Mandarin Oriental International Limited 2005 Preliminary Announcement Of Results

Mandarin Oriental made good progress in its development strategy in 2005 with the opening of two additional hotels and the announcement of a number of new management contracts.

Operationally, the Group's results benefited from increasing room rates as demand in many cities strengthened, particularly in Hong Kong.

Earnings before interest, tax, depreciation and amortization for 2005 were US$124 million, after some US$11 million of pre-opening costs related to Tokyo, compared with US$99 million in 2004.

Profit attributable to shareholders in 2005 was US$77 million, including a post-tax gain of US$36 million arising from the disposal of the Group's property interest in Hawaii. Excluding the gain from this disposal, profit attributable to shareholders was US$41 million. This compares with US$29 million in the previous year, which had benefited from a US$10 million investment writeback.

Earnings per share for the year were US¢8.14 including the Hawaii gain. Excluding the gain, earnings were US¢4.33, compared with US¢3.35 in 2004.

The Group's net financing charges were reduced following the conversion of the Group's 6.75% convertible bonds into shares in the early part of the year. Net debt was also reduced significantly with the US$97 million proceeds from the Hawaii sale.

The Directors are recommending an increased dividend of US¢1.50 per share compared with US¢1.00 paid in 2004.

The net asset value per share, with leasehold land adjusted to fair market value, was US$1.50 at 31st December 2005, compared with US$1.37 at the prior year end.

Significant profit increases were achieved at the Group's wholly-owned Hong Kong hotels as they benefited from increasing demand and higher room rates. The Group's other subsidiary hotels also produced better results in the improved trading environment, including the recently opened property in Washington D.C., which continued to establish its market position. Operating results from associates and joint ventures rose with stronger performances at Mandarin Oriental, New York, and at the Group's hotels in Singapore, Macau and Miami.

The sale of the Group's 40% ownership interest in Kahala Mandarin Oriental, Hawaii was completed in June 2005, as a consequence of which the Group's management of the hotel has come to an end. The sale of The Mark hotel in New York was completed in February 2006, and a gain of some US$35 million arising from the disposal will be recognized in the results of 2006.

The international visibility of the Mandarin Oriental brand has been strengthened considerably in recent years with the opening of select properties in key destinations and the renovation of existing flagships.

Progress continued on the Group's development strategy to operate at least 10,000 rooms in key city centre and resort destinations worldwide. The Group operates 21 hotels around the world with a further eight hotels under development, representing a total of some 8,500 rooms.

In December 2005, Mandarin Oriental, Tokyo opened and was well received in the market place. This followed the successful opening of the Group's new hotel at The Landmark in Hong Kong in August. In late 2005, the Group ceased to manage the Hotel Royal Monceau in Paris, but its developments in Prague and Riviera Maya, Mexico are due to open this year, with Boston following in 2007.

Four new management contracts were announced in 2005 for luxury hotels currently being developed in Chicago, Grand Cayman, Macau and Las Vegas. The Group has also recently announced that it will manage a luxury resort on Hainan Island in China opening later this year.

The Group's original flagship hotel, Mandarin Oriental, Hong Kong, closed at the end of December 2005 for a US$140 million renovation programme. The hotel will re-open all the public areas and 200 of the guestrooms in late August 2006, while the full complement of 503 rooms will be completed by year end.

In conclusion, the Chairman, Simon Keswick said, "Markets are expected to remain favourable in 2006 with room rates benefiting further from growing demand and limited new supply. While the temporary closure of Mandarin Oriental, Hong Kong will inevitably affect the Group's results, the effect will be partially offset by increasing contributions from new properties.

With its sound financial footing, significant hotel ownership interests and increasing brand awareness, Mandarin Oriental is well positioned to continue its successful expansion."

