT

The Japanese economy

2009 was a very challenging period for Japan. The economy posted a 5% decline in GDP during the year, the worst recession since the Second World War, but recovered in the final quarter with growth of 1.1%, which translates to a 4.6% annualised increase. Deflation returned with a vengeance; prices were on average 3% lower in January 2010 compared to January 2009. There was also an historic change of leadership in the government with the Liberal Democratic Party being removed after 54 years of almost unbroken rule and being replaced by the Democratic Party of Japan government under the leadership of Yukio Hatoyama.

Clearly, like many other countries in the world, Japan has many economic issues to address: growing deflation, a cut back in the public investment introduced last year now looms and national debt is twice the country's GDP. On the other hand, fears of a double dip recession are now receding, as the global economic problems subside and export demand returns.

The new government appears determined to tackle the problems of deflation; the Bank of Japan injected JP¥10 trillion of virtually interest free liquidity into the banking system in November with the objective of reducing the strength of the yen and helping to boost export earnings, although the currency has so far shown little sign of responding. Nevertheless, Japan's new finance minister has stated that he wants the Bank of Japan to be more accountable and has started to apply pressure for a formal inflation target to be set.

Japan's foreign policy appears to be shifting as well with moves being made to establish stronger economic ties with the rest of Asia, especially China. It remains to be seen how this will play out but it is indicative of a fresh approach.

Although consumer spending remains low the leisure hotel sector has shown great resilience, as in previous recessionary periods. In a country where 80% of people live in densely populated cities and where multi-generational households are the norm, spending quality time with a partner continues to be seen as a necessity as opposed to a discretionary luxury. Moreover, the fact that the Consumer Confidence Index rose for the third successive month in March will only improve consumer spending.

The leisure hotel industry

The Japanese leisure hotel industry consists of approximately 25,000 hotels with an average of 24 rooms per hotel. The industry's turnover is estimated at more than ¥4 trillion (UK£30 billion) per year, with approximately 500 million visits made each year, translating into over two million Japanese visiting one of Japan's leisure hotels each day.

In an industry with such a fundamentally robust demand and significant size, it would be natural to expect it to be well consolidated - but this is not the case with the leisure hotel industry in Japan. The fragmentation of the industry persists and, in the current environment, may even be increasing. No single operator controls more than 100 hotels and 90% of owners own five or fewer hotels.

The strategy of consolidating the industry is even more compelling now than it was when Japan Leisure Hotels listed in 2008. There is now an even greater number of leisure hotels available for sale in Japan which can be refurbished and re-branded and, through this consolidation, value can be realised. We believe that these current conditions in the leisure hotel industry are unprecedented and provide us a unique opportunity to gain a significant market share in this industry - provided we have the resources at hand.

There is a real opportunity for operators of size and those with the management infrastructure to maintain their hotels at high standards to benefit from the maturing of the industry and its expected consolidation.

Financial Results

Presented below are statements of the EBITDA² relating to the hotel operations, based on audited figures, for the year ended 31 December 2009.

	Bonita Portfolio		Yokkaichi		Total
	2009	2008	2009	2008	2009	2008
	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000
Revenue	1,099,188	1,153,491	99,305	34,066	1,198,493	1,187,557
Variable operating expenses	(570,012)	(608,013)	(60,522)	(30,125)	(630,534)	(638,138)
Fixed operating expenses	(205,820)	(228,065)	(29,538)	(23,380)	(235,358)	(251,445)
EBITDA	323,356	317,413	9,245	(19,439)	332,601	297,974

The overall performance of the hotels has been pleasingly resilient in the face of the prevailing economic conditions and considering that no significant investment has been made into any of the hotels for the last three years. Overall guest numbers were up slightly on 2008 to 190,897 (2008: 189,928), and this is reflected in the revenue figures up to JP¥1,198,493,000 from JP¥1,187,557,000. It should be noted that the main reason for the increase is the fact that the hotel in Yokkaichi purchased in August 2008 was open for business for all of 2009, and it made a positive contribution to EBITDA. For the Bonita portfolio³, the number of guests declined by 5.9% and sales by 4.7%, reflecting the significant problems in the broader economy combined with an expected softening in performance at some of the hotels versus the competition as some of our properties head towards their scheduled capital improvements.

