Interim Management Statement

For Immediate Release 2 August 2011

MILLENNIUM & COPTHORNE HOTELS PLC

INTERIM MANAGEMENT REPORT

Second quarter and half year results to 30 June 2011

Highlights for the second quarter 2011:

·; Overall RevPAR (in constant currency terms) rose by 6.3%, primarily driven by an increase in average room rate.

·; Good RevPAR growth in the gateway cities: London 16.0%, Singapore 12.5% and New York 8.3%.

·; On a like-for-like basis (excluding the 3 Christchurch hotels, Copthorne Orchid, Orchard Hotel, Millennium Seoul Hilton and Studio M; and including Grand Millennium Beijing) Group RevPAR increased by 7.5% and Singapore by 7.7% (excluding Copthorne Orchid, Studio M and Orchard Hotel).

·; Profit before tax increased by 91.8% in the second quarter to £60.6m (2010: £31.6m), including a gain of £17.4m from the sale and leaseback of Studio M to CDL Hospitality Trusts REIT.

Highlights for the first half 2011:

·; Profit before tax increased by 60.0% to £80.3m (2010: £50.2m). Headline pre-tax profit in reported currency up 9.1%.

·; Overall RevPAR (in constant currency terms) rose by 5.5%, primarily driven by an increase in average room rate.

·; RevPAR in the gateway cities increased: London 13.1%, Singapore 9.6% and New York 6.6%.

·; On a like-for-like basis (excluding the 3 Christchurch hotels, Copthorne Orchid, Orchard Hotel, Millennium Seoul Hilton and Studio M; and including Grand Millennium Beijing) Group RevPAR increased by 7.5% and Singapore by 12.3% (excluding Copthorne Orchid, Studio M and Orchard Hotel).

·; Net debt reduced to £81.9m (31 December 2010: £165.7m) and gearing of 4.1% (31 December 2010: 8.5%).

·; Refurbishment work at the Millennium Seoul Hilton almost complete.

·; Half yearly performance impeded by temporary impact of asset management activity: mainly declining revenues from Copthorne Orchid (site of Glyndebourne development) in run-up to closure on 1 April, Glyndebourne sales and marketing costs and temporary room closures at Millennium Seoul Hilton and the Orchard Hotel.

·; Additional impact on performance from closure of three hotels in New Zealand and consolidation of Grand Millennium Beijing.

·; The interim dividend of 2.08p is maintained.

Commenting today Mr Kwek Leng Beng, Chairman said:

"Our good trading performance in 2011 continued to improve in the second quarter with a 6.3% constant currency increase in RevPAR and 7.5% like for like. For the first half RevPAR grew 5.5% and 7.5% like for like.

Our asset management initiatives are proceeding as planned. Completion of the sale and leaseback of Studio M to our REIT associate, CDL Hospitality Trusts (CDLHT), further demonstrates our ability to unlock value, whilst continuing to reap benefit through our part ownership of CDLHT and through revenues and management fees from the hotel. 

We further strengthened our financial position in the first half of the year and continue to seek out and analyse investment opportunities that will add value for shareholders. Our acquisition last month of a hotel construction site in Tokyo's prestigious Ginza district illustrates our capacity to act quickly when we identify attractive strategic opportunities.

Trading in the current period to date is encouraging and in line with management expectations."

Enquiries

Millennium & Copthorne Hotels plc

Wong Hong Ren, Chief Executive Officer Tel: +44 (0) 20 7872 2444

Adrian Bushnell, Company Secretary

Beng Lan Low, Senior Vice President Finance

Peter Krijgsman, Financial Communications (Media)

CHAIRMAN'S STATEMENT

The good trading performance of the first quarter continued in the second quarter. Across the global estate, for the first half, RevPAR grew by 5.5% (in constant currency), led by advances in our key gateway cities of London (13.1%), Singapore (9.6%) and New York (6.6%). On a like for like basis (excluding the 3 Christchurch hotels, Copthorne Orchid, Orchard Hotel, Millennium Seoul Hilton and Studio M; and including Grand Millennium Beijing) Group RevPAR increased by 7.5%. Similarly, on a like-for-like basis, RevPAR for Singapore increased by 12.3% (excluding Copthorne Orchid, Studio M and Orchard Hotel).

