Final Results

29 June 2012

The Hotel Corporation plc

Final results for the year ended 31 December 2011

The Hotel Corporation PLC (the Company) an AIM listed investment company owning 49.9%[1]  of Puma Hotels plc (PHP) announces its final results for the year to 31 December 2011, which are also available for download from the Company's website: www.thehotelcorporation.co.im and are being posted to shareholders.

[1] On 29 June 2009, when the PHP 20 million convertible preference share equity raise was completed, HCP subscribed to 11,770,000 convertible preference shares. Therefore, if in the future all the convertible preference shares are converted into ordinary shares, HCP will, on a fully converted basis, own 53.28% of PHP.

Press enquiries

The Hotel Corporation 01624 626586

Barclay Douglas

Buchanan

Richard Oldworth 020 7466 5000

Shore Capital and Corporate Ltd 020 7408 4090

Dru Danford

Notes to Editors

1. Puma Hotels plc ("Puma Hotels") acquired 13 Paramount branded hotels in July 2004. Following further acquisitions it now owns 20 four-star hotels across Scotland, Northern England, Central England, Southern England and Wales. See the table below for a full list of hotels.

1. The hotels offer extensive banqueting, conference and leisure facilities and many of them have architectural and historical significance. The Group has 2,875 bedrooms and around 20,000 square metres of conference and meeting space and offers extensive facilities to both corporate and leisure guests.

2. Since 25 April 2012, Puma Hotels has taken over the direct management of the 20 hotels. The Puma Hotels Collection website can be found at http://www.pumahotels.co.uk/

3. Puma Hotels' locations are shown below:

The financial information set out in the announcement does not constitute the Company's and its subsidiaries (together "the Group's") statutory financial statements for the year ended 31 December 2011, but is derived from those financial statements. The auditors have reported on those financial statements. Their report was unqualified, but did draw attention to matters by way of emphasis relating to significant uncertainty in relation to the Going Concern of its subsidiary company and the carrying value of the investments in the company financial statements, and did not contain statements under s15(4) or (6) of Companies Act 1982 of the Isle of Man.

Chairman's Statement

I write to report on the results of The Hotel Corporation plc ("the Company") and its subsidiary Puma Hotels plc ("PHP" or "Puma"), together "the Group".

The Company's principal asset comprises its interest in PHP and this statement therefore addresses the results of both the Company and PHP.

For consistency with previous periods, the consolidated and Company balance sheet of PHP, as at 31 December 2011, the consolidated profit and loss account, the consolidated statement of total recognised gains and losses and consolidated cash flow statement of PHP for the Year ended 31 December 2011 are also provided as an appendix to this report. I recommend they be read in conjunction with the results that follow.

The results are clearly overshadowed by the announcement by PHP in April 2012 of the early termination of the leases with Barcelo and that PHP was taking back operational control of its hotels on 25th April 2012. The impact of this has been substantial and is reflected within the most recent independent valuation of the PHP hotel portfolio.

Results of the Company

Revenue for the year was £2.8m (2010: £2.8m). Actual income received has halved during the year following the decision by PHP in December 2011 to defer shareholder bond interest and preference share dividend payments until further notice. A provision of £1.4m has therefore been made within administrative expenses. After deducting administrative expenses and interest, profit amounted to £1.2m (2010: £2.6m) however the charge for impairment of investments amounted to £63.3m (2010: nil) resulting in a loss before tax of £62.1m (2010: £2.6m profit). No tax is payable for the year due to the zero income taxation provisions in the Isle of Man. Basic loss per share was 124.7p (2010: earnings per share 5.2p).

The Company's net asset value per share ("NAV"), as at 31 December 2011 is 2.0p (2010: 131.0p) and the Company has written down the value of its investment in PHP to nil. This is based upon the negative Puma NAV per share and projected cash flows in the medium term. The valuation of the hotel assets previously subject to the Barcelo lease was carried out by Christie & Co. Chartered Surveyors, as at March 2012, which valued the hotel portfolio at £211.5m(2010: £455.5m). The negotiations with Barcelo commenced in November 2011 and resulted in the termination of the leases in April 2012, the external valuation of the properties reflects this lease termination. This valuation excludes a further £2.0m (2010: £2.8m) of land and other assets at PHP Directors valuation. This reduction is against the backdrop of a general decline in the hotel operating environment.