Mandarin Oriental experienced a strong growth in earnings in 2005 as a result of improved room rates. The Group reached a level of profitability from operations last achieved in the mid 1990's, prior to the Asian economic downturn. Overall results were further enhanced by the contribution from the recently opened hotels in the Group's growing portfolio as well as the contribution from the sale of the Group's ownership interest in the Hawaii hotel. In February 2006, exceptional market conditions led to the Group's successful sale of The Mark, New York, the gain of which will be recognized in the 2006 results. Both of these transactions have significantly strengthened the Group's balance sheet.

Our expansion accelerated in 2005 and we are well on our way to achieving Mandarin Oriental's objective of operating 10,000 rooms in key global destinations. During the year, two new properties opened in Hong Kong and Tokyo, and four new management contracts were announced. In February 2006, we announced another management contract for a luxury resort on Hainan Island in China. The Group comprises a portfolio of 21 hotels in operation with eight hotels under development, giving a total of approximately 8,500 rooms around the globe.

Set out below is a review of the Group's performance in 2005, with reference to the following strategic objectives:

Mandarin Oriental is enjoying global recognition as one of the world's most sought-after luxury hotel groups. Our hotels and resorts are committed to providing our guests with delightful experiences in luxurious surroundings, enhanced by unique oriental characteristics. As a consequence, the Group has garnered an impressive array of awards from respected publications and associations, and has achieved widespread media coverage around the world.

As demand for luxury strengthened in most travel destinations, our hotels remained focussed on delivering to our guests the legendary service that sustains our strong competitive position. The year saw increases in revenue per available room (RevPAR) across all regions, excluding new hotels, with Asia up 21%, Europe up 7% and The Americas up 26% over the previous year. As a result, gross operating margins across the Group have improved significantly from 2004.

The highlights of each region are as follows:

Hong Kong led the region with strong demand resulting in a significant improvement in rate. Mandarin Oriental's occupancy, at 81%, remained at a similar level to 2004, however the hotel's average room rate climbed by 22% to US$256. Food and beverage revenues were also buoyant, in line with the increased occupancy and the strengthening local economy.

In late December 2005, Mandarin Oriental closed its doors to commence a US$140 million renovation designed to secure its position as one of the world's legendary hotels when it re-opens in late August 2006. Current average rates for luxury hotels in Hong Kong are still below the levels achieved in other major cities, and Mandarin Oriental should attain higher rates following renovation. In line with the importance the Group places upon personalized service, the vast majority of hotel staff will remain employed during the closure period and have been offered opportunities for training and personal development or seconded to work at sister companies within the Jardine Matheson Group in Hong Kong.

At The Excelsior, occupancy remained steady year-on-year at 88%, but the hotel achieved a 22% increase in the average room rate with sustained demand from all market segments. The Excelsior's food and beverage revenues were also up 10% above 2004 levels.

In Macau, the RevPAR increased by 22% with strong increases in the average room rate, offset by a decline in occupancy.

In Southeast Asia, hotel results showed slight improvement but the market remained soft, particularly in Jakarta and Manila. In Singapore, The Oriental completed its full-scale renovation in May and has been repositioned as one of the city's top hotels, with a subsequent 52% increase in rates over the previous year.

The Oriental, Bangkok remains one of the world's favourite legendary hotels and will celebrate its 130th anniversary this year. It continues to outperform the market, enjoying a strong financial performance and a commanding share of the high-end leisure business into Thailand.

In December, Mandarin Oriental opened its 179-room hotel in Tokyo, and, while preopening costs of US$11 million impacted the Group's results in 2005, the property has quickly established itself within the top hotels in the city, commanding an average room rate of over US$500.

In London, Mandarin Oriental Hyde Park continued to be one of the city's best performing luxury hotels with an average room rate of US$643, a 4% improvement in local currency terms compared with 2004. Despite the impact of the terrorist attacks in the summer, the market showed great resilience and occupancy at the hotel remained virtually unchanged from the previous year. Mandarin Oriental, Munich, as the leading hotel in the city, achieved a solid performance with a 7% improvement in the average room rate. In Geneva, Mandarin Oriental was ahead of its competitive set with the market showing some recovery leading to a 15% increase in RevPAR over 2004.