Performance was not uniform across the Group, reflecting difficult trading conditions in many parts of the world. Away from the major gateway cities, RevPAR performance declined in Regional UK - mainly as a result of growth in the supply of competitors' hotel rooms - and in Australasia, which continues to suffer from the effects of the Christchurch earthquake. The US market was affected by extreme weather conditions in the early part of the year, while the Japanese earthquake and tsunami impacted a number of Asian and New Zealand destinations during the first half, including Taipei and Seoul. Our Asian regional performance was also affected by some of the Group's asset management initiatives. In this context, the good overall performance by the Group illustrates the strength of our diversified global portfolio of hotel assets and our ability to deliver consistent profits.

In July, we announced further diversification of the portfolio with the acquisition of a development site in the Ginza district of Tokyo, Japan. The acquisition of the site was opportunistic and made at an acceptable price against competitive bids. It will enable us to fill an important gap in the Group's asset portfolio and thus represents the achievement of a significant strategic goal that should begin to generate positive returns to shareholders over the medium term. Tokyo, where we have been seeking a hotel presence since the mid-1990's, will become another global gateway city for the Group. Construction of the approximately 325-room hotel is expected to complete by 2014. 

Financial Performance

The Group delivered a strong financial performance for the six months ended 30 June 2011. Profit before tax increased by 60.0% to £80.3m (2010: £50.2m), including a gain of £17.4m from the sale and leaseback of Studio M to CDL Hospitality Trust REIT. Headline profit before tax - the Group's measure of underlying profit performance, which excludes one-off items - increased by 9.1% to £59.8m (2010: £54.8m). Headline operating profit increased by 12.6% to £67.8m (2010: £60.2m). Basic earnings per share increased by 65.0% to 19.8p (2010: 12.0p).

In constant currency terms, headline operating profit rose by 9.0%, headline profit before tax by 5.1% and profit before tax rose by 53.9%. A number of factors impacted half yearly and quarterly comparisons, some of which arose from the Group's various asset management initiatives. As a result of refurbishment at both the Millennium Seoul Hilton and The Orchard Hotel, 37,089 and 7,829 room nights were taken out respectively. Associated noise disturbance led to further declines in occupancy which resulted in an overall reduction of half yearly profits of £2.8m at the Millennium Seoul Hilton and £0.1m at The Orchard Hotel. Sales and marketing efforts related to the Glyndebourne development increased expenses by £1.8m for the half year. Revenues from the Copthorne Orchid declined in the run-up to its closure on 1 April 2011.

Aside from asset management effects, consolidation of Grand Millennium Beijing impacted profitability through making a loss after £2.1m of interest charges. The Group exercised the option to increase its equity holding from 30% to 70% in Grand Millennium Beijing in November 2010 based on the price of the original 30% stake, which was an attractive price as property prices in Beijing have since appreciated. We were also affected by the continuing closure of three hotels in New Zealand as a result of the February earthquake in Christchurch where one leased hotel is expected to be demolished, another is closed until end 2012 and the third is unable to take bookings until May 2012.

Financial Position

The Group strengthened its financial position over the six month period. Net debt fell to £81.9m at 30 June 2011 (31 December 2010 - £165.7m). Gearing at the end of the first half was 4.1%, compared to 8.5% at the end of last year and 9.8% at 30 June 2010. At 30 June 2011 the Group had cash reserves of £335.6m and total undrawn committed bank facilities of £79.5m available. Most of the facilities are unsecured with unencumbered assets representing 88.2% of our fixed assets and investment properties.

Dividend

In accordance with the Group's dividend practice at half-year, the Board has declared an interim dividend of 2.08p unchanged from 2010. The Board will consider the level of final dividend for 2011 in the light of the full-year results.