Consolidated Results of the Group

The Company has a holding of £11.8m (2010: £11.8m) convertible preference shares in PHP. If all the convertible preference shares held by the Company are converted into ordinary shares in the future the Company will own 53.28% of PHP, on a fully converted basis. While we have no present intention of exercising our conversion rights, International Financial Reporting Standards ("IFRS") rules require consolidation of the PHP results.

The Group revenue for the year, including bank interest, was £31.4m (2010: £30.3m) and, after deducting administrative expenses and interest but before the decrease in the fair value of the investment property and fair value of the interest rate swaps, the profit before tax amounted to £3.3m (2010: £4.0m). After the decrease in the fair value of the investment property, impairment in goodwill and the movement in interest rate swaps the total loss before tax was £268.0m (2010: £10.6m). A deferred tax liability reversal of £28.9m (2010: £4.8m) reduces the loss after tax to £239.1m (2010: £5.8m). Basic loss per share was 237.0p (2010: (3.2p)) and diluted loss per share was 252.6p (2010: anti-dilutive).

As required by IFRS, the consolidated statement of financial position of the Group takes account of impairments to goodwill, the fair value of interest rate swaps and deferred tax adjustments on consolidation. The resulting consolidated NAV per share for 2011 is (138.4p) (2010: net asset per share 131.7p).

Dividend

The Directors do not recommend a final dividend for 2011 (2010: 2.6p).

Annual General Meeting

The Annual General Meeting will be held on 3rd August 2012.

Prospects

The upheaval created by the dispute and subsequent handover from Barcelo has presented a tough challenge for the Puma management team to re-establish itself against a backdrop of severe trading conditions in the UK regional hotel sector. Note 3 provides further detail in relation to the uncertainties that exist in relation to Puma's ability to continue as a going concern. Nevertheless the Puma business plan has secured the support of its bank and borrowings have been reduced by the lease termination receipt of £20.25m, which will reduce cash outflows on interest payments. We look towards progress being made by the Puma management team in restoring the trading performance of the business overall and re-create shareholder value.

Barclay Douglas

Chairman

29 June 2012

Review of Operations and Financial Performance

The operations of the Group are concentrated within Puma Hotels plc ("PHP") hence a review of operations and financial performance for PHP under UK Generally Accepted Accounting Standards ("UK GAAP") has been provided.

Introduction

During 2011 and until 25 April 2012, the hotels owned by Puma Hotels plc ("Puma Hotels" or "the Group") continued to be managed by Barceló Hotels and Resorts ("Barceló") under the lease arrangements put in place in September 2007 when the Group transferred its trade to Barceló. As detailed below, these lease arrangements were terminated on 25 April 2012 and from this time, the hotels have been directly managed by the Group. This statement reviews the activities of the Group during 2011 and also comments on the termination of the lease arrangements.

Financial Performance

Turnover for the twelve months ended 31 December 2011 of £31.4m represents rent received from Barceló (2010: £30.3m). The gross profit, after deduction of other administrative expenses, of £28.0m (2010: £26.7m) is ahead of the prior year reflecting the increased level of rent and lower administrative expenses.

After deducting bank interest payable of £22.1m (2010:£20.1m) on the Group's senior debt facility, the Group showed a net profit of £5.9m (2010:£6.6m) before shareholder finance costs and exceptional items. The increased interest payable in 2011 is due to the step up of the SWAP on £182.3m from 3.33% during 2010 to 3.945% during 2011.

Shareholder finance costs comprise £4m in relation to bondholders of the Group's bonds and £1.4m relating to interest on the convertible preference shares. It should be noted that of the £5.4m of shareholder finance costs deducted as an expense in the 2011 profit and loss account, only the £2.7m which was due on 30 June 2011 was paid. Initially this was due to the reduction in rent paid by Barceló in December 2011. The subsequent termination of the lease arrangements in April 2012, results in the Group receiving significantly lower income from the operation of the hotels (compared to the rent paid by Barceló) and therefore the shareholder payments which would normally be paid on 30 June and 31 December of each year have been deferred until further notice.

