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CHE Hotel Group PLC (RHC)


Wednesday 25 April, 2007

CHE Hotel Group PLC

Final Results

                              CHE Hotel Group PLC                              

                           ("the company" or "CHE")                            

For Immediate Release 25 April 2007

              Preliminary Results for year ended 31 December 2006              

CHE Hotel Group plc announces its unaudited results for the year ended 31st
December 2006

  * Revenue £79.8 million (2005 £79.2 million)
  * Operating loss £2.8 million (2005 profit £4.6 million)
  * Loss after Taxation £7.9 million (2005 profit £0.6 million)

  * Equity raised to upgrade existing estate 90% committed at year end
  * Exit from the underperforming European Master Franchise Agreement (MFA)
    successfully concluded in November 2006
  * Significant restructuring and strengthening of the management team
  * Trading disappointing in 2006
  * Positive start to 2007 including the opening of two further Sleep Inns
Chairman's Comment
Results for the year can only be described as very disappointing. However, we
have not deviated from doing the things that we believe are in the best
interests of the business and shareholders going forward. The equity raised in
the year is now largely in place to produce returns. We continue to eliminate
marginal businesses and focus our efforts on building a superior operating
business on high quality assets. Trading in the first quarter of 2007 has been

For further information please contact

CHE Hotel Group Plc: 020 8233 2001

Michael Prager, Chief Executive

Paul Mitchell, Chief Financial Officer

Waughton 020 7796 9999

Robin Hepburn/David Millham

KBC Peel Hunt 020 7418 8900

Jonathan Marren

Notes to Editors:

CHE Hotel Group Plc

CHE (Choice Hotels Europe) operates 64 owned, leased or managed hotels in the
UK, France, Germany and Belgium. In addition it holds the Master Franchise for
Choice Hotels' brands in the UK and Ireland, amounting to 73 franchises. It
also operates the New Connaught Rooms conference and banqueting suite close to
London's Covent Garden.

Choice brands include Sleep Inn, Comfort Inn, Quality Hotel and Clarion Hotel.

A placing and open offer raised £18.6m net of costs in January 2006 which is
being invested in upgrading the Group's hotels and accelerating the development
to Sleep Inns, its premier limited service brand.

The CHE management team has considerable experience in the hotel sector.
Michael Prager has held senior positions in Utell International,
Intercontinental and Radisson Hotel groups. Paul Mitchell, was formerly Vice
President of Financial Planning and Control for Europe, Middle East and Africa
at Intercontinental Hotel Group in addition to holding senior finance positions
in Granada, Forte and Allied Lyons.

Chairman's Statement


As I reported to shareholders last year, 2006 was always going to be a year of
transition and so it proved to be.


Many of our hotels are unrecognisable from a year ago. In all we have fully or
partially upgraded 700 bedrooms and 11 public areas.

Conducting this level of building and decorating work carries its own
particular challenges, some of our hotels resembled construction sites at
various times in the year and up to 5% of our inventory was unavailable for
sale at any given time. Nevertheless we pressed on, particularly through the
summer months, and as at the year-end I am happy to inform shareholders that
90% of funds earmarked for refurbishment have now been utilised and upgrades to
the existing state are complete and in a position to generate the returns
expected. We have brought these capital works in as expected with very little
overrun in budget or time.

Our development team has been busy throughout the year identifying and
negotiating new sites for our market leading Sleep Inn product. During the year
we opened new Sleep Inns in Derby and Shrewsbury, both of which are trading
very successfully and generating profit. At the end of 2006 we had six Sleep
Inns open and operating and we will double that by the end of 2007 amounting to
1,000 bedrooms. We are either in development or have signed agreements for new
Sleep Inns in London, Birmingham, Glasgow, Sheffield, Braintree (Stansted),
Chester and Doncaster and our pipeline continues to develop. Our goal remains
60 Sleep Inns or over 4000 rooms by the end of 2011.


I informed shareholders last year that our strategy was to focus on two
markets; premium limited service and mid-market full service. This remains
unchanged, our focus is to grow the Sleep brand and improve the Quality brand
as demonstrated by our programme of refurbishment. At the same time we are
taking an unemotional look at any marginal or non-performing businesses and
taking whatever action is necessary.

I am pleased to advise you that after prolonged negotiations with Choice Hotels
International we have exited the European Master Franchise Agreement (MFA) as
of November 2006. Selling and servicing franchise agreements across all of
continental Europe, often for very small, 30-50 bedroom hotels did not prove
good use of our capital or management time. Our net income (average per hotel)
from European franchising is half that of the UK and our cost to service this
business was high due to the size of the territory and the regional orientation
of small independent hotels.