Asset Management

On 8 July 2011 the Group announced its acquisition of a land site in Tokyo, Japan and upon completion to develop the land through construction of an approximately 325-room deluxe hotel serving domestic and international guests in both the leisure and corporate segments. Construction of the new building is presently envisaged to be completed by 2014. The purchase price for the property is ¥9.5 billion (£73.6 million) and the Group has paid a 10% deposit of the purchase price, the remainder of which will be paid in cash on completion. Completion is expected to take place on 30 September 2011, subject to fulfilment of certain conditions precedent. The Group's current preliminary estimate of the total investment for the proposed acquisition and development of the property is ¥14.56 billion (approximately £113 million).

Refurbishment is largely completed at the Millennium Seoul Hilton. At the Grand Hyatt Taipei, re-cladding of the facade began in June and will complete in Q1 2012, renovation of the Grand Ballroom and function space is taking place in the third quarter and a two-year room renovation will commence in the middle of next year. A smaller scale refurbishment is underway at The Orchard, Singapore, where 7,829 room nights were taken out in the first half year, completion is due in the third quarter. Refurbishment plans for the Millennium UN Plaza and the Millennium Mayfair are being developed.

Development of the Glyndebourne condominiums in Singapore started in the second quarter, following closure of the Copthorne Orchid Hotel on 1 April. Of the 150 apartments for sale since the end of October 2010, buyers have signed sales and purchase agreements on 143, leaving seven apartments remaining to be sold. The sales value of the 143 units is S$517.4 million (£261.1 million), representing a price of over S$2,000 per square foot. Sales proceeds collected to date total S$103.5 million (£52.2 million) representing approximately 20% of the sales value. It is unlikely that buyers who have signed up the S&P agreements not to proceed with the purchase of the apartments. Should they not proceed, the Group has the choice of either forfeiting the 20% of the purchase price or pursue other remedies at law. Revenue and development costs will appear in the income statement on completion, which is expected no later than 2015.

As previously reported, the Group announced on 16 June 2010 that it had signed a collective sales agreement with other unit-holders in the Tanglin Shopping Centre, a shopping-cum-office development situated within the Orchard prime tourist district in Singapore, in which the Group has an approximately 34% interest in the total strata area. The first tender for an en-bloc sale, which carried a very high reserve price, closed without any bids being received. A second tender, which was thereafter called for, closed on 16 June 2011. The sales committee is now negotiating with prospective buyers, and has until 25 August 2011 to conclude a sale by private treaty, failing which the collective sale agreement will expire on 26 August 2011.

The Group announces today that it has completed the sale of 29,127 square feet of land adjacent to the Grand Millennium Kuala Lumpur to Urusharta Cemerlang (KL) Sdn Bhd for a consideration of RM215.1 million (£44.6 million). Completion occurred earlier than indicated in our original announcement of the sale agreement on 15 September 2010, at which time we expected completion before the end of the second quarter of 2012. The Group's carrying value of the land is RM42.9million (£8.9 million). Based on this value, the sale of land is expected to result in a pre-tax profit in the third quarter of RM170.4 million (£35.4 million), after taking into account transaction costs.

First Sponsor Capital Limited ("FSCL")

Development of the Cityspring project in Chengdu, China is progressing well. As at 30 June 2011, 696 of a total of 726 residential units of the Chengdu Cityspring project have been sold either under sales and purchase or option agreements. Revenue and profit recognition for the residential component are expected by end 2011. FSCL officially launched the sale of one of the commercial blocks of the Cityspring project comprising 709 SOHO (small office/home office) units on 6 July 2011. 285 units out of the 709 SOHO units have been sold either under sales and purchase or option agreements. The project will also include an approximately 170-room hotel (recently increased from 124-room) which is likely to be branded as a Studio M hotel. The commercial development is scheduled for completion in late 2012.