As detailed in the Property Revaluation section below, the revised valuation of the properties reflects the lower income following the termination of the leases to Barceló post the year end and the current market conditions in which the Group's hotels operate. The exceptional but non-cash charge of £174.9m is a result of the downward revaluation of properties of £168m (2010:£0.4m) and the write-down of goodwill of £6.9m. After deducting these items, the loss on ordinary activities for the year was £174.7m (2010: profit of £0.5m).

Property Revaluation

The tangible asset values on the consolidated balance sheet of the Group reflect the Group's direct exposure to the UK provincial hotel sector following the termination of the lease arrangements with Barceló. Trading in this sector remains very challenging, thereby leading to significantly lower cashflows from operations versus the previous rent level paid by Barceló. The Group's assets comprise a significant portfolio of hotels some of which occupy large areas of land and many of which are well located in their regional centres. Also, and as discussed in the Planning Update section, many benefit from substantial planning consents.

Therefore, in time and given appropriate management and investment many of the hotels, the Directors believe are capable of profit and value enhancement as the regional economy improves.

For the purpose of preparing its 31 December 2011 financial statements, the Group has used the external professional valuation completed by Christie + Co. This valuation of each hotel in the portfolio is £213.5 million (2011: £458.35) including £2.0m, at Directors' valuation, of ancillary land not utilised as part of the hotel operations.

Termination of leases with Barceló

As previously announced in November 2011, the Group received a letter from lawyers acting for Barceló proposing revised rental and other terms for the hotels. The letter stated that unless a revision to the leases was agreed between the parties, Barceló intended to withdraw financial support from its UK hotels business. Commencing in November 2011, discussions were held with Barceló in an effort to restructure these lease arrangements. Whilst it was not possible to agree a mutually acceptable basis for the leases to continue, the Group was able to successfully negotiate a transfer agreement which, provided for the termination of the leases on 25 April 2012 and the payment to Puma Hotels of a net sum of £20.25m (excluding VAT) in respect of the early termination of the Leases.

The agreement also provided for the orderly handover of the operations of the hotels from Barceló to Puma Hotels. Prior to the grant of the leases in 2007, the Group itself operated the hotels through the head office infrastructure and team which it established in Hinckley. This head office team and all hotel employees were transferred back to the Group upon completion of the agreement. From the date of signing the agreement and the completion date of 25 April, the Puma Hotels' team was on-site, at the head office and at the hotels, to affect an orderly transition. The existing hotels team has been augmented through a number of appointments including Paul Nisbett as Commercial and Finance Director. Paul brings significant experience in the regional UK hotel sector where he has held senior roles such as COO of Principal Hayley and Commercial and Finance Director at Malmaison. In addition, Puma Hotels appointed Chardon Management Ltd ("Chardon"), a leading UK independent hotel management company, to work with our management team in managing the transition of operations to Puma Hotels.

Since taking over the management of the hotels, we have implemented our operational and branding strategy which is to focus on the individual strengths of each of our hotels in their local and regional markets. We have therefore re-launched the hotels as the "Puma Hotels Collection" allowing the Group to align operating standards and to achieve sales and marketing synergies, whilst emphasising the unique nature of each property. Whilst trading conditions remain challenging, we believe that our management team is well placed to drive maximum value from the estate.

Senior debt facility arrangements with Irish Bank Resolution Corporation Limited ("IBRC")

Contemporaneous with the signing of the transfer agreement with Barceló, Puma Hotels agreed with its bankers, IBRC (formerly Anglo Irish Bank Limited), an option to extend its current debt facility until 31 December 2013, subject to meeting certain conditions.

The Group utilised the £20.25m payment from Barceló to reduce the balance of the senior debt facility. At the same time, IBRC provided a working capital facility of £7m for 2012, rising to £10.25m in 2013 if the option to extend the senior facility is exercised. The purpose of the working capital facility is to fund the Group's working capital and its capital expenditure requirements.

Planning Update

The Group continues with its strategy to add value by securing additional planning consents and seeking ways of maximising the value of these consents. The Group has the potential to add over 700 bedrooms of which 472 have already received the necessary planning or listed building consent. There are also schemes for over 3,000 sq m (of which over 70% have planning consent) of additional meeting rooms and upgrades for several leisure clubs.