Exiting the European MFA will eliminate the loss of £1.5 million incurred in
2006 and avoid similar losses in the future whilst leaving us free to develop
our owned managed and leased business in continental Europe without constraint
and in the best long term interests of shareholders.

Management Changes

Various changes to the management of the group have occurred during the year
which reflect both the strategy of business and the continuing need to
strengthen the management team.

As announced on June 19th 2006 Michael Prager joined the executive team as COO.
His immediate focus was to re-energise the UK hotel business which he set about
with vigour. Sales & Marketing, Operations, IT and Revenue Management are,
after much intervention, now delivering demonstrable and sustainable benefits
across the organisation.

Following my announcement of David Cook's retirement in November the board
appointed external consultants to identify and scrutinise a potential successor
from within and outside of the company and after a lengthy process Michael
Prager was appointed as CEO. Conducting this exercise in September allowed a
suitable period of time for a thorough handover between David and Michael to
take place during a turbulent time for the business. I am confident that
Michael Prager is bringing renewed focus and energy to the CEO role and will
not delay or diminish the tough decisions that need to be made to bring the
company to the performance levels expected by the board.

Michael Prager's previous position of COO has not been replaced as the new
slimmed down PLC board and management board serve to provide leadership in all
of the operating functions of the business in a flatter, more responsive
organisation structure that also reduces our corporate cost base.

Michael Prager and Paul Mitchell are the only executives on the Plc Board. Paul
Mitchell continues in the role of CFO and it was through his achievement that
we exited the European MFA on the favourable terms we did.

Subsequent to the year end Peter Cashman, European Development and Asset
Management Director resigned his position with the company following twenty two
years of loyal service to Choice Hotels. At the same time Sam Marshall, Company
Secretary, announced his retirement after an equally long period of service to
the group. Further comments on the organisation structure and purpose appear in
the Business Review but I am pleased on your behalf to offer my thanks and good
wishes to David and Sam upon their retirement, Peter for his new direction and
Michael and Paul for their continued hard work and dedication.


Trading for the year 2006 was very disappointing. With hindsight we had
underestimated the time that it would take to win back lost customers and
acquire new ones. The degree of change necessary in the sales and operating
teams to deliver our planned growth also took longer to accomplish than
anticipated. This, combined with the resumption of franchise fees to CHI, the
disruption caused by our extensive building and rehabilitation works and a
softer than expected final quarter have produced results significantly below
expectation for the year. Your board will not in any way be complacent about
the need to rapidly improve trading performance; however it believes that all
of the actions being undertaken are right for the future success of the
business and will bring short as well as long term benefits to the group.


The first quarter of the current year has been encouraging with like for like
operating results ahead of the same period in 2006. Good progress has been made
in the cost reduction project announced in January. Whilst it is too early to
take a firm view of 2007 your board is confident that the combined changes in
physical asset, management and business focus will deliver the necessary
platform for sustainable growth in 2007 and thereafter.

Business Review


As the Chairman has commented 2006 was a year of transition. This transition
went far beyond the physical appearance of our hotels, vitally important though
that is, and on to our customer mix, our pricing strategy, our management
thinking - just about every aspect of our business.

Our Business

We own, operate via leases and management contracts and franchise hotels in the
UK, France, Germany and Belgium. We also operate one of London's largest multi
function conference and banqueting venues, the New Connaught Rooms (NCR). As at
the end of 2006 our revenue profile was as follows:

65% UK hotels - existing

2% UK hotels - new


13% European hotels

3% UK franchising

3% Managed and other income

5% Discontinued operations

Our hotels compete in what has traditionally been called the `mid market' which
is being transformed by us and others into the `low cost' sector.

We compete with the unbranded as well as the branded sector which is why a
strong value proposition is so important to us.

Our exit from European franchising allowed us to take a strategic look at what
we need to be and where we want to be.

The UK is our home and primary market. Outside of the UK we want to develop
strong, branded hotels in countries/cities that have proven and growing demand
for low cost hotel services and an economic cycle that is likely to see
property values grow strongly over the next ten years.

Strategy and Objectives

We are focused on the premium limited service (Sleep & Comfort Inn) and mid
market full service (Quality & Clarion) sectors. Our business objectives in
2006 and into 2007 are:

  * To drive significantly higher levels of revenue.
  * To improve the guest experience in all of our hotels.
  * To grow the Sleep product to plan.
  * To continually improve the quality of our asset base.
In summary to operate superior performing businesses on high quality assets.