CDL Hospitality Trusts REIT

On 3 May 2011 the Group completed the sale and leaseback of the Studio M Hotel Singapore to our REIT associate, CDL Hospitality Trusts (CDLHT) for a cash consideration of S$154.0m (£75.7m) and gave rise to a total realised pre-tax profit from the disposal of S$35.4 (£17.4m) which was recorded for both the second quarter and first half ended 30 June 2011. Total unrealised pre-tax profit from the disposal is S$19.1m (£9.4m) which has been credited to the balance sheet as investment in joint ventures and associates, arising from the Group's 35.1% interest in the stapled securities of CDLHT.

CDLHT continues to opportunistically pursue acquisitions while maintaining a disciplined approach to investment activities.

Pipeline

The Group opened one hotel in Oman under management contract. The Group's worldwide pipeline has 25 hotels offering 5,808 rooms, which are mainly management contracts.

Board Changes

Wong Hong Ren was appointed as Chief Executive Officer of the Group on 28 June 2011 succeeding Richard Hartman, who remains on the Board as a non-executive Director.

Connal Rankin retired from the Board for health reasons on 28 June 2011. Mr. Rankin had been an independent non-executive Director on the Group's Board since December 2007 and latterly served as Chairman of the Remuneration Committee. The Nominations Committee has commenced its search for a new independent non-executive Director. We thank Mr. Rankin for his services to the Group and wish him a recovery to full health.

On the same date, Alexander Waugh, an independent non-executive Director of the Group since June 2009 was appointed Chairman of the Remuneration Committee.

As previously reported, Kwek Leng Joo retired as a non-executive Director on 6 May 2011. He was replaced by Kwek Eik Sheng, who had been an alternate Director to Kwek Leng Joo since April 2008.

Outlook

Current fiscal and financial conditions mean that the path to full economic recovery remains uncertain. This was evident outside the major global gateway cities during the first half of the year, where Group performance was not as uniformly robust as elsewhere. We cannot predict how or when the funding crises affecting the USA and the Euro zone will be resolved, or what broader impact they might have on the hospitality industry. However we are confident that the Group's strong balance sheet and low gearing, together with a 60% concentration of earnings from the Asian region will protect us from the storm, should it recur.

Whilst this factor injects a note of caution to our outlook, we are on the whole optimistic about the Group's performance prospects. Our very strong financial position, together with our proven abilities in cost control and revenue management has enabled us to deal effectively with short term trading challenges. At the same time, we remain focused on effective asset management and long-term strategic goals.

Trading in the current period to date is encouraging and in line with management expectations. In the 24 days of July 2011, Group RevPAR increased by 12.6%, with Singapore increasing by 22.5%, London increasing by 14.9% and New York by 12.5%. On a like for like basis Group RevPAR increased by 11.3% and Singapore by 14.6%.

Kwek Leng Beng

CHAIRMAN

1 August 2011

To the members of Millennium & Copthorne Hotels plc

This interim management report ("IMR") has been prepared solely to provide additional information to enable shareholders to assess the Company's strategies and the potential for those strategies to be fulfilled. It should not be relied upon by any other party or for any other purpose.

The IMR contains certain forward-looking statements. Such statements are made by the Directors in good faith based on the information available to them at the time of their approval of this report, and they should be treated with caution due to the inherent uncertainties underlying such forward-looking information.

The IMR has been prepared for the Group as a whole and therefore gives greatest emphasis to those matters which are significant to Millennium & Copthorne Hotels plc and its subsidiary undertakings when viewed as a whole. The IMR discusses Group operations for the half year ended 30 June 2011, business objectives, risks and uncertainties facing the Group during the second half of 2011 and the future outlook for the Group.

Financial and Operating Highlights

Notes

1. The Group believes that headline EBITDA, headline operating profit, headline profit before tax, headline profit after tax and headline earnings per share, net debt and gearing provide useful and necessary information on underlying trends to shareholders, the investment community and are used by the Group for internal performance analysis. Reconciliation of these measures to the closest equivalent GAAP measures are shown above and in notes 3 and 9 to these financial statements.