The planning consents currently held are:

Strategy and Prospects

The regional UK hotel sector continues to be impacted by the severe conditions prevailing in the UK and global economies and this challenging trading environment is expected to continue in the near term. The Puma Board of Directors are however very encouraged by their management team's performance in taking over and stabilising the management of the hotels in a very short period. The team has effectively mitigated the challenges that arise in taking over a business of this scale and the Board and management are looking forward to focusing their efforts on enhancing the service provided to the guests and thereby realise the Group's trading potential in this tough economic environment. Strategically, the Board's priority is its firm commitment to the task of seeking to re-create shareholder value.

Consolidated Statement of Comprehensive Income

The financial statements were approved by the Board of Directors and authorised for issue on 29 June 2012.

They were signed on its behalf by;

………………. ……………….

Barclay Douglas David Craine

Consolidated Statement of Changes in Equity

Consolidated Statement of Cash Flows

Company Statement of Comprehensive Income

Company Statement of Financial Position

The financial statements were approved by the Board of Directors and authorised for issue on 29 June 2012.

They were signed on its behalf by;

………………. ……………….

Barclay Douglas David Craine

Company Statement of Changes in Equity

Company Statement of Cash Flows

Notes to the Consolidated and Company Financial Statements

1. General Information

The Hotel Corporation plc is incorporated in the Isle of Man under the Companies Acts 1931 to 2004. The address of the registered office is given on page 8. The nature of the Group's operations and its principal activities are set out in the Directors' Report on pages 9 to 11 and the Chairman's Statement on pages 3 to 4.

These consolidated Group and Company financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Company operates and rounded to the nearest thousand pounds. 

3. Significant accounting policies

Basis of accounting

The Consolidated and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have been prepared on the historical cost basis, except for the revaluation of certain investment property, financial instruments and the investment within the Company only financial statements. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of The Hotel Corporation plc ("the Company") and its subsidiary Puma Hotels plc ("PHP"), which would be controlled by the Company should the Company exercise the conversion rights relating to its holding of preference shares in PHP. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. The Group's Financial Statements are drawn up to include the results of the Company and the results of PHP for the year. The comparatives include the results of the Company and the results of PHP for the previous year.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination (see note 5) and the minority's share of changes in equity since the date of the combination. Total comprehensive income (positive or negative) will be allocated between the Group's interest and non-controlling interest even if this results in the non controlling interest having a deficit balance.

Going concern

The Company has adequate financial resources. In considering the ability of the Company to continue as a Going Concern the directors have considered the Company cashflow forecasts. These cashflow forecasts indicate that the Company has sufficient resources to meet its ongoing operating expenses into the foreseeable future. It also has resources to invest in other opportunities if they were to arise and if investment was considered appropriate by the Directors and therefore the Directors are of the view that the Company still has a trade even though there is uncertainty associated with the going concern of its subsidiary company, Puma Hotels Plc ("PHP"). As a consequence, the Directors believe that the Company is well placed to manage its business risks satisfactorily.

The Board has also undertaken a recent and thorough review of the PHP's forecasts and associated risks and sensitivities. The extent of this review reflects the uncertain economic outlook for the UK economy, the specific risks associated with the hotel sector and the fact that PHP is in a net liabilities position. Although PHP is in a net liability and current net liability position, PHP's operations are profitable and operational profits are forecast to increase over the medium term, thereby enhancing the current level of positive cash flows. However in order for PHP to fully meet its debt service obligations in relation to its senior facility, a revolving credit facility was made available by the senior lender in April 2012 when an amended facility agreement was signed by PHP post the termination of the lease agreement and the transfer of the operations of the hotels to PHP. In prior years when PHP's activities related to the holding of investment property, PHP was able to meet all of its obligations, including any payments to the bank under the facility agreement, from the rent received from its tenant. Although the termination of the lease arrangements in April 2012 has resulted in a lower level of net income to PHP, PHP's operations as a direct hotel operator are forecast to remain profitable and cashflow positive before deducting interest payable on its debt facilities.