During the last six months of 2006 we have fundamentally changed our sales
approach so that every Owned, Managed and Leased hotel has a dedicated sales
resource, accountable for their revenue as well as access to a team of
territory based sales people serving the entire estate, each with specific,
customer by customer sales plans for which they are accountable.

Winning the sort of business that we require to meet and exceed our financial
objectives has been a hard slog but is beginning now to pay dividends. We're
winning high quality business against the competition at good rates which we
can only do due to the quality of our hotels following their refurbishment and
which is now beginning to flow through to results.

We've taken a long look at our pricing this year and radically overhauled it.

In simple terms we were previously following a pricing strategy of selling high
early and cheap late leading to an uncompetitively high price for early
bookers, then discounting heavily as the lead time got shorter. In the late
booking environment in which hotels all operate, that resulted in hotels
dropping rates when demand was picking up.

In September 2006 we piloted the launch of a dynamic pricing model, one where
the rate moves depending upon forecast demand and is based upon how early the
customer books, similar to the low cost airlines. We continue to offer great
value rates when we have rooms to sell and to guests who book early and agree
not to amend or cancel their reservation. For those that require the
flexibility of last minute booking with no restriction that too is available at
a fair, but different, price. The pilot was rolled out across the estate
subsequent to the year end in January 2007 since when results measured by
revenue per available room (RevPAR) and revenue generation index (RGI) have
been encouraging.

Our operating team have focused relentlessly on improving the customer
experience and converting revenues to superior levels of profit.

Our customer satisfaction index which we started in September measures seven
product and service areas and three `golden questions'. These all enveloping
answers indicate an overall approval rating that bodes well for the future.

Of all guests polled on checkout during December 2006

89.5% responded that `we offer good value for money'

89% responded that `they will return to the hotel when next in the area'.

88.9% responded that they would `recommend us to a colleague or friend'

Our customers also tell us, pretty directly, what we don't do well - and we
welcome that. We will continue to improve and maintain the fixtures, fittings
and equipment in our guest rooms and our product:service in our restaurants and
we're working on these now. With the aid of our mystery guest shopper and
customer satisfaction index we now measure - and act on, how closely we comply
with our own brand and product standards and how much (or little) customers
think of what we're doing.

To underpin our commitment to quality - a level of quality that will culminate
in guests willingly us paying a premium over our competitors for staying with
us, we rolled out our 100% Satisfaction Guarantee in the 4th quarter of 2006.
Simply put if we don't meet our guests requirements fully and we can't put
right within a reasonable period of time the cause of their dissatisfaction
we'll refund that part of their stay.

At the year end, the level of customer refunds was recorded at less than 0.3%
of total revenue since the scheme's inception. We're doing OK with our

On the profit conversion side our entire cost base is under review, operating,
non-operating and fixed. We are constantly looking at how to take cost out of
the business without affecting the guest experience and that focus will not

We opened Sleep Inns in Derby (January 2006) and Shrewsbury (August 2006) and
both are contributing well to our income, a very good result for the first year
of operation. Our development pipeline goes beyond those under construction.
Whilst we won't release specific data on this as it is too commercially
sensitive, at the time of writing, we have over 5000 rooms identified and being
worked on by our development team. This is in addition to those hotels already
in planning, legals or construction, referred to in the Chairman's statement.

Risks and Uncertainties

In common with other businesses in general and in the hospitality sector in
particular we have a degree of risk that we seek to mitigate by various means
including financial instruments, management good practice and insurance. We do
not have a significant appetite for risk. As one of the smaller companies in
our sector we seek to be a fast follower, more than a pioneer. That should not
imply any diminution in our attitude towards innovation; what we like to do is
allow others to pioneer new concepts then, if successful, adopt them, improve
them and deploy them quickly, e.g. Sleep Inn.

Broadly our risk profile divides into three classes:




Our financial risk is limited to changes in the rate of interest on our
borrowings which we mitigate via interest rate hedge instruments where and when

The Group endorses the internal control guidance for directors on the combined
code and has established a system of internal financial controls to safeguard
the Group's assets and ensure that proper accounting records exist.

Operationally, along with all of our competitors, we are exposed to the risk of
business downturns from the effects of global economic and security concerns.
We do not consider ourselves significantly exposed in this area as we are not
overly dependant on long haul international business.

We are also exposed to downturns in the economy and `belt tightening' amongst
our corporate and consumer direct segments along with all others.