Notes (continued)

Financial Performance - Second quarter overview

For the second quarter to 30 June 2011, profit before tax increased by 91.8% to £60.6m (2010: £31.6m). Headline profit before tax, the Group's measure of underlying profit before tax, increased by 10.8% from £36.1m to £40.0m as it excludes the pre-tax realized gain of £17.4m from the sale and leaseback to CDL Hospitality Trusts REIT.Headline operating profit increased by 11.8% to £43.7m (2010: £39.1m).

Financial Performance - First half overview

The 12.6% rise in headline operating profit is a reflection of improved trading performance of the Group and tight cost control. Basic earnings per share increased by 65.0% to 19.8p (2010: 12.0p),reflecting the impact of a lower effective tax rate.  

The impact of foreign exchange movements are shown below and in constant currency terms the operating profit variance of £5.0m represents a modest 27.0% conversion rate. The conversion masks the impact of several factors including the selling expenses of Glyndebourne and refurbishment of the Millennium Seoul Hilton. Excluding the revenue and operating results of these two factors, the conversion rate is 46.2%. At hotel level the GOP conversion is 56.5% which, similarly adjusted to exclude the Millennium Seoul Hilton, rises to 61.3%. In common with all hotel businesses, the Group's costs also increased as a result of escalating energy prices.

The difference between the operating profit and hotel GOP conversion rates is principally attributable to variable rentals charged to the four Singapore hotels owned by CDLHT. These rentals are determined by both revenue and profit streams of the properties.

Taxation

The Group recorded a tax expense of £15.9m for the first half (first half 2010: £15.8m), excluding the tax relating to joint ventures and associates. This comprises a UK tax credit of £3.1m and an overseas tax charge of £19.0m (first half 2010: a UK tax charge of £3.4m and an overseas tax charge of £12.4m). For full year 2010 the £30.7m total income tax expense comprised a UK tax charge of £7.1m and an overseas tax charge of £23.6m.

Income tax expense for the relevant period is the expected income tax payable on the taxable income for the period, calculated at estimated average annual effective income tax rate applied to the pre-tax income on the period.

The estimated annual effective rate applied to profit before income tax excluding the Group's share of joint ventures and associates profits is 23.0% (2010: first half estimate 36.2%). This reduction in rate results from a combination of factors, including the following:

·; a reduction in UK tax rate;

·; the release of some tax provisions following the satisfactory resolution of certain tax matters; and

·; in 2010, the effective rate used was higher due to the non-recurring impact of a change in tax legislation in New Zealand.

A charge of £1.6m for the first half (first half 2010: £1.1m and full year 2010: £4.4m) relating to joint ventures and associates is included in the reported profit before tax.

Earnings per share

Basic earnings per share was 19.8p(2010:12.0p) and headline earnings per share increased to 13.0p (2010:12.6p). The table below reconciles basic earnings per share to headline earnings per share.

Dividend

The Board declared an interim dividend of 2.08p per share. The interim dividend will be paid on 7 October 2011 to shareholders on the register at the close of business on 12 August 2011. The ex-dividend date of the Company's shares is 10 August 2011.

PERFORMANCE BY REGION

For comparability, the following regional review is based on calculations in constant currency whereby 30 June 2010 average room rates, RevPAR, revenue and headline operating profit have been translated at 2011 average exchange rates.

UNITED STATES

New York

RevPAR increased by 6.6% to £117.94 (2010: £110.67) for the six months ended 30 June 2011. Room rate was the driver for this growth showing an 8.1% increase to £141.42 (2010: £130.81) while occupancy decreased by 1.2 percentage points to 83.4% (2010: 84.6%). All three hotels saw an upturn in RevPAR with the highest RevPAR growth produced by the Millennium UN Plaza.

In the second quarter, RevPAR increased by 8.3% to £138.67 (2010:£128.04) over the same three months in 2010 as a result of improved room rates.

Regional US

The RevPAR growth within Regional US was 7.9% to £35.69 (2010: £33.09). This growth was driven by good double digit increase in Biltmore and Minneapolis but was counteracted by high single digit declines in Anchorage and St Louis. Overall both occupancy and room rates have improved; occupancy up 1.4 percentage points to 56.3% (2010: 54.9%) and room rates up 5.2% to £63.40 (2010: £60.27).