We took the strategic decision to operate the business for the best returns possible. This has required Bonita Hotels to maintain its focus on quality and experience and sacrifice higher occupancy, in some locations, to some of our competitors where they have engaged in severe price competition.

EBITDA comprises earnings before interest, tax, depreciation and amortisation and excludes the operating expenses of the Guernsey companies. Revenue shown here differs from "revenue" shown in the Consolidated Statement of Comprehensive Income because it includes other income that is attributable to the operation of the hotels that is included in "other income" in the Consolidated Statement of Comprehensive Income.

The Bonita portfolio refers to the five hotels that are operating under the Bonita brand located at Sendai, Yamagata, Isawa, Komaki and Matsusaka

Notwithstanding this, operating expenses decreased, due largely to a fall in energy costs, but also to reductions in energy use, a shift to self laundry at more of the hotels in the last year and more efficient staff scheduling. This has resulted in an increased EBITDA in terms both of gross amount - by 1.9% - and EBITDA margin⁴ - from 27.95% to 29.42% from the previous year⁵ - and an increase in cash from operating the hotels, before tax⁶ JP¥306.4 million in 2008 to JP¥343.2 million.

The following key performance indicators illustrate the performance of the Bonita portfolio:

	2005	2006	2007	2008	2009
REVPAR	JP¥10,506	JP¥15,350	JP¥16,572	JP¥ 16,206	JP¥ 15,443
Occupancy rate	160%	239%	254%	257%	242%
EBITDA Margin	(43.5)%	25.5%	28.7%	27.5%	29.42%

Operating commentary

At the end of the period Bonita Services assumed the operations at Matsusaka, Komaki and Yokkaichi hotels from the previous operator; this change will improve the delivery of services to our guests and drive more consistency across the portfolio.

As stated above, the renovation of Yokkaichi is almost completed and it is scheduled to reopen as the sixth Bonita branded hotel towards the end of May. As part of the renovation process we have developed our own management software and integrated this with both the entertainment system to improve the guest experience and the air-conditioning and lighting system to improve energy efficiency; we expect this action to provide significant benefits in the future.

Despite the continuing tough conditions for consumers they continue to respond positively to our flexible and attractive prices, we continue to win new guests and our loyalty programme is the key means of retaining existing guests. Our loyalty schemes and mobile and online marketing initiatives remain effective. Mobile marketing has been especially successful, with a 43% increase in the number of visits to the Bonita hotels website via mobile phone. We have also seen a slight increase in the overall number of members of our loyalty scheme.

There are continuing efforts to upgrade the guest services across the Bonita chain as a whole. One of the most significant improvements of 2009 was the implementation of a group wide food and beverage offering which included the implementation of a centralised procurement system. These initiatives have shown a good return so far. The introduction of a new menu has had a particularly strong impact, with revenue per item served up between 60% and 130%, depending upon the location of the hotel. We expect further improvements and a positive impact in 2010.

As noted earlier, a number of the properties are now reaching the point where some significant expenditure will be required to maintain the competitiveness of the property. For example, our Komaki property opened almost exactly five years ago. Our plan is to provide an update to each property at the five year point.

4	EBITDA margin is EBITDA expressed as a percentage of revenue
5	Under the terms of the asset management agreements, fees paid to the asset manager with respect to the Bonita portfolio increased by 19% in 2009. Excluding asset manager fees, EBITDA margin on the Bonita portfolio increased from 34.51% to 38.19%
6	Calculated by adding tax paid as shown in the consolidated statement of cash flows and the Guernsey total profit as shown in Note 7 to the accounts to net cash from operating activities as shown in the Consolidated Statement of Cash Flows

However, for Komaki and other properties, we have chosen to delay action. There are a number of new processes we have instigated for the renovation at Yokkaichi which we will seek to utilise during future renovations at other properties. We would expect work to start in Komaki towards the end of this year or early in 2011.