Mandarin Oriental no longer manages the Hotel Royal Monceau in Paris. The Group had intended to brand the property on completion of a full renovation which did not take place.

Mandarin Oriental, Washington D.C., which opened in March 2004, performed well in its first full year of operation and is now well-established in the city. Occupancy was 60% compared with 44% in 2004 and the average room rate was US$290, up from US$249 in the previous year.

Mandarin Oriental, New York's strong performance had a positive impact on the Group's results. This award-winning property achieved an occupancy of 72% at an average room rate of US$695, giving an overall increase in RevPAR of 48% over the previous year.

The sale of The Mark hotel was completed in February 2006 for a gross consideration of US$150 million. The property, which was originally acquired in 2000 as part of the US$143 million acquisition of The Rafael Group, continues to be managed under a shortterm management contract.

The Group's other US-based hotels performed well as a result of the general improvement in market conditions, with RevPAR increases of 19% in Miami and 15% in San Francisco. Following the sale of its ownership interest in Hawaii, Mandarin Oriental's management of the property has come to an end.

Mandarin Oriental is now well on its way to reaching its goal of operating at least 10,000 rooms in major cities and resort destinations around the world, with approximately 8,500 rooms currently in operation or under development. As a consequence of the strength of our brand worldwide, the Group has a significant pipeline of development opportunities under review and we remain confident of reaching our goal within the next few years.

The following new properties are planned to open over the next four years:

2006

2007

2008

2009

While all of the above management contracts will provide an additional source of revenue for the Group, Mandarin Oriental intends to remain a significant owner of hotel assets, particularly in strategic city centre destinations. Such properties are often unique in their markets and provide the Group with an important source of capital appreciation over the long term. Ownership also gives us increased credibility with third party hotel developers, and ensures our long-term ability to shape our brand, creating legendary hotels that have the right mix of tradition, quality and innovation, under the umbrella of our oriental heritage.

The investment behind our brand over the past few years has led to the Group becoming highly respected as a management company amongst our guests and the owners of luxury hotel developments around the world.

Mandarin Oriental remains focussed on delivering the brand attributes which define our own style of luxury. This includes our expertise in holistic spa operations, innovative dining experiences, guest-orientated technology and creative hotel design and architecture. Most importantly, our increasingly visible brand and strong company culture motivates our employees to excel in delighting our guests. Investing in our 10,000 colleagues around the world remains essential to our success.

Looking forward, our corporate resources provide us with a solid foundation on which to add further management opportunities.

A strong cash flow and balance sheet remains fundamental to our success. In 2005, the Group returned to performance levels last achieved in the mid 1990's, with a profit from operations of US$52 million, excluding the one-off US$11 million pre-opening expenses in Tokyo.

As a result of the improved operating performance and the proceeds on sale of the Hawaii investment, cash flow grew to US$116 million before financing activities, which included US$24 million of funding, primarily in respect of the Tokyo and Boston projects. This compares with a cash flow of US$19 million before financing activities in 2004, which included US$30 million of investment in the Washington D.C. hotel.

In early 2005, the Group's US$75 million, 6.75% convertible bonds were converted to equity resulting in the issue of 113 million ordinary shares which further strengthened our balance sheet.

The Group's financial position is strong with gearing at 22% at 31st December 2005, down from 44% at the end of 2004 (based on adjusted shareholders' funds). Net debt has now been reduced by a further US$100 million, following completion of the sale of The Mark with an accounting gain of approximately US$35 million to be recognized in 2006.

In 2005, the Group performed well and the demand which drove these results should continue in all key segments of the luxury market, barring unforeseen events.

The closure of Mandarin Oriental, Hong Kong for eight months will impact earnings in the short term, but the renovation will significantly enhance its contribution to the Group's results.

Looking forward, the Group is in a strong position to continue building its brand equity and translating this into profitable growth opportunities. We are firmly on target to reach our ultimate goal of being recognized as the best global luxury hotel group.

Edouard Ettedgui

23rd February 2006