The second quarter saw slow growth in occupancies and room rate. Occupancy was up 1.3 percentage points to 62.1% (2010: 60.8%) while room rates increased 4.5% to £66.24 (2010: £63.39).

EUROPE

London

London saw the highest RevPAR growth across the Group both in the six months and the second quarter ended 30 June 2011. RevPAR growth was a healthy 13.1% to £91.79 (2010: £81.16) for the six months. This was built upon a rate-led strategy which succeeded in achieving a 14.7% increase in room rates to £116.48 (2010: £101.58). There was a decrease in occupancy of 1.1 percentage points to 78.8% (2010: 79.9%).

London registered a 16.0% RevPAR growth to £105.91 (2010: £91.28) for Q2. Room rate was the primary driver for this increase of 18.4% to £126.54 (2010: £106.89) while occupancy dipped 1.7 percentage points to 83.7% (2010: 85.4%).

Rest of Europe

RevPAR decreased by 1.0% to £49.67 (2010: £50.19) in the first six months but showed a slight recovery in quarter two which fell by 0.4% to £52.98 (2010: £53.21).

Regional UK

Regional UK remains a challenge due to competition from increased supply and pressure on room rates and occupancy. RevPAR fell by 6.3% to £40.90 (2010: £43.67) with occupancy decreasing 2.6 percentage points to 68.2% (2010: 70.8%) and average room rate falling by 2.8% to £59.95 (2010: £61.67).

Regional UK experienced the largest decline across the Group in quarter two with RevPAR falling by 7.9% to £43.35 (2010: £47.07).

France & Germany

The situation in France and Germany is better where RevPAR increased by 5.2% to £63.76 (2010: £60.60). This performance was entirely due to all the hotels increasing in occupancy which grew by 3.6 percentage points to 67.7% (2010: 64.1%). Within the region, average room rate fell by 0.5% to £94.15 (2010: £94.59).

RevPAR growth in the second quarter of 8.4% to £68.30 (2010: £63.01) was driven by occupancy growth of 5.9 percentage points to 70.0% (2010: 64.1%). Average room rates decreased 0.8% to £97.54 (2010: £98.36).

The Group's lease on the Millennium Stuttgart Hotel terminates at the end of August 2011.

ASIA

RevPAR increased by 0.3% to £68.85 (2010: £68.66) driven by a 4.6% increase in average room rates to £91.44 (2010: £87.46) offset by a 3.2 percentage point occupancy fall to 75.3% (2010:78.5%). However, as explained below the two years are not directly comparable. On a like for like basis which includes Beijing and excludes Studio M, Orchard, Orchid and Seoul, RevPAR increased by 7.6% to £69.16 (2010: £64.29).

In the second quarter, RevPAR increased by 0.4% to £72.86 (2010: £72.55) due to increased average room rate of 5.5% to £95.24 (2010: £90.24) offset by a 3.9 percentage point occupancy fall to 76.5% (2010: 80.4%). On a like for like basis which includes Beijing and excludes Studio M, Orchard, Orchid and Seoul, RevPAR increased by 4.6% to £71.60 (2010: £68.48).

Singapore

For the first half, Singapore reported a 9.6% increase in RevPAR to £90.99 (2010: £83.05). There are three factors affecting the comparisons. The Studio M hotel opened at the very end of quarter one in 2010, the Copthorne Orchid closed on 1 April 2011 and the Orchard Hotel had 7,829 room nights taken out for renovation in the first half of 2011. On a like for like basis with Studio M, Copthorne Orchid and The Orchard excluded from the two comparative periods, RevPAR increased by 12.3% to £96.77 (2010: £86.15). This was driven by an 8.2% increase in average room rate to £109.55 (2010: £101.27) and occupancy increasing by 3.2 percentage point to 88.3% (2010 85.1%).