The current opportunity

The combination of Japan Leisure Hotels and New Perspective is unique in this industry. Both are exclusively focussed on this industry alone and are committed to a transparent operating ethos; this sets us apart both from the many operators for whom leisure hotels are a small adjunct to a main business, and from the more specialised private chains in the industry. There are considerable economies of scale to be gained from operating a hotel group of size. Combined with the creation of an established and visible brand in an industry that lacks any brand recognition, these would provide significant competitive advantages.

The current financial crisis continues to provide a plethora of opportunities to acquire assets from financially distressed businesses; these businesses are on the whole sound but are currently facing refinancing issues in the current environment. Consolidation and the resulting economies of scale would allow a larger group to provide significantly better value to its guests and thus increase competitive pressures on the smaller operators which would ultimately allow the larger operators significantly greater pricing power.

Opportunities to acquire suitable assets to add to our portfolio continue to be available and, if anything, these opportunities are increasing. Although corporate bankruptcies have fallen from their peaks of last year, the number of owners of leisure hotels who are seeking to divest these assets has risen as lenders continue to refuse to extend loans due to their desire to strengthen their balance sheets. It remains a buyer's market.

Outlook

We have demonstrated that we can grow guest numbers, maintain revenues, manage costs and improve the profitability of, and free cash flow from, the properties in the face of considerable headwinds from the economy as a whole. Yokkaichi is on track to further establish the Bonita brand and differentiate it from the rest of the market and once again proves our ability to successfully renovate and rebrand a hotel on time and within budget. This confirms our ability to execute the strategy we have sought to pursue.

Economic conditions in Japan appear to be improving slowly and there is a growing awareness of the leisure hotel industry's size and resilience. We are increasingly hopeful that this, together with our performance to date, will persuade a greater number of investors to invest in JLH and allow us to release the value that is available in the market. There is evidence of an increased level of interest from a variety of sources of investment in the sector, which gives us encouragement as we consider ways of raising new finance.

We are confident and see the current trials and tribulations in the industry as a significant opportunity for any investor. Our vision is to develop our business into an established, mainstream part of Japanese life. This will be achieved by delivering consistently high standards of service to our guests through strong management and training for our staff. Our intention is to make the guest experience one that all our guests will seek to recapture time and again. We will continue to challenge the norm and seek new and innovative offerings for our guests and seek to challenge our suppliers to deliver the best value for money. This will result in a business which is not only transparent for investors but will provide exceptional returns.

Our challenge is to create the scale that is required to build the business into a leading player in the Japanese leisure hotel industry. Our progress to date provides us with every confidence that we can move to the next stage of our development.

JAPAN LEISURE HOTELS LIMITED

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2009

		2009	2008
			Restated
	Notes	JP¥'000	JP¥'000
Revenue	6	1,197,181	1,183,950
Total Revenue		1,197,181	1,183,950

Raw materials and consumables		(123,011)	(124,648)
Personnel costs		(279,838)	(276,242)
Depreciation and amortisation		(230,401)	(217,141)
Other expenses	7	(530,651)	(556,306)
		(1,163,901)	(1,174,337)

Operating profit before exceptional item		33,280	9,613

Negative goodwill		-	586,946

Profit on operations		33,280	596,559

Net loss on sale of tangible assets		(228)	(3,068)
Other income		11,271	-

Net foreign exchange losses		(1,102)	(36,410)
Finance income		259	11,487
Finance costs		(14)	-
Cost of warrants		-	(2,364)
Net finance costs		(857)	(27,287)

Profit before taxation		43,466	566,204

Taxation charge	8	(23,142)	(21,520)