Based on the current terms of the senior facility, in order for this facility and the revolving credit facility to continue to be made available credit from the date of signing these financial statements to 31 December 2012, and then beyond that date to 31 December 2013, PHP are required to meet certain conditions in relation to the senior and revolving credit facilities some of which relate to unpredictable market activity. The Puma Directors believe they can either meet these conditions, or can successfully renegotiate terms with the senior lender for PHP or another lender.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about PHP's ability to continue as a going concern and therefore PHP may be unable to realise assets and / or discharge liabilities in the normal course of business. These financial statements do not include any adjustments that would result if the PHP was unable to continue as a going concern.

After making such enquires as necessary, and considering the uncertainties described above, the Directors have a reasonable expectation that the PHP have adequate resources to continue in operational existence for the foreseeable future. Also because PHP has limited recourse to the Company which is solvent and able to continue trading even in the absence of any income generated from its investment in PHP, the Directors have concluded that the Company is a going concern. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are recognised in profit or loss as incurred. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. The interest of minority shareholders in the acquiree is measured at the minority's proportionate share of the net identifiable assets of the entity acquired.

Notes to the Consolidated and Company Financial Statements (continued)

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the group's interest in the fair value of the identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment at least annually. Any impairment is recognised immediately in the statement of comprehensive income and is not subsequently reversed. For the purpose of impairment testing, goodwill is allocated to each of the Group's cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit.

On disposal of a subsidiary, associate or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Revenue recognition

Revenue, which excludes value added tax, transactions between Group Companies, and trade discounts, represents the invoiced value of goods and services supplied.

Rental income is recognised when it becomes available.

Dividend and interest income

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably).

Interest income is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. During the year the Group and Company did not have any finance leases.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the comprehensive statement of income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the statement of financial position date.

Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax laws and rates that have been enacted at the balance sheet date. Deferred tax is charged or credited in the statement of comprehensive income. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Investment property

Investment property, which is property held to earn rentals and/or for capital appreciation (including property under construction for such purposes), is stated at its fair value at the balance sheet date. Gains or losses arising from changes in the fair value of investment property are included in profit or loss for the period in which they arise.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

Financial Assets

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL), 'held-to-maturity' investments and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL.

Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVTPL.

A financial asset is classified as held for trading if:

·; it has been acquired principally for the purpose of selling in the near term; or

·; on initial recognition it is part of a portfolio of identified financial instruments that the group manages together and has a recent actual pattern of short-term profit-taking; or

·; it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial recognition if:

·; such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

·; the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's document risk management or investment strategy, and information about the grouping is provided internally on that basis; or

·; it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the 'other gains and losses' line item in the income statement. Fair value is determined in the manner described in note 4 and note 14.

Held-to-maturity investments

Bills of exchange and debentures with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment, with revenue recognised on an effective yield basis.

Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each statement of financial position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For all other financial assets, objective evidence of impairment could include:

·; significant financial difficulty of the issuer or counterparty; or

·; default or delinquency in interest or principal payments; or

·; it becoming probable that the borrower will enter bankruptcy or financial re-

organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group's past experience of collecting payments, an increase in the number of delayed payments in the portfolio, as well as observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the financial asset's original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

Financial liabilities and equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Compound instruments

The compound parts of compound instruments (convertible preference shares) issued by the Group are classified separately as financial liabilities. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortised cost basis using the effective interest method until extinguished upon conversion or at the instrument's maturity date.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate movements. Further details of derivative financial instruments are disclosed in note 25.

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each statement of financial position date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated as effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as hedges of highly probable forecast transactions (cash flow hedges).

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 3, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Critical judgements in applying the Group's accounting policies

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), that the directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements.

Group : Investment property value

The directors have used independent valuations as a basis to measure the fair value of the investment property, see note 13. In making this judgement, management have considered the basis of the valuations, and the assumptions used therein. The directors are satisfied that these are appropriate in the current year.

Notes to the Consolidated and Company Financial Statements (continued)

4. Critical accounting judgements and key sources of estimation uncertainty (continued)

Group : Deferred tax asset

As described in note 3, deferred tax assets are recorded to the extent that sufficient taxable profits are available for the asset to be recovered. In making its judgment, management has considered the future strategy of the group, in particular the nature and timing of any property disposal. The directors are satisfied that there is insufficient certainty in the current year in relation to the valuation of the investment property to recognise any deferred tax asset.