The positioning of our product lines at premium limited service and mid market
full service mitigates this risk to the extent that in a downturn we usually
pick up more business trading down from the 4 star/1st class sector than we
lose to the budget sector. We see no reason for that to change. During the year
we have put a great deal of effort into restructuring our cost base to increase
the percentage of variable to fixed cost so that we can trim our costs in line
with the volatility in our revenues and this work continues.

The most significant area of operational risk to which we are exposed is our
leases. Long leases are our preferred business model. We earn a substantial
premium for leasing rather than just managing hotels; on average we earn nearly
three times more for a leased hotel than we do for a managed hotel. Leases are
rent and rent has to be paid regardless of income, it's a fixed cost. We seek
to mitigate this risk by following a vigorous process that includes an
independent feasibility study and the use of sophisticated demand modelling
techniques as well as reviews by both the management and PLC Boards prior to
signing new lease agreements. We also maintain good landlord relationships
which allow open and frank discussions on those occasions where leases become
problematic due to e.g. shifting demand patterns. We believe the risk:reward
profile for our leased hotels to be significantly wealth creating for our

Environmentally we are exposed to a range of health and safety issues as well
as the effect of changing government policy on matters such as employee
legislation and taxation.

We conduct health and safety, water quality, fire safety and food hygiene
audits via an independent contractor at every hotel three times a year with one
of those visits being unannounced. Where we identify problems we review our
policies and procedures to minimise future risk, in so doing continually
seeking to reduce our insurance premiums which we have to cover all areas of
business, public and employee liability from which we cannot eliminate the
associated risks.

We are an active participant within the British Hospitality Association, which
amongst other things lobbies government on behalf of the industry; the recent
shelving of a proposed bed tax being one example of the industry body
influencing government towards an eminently sensible conclusion.

Performance and Measurement

As at the year end our UK hotels revPAR at £24.73 (on a like for like basis)
was 1.2% behind last year. Total revenue per available room (TrevPAR) at £44.97
declined by 4.8%. This was offset by the performance of new hotels opening
where revPAR at £28.56 was 15.5% higher than for existing hotels.

Operating margins of in the UK hotels (like for like) reduced by 4.9 percentage
points to the prior year as a result of minimum wage increases of 4.6%, energy
cost increases of 16% and one-off restructuring costs in the final quarter. At
the same time operating margins in new hotels were 6.3 percentage points higher
than the existing estate.

The New Connaught Rooms, our multi function conference and banqueting facility
in central London recorded revenues 1.4% ahead of prior year but experienced a
reduction of 2.8% points in gross operating profit margin.

In Europe revenue from our leased hotels continued to show improvement. The
French hotels grew RevPAR by 2% to £20.96, Belgium by 17% to £19.38 and Germany
by 8% to £18.15. During 2006 we opened two new hotels in Germany, both in
Munich. These hotels are generating a RevPAR of £32.32, significantly higher
than our existing hotels in Germany.

We now measure our performance against 34 key performance indicators (KPIs) all
of which flow up in accountability to a Management Board member and all of
which are reviewed and reported upon monthly. Where industry level data is
available this is incorporated. We will, in future interim and full year
statements report on certain KPI achievements, once we have established
meaningful baseline data against which we can benchmark performance.


During the six months from June 2006 we carried out a root and branch review of
our business operations and laid the foundation for future, profitable growth.
During this period

  * The number of executive directors has reduced from four to two.
  * 75% of the management board are new to the company
  * 36% of the hotel General Managers are new to the company
  * 70% of the sales team are new to the company
I have to report however that the operational changes made have not yet flowed
through to the financial results. By any standards 2006 had a very
disappointing outturn.

The biggest contributor to this was a shortfall in revenue as a combination of
unsettled trading in the first half of the year, a significant proportion of
inventory being unavailable for sale during the extensive renovations that we
undertook during the year and a softer than expected fourth quarter at a time
when we were undergoing widespread changes in the management team. In addition
to this we incurred the resumption of fees to CHI, of £2.2 million, and a
higher than normal level of restructuring costs, all of which combined in the
results now presented.

The one thing that I will say to shareholders in mitigation is that everything
we have done is necessary to provide for the long term prosperity of the
business and delaying any of the changes we have made would, in our opinion,
have made matters worse rather than better. We have achieved a great deal in
organisational, product and process terms but these improvements have yet to
flow through to financial performance, in line with our commitment to
shareholders at the time of the equity raising. These results are not
acceptable to me, the rest of the management team or the Board and we are
committed, without reservation, to improving them to an acceptable level of
return to shareholders.

Finally, I want to thank all of my colleagues, past and present, for their
commitment and hard work and in particular David Cook, my predecessor, for his
assistance and support during the handover period.