Profit for the year		20,324	544,684

Total comprehensive income for the year		20,324	544,684

Profit attributable to:
Owners of the Company		17,805	542,442
Non-controlling interest		2,519	2,242
Total profit for the year		20,324	544,684
Total comprehensive income attributable to:
Owners of the Company		17,805	542,442
Non-controlling interest		2,519	2,242
Total comprehensive income for the year		20,324	544,684

Basic earnings per share (Yen)	9	0.40	12.83
Diluted earnings per share (Yen)	9	0.32	9.91
Adjusted earnings/(loss) per share - basic (Yen)	9	0.40	(1.05)
Adjusted earnings/(loss) per share - diluted (Yen)	9	0.32	(0.81)

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

JAPAN LEISURE HOTELS LIMITED

Consolidated Statement of Financial Position

At 31 December 2009

		2009	2008
			Restated
	Notes	JP¥'000	JP¥'000
Assets
Non-current assets
Property, plant and equipment		4,899,264	5,055,240
Intangible assets		32,883	3,872
Rental deposits		3,220	3,420
		4,935,367	5,062,532
Current assets
Inventories		21,971	18,354
Trade and other receivables		17,874	62,805
Cash and cash equivalents		413,424	263,369
		453,269	344,528

Total assets		5,388,636	5,407,060

Liabilities
Current liabilities
Trade and other payables		135,578	165,069

Non-current liabilities
Deferred tax liabilities	8	203,749	214,304
Other long-term payables		1,298	-
		205,047	214,304

Total liabilities		340,625	379,373

Total net assets		5,048,011	5,027,687

Equity
Share capital		97,121	97,121
Distributable reserve		4,365,514	4,365,514
Retained earnings		555,220	537,415
Equity attributable to shareholders of the Company		5,017,855	5,000,050

Non-controlling interest		30,156	27,637

Total equity		5,048,011	5,027,687

Net asset value per share	10	JPY 114.47	JPY 114.01

JAPAN LEISURE HOTELS LIMITED

Consolidated Statement of Changes in Equity

For the year ended 31 December 2009

For the year ended 31 December 2009

	Share capital	Share premium	Distributable reserve	Retained earnings	Total shareholders' equity	Non-controlling interest	Total

	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000

At 1 January 2009	97,121	-	4,365,514	537,415	5,000,050	27,637	5,027,687

Total comprehensive income for the period
Total comprehensive income for the period	-	-	-	17,805	17,805	2,519	20,324

At 31 December 2009	97,121	-	4,365,514	555,220	5,017,855	30,156	5,048,011

For the year ended 31 December 2008 restated

	Share capital	Share premium	Distributable reserve	Retained earnings	Total shareholders' equity	Non-controlling interest	Total

	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000	JP¥'000

At 1 January 2008	-	-	-	(5,027)	(5,027)	-	(5,027)

Issue of share capital	94,757	4,643,102	-	-	4,737,859	-	4,737,859

Share issue expenses	-	(277,588)	-	-	(277,588)	-	(277,588)
Conversion of share premium account
Conversion of share premium account	-	(4,365,514)	4,365,514	-	-	-	-

Cost of warrants	2,364	-	-	-	2,364	-	2,364
Minority interest in pre-acquisition reserves
Minority interest in pre-acquisition reserves	-	-	-	-	-	25,395	25,395
Total comprehensive income for the period
Total comprehensive income for the period	-	-	-	776,555	776,555	2,242	778,797

Restatement (note 3)	-	-	-	(234,113)	(234,113)	-	(234,113)

At 31 December 2008	97,121	-	4,365,514	537,415	5,000,050	27,637	5,027,687

JAPAN LEISURE HOTELS LIMITED

Consolidated Statement of Cash Flows

For the year ended 31 December 2009

			2009	2008
				Restated
		Notes	JP¥'000	JP¥'000
Cash flows from operating activities
Profit before taxation			43,466	566,204

Adjustments for:
	Depreciation and amortisation		230,401	217,141
	Finance income		(259)	(11,487)
	Finance costs		14	-
	Loss on disposal of assets		228	3,068
	Cost of warrants		-	2,364
	(Decrease)/increase in deferred income		(960)	6,561
	Negative goodwill		-	(586,946)
Changes in working capital			9,743	4,523
Cash inflows from operations			282,633	201,428
Interest received			259	11,546
Finance costs			(14)	-
Tax paid			(40,045)	(189)
Cost of disposal of assets			-	(100)
Net cash from operating activities			242,833	212,685

Cash flows from investing activities
Purchase of plant, property and equipment			(68,662)	(474,172)
Purchase of intangible assets			(30,310)	-
Increase in payables on property, plant and equipment			4,696	-
Decrease/(increase) in deposits on rented land			200	(200)
Cash acquired on acquisition of SPE's			-	91,730
Net cash used in investing activities			(94,076)	(382,642)

Cash flows from financing activities
Share proceeds			-	655,350
Share issue costs			-	(222,024)
Increase in other long-term payables			1,298	-
Net cash from financing activities			1,298	433,326

Net increase in cash and cash equivalents			150,055	263,369

Balance at the beginning of the year			263,369	-

Balance at the end of the year			413,424	263,369

JAPAN LEISURE HOTELS LIMITED

Notes to the Condensed Consolidated Financial Statements

For the year ended 31 December 2009

1. Basis of Accounting

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2008 or 2009 but is derived from the statutory accounts for that year.

The annual 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.

2 General Information

Japan Leisure Hotels Limited was incorporated in Guernsey on 17 October 2007 and commenced operations on 7 January 2008. The Company is a closed ended investment company registered under the provisions of The Companies (Guernsey) Law, 2008. The address of the registered office is given in the Management and Administration section at the beginning of the Annual Report. The Company has been established to derive cash flow and capital gains by investing in Japanese leisure hotels.

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

3 Group Structure

The Group comprises the Company, its wholly-owned subsidiaries and those special purpose entities ("SPEs") which invest in hotels in Japan. The funds raised in the Placing have been invested through wholly-owned subsidiary companies of the Company, which are also Guernsey registered companies: JLH 1 Limited and JLH 2 Limited (the "Subsidiaries").

The hotels and other assets are owned by SPEs all of which are Japanese corporations. The Company, through its Subsidiaries, has invested in the SPEs by entering into Tokumei Kumiai agreements ("TK Agreements"). A TK Agreement is a contractual relationship whereby one party, the "TK Investor", agrees to contribute capital to the other party, the "TK Operator" or SPE, to undertake an agreed business and receives a share of the economic benefits of investment in that business. The TK Investor's investment is referred to herein as its "TK Interest". Further information regarding the group structure is available on the Company's website www.japanleisurehotels.com.

4 Restatement of prior period figures

Tax expense and deferred taxation have been restated for the 2008 as detailed below

The taxation expense included in the 31 December 2008 Annual Report was reported as JP¥1,711,000. On completion of this Annual Report this has been changed to JP¥21,520,000. Accordingly the profit for the year ended 31 December 2008 has been decreased by JP¥19,809,000.

The reason for the restatement is that, in the past, tax liability was only recognised when profits that are subject to Japanese withholding tax were distributed by the SPEs to the holding companies. The Board has reviewed this policy and has decided that it is more prudent to recognise the tax liability when the profit occurs.

In addition the purchase of SPEs at a discount to their net asset value that gave rise to negative goodwill described in note 10 of the Annual Report has been adjusted for deferred taxation. The amount of this adjustment arises from the difference between the Japanese tax base and the carrying value of the net assets as at acquisition date. The negative goodwill included in the 31 December 2008 Annual Report was reported as JP¥801,250,000. On completion of this Annual Report this has been changed to JP¥586,946,000. Accordingly the profit for the year ended 31 December 2008 has been decreased by JP¥214,304,000.