Group : Non Controling interest

The Company has a holding of £11.8m convertible preference shares in PHP. If all the convertible preference shares held by the company are converted into ordinary shares in the future the Company will own 53.28% of PHP, on a fully converted basis. In accordance with IAS 32 the convertible preference shares are classed under the definition of a debt instrument. The results of PHP have also been consolidated.

Key sources of estimation uncertainties

Company : Fair value of investment

In line with accounting polices set out in note 3, note 14 sets out in detail the method by which fair value is attributed to the Company's investment in ordinary shares in PHP and the uncertainties associated with this in the current year which has led to a valuation of £nil (2010: £63,328,000) . The fair value requires an estimation of the present value of the future cash flow arising from the investment in PHP. In determining future cash flows, the Company has analysed current income and asset values and has also applied various sensitivities to these. In relation to potential future realisation proceeds, the Company has taken account of current and expected conditions in the hotel investment and valuation market and has applied discount rates which reflect the market's return expectations.

In particular, the Company has taken into account the recent changes of PHP's position and its future uncertainty, detailed in note 23. In estimating market expectations, the Company has considered any comparable transactions and has also taken account of key measures such as the interest rate swaps market and returns on government bonds.

Group : Impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value of the cash-generating unit to which goodwill has been allocated. Following review of the PHP consolidated accounts to 31 December 2011, it is noted that PHP have impaired the value of the hotel properties, resulting in net liabilities of £176.6m. Considering the position of PHP, an impairment review was performed during the year by the directors and full impairment has been made on the carrying amount of goodwill at the balance sheet date.

In 2010 the carrying amount of goodwill at the balance sheet date was £28,382,000 with no impairment losses recognised between date of the acquisition and the 2010 year end.

Notes to the Consolidated and Company Financial Statements (continued)

5. Goodwill

On 29 June 2009 the Company purchased 11,770,000 convertible preference shares of Puma Hotels plc (PHP). The Company already held 16,550,000 ordinary shares of PHP. If this holding were to be converted into PHP ordinary shares the Company's combined investment would be 53.28%. The total fair value of net assets acquired upon acquisition of the subsidiary, PHP totalled £17.4m. The goodwill arising on acquisition totalled £28.4m, which was allocated to the single cash generating unit, which was the Barcelo operating lease.

The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired.

The Directors have performed an impairment review in accordance with the procedures set out in note 4. Following review of the PHP consolidated accounts to 31 December 2011, it is noted that PHP have impaired the value of the hotel properties, resulting in net liabilities of £176.6m. Subsequently, the fair value of the existing interest in the investment in PHP has been re-measured to £nil. The re-measurement to fair value has resulted in a goodwill write down of £28.4m, which has been recognised in the statement of comprehensive income.

6. Revenue

An analysis of the Group's and Company's revenue is as follows:

Operating lease arrangements

Group as a lessor

Prior to 15 December 2011, the Group had a 45 year lease (from September 2007) which placed full repairing and insuring obligations on the tenant and provided guaranteed rental income over the first four years (from September 2007 to September 2011); this was inflation-indexed thereafter and could also increase if hotel EBITDA (as defined in the agreement with the tenant) performed well.

Notes to the Consolidated and Company Financial Statements (continued)

6. Revenue (continued)

On 15 December 2011 a standstill agreement was signed between PHP and Barcelo Corporacion Empresarial S.A ("BCE"), which relates to the leases of the hotels owned by PHP , which are held by the BCE Entities. On 25 April 2012 PHP completed the business transfer agreement effecting the early termination of leases with BCE and various UK subsidiary undertakings of BCE. See note 23 for further details on events after the balance sheet date.

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

Company

In light of the reduced future rent, as described above, PHP announced on the 16th December 2011 and confirmed on the 2nd April 2012 that the payments due on the Bonds and Cumulative Preference Shares will be deferred until further notice. See note 23 for further details on events after the balance sheet date.

7. Business and geographical segments

During the year the Group's turnover, loss before taxation and net liabilities are derived from its principal activity, the rental under an operating lease with Barcelo of its portfolio of hotels within the UK. The Board regularly receive information regarding the sole operating segment and therefore consider the results and performance disclosed in the financial statements is appropriate disclosure to comply with IFRS 8.

Notes to the Consolidated and Company Financial Statements (continued)

8. Loss after tax for the year

Loss for the year has been arrived at after charging: