CHAIRMAN'S STATEMENT

Eighteen Months ended 30 June 2011

Whilst the general economy and the financial markets have entered uncharted territory challenging all participants’ ability to forecast reliably, we continue to believe that the Group’s underlying strategy is the right one, namely that we are positioning our remaining businesses in line with our stated exit plans.

Against this background, we have achieved a number of key strategic objectives since our last annual statement which was for the 12 months ended 31 December 2009. This statement covers an extended period of 18 months to 30 June 2011. In some instances, where relevant, I have also commented on the 12 months to 30 June 2011 and its performance relative to the previous year. We changed the Company’s accounting reference date from 31 December to 30 June to enable us to complete the refinancing of our Malmaison and Hotel du Vin (“Malmaison”) business.

Shareholders will be aware that these negotiations were successfully completed in October 2011 and we have extended the major part of our £282.5 million facility to 31 December 2014. As part of our strategic objectives, this facility will be reduced by approximately £100 million following completion of our hotel sales and leasebacks in the early part of November 2011. Whilst realising cash enabling the pay down of debt, we also retain value in these hotels through new 70 year leases and provide Malmaison with security of occupancy.

Importantly, in parallel with the Malmaison refinancing, we also concluded a new shareholder agreement with RBSM Investments, owners of 17.5% of Malmaison. This gives Group 100% of thefuture residual economic value of the hotel business in exchange for an increased return on RBSM’s preference shares. Full details of the sales and leasebacks, the Malmaison refinancing and the amendments to the Malmaison shareholders’ agreement are to be found in the Circular sent to shareholders dated 29 September 2011. Note 29 of the financial statements for the period under review provides a pro forma summary of the impact of the transactions had they taken place on 30 June 2011. The full impact of these transactions will be reflected and reported on during the course of the year to 30 June 2012.

Key events during the period under review included the £27.5 million share issue in January 2010, the disposal of Liberty in June 2010 and the reduction and extension of the Group central loan facility in June 2011. Cash raised from these transactions reduced Group debt by £49.7 million, and when the sales and leasebacks complete in November 2011, the amount repaid will rise to £149.7 million. As a result, gearing will fall from 237% as at 30 June 2011 to about 161% and will leave us well positioned to drive growth in our hotels business underpinned by a more robust, less leveraged capital structure. We have also extended our unsecured loan stock facility to December 2016 and the Group’s central bank facility to December 2013. This reflects our commitment to cut borrowings, strengthen the balance sheet, consolidate our holdings in the remaining operating businesses and progress our exit strategy.

Shareholders will recall that Liberty, our central London retailing business, was sold in two stages. In May 2010 the sale and leaseback of Liberty’s 125,000 sq ft flagship Tudor building was completed for £41.5 million in cash, a substantial premium over the 31 December 2009 independent valuation of£26.2 million. Later the same month the second stage of the disposal was announced as the Board of Liberty recommended a cash offer that, together with a special dividend, amounted to an aggregate return to Liberty shareholders of £42.0 million.

In April we began the process of increasing our equity holding in MWB Business Exchange Plc and we expect to make a further announcement on this shortly.

Whilst the economic environment has been difficult over the past 18 months, the management teams of both Malmaison and MWB Business Exchange should be congratulated for maintaining the high quality of service and product that has delivered stable revenues and occupancies over the period. Indeed Malmaison was recently awarded the accolade of the “Best Small Hotel Chain Worldwide 2011” by Business Traveller Magazine.

Occupancy at Malmaison and Hotel du Vin was 77% compared to 79% for the 12 months ending 31 December 2009. The average room rate across our hotel group increased from £102.62 in December 2009 to £104.94 at the end of June 2011. Despite tougher trading conditions, food and beverage contributed £72.6 million in revenues for the 18 months to 30 June 2011, with the comparable 12 month periods to 30 June 2011 and the equivalent period in 2010 being broadly equal. As a result, overall, our hotels generated stable revenues at £164.0 million for the full 18 months of which £111.6 million related to the last 12 months compared with £111.0 million for the equivalent prior year to 30 June 2010.