I am fully cognisant that once again shareholders have been presented with less
than acceptable results. I have no doubt about the task that I and the
management team face in bringing this business to the levels of performance
rightfully expected of it and I assure shareholders that we will spare no
effort nor tolerate any delay in so doing.

Financial Review

Trading Summary

Revenue for the Group was £79.8 million, an increase of £0.6 million on 2005 (£
79.2 million).

Operating loss was £2.8 million, down on 2005 profit (£4.6 million).

Financial Expenses

The interest charge for the year was £5.1 million reflecting a marginal
increase of £0.1 million over 2005.

Profit after Tax

The Group made a loss after tax of £7.9 million, a reduction of £8.5 million
over 2005 (profit of £0.6 million).


There is no current UK Corporation Tax charge. The non-payment of a dividend
will enable the Company to utilise more surplus ACT against mainstream
corporation tax in the future than would otherwise have been possible, giving
the Company an effective cash tax rate of 10% for the immediate future.


Basic and diluted loss per share (EPS) of 9.3 p shows a decline of 10.9 p when
compared with the earnings per share of 1.6 p in 2005. The number of shares in
the EPS calculation in 2006 was 85.1 million (2005: 38.7 million).


The operating activities absorbed £9.9 million prior to capital expenditure of
£8.3 million. This compared to generating 0.5 million and £5.1 million of
capital expenditure in 2005.

Serviced Offices

Subsequent to the 2005 year end it was noted that there was a contingent
liability resulting from the disposal of the serviced office division.
Resolution is nearing completion and the accounts include a charge of £0.3m.

Market Capitalisation

In January 2006 the Group raised £18.6 million net costs from a share placing
and open offer of 48.8 million shares at £0.41. These proceeds are in the
process of being reinvested in upgrading the existing hotels and accelerating
the roll out of Sleep Inn. There are now 87.5 million issued shares.


Group treasury matters are governed by policies and procedures approved by the
Board. The primary objectives of the treasury function are to provide
competitively priced funding for the activities of the Group and to identify
and manage financial risks, including exposures to movements in interest and
foreign exchange rates. Interest rate swaps and other financial instruments are
used when considered appropriate. It is not however, the policy of the Group to
enter into speculative transactions. The utilisation and availability of
funding facilities is monitored on an ongoing basis.

Consolidated Income Statement for the year ended 31 December 2006 (Unaudited)

                                             Year ended                  Year ended
                                            31 December                 31 December
                                                   2006                        2005
                            Continuing  Discont-  Total Continuing  Discont-  Total
                            operations     inued        operations                 
                                       operation                       inued       
                      Notes         £m        £m     £m         £m        £m     £m
Revenue                3,4        76.1       3.7   79.8       75.2       4.0   79.2
Cost of sales                   (32.8)         - (32.8)     (31.8)         - (31.8)
Gross profit                      43.3       3.7   47.0       43.4       4.0   47.4
- Property rentals              (14.9)     (0.1) (15.0)     (13.7)     (0.1) (13.8)
- Other                         (29.7)     (5.1) (34.8)     (25.7)     (3.3) (29.0)
                                (44.6)     (5.2) (49.8)     (39.4)     (3.4) (42.8)
Operating (loss) /      5        (1.3)     (1.5)  (2.8)        4.0       0.6    4.6
Financial expenses      6        (5.1)         -  (5.1)      (5.0)         -  (5.0)
Loss before tax                  (6.4)     (1.5)  (7.9)      (1.0)       0.6  (0.4)
Income tax              7                             -                         1.0
(Loss) / profit for the                           (7.9)                         0.6
year attributable to the                                                           
equity holders of the                                                              
parent company                                                                     
(Loss) / earnings per                                                              
Basic (loss) /          8       (7.5)p    (1.8)p (9.3)p       0.0p      1.6p   1.6p
earnings per share                                                                 
Diluted (loss) /        8       (7.5)p    (1.8)p (9.3)p       0.0p      1.6p   1.6p
earnings per share                                                                 

The directors have recommended no final dividend (2005-nil)

Consolidated Balance Sheet at 31 December 2006 (Unaudited)

