Jardine Strategic Holdings Ltd. Preliminary Announcement Of Results For The Year Ended 31Dec02

Results

Jardine Strategic recorded excellent growth in earnings in 2002 with underlying profit increasing 68% to US$232 million. Underlying earnings per share increased by 74% to US¢35.94.

The Company's financial statements are prepared in conformity with International Financial Reporting Standards, which require the revaluation of investment properties to be taken through the profit and loss account, rather than directly to reserves. In 2002, the negative impact of non-cash movements in valuations, primarily in Hongkong Land, was partly offset by gains from disposals including Dairy Farm's sale of its New Zealand business. The resulting net profit at US$19 million, or US¢2.92 per share, fell well short of underlying earnings, but compared favourably with net loss of US$181 million, or US¢27.21 per share, recorded in 2001 when the result was similarly affected by negative movements in property valuations.

Net asset value per share, based on the market price of the Company's holdings, recorded a modest increase, rising 1% to US$4.95 at the year end.

The Board is recommending a final dividend of US¢9.90 per share, which, together with the interim dividend of US¢4.60 per share, gives an unchanged dividend for the full year of US¢14.50 per share.

Operating cash flows were strong throughout nearly all our businesses. These were augmented by disciplined management of capital expenditure and working capital, as well as by some well-timed asset disposals.

There was a continued strong recovery across the board at Dairy Farm, including an improvement in its Hong Kong supermarkets. The performance of Cycle & Carriage benefited from significantly increased earnings in Astra, its Indonesian affiliate, which traded well and enjoyed a welcome period of exchange rate stability. Mandarin Oriental, suffering from the poor conditions of the international travel industry, did well to improve its earnings.

Within Jardine Matheson's directly held interests, Jardine Pacific's diversified mix of business produced a satisfactory overall result, but Jardine Motors Group felt the impact of lower margins in Hong Kong caused by weaker markets and changed trading terms with Mercedes- Benz. Jardine Lloyd Thompson improved its market share and yet again achieved record earnings.

Hongkong Land had the most difficult year of our principal affiliates, experiencing reduced rents and asset values in a Central District property market badly affected by problems in the global financial sector. However, the company managed to contain its profit decline, chiefly by obtaining a good share of new lettings in Hong Kong, and its profit contribution to the Group rose marginally due to Jardine Strategic's increased shareholding.

Corporate Developments

A series of initiatives were undertaken to reshape the Company's interests in Southeast Asia, including a US$137 million Partial Offer for Cycle & Carriage, which increased the Company's holding to over 50%. Jardine Strategic also made a €˜chain principle' offer for the minority interests in Cycle & Carriage's 60%-held subsidiary, MCL Land. The acceptances received were subsequently sold to Cycle & Carriage, helping it to increase its stake in MCL Land to 66%. The Company's Partial Offer for Cycle & Carriage was itself in response to the strategic decision made by Edaran Otomobil Nasional, in which Jardine Strategic has a 19% stake, to focus on its core Malaysian motor retail operations. To help achieve this goal EON decided to divest its 21% shareholding in Cycle & Carriage, part of which Jardine Strategic acquired in the Partial Offer, and to list its banking operation. EON intends to distribute to its shareholders its remaining Cycle & Carriage shares.

The complex financial restructuring necessary to reduce the burden imposed on Astra by its foreign currency debt was successfully achieved. Creditor approval was received in December 2002, and Astra's shareholders subsequently endorsed the proposals, which included a US$158 million equivalent rights issue in January 2003. Cycle & Carriage participated fully in the issue, and used the opportunity to increase its stake in Astra to 34.3%.

The effect of these actions has been to consolidate the Group's interest in Cycle & Carriage, while maintaining its status as one of Singapore's principal listed companies. Cycle & Carriage has, in turn, given full support to the restructuring of Astra's balance sheet, and is well placed to support Astra's development as a major Indonesian company with a potentially outstanding future.

Dairy Farm sold its New Zealand business in June to concentrate on the development of its Asian retail network. In Malaysia, Singapore and Indonesia the company is successfully combining its international retailing skills with an understanding of the needs of the local consumer in the development of its hypermarket format. The company is also expanding elsewhere in the region. In 2002, Dairy Farm deployed some of its cash surplus in repurchasing 177 million shares, and is now offering to repurchase a further 11% of its share capital by way of a tender offer.