The second quarter saw RevPAR grow by 12.5% to £97.76 (2010: £86.91) driven by average room rate growth of 11.1% to £111.34 (2010: £100.24). On a like for like basis, excluding Studio M, Copthorne Orchid and The Orchard, RevPAR grew 7.7% to £98.98 (2010: £91.90).

Rest of Asia

Two events in the Rest of Asia have also impacted RevPAR growth. The Group began to consolidate the Grand Millennium Beijing in November 2010 and the Millennium Seoul Hilton is currently undergoing a major refurbishment which resulted in 37,089 room nights taken out. Unadjusted RevPAR fell by 6.5% to £53.43 (2010: £57.15). On a like for like basis, excluding Seoul, but including Beijing for both periods, RevPAR grew by 7.6% to £49.86 (2010: £46.32) driven by a 3.1% increase in average room rate to £71.85 (2010: £69.66) while occupancy increased by 2.9 percentage points to 69.4% (2010: 66.5%).

RevPAR declined by 5.5% in the second quarter. On a like for like basis, excluding Seoul, but including Beijing for both periods, RevPAR grew by 6.7% to £52.66 (2010: £49.36) driven solely by a 4.2% increase in average room rate to £75.44 (2010: £72.38) while occupancy decreased by 1.6 percentage points to 69.8% (2010: 68.2%).

AUSTRALASIA

For the New Zealand group, RevPAR at £35.16 was 6.0% down on last year (2010: £37.39). Occupancy declined by 3.6 percentage points to 64.5% (2010: 68.1%) and average room rate decreased by 0.7% to £54.51 (2010: £54.91). RevPAR excluding the 3 Christchurch hotels that were closed following the earthquake was down 4.0% on last year at £34.03 (2010: £35.46). This was due to cancellations as a result of the 22 February 2011 Canterbury earthquake and the Japanese earthquake and tsunami.

In the second quarter, New Zealand recovered £1.3m for business interruption from the insurers for the impact of the Canterbury earthquake on its business. The business interruption recovered for the first half of 2011 is £2.7m, and is recognised as other revenue for the period.

As a result of the 6.3 magnitude earthquake on 22 February 2011, the three Christchurch hotels namely Millennium Hotel Christchurch (leased), Copthorne Hotel Christchurch Central (owned), and Copthorne Hotel Christchurch City (leased) were closed down by Civil Defence Emergency Management and cordoned off inside the Christchurch Business District. The Copthorne Hotel Christchurch City is expected to be demolished. It is expected that the costs will be covered by the group's insurance policies. Damage to the Millennium Hotel Christchurch and Copthorne Hotel Christchurch Central is less substantial and further structural engineering inspections will be required when access is restored. The impact cannot yet be reasonably quantified and consequently no provision for asset write-off has yet been made. It is expected that the position will become clearer before the end of the year. All three hotels are insured for material damage and business interruption.

Financial Position and Resources

Financial Position

The Group's balance sheet strengthened during the first half of the year with net debt reducing to £81.9m at 30 June 2011 from the 31 December 2010 position of £165.7m.

Non-current assets

Property, plant, equipment and lease premium prepayment

Property, plant, equipment and lease premium prepayment decreased by £130.5m, the contributors to the decrease were: £27.3m effect of adverse exchange movements; sale of Studio M Hotel with a net book value of £48.4m; transfer of Orchid Hotel to development properties with a net book value of £47.0m: a depreciation charge of £17.7m and; £9.9m improvements to the hotel portfolio.

Investment Properties

Investment properties decreased by £0.7m due to exchange movement.

Investments in and loans to joint ventures and associates

The table below reconciles the movement of investments in and loans to joint ventures and associates of £18.3m.

(a) In line with the Group's accounting policy, transactions with associates are eliminated to the extent of the Group's interest in the entity. The £9.4m deduction from the Group's share of associate net assets represents the unrealised profit element from disposing of Studio M Hotel to CDLHT in which the Group had a 35.1% interest. The total pre-tax profit from the sale of Studio M Hotel was £26.8m of which £17.4m has been recorded in the income statement under non-operating income.