                                              December             December
                                     Notes        2006                 2005
                                                    £m                   £m
Non current assets                                                         
Property, plant & equipment              9        98.6                 87.1
Deferred tax assets                                4.9                  4.1
                                                 103.5                 91.2
Current Assets                                                             
Inventories                                        1.8                  1.8
Trade and other receivables             10        15.0                 14.2
Cash and cash equivalents                          0.9                  0.7
                                                  17.7                 16.7
Total assets                                     121.2                107.9
Current liabilities                                                        
Financial liabilities                            (4.7)               (21.5)
Trade and other payables                11      (13.6)               (18.6)
Obligations under finance leases                 (2.5)                (1.7)
Current tax payable                              (0.7)                (0.7)
                                                (21.5)               (42.5)
Total assets less current                         99.7                 65.4
Non current liabilities                                                    
Financial liabilities                           (16.0)                    -
Debenture                                       (14.0)               (14.0)
Obligations under finance leases                (25.3)               (18.7)
Deferred tax liabilities                         (6.3)                (5.5)
                                                (61.6)               (38.2)
Net Assets                                        38.1                 27.2
Capital and reserves                    12                                 
Issued share capital                               8.8                  3.9
Share premium                                     19.1                  5.4
Reserves                                             -                (0.2)
Retained earnings                                 10.2                 18.1
Equityattributable to the equity                  38.1                 27.2
holders of the parent company                                              

Consolidated Cashflow Statement for the year ended 31 December 2006 (Unaudited)

                                               Year ended            Year ended
                                              31 December           31 December
                                                     2006                  2005
                                              £m       £m           £m       £m
Cash flows from operating activities                                           
(Loss) / profit for the period                      (7.9)                   0.6
Adjustments for:                                                               
Interest charged                                      5.1                   5.0
Taxation charged / (credited)                           -                 (1.0)
Depreciation and amortisation charges                 3.9                   3.0
(Increase) in inventories                               -                 (0.2)
(Decrease) / Increase in trade and                  (0.8)                 (4.5)
other receivables                                                              
(Decrease) / increase in trade payables             (6.2)                   2.7
Cash generated from operations                      (5.9)                   5.6
Interest paid                                       (4.0)                 (4.9)
Income taxes paid                                       -                 (0.2)
Net cash flow from operating activities             (9.9)                   0.5
Cash flows from investing activities                                           
Acquisition of property, plant and         (8.3)                 (5.1)         
Receipts from disposal of discontinued       0.3                     -         
Net cash used in investing activities               (8.0)                 (5.1)
Cashflows from financing activities                                            
Proceeds from issue of new ordinary         20.0                   0.8         
less costs of issue of new ordinary        (1.4)                     -         
Repayment of bank loans                    (2.5)                 (1.3)         
Proceeds from new finance leases             0.7                   0.9         
Repayment of obligations under finance     (0.4)                 (0.4)         
Net cash used in financing activities                16.4                     -
Net decrease in cash and cash                       (1.5)                 (4.6)
Cash and cash equivalents at beginning                0.7                   5.3
of year                                                                        
Cash and cash equivalents at end of                 (0.8)                   0.7
Cash and cash equivalents comprise:                                            
Cash and cash equivalents in current                  0.9                   0.7
Bank overdraft                                      (1.7)                     -
                                                    (0.8)                   0.7

Consolidated statement of changes in equity (Unaudited)

                                          Year ended                Year ended
                                         31 December               31 December
                                                2006                      2005
                                                  £m                        £m
Balance at beginning of year                    27.2                      26.0
Changes in equity                                                             
Movement in fair value of hedging                0.2                     (0.2)
derivatives in period                                                         
Issue of new shares net of issue costs          18.6                       0.8
Net income recognised directly in               18.8                       0.6
(Loss) / profit for the year                   (7.9)                       0.6
Total recognised income and expense for         10.9                       1.2
the period                                                                    
Balance at end of yearattributable to           38.1                      27.2
the equity holders of the parent                                              

Notes to the Unaudited Preliminary Announcement

For the year ended 31 December 2006

1. Basis of Preparation

The Group is preparing its financial statements in accordance with IFRS as
adopted by the European Union.

The unaudited preliminary announcement was approved by the board on 23 April

The comparative figures for the financial year ended 31 December 2005 are not
the company's statutory accounts for that financial year. Those accounts have
been reported on by the company's auditors and delivered to the registrar of
companies. The report of the auditors was (i) unqualified, (ii) did not include
a reference to any matters to which the auditors drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a statement
under section 237(2) or (3) of the Companies Act 1985.

2. Accounting Policies

During the year, the following new standards, amendments and interpretations
have been adopted but have had no effect on the Group:

Amendments to IAS39 Financial instruments: Recognition and Measurement - the
fair value option, Amendments to IAS39and IFRS 4: Financial Guarantee
contracts, IFRIC 4 determining whether an arrangement contains a lease and
IFRIC 6 liabilities arising from participating in a specific market - Waste
Electrical and Electronic equipment.

All other new standards, amendments and interpretations that are available for
early adoption but have not been adopted early are not expected to have an
impact on the Group.

  * Discontinued operation
In November 2006, the Group disposed of its entire European Franchise
Operation. The Group was committed to dispose of this operation following a
strategic review and as a result of the commencement of fees payable to Choice
International in 2006. No gain or loss arose on the measurement to fair value.

In November 2006, the operation was sold for £0.3m cash. There was no
attributable tax on this transaction, leaving no gain after tax.

During the year ended 31 December 2006, the European Franchise Operation had
cash outflows from operating activities of £1.5m compared to an inflow of £0.6m
in 2005.

Effect of the disposals on individual assets and liabilities

                                                     2006        2005       
                                                     £m          £m         
Property, plant and equipment                        0.1         0.1        
Stocks                                               -           -          
Trade receivables                                    0.9         1.0        
Other receivables                                    0.1         0.1        
Employee benefits                                    (0.2)       (0.1)      
Trade payables                                       (0.6)       (0.6)      
Net identifiable assets and liabilities              0.3         0.4        
Consideration received, satisfied in cash            0.3                    
Net cash (inflow)                                    0.3                    

4 Segmental Information

Analysis by activity

Year ended 31 December 2006                                                     
                               Owned &   Managed  Franchise Discontinued   Total
                                leased  hotels & operations   operation1        
                              hotels &     other                                
                            banqueting                 (UK)                     
                                    £m        £m         £m           £m      £m
Revenue                           72.0       1.6        2.5          3.7    79.8
Segment result                     1.8       1.6      (1.9)        (1.2)     0.3
Unallocated administration                                                 (3.1)
Operating loss                                                             (2.8)
Financial expenses                                                         (5.1)
Loss before taxation                                                       (7.9)
Capital additions                 15.5         -          -            -    15.5
Depreciation                       3.9         -          -            -     3.9
Segment Assets                   113.4       1.5        0.9            -   115.8
Unallocated corporate                                                        5.4
Total assets                                                               121.2
Segment liabilities             (26.4)         -          -            -  (26.4)
Unallocated corporate                                                     (56.7)
Total liabilities                                                         (83.1)

1. The discontinued operation relates to the European franchise business

4 Segmental Information (continued)

Analysis by activity

Year ended 31 December 2005                                                     
                               Owned &   Managed  Franchise Discontinued   Total
                                leased  hotels & operations   operation1        
                              hotels &     other                                
                            banqueting                 (UK)                     
                                    £m        £m         £m           £m      £m
Revenue                           71.9       1.4        1.9          4.0    79.2
Segment result                     4.7       1.4        0.3          0.6     7.0
Unallocated administration                                                 (2.4)
Operating profit                                                             4.6
Financial expenses                                                         (5.0)
Loss before taxation                                                       (0.4)
Capital additions                  5.2         -          -            -     5.2
Depreciation                       3.0         -          -            -     3.0
Segment Assets                    97.7       1.5        0.6          1.2   101.0
Unallocated corporate                                                        6.9
Total assets                                                               107.9
Segment liabilities             (32.5)     (0.8)          -            -  (33.3)
Unallocated corporate                                                     (47.4)
Total liabilities                                                         (80.7)

1. The discontinued operation relates to the European franchise business

4 Segmental Information (continued)

Analysis by geographical location

Year ended 31 December 2006                                                    
                               U K     France &  Germany1 Discontinued    Total
                                       Belgium1             operation2         
                                   £m        £m        £m           £m       £m
Revenue                          65.2       5.6       5.3          3.7     79.8
Segment result                    1.3       0.2         -        (1.2)      0.3
Unallocated administration                                                (3.1)
Operating loss                                                            (2.8)
Capital additions                15.5         -         -            -     15.5
Depreciation                      3.9         -         -            -      3.9
Segment Assets                  115.0       4.2       2.0            -    121.2
Segment liabilities            (80.5)     (1.9)     (0.7)            -   (83.1)

1. Non UK businesses relate to continuing hotel operations

2. The discontinued operation relates to the European franchise business

4 Segmental Information (continued)

Analysis by geographical location (continued)

Year ended 31 December 2005                                                    
                               U K     France &  Germany1 Discontinued    Total
                                       Belgium1             operation2         
                                   £m        £m        £m           £m       £m
Revenue                          65.3       5.7       4.2          4.0     79.2
Segment result                    6.0       0.4         -          0.6      7.0
Unallocated administration                                                (2.4)
Operating profit                                                            4.6
Capital additions                 5.0       0.1       0.1            -      5.2
Depreciation                      2.8       0.2         -            -      3.0
Segment Assets                  102.2       3.3       1.2          1.2    107.9
Segment liabilities            (77.1)     (2.4)     (1.2)            -   (80.7)