The table below shows the effect of these restatements on the results of the Company for the year ended 31 December 2008:

	As per Annual Report 2008	Change from Annual Report 2008	As restated in this report
	As per Annual Report 2008	Change from Annual Report 2008	As restated in this report
Restated item	JP¥'000	JP¥'000	JP¥'000
Negative goodwill	801,250	(214,304)	586,946
Taxation	(1,711)	(19,809)	(21,520)

Profit for the year	778,797	(234,113)	544,684

Profit attributable to:
Equity shareholders	776,555	(234,113)	542,442

Deferred tax	-	(214,304)	(214,304)
Trade and payables	(145,260)	(19,809)	(165,069)

Net asset value	5,261,800	(234,113)	5,027,687

Net asset value per share (Yen)	JP¥119.32	(JP¥5.31)	JP¥114.01
Net asset value per share (Sterling)	£0.91	(£0.04)	£0.87

Adjusted net asset value per share (Yen)	JP¥118.65	(JP¥5.31)	JP¥113.34
Adjusted net asset value per share (Sterling)	£0.91	(£0.05)	£0.86

	JP¥	JP¥	JP¥
Basic earnings per share (Yen)	18.36	(5.53)	12.83
Diluted earnings per share (Yen)	14.19	(4.28)	9.91
Adjusted basic earnings per share (Yen)	(0.58)	(0.47)	(1.05)
Adjusted diluted earnings per share (Yen)	(0.45)	(0.36)	(0.81)

5 Operating segments

The Board of Directors is charged with setting the Company's investment strategy in accordance with the Prospectus. The Board of Directors is the Chief Operating Decision Maker. The Board has delegated the implementation of strategy to the Strategy Committee. Under its agreements with the SPEs, the Asset Manager is responsible for day to day implementation of this strategy and the management of the assets, but the Board of Directors retains responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions.

The investment proposals of the Asset Manager are reviewed by the Strategy Committee from time to time to ensure compliance with the policies and legal responsibilities of the Board of Directors. The Board retains full responsibility as to the major funding decisions of the Company.

The Asset Manager and the Strategy Committee will always act under the terms of the Prospectus which cannot be materially changed without the approval of the Board of Directors. The detailed investment restrictions are available for review in part I of the Admission Document and the Investment Strategy.

The Group's primary reporting segments are geographical with the Group operating in two geographical areas, being Japan and Guernsey. The Group has only one business segment, being investment in leisure hotels, therefore no additional segmented information is given. The Group has no major single customer.

6 Revenue


	31 December 2009	31 December 2008
	JP¥'000	JP¥'000
Revenue - room rental	1,086,620	1,074,611
Revenue - goods, food and beverage	110,561	109,339
	1,197,181	1,183,950

7 Other expenses

	31 December 2009	31 December 2008
	JP¥'000	JP¥'000
Hotel operating expenses	325,561	289,699
Operating lease expense	5,479	5,673
Asset Manager's fees	105,648	86,925
Professional services	39,349	55,732
Auditors' remuneration	13,431	11,616
Administrator's fees	13,729	15,587
Directors' fees	13,821	16,931
Other expenses	13,633	74,143
	530,651	556,306

8 Taxation

Taxation on profit on ordinary activities

Guernsey

The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as amended, and is charged an annual exemption fee of £600 (JP¥ 88,128).

Japan

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

		31 December 2009		31 December 2008
	Gross	Tax effect at 20%	Gross	Tax effect at 20%
	JP¥'000	JP¥'000	JP¥'000	JP¥'000
Profit before taxation	43,466	8,693	566,204	113,241
Income not subject to tax	(3,706)	(741)	(484,696)	(96,939)
Other items deductible for tax	-	-	(79,455)	(15,891)
Expenses not deductible for tax	61,222	12,244	112,592	22,518
Taxable income before tax losses	100,982	20,196	114,645	22,929
Tax losses brought forward	-	-	(7,890)	(1,578)
Tax losses not utilised	9,807	1,961	-	-
Net taxable income	110,789	22,158	106,755	21,351
Minimum charge on SPEs with nil taxable income
Minimum charge on SPEs with nil taxable income		984		169
Tax charge		23,142		21,520

