After taking into account the adjustments for various non-operating items, profit attributable to shareholders for 2003 amounted to HK$351 million as compared to HK$293 million in 2002. Shareholders� funds stood at HK$13.4 billion, or HK$9.59 per share, after incorporating the year-end asset revaluations, an increase of 16% as compared to 2002.

No interim dividend was paid during the year 2003 (2002: nil). Although the Company has achieved a satisfactory increase in profit attributable to shareholders for 2003, the directors consider it prudent to retain a significant portion of the earnings within the Company in light of the group�s ongoing capital expenditure requirements. The directors therefore recommend to shareholders that the final dividend should be maintained at 8 cents per share (8 cents in 2002).

Key financial results

• Revenue from hotel operations up 2% to HK$1,973 million
• Group operating profit of HK$618 million, a decrease of 3% as compared to 2002
• Profit attributable to shareholders increased to HK$351 million, compared to HK$293 million in 2002
• Shareholders� funds at December 31, 2003 increased by 16% and stood at HK$13.4 billion or HK$9.59 per share
• Earnings per share increased to 29 cents
• Net borrowings decreased by HK$922 million to HK$4.7 billion
• Proposed final dividend maintained at 8 cents per share
• Excluding The Peninsula Palace Beijing, operating expenses reduced by 4% overall

• Insurance settlement of HK$95 million for claim against SARS business interruption
• Revaluation of assets
• Consolidated accounts include The Peninsula Palace Beijing for the first time
• Company�s balance sheet strengthened by proceeds of the HK$1,135 million share placement

�Our staff also contributed by taking voluntary unpaid leave to ease payroll costs during that period. I am delighted that these strategies have paid off.�

In the hotel operations, The Peninsula Hong Kong experienced an extraordinary business rebound after the SARS crisis subsided, helped by marketing initiatives such as the �Three Peninsula Wishes� and the �75 for 75� rooms and food and beverage offers. Both The Kowloon Hotel and The Peninsula Bangkok returned to normal business levels by the end of the year. Since the completed renovation of The Palace Hotel and its relaunch as The Peninsula Palace in September 2003, the hotel has seen a significant increase in room rate. The loss of income due to SARS in Hong Kong was mitigated by a successful business interruption insurance claim, which recovered HK$95 million.

In the USA, The Peninsula New York had a difficult first half year, amidst security fears in the city during the Iraq conflict, but ended on a high note, with a record operating profit for December. Both The Peninsula Chicago and The Peninsula Beverly Hills were relatively unaffected by the conflict and performed well, with The Peninsula Chicago increasing its revenue by some 22%. Quail Lodge, closed for almost five months for major renovation, re-opened during the summer with a much more attractive product and has been rebuilding its business at higher room rates.

The yield on the Company�s major Hong Kong properties � The Repulse Bay complex, The Peak Tower and St John�s Building � continued to decline during the year as demand remained weak in the light of Hong Kong�s uncertain economy and outlook. The improvement in sentiment towards the end of the year, particularly in the luxury residential sector has not yet flowed through into the results. Elsewhere, The Landmark in Ho Chi Minh City, the Thai Country Club and the group�s club and consultancy operations have performed well. The franchise to operate the Peak Tram has been extended for another 10 years until 2013.

On development, significant progress has been made during the year on the hotel project in Tokyo. Working with Mitsubishi Estate Company, the group has advanced its detailed designs to the point of shortly inviting tenders from contractors. Construction of the hotel is expected to commence before the end of 2004.

The Company has also pursued discussions in Shanghai with the aim of developing a Peninsula hotel on a site in the Waitanyuan area of the Bund, close to the old British Consulate. A framework agreement was signed in November 2003 to further discussions on the acquisition of this site, in conjunction with a Shanghai developer.

On existing assets, the major renovations at The Peninsula Palace Beijing and Quail Lodge Resort have breathed new life into these properties. The new Thai restaurant, Thiptara, and the River Cafe have enhanced the dining facilities at The Peninsula Bangkok and The Pen-Top Bar in The Peninsula New York will shortly be renovated. Guestroom refurbishments have also taken place in the Peninsulas in Hong Kong and Beverly Hills.

The Company has also focussed attention on its property assets at The Repulse Bay complex, where a programme to refurbish existing apartments has commenced and the residents� clubhouse continues to undergo improvements; and at The Peak Tower, where management is studying a major renovation scheme that would create a new layout with improved retail and restaurant concepts.

�I never imagined, during the SARS outbreak, that we would be able to end the year on such a positive note,� said Mr Kwok. �Our group takes a very long-term view on business and the short-term effects of SARS have not altered our vision or strategies.

�We believe that all our hotels are well placed to compete in their respective markets and we are positive about the prospects for The Peninsula Palace and Quail Lodge with the renovated products there.

�In the longer term, we believe that the efforts which we continue to make to enhance our existing properties, as well as the new developments in Tokyo and possibly in Shanghai, will bring increased value.�

Expansion of the company�s business interests, especially in The Peninsula Hotels (PH), and the requirement to meet this activity with increased risk management, internal audit and corporate governance processes, has led The Hongkong and Shanghai Hotels, Limited (HSH) to make significant appointments within the group.

Commenting on the moves, Chief Executive Officer Clement Kwok said, �The positions created within the corporate office will strengthen oversight of all our business interests in performance, compliance and preparedness, whilst within the operations, we are opening up the path to career progression for the next generation of talented executives among our teams.�

Mr Peter C Borer
Currently Group General Manager�Asia and General Manager of The Peninsula Hong Kong, Mr Borer will become Chief Operating Officer of The Peninsula Hotels and a director of HSH, effective April 15, 2004, at which time he will move to the corporate office. In his new capacity, Mr Borer will oversee all hotel operations, with the objective of enhancing performance and maintaining standards. He will also lead the development of brand image, marketing and distribution and will be pivotal in the successful opening of future hotels.

Mr Borer joined the group in 1981 as Food & Beverage Manager at The Peninsula Manila, and in successive promotions, enjoyed senior roles in the Hong Kong and Bangkok hotel operations, as well as within the corporate office. He was appointed General Manager of The Peninsula Hong Kong in 1994, taking on the regional responsibility in 1999.

Mr David C Williams
Mr Williams, a Fellow of the Institute of Chartered Accountants in England and Wales, has been appointed Head of Audit and Risk Management. Reporting directly to the CEO and through him to the Audit Committee, Mr Williams� scope of responsibilities will encompass risk assessment, internal audit, business efficiency and value assessments, and system and process improvements.

He joined the group in 1998 as General Manager, Operational Financial Control and, over a 30-year career in the hospitality industry, has occupied senior positions with other international hotel groups in Europe, the Middle East, Australasia and Asia.

Mr Ian Michael Coughlan
At present the General Manager of The Peninsula Bangkok, Mr Coughlan will move to