Hongkong Land's new flagship property Chater House was successfully opened in the second half of the year. More recently, the company announced an important upgrading of its Landmark complex, including a new exclusive hotel to be managed by Mandarin Oriental. Mandarin Oriental continued its expansion strategy with major new properties under development in New York, Washington and Tokyo.

Finally, the Group continued its strategy of purchasing or repurchasing shares in Group companies where favourable opportunities presented themselves. The Company now holds 69% of Dairy Farm following that company's 10% share repurchase tender offer, as well as 72% of Mandarin Oriental and 50% of Cycle & Carriage. Jardine Matheson's interest in the Company also rose to 79%. This strategy played a valuable part in enhancing earnings per share.

Prospects

In conclusion, the Chairman, Henry Keswick said, "The economic outlook for 2003 remains uncertain, and Hongkong Land in particular is likely to experience further declines in earnings as demand remains weak in its core market. Our businesses, however, remain financially strong and by pursuing active development programmes are providing the basis for future profit growth."

Operating Review

Jardine Matheson

Jardine Matheson produced a profit performance in 2002 that notably exceeded its expectations at the beginning of the year. Its underlying profit was up 41% to US$253 million in the year ended 31st December 2002, and earnings per share, enhanced by the effect of share repurchases, rose 46% to US¢67.40.

Looking forward, its businesses are trading well and remain in sound financial health. While there may be weaknesses in some sectors in 2003, opportunities for sustained growth will continue to be pursued. Nevertheless, the global economic and political climates remain uncertain and the current year is therefore one in which to temper optimism with caution.

€¢ Jardine Pacific did well to increase its underlying net profit in 2002 by 5% to US$81 million as Hong Kong's economy continued in the doldrums and many others within the region similarly weak. The return on average shareholders' funds, excluding non-recurring items, rose to 16%, up from 14% in 2001.

Of Jardine Pacific's businesses, HACTL benefited from a 20% increase throughput at Hong Kong's airport enabling it to enjoy a record year and produce an underlying profit contribution of US$23 million. Jardine Aviation Services and Jardine Shipping Services both continued to perform well. Gammon Skanska, however, experienced a 31% decline in its order book due to exceptionally low levels of activity in the private building sector, and the outlook for 2003 is also difficult. Jardine Schindler's order intake remained stable, and its maintenance portfolio grew by over 900 units, but Jardine Engineering saw its profit decline. Restaurants did well to maintain its profit at US$8 million in a competitive market, and, in its first full year as an independent company, EastPoint property management produced a good performance.

Following higher losses recorded at Jardine Logistics the decision was taken to merge the business with that of Hong Kong-listed freight-forwarder, BALtrans, in exchange for a 20% interest in the enlarged business. In further refinements to Jardine Pacific's portfolio, IKEA in Hong Kong and Taiwan was sold to Dairy Farm for US$27 million, producing a profit on sale of US$11 million. The 50% stake in Jardine Salmat was also exchanged for a 4% stake in Salmat Holdings, the Australian joint-venture partner.

€¢ Jardine Motors Group achieved an underlying net profit of US$39 million, down 23% following a reduced profit in Hong Kong and additional restructuring costs in the United Kingdom. The net profit of US$19 million reflects the non-cash effect of charges for cumulative exchange translation differences arising from the sale of the group's interests in France and closure costs in India.

In Hong Kong, Zung Fu's sales held up reasonably well in a particularly challenging market, although margins were reduced following a new franchise agreement with DaimlerChrysler. There was a positive contribution from Southern China where the Mercedes-Benz distribution joint-venture increased deliveries and Zung Fu expanded its service centre network.

In the United Kingdom, the Lancaster dealerships produced improved trading results in a strong market, but the overall result suffered from further costs in restructuring the property portfolio and the exit from a shared services business. A resilient luxury car market in the United States produced steady volumes and increased profit in what had been projected to be a difficult year.

In 2003 Jardine Motors Group is to focus on further strengthening the quality of its customer service in Hong Kong, expanding its network in Southern China and improving the performance of its UK operations.

€¢ Jardine Lloyd Thompson achieved record profits again in 2002, reflecting a combination of organic growth, new business wins and efficiently managed operations. The harder insurance market conditions also contributed as clients turned to JLT for solutions to their insurance needs. Turnover in 2002 was £388 million, an increase of 11%, and profit before tax, exceptional items and goodwill amortisation grew by 21% to £102 million, based on UK accounting standards.

In both of the group's main operating areas, Risk & Insurance and Employee Benefits, very creditable results were achieved against the background of demanding operating environments. Risk & Insurance again produced record results for JLT, with new business providing most of the growth impetus; revenue grew by 16% to £314 million. The revenue contribution from Employee Benefits was flat at £75 million due to lower pension review business in the United Kingdom, however, this masked the strong growth in actuarial, consulting and pension administration. Revenue from long-term contracts won in 2002 is beginning to flow, and is expected to show in the results from 2003.

The significant potential of its two core business sectors, Risk & Insurance and Employee Benefits, provides JLT with the opportunity for continued growth notwithstanding the prevailing uncertain economic and market conditions.

Hongkong Land

Hongkong Land's average rents and occupancy levels were under pressure as demand remained weak, but the company increased its share of leasing transactions in Central as tenants saw good value in its quality locations and buildings. Underlying earnings for 2002 fell by 10% to US$192 million as net rental income fell by 2% and financing charges rose because of the higher levels of net debt.

The group's annual investment property valuation led to a net valuation deficit of US$988 million, which was charged to the profit and loss account under the International Financial Reporting Standards. This was the main factor in the 18% reduction of shareholders' funds to US$4,957 million, which led to a similar decline in net asset value per share to US$2.23.

Despite the downturn in Hong Kong's office sector, the group continues to invest in its core portfolio. Its new property, Chater House, was successfully completed in 2002, and the anchor tenants in both office and retail were operating before the year end. The renovation of its Alexandra House retail podium is under way, and is expected to be complete and substantially let before the end of 2003. Preparations have also begun for a major renovation of the Landmark complex in the heart of Central. Such projects, each of which adds incremental revenue, are designed to maximize the value of the group's prime assets.

In Singapore, construction of the joint-venture development, One Raffles Quay, is well under way, while the wholly-owned One Raffles Link remains fully let and commands a rental premium. Hongkong Land also continues to invest in its residential property business, and progress was made in the construction of Phase I of Central Park in Beijing and of the Belcher's Street site in Hong Kong.

As Hongkong Land's strategy is to focus on its core property businesses, the decision was made to selectively dispose of assets in its infrastructure portfolio over time.

In the near term, rentals and values in the group's core Hong Kong property portfolio will continue to experience downward pressure. However, the medium-term outlook remains favourable with no significant supply in Central from 2004 onwards.

Dairy Farm

Dairy Farm's results achieved a significant improvement from a broadly based increase in earnings despite difficult economic conditions. In 2002, the underlying profit in its continuing operations rose by US$69 million to US$102 million. The result was built on a 7% increase in sales, including associates, to US$4 billion, combined with an overall reduction in the costs.

Dairy Farm has a strong balance sheet and businesses that are well tailored to their individual markets. Its priority is to build its existing operations, with particular emphasis on expanding hypermarkets in Southeast Asia and on the development of businesses in China. To this end, the group sold its subsidiary in New Zealand producing a gain of US$231 million.

The Southeast Asian operations achieved a substantial increase in profit in 2002, largely due to the improved performances in Singapore and Malaysia. Six hypermarkets were opened in Southeast Asia during the year, including the first two in Indonesia. Profits in North Asia also showed significant improvement. Mannings health and beauty stores in Hong Kong had an excellent year, and the performance of Wellcome Hong Kong also improved as the business continued its turnaround.

The expansion of the 7-Eleven network in Guangdong gathered pace, ending the year with 127 outlets, and, in Taiwan, Wellcome increased its stores through acquisition. In December, Dairy Farm entered the South Korean market through a joint-venture to operate health and beauty stores. The IKEA home furnishings business in Hong Kong and Taiwan was purchased in October for US$27 million. Maxim's, the Hong Kong restaurant joint-venture, produced an improved result and continued to expand its successful Starbucks franchise in Hong Kong, Macau and Shenzhen.

Dairy Farm repurchased some 10% of its share capital in 2002 and, in light of its continuing substantial net cash position of US$400 million, is proposing to offer a further return of value to shareholders by way of a tender offer to repurchase some 11% of its shares.

Mandarin Oriental

Mandarin Oriental recovered somewhat from the depressed conditions prevailing at the end of 2001 as occupancy levels in most of its key markets improved, but average room rates continued to suffer. Against this challenging environment, most of the group's hotels did well to maintain or improve their competitive position in their local market.

The company's consolidated profit before interest and tax for 2002 was US$55 million, an increase of US$15 million. This result included a US$5 million write-back of development costs for Mandarin Oriental, Washington D.C. following the decision to proceed with the project. Net profit was US$19 million, compared with US$4 million in the previous year.

The group's hotels that had opened or re-opened over recent years achieved notable success in 2002. In London, Mandarin Oriental Hyde Park markedly improved its competitive position, with the group's earnings benefiting from an increase in contribution. In Kuala Lumpur and Miami, Mandarin Oriental's hotels have established market-leading positions that have been clearly recognized through industry awards.

Mandarin Oriental remains committed to its strategy of consolidating its position as one of the best global luxury hotel groups, and significant progress was made towards completion of its current investment programme. The group's new 251-room hotel in New York is schedules to open in late 2003, and construction is also under way on its 400-room hotel in Washington D.C. for completion in 2004. Planning for a 171-room hotel in Tokyo is proceeding well with completion scheduled for 2006. The group will also manage a new 118-room niche luxury sector hotel in Hong Kong's Central District from 2005, which will complement the group's existing flagship, Mandarin Oriental, Hong Kong.

The luxury hotel industry continues to face considerable challenges and no early recovery can be expected. At the same time, the pre-opening expenses of the group's two new US hotels will negatively affect its results in 2003. Nevertheless, Mandarin Oriental's investment programme, combined with the effect of an upturn in the economy, will benefit it over the longer-term.

Cycle & Carriage

Cycle & Carriage, now 50.2%-held, achieved a satisfactory result in 2002 despite the generally weak economic environment in the region. In particular, Astra's performance benefited from strong demand and a strengthening of the Indonesian currency. Cycle & Carriage's underlying profit, before exceptional items, rose 57% to S$261 million.

Net profit grew by 92% to S$231 million. The result benefited from a gain recorded on Astra's foreign currency debt caused by the strengthening of the Indonesian Rupiah, compared to a loss in the prior year, and the share of a gain on disposal by Astra, but these were offset by a write-down in the value of MCL Land's investment property, exchange losses on loans to subsidiaries and deferred tax asset write-offs.

Underlying earnings from motor vehicle operations fell 18% to S$53 million due to a decline in Singapore's highly competitive market. The Australian motor business recorded a loss due to reduced Hyundai unit sales and margins, while the New Zealand motor operations more than doubled their profits. Growth in the non-national car sector in Malaysia enabled Cycle & Carriage Bintang to increase its sales and profits, but the agreement reached for DaimlerChrysler to take over the Mercedes-Benz distribution rights from January 2003 will have an adverse impact on future profitability.

The contribution from property, excluding exceptional items, increased from S$14 million to S$40 million. There was a good increase in the earnings of 66%-held MCL Land arising from the successful sale of a number of residential developments in Singapore.

Economic stability in Indonesia assisted Astra's strong growth and enabled it to increase its earnings contribution to S$185 million, up 74%. Astra's motor businesses benefited from improved markets, with particularly strong growth in motor cycles, while its agribusiness grew significantly due to the escalation in crude palm oil prices. In December, Astra's creditors approved the restructuring of its debt, which was followed in January 2003 by a S$280 million rights issue, in which Cycle & Carriage participated to the extent of S$135 million. This, together with market purchases, has enabled it to increase its stake in Astra to 34.3%.

Cycle & Carriage's performance will continue to be influenced in 2003 by the unsettled economic conditions, and the level of its attributable profit will also be affected by the value of the Indonesian Rupiah.