The following are the major deferred tax liabilities recognised by the Group and movements thereon:


	31 December 2009	31 December 2008
	JP¥'000	JP¥'000
At the beginning of the year	(214,304)	-
Movements:
Revaluation of property, plant and equipment	-	(214,304)
Accelerated tax depreciation	10,555	-
Total movements for the year	10,555	(214,304)
Balance at the end of the year	(203,749)	(214,304)

9 Earnings per share

Number of ordinary shares	31 December 2009	31 December 2008
Number of ordinary shares for basic and diluted earnings per share:
Weighted average number of shares in issue during the year	44,100,002	42,292,623
Dilutive potential shares	12,420,500	12,420,500
	56,520,502	54,713,123

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.

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, 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.

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, also taking into account the effect of the potential shares which would arise in the event of the warrants being exercised.


10	Net asset value per share	31 December 2009	31 December 2008
		JP¥'000	JP¥'000
	Net asset value per Consolidated Statement of Financial Position	5,048,011	5,027,687
	Difference between the value per the independent valuation and the book value of plant, property and equipment as shown in the Consolidated Statement of Financial Position
		(267,264)	(29,240)
	Adjusted net asset value	4,780,747	4,998,447

	Net asset value per share (Yen)	JP¥114.47	JP¥114.01
	Net asset value per share (Sterling)	£0.78	£0.87

	Adjusted net asset value per share (Yen)	JP¥108.41	JP¥113.34
	Adjusted net asset value per share (Sterling)	£0.74	£0.86

Exchange rates applied for the Japanese Yen to Sterling as per 31 December 2009 146.92:1 (2008: 131.12:1)

Net asset value per share is based on total assets per the Consolidated Statement of Financial Position at the end of the year and the number of shares in issue at the end of the year.

Adjusted net asset value per share is based on the net asset value per Consolidated Statement of Financial Position adjusted for the revaluation of property and equipment, as per the Colliers International (Hong Kong) Ltd valuation detailed in note 13, and the number of shares in issue at the end of the year.

11 Related parties and material contracts

Mark Huntley, Director of the Company until his resignation on 2 October 2009, is also a director of Heritage International Fund Managers Limited, which was the Company's administrator until 31 January 2010. During the year Mr. Huntley earned JP¥1,686,000 (2008: JP¥2,617,000) by way of a Director's fee, none of which was outstanding at the year end. Heritage International Fund Managers Limited earned JP¥13,729,000 (2008: JP¥13,190,000 ) in administration fees of which JP¥3,203,000 (2008:JP¥2,454,000 ) was outstanding at the year end.

New Perspective, the Group's Asset Manager, earned JP¥105,758,000 (2008: JP¥86,925,000) by way of asset management fees and JP¥14,812,704 (2008:JP¥11,379,343) for accounting and other services during 2009. Of these fees JP¥1,579,000 (2008: JP¥6,947,000) was outstanding at the year end.

On 9 July 2009, the New Perspective Employee Trust purchased 10,000 ordinary shares in the Company.

12 Events after the reporting period

Subsequent to the end of the fiscal year covered by these accounts, the Group continued development of a software system for the purpose of managing the hotel in Yokkaichi and entered into contracts for the renovation of the same hotel. In this connection, it entered into contracts for a total of approximately JP¥ 300 million since the year end, in addition to the contract for development of the necessary software executed in 2009 and continued in 2010 of which approximately JP¥ 25 million is expected to fall due in 2010.

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

Copies of the 2009 accounts will be posted to shareholders in due course. Copies of this announcement are available from the Company at Bond Street House, 14 Clifford Street, London W1S 4JU.

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SSAEDLFSSEDI

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