With hotel Earnings Before Interest Taxation, Depreciation and Amortisation (“EBITDA”) at £37.7 million for the 18 months, the conversion of revenues into earnings held up equally strongly. Although we achieved a slightly lower EBITDA of £25.9 million for the 12 months to 30 June 2011 compared with £27.8 million in the prior 12 month period to 30 June 2010, once one-off cost benefits of £1.4 million are stripped out of the 2009/10 result, at the operating level EBITDA remains the same.

A new development within our hotel business is the creation of the Bistro du Vin stand-alone brasserie concept, the first of which opened in Clerkenwell last April, with a second opening in Soho over the summer. These are proving popular among the public and critics alike and we continue to look for further sites to convert into the concept.

We recently announced the forthcoming departure of Robert Cook, the Chief Executive of Malmaison and Hotel du Vin. Robert has been with the Group for almost eight years and has made a major contribution to the development and growth of our hotels business. He has been committed to seeing the refinancing through as he, along with the rest of the Malmaison and MWB Group boards, particularly wanted a solid foundation for the business and its people going forward. We wish him all the success for the future.

MWB Business Exchange continues to be the dominant serviced offices provider in the central London market with 41 of its 65 centres based there. The first 12 months’ trading conditions remained challenging with both occupancy and rate falling. However, since January 2011, we have seen an underlying improvement in both with total revenues of £55.1 million for the six months to 31 December 2010 increasing to £55.8 million for the half year to 30 June 2011. For the 18 month period overall revenue has been maintained at £165.2m, £110.9 million for the 12 months to 30 June 2011 compared to £109.3 million for the year to 30 June 2010. Since the period end it is pleasing to note that Business Exchange has seen broadly higher revenue levels, with September generating its highest ever for that month. This is encouraging and we believe that this represents a discernible upwards trend.

EBITDA reduced from £11.0 million at December 2009 to £0.9 million at June 2011. This was as a result of the impact of revenue reductions of £2.3 million on a like-for-like basis; new centre openingcosts of £0.5 million; restructuring costs of £2.7 million; and additional costs of £4.6 million, primarily property overhead. Increased depreciation, following a capital expenditure of some £21.5 million over the past 30 months, one-off write-downs, property and goodwill impairments, saw pre-tax profits reduced from £6.1 million to a loss of £13.0 million, of which £5.1 million related to the 12 months to 31 December 2010 and £7.9 million to the six months to 30 June 2011.

At a consolidated Group level, revenue from continuing operations amounted to £329.9 million for the18 months to 30 June 2011, £223.0 million for the 12 months to 30 June 2011 compared to £220.3 million for the year to 30 June 2010. Overall losses have increased from £14.2 million for the year to 31 December 2009 to £ 29.2 million for the 18 months to 30 June 2011. This comprised a net profit of £3.6 million for the 6 months to 30 June 2010 which included the gain on the sale of Liberty and a loss of £ 32.8 million relating to the 12 months overall to 30 June 2011. This compares with a loss of £6.1 million for the year to 30 June 2010. Exceptional property and goodwill impairments of £10.9 million and transaction costs of £4.6 million, including those relating to the share placing and the accrued costs for the Malmaison transactions, contributed to this increased loss along with the absence of any further contribution from Liberty which had been transformed by MWB from an ailing business to one that was generating profit at the point of sale.

Overall, whilst Malmaison’s trading performance has been flat on a like-for-like basis during the period under review, this is a very good performance relative to its peer group where many operators are seen to be struggling. It has been a significant achievement to have successfully renegotiated Malmaison’s financing along with the 5 sales and leasebacks, which will now provide a secure base from which we can focus on growing the hotel group’s earnings. MWB Business Exchange encountered a difficult 12-18 months but since the start of 2011 we have seen signs of recovery, as revenue has grown consistently in the first 9 months of the year. This does reflect the stronger market conditions in London and underlines the merit of our strategy of being the capital’s largest provider of serviced offices.

We believe the underlying quality of our businesses’ product offerings and management teams continues to be recognised by our clients. This gives us confidence in the future of both companies and their ability to adapt to current market conditions.

Eric Sanderson
Chairman
20 October 2011