1. Non UK businesses relate to continuing hotel operations

2. The discontinued operation relates to the European franchise business

5. Operating (loss) / profit

                                                            2006          2005 
                                                              £m            £m 
This is arrived at after charging:                                             
Depreciation                                                 3.9           3.0 
Amounts receivable by the auditors and their                 0.2           0.2
associates in respect of:                                                      
         - Audit of financial statements of                  0.2           0.2
         - Other services relating to taxation               0.2           0.1
Property Rentals                                            15.0          13.8 

6. Financial expenses

                                                             2006          2005
                                                               £m            £m
Debenture Interest                                          (1.6)         (1.6)
Bank Loans & Overdrafts                                     (1.3)         (1.6)
Finance Lease Interest                                      (2.2)         (1.8)
                                                            (5.1)         (5.0)

7. Income tax

                                                             2006          2005
                                                       £m                    £m
UK Corporation Tax                                              -         (0.2)
Overseas tax                                                    -           0.2
Deferred tax                                                    -           1.0
                                                                -           1.0

The group has unrecognised taxable trading losses to carry forward of £6.6m
(2005 - £3.2m) and unrecognised capital losses to carry forward of £4.2m (2005
- £4.2m).

8. (Loss) / earnings per share

The basic (loss) / earnings per share is based on a loss after tax of £7.9m
(December 2005 - £0.6m profit) and 85,143,000 shares (December 2005 -
38,676,000 shares) being the average number of shares in issue during the year.
There are no potentially dilutive shares in issue.

9. Property, plant and equipment

                                      Freehold &        Furniture,        Total
                                       leasehold        fixtures &             
                                      properties       equipment &             
                                                    motor vehicles             
                                   £m                           £m           £m          
Cost or valuation                                                              
At 1 January 2006                           81.2              19.2        100.4
Additions                                   12.3               3.1         15.4
Disposals                                    0.0             (0.1)        (0.1)
At 31 December 2006                         93.5              22.2        115.7

At 1 January 2006                            7.8               5.5         13.3
Provided for the period                      2.0               1.9          3.9
Eliminated on disposals                      0.0             (0.1)        (0.1)
At 31 December 2006                          9.8               7.3         17.1
Net Book Value                                                                 
At 31 December 2006                         83.7              14.9         98.6
At 31 December 2005                         73.4              13.7         87.1

10. Trade and other receivables

                                                              2006         2005
                                                                £m           £m
Trade receivables                                              8.8          7.5
Other receivables                                              2.6          2.2
Restricted bank balances                                         -          0.1
Prepayments                                                    3.6          4.4
                                                              15.0         14.2

There are no debtors due after more than one year.

11. Trade and other payables

                                                              2006         2005
                                                                £m           £m
Trade payables                                                 7.3          7.9
Other payables                                                 0.6          1.3
Tax and Social Security                                        1.0          2.5
Accruals                                                       4.7          6.9
                                                              13.6         18.6

12. Reserves

                             Share      Share    Hedging    Retained      Total
                           Capital    Premium    Reserve    Earnings           
                                £m         £m         £m          £m         £m
Balance at 31 December         3.9        5.4      (0.2)        18.1       27.2
Movement in fair value of        -          -        0.2           -        0.2
hedging derivatives in                                                         
Issue of new shares            4.9       13.7          -           -       18.6
Loss for the year                -          -          -       (7.9)      (7.9)
Balance at 31 December         8.8       19.1          -        10.2       38.1

In January 2006 the company issued 48,780,488 new Ordinary Shares of 10p each
for a consideration of 41p each under a Placing and Open Offer increasing the
share capital to 87,522,405 Ordinary Shares.

13. Use of estimates and future performance

The preparation of the financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

Certain statements, which appear in a number of places throughout this
document, may constitute "forward-looking statements" which are all matters
that are not historical facts including anticipated financial and operational
performance, business prospects and similar matters. A variety of factors could
cause the Group's actual results and expectations to differ materially from the
anticipated results or other expectations expressed in the Group's
forward-looking statements. The statements, if any, are illustrative only and
do not amount to any representation that they will be achieved as they involve
risks and uncertainties and relate to events and depend upon circumstances,
which may, or may not, occur in the future and there can be no guarantee of
future performance.


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