Liquidity and Capital Resources

Cash flow and net debt

At 30 June 2011 the Group's net debt was £83.8m lower than as at 31 December 2010 at £81.9m (2010: £165.7m). A summary of the consolidated cash flow is set out below:

The net cash inflow from operating activities was £71.9m, an increase of £7.5m reflecting higher profit before tax.

Free cash flow is the amount of cash generated by the business after meeting its obligations for interest, tax and after capital expenditure on property, plant and equipment. For 2011 free cash flow was £30.4m, a decrease of 21.6% over 2010. This principally reflected the increased level of working capital. The Group's free cash flow measure is not defined in IFRS and may not be directly comparable with similarly described measures used by other companies. The table above reconciles cash flows from operating activities, which is the closest equivalent IFRS measure to free cash flow.

Analysis of net debt and gearing is provided below. Gearing is defined as net debt as a percentage of total equity attributable to equity holders of the parent.

A summary reconciliation of movements in net debt is shown below.

Financial structure

Group interest cover ratio for the half year, excluding share of results of joint ventures and associates, other operating income and expense, non-operating income and separately disclosed items of the Group improved to 28.7 times from 26.2times in 2010. The increase in net finance cost of £2.3m principally reflects interest on Beijing's net external debt acquired on acquisition in November 2010 offset by the repayment of borrowings.

At 30 June 2011, the Group had £335.6m cash and £79.5m of undrawn and committed facilities available, comprising revolving credit facilities which provide the Group with financial flexibility. Most of the facilities are unsecured with unencumbered assets representing 88.2% of fixed assets and investment properties. At 30 June 2011, total borrowing amounted to £417.5m of which £89.9m was drawn under £124.5m of secured bank facilities.

Future funding

Of the Group's total facilities of £597.2m, £136.9m matures during the next 12 months, comprising £111.7m uncommitted facilities and overdrafts subject to annual renewal, and £25.2m unsecured bonds.

Treasury risk management

Group treasury matters are governed by policies and procedures approved by the Board of Directors. The treasury committee monitors and reviews treasury matters on a regular basis. A written summary of major treasury activity is presented at each Board meeting.

Risks and uncertainties

The Half Year Report has been prepared on the basis set out in note 1. The risks and uncertainties facing the Group are consistent with those outlined in the Annual Report and Accounts for the year ended 31 December 2010.

The Group's risk management activity is directed by the Executive Management Committee, led by the Chief Executive Officer. Risk identification workshops are facilitated by the Head of Risk and Internal Audit to identify the risks faced by the business. Risk registers are compiled, and periodically updated, which map the nature of the risks relative to their likelihood of occurrence and severity and associated trends.

Individual management committee members are assigned responsibility for devising risk treatment plans to eliminate, minimise or transfer risks. The Chief Executive Officer and Executive Management Committee undertake regular reviews of the risk register and progress with risk management plans.

Overall responsibility for the risk management process adopted by the Group lies with the Board. On behalf of the Board the Audit Committee reviews the effectiveness of the Group's risk management processes and other internal controls. The Head of Risk and Internal Audit provides the Audit Committee with a quarterly update of risk management activity.

The information in Appendix 4 sets out the principal risks that could have a material effect on the Group's business activities at the date of this report and the systems and processes the Group has in place to manage and mitigate these risks and is updated from as indicated from the position set out in the Annual Report and Accounts for the year ended 31 December 2010.

The Board has determined that risks have not changed materially in the period under review and continue to have the potential to affect the Group in the remaining six months of the financial year.

Condensed consolidated income statement (unaudited)

for the half year ended 30 June 2011

 The financial results above all derive from continuing activities.

Condensed consolidated statement of comprehensive income (unaudited)

for the half year ended 30 June 2011

Condensed consolidated statement of financial position (unaudited)

as at 30 June 2011

Condensed consolidated statement of cash flows (unaudited)

for the half year ended 30 June 2011

Condensed consolidated statement of changes in equity (unaudited)

for the half year ended 30 June 2011

Condensed consolidated statement of changes in equity (unaudited)

for the half year ended 30 June 2011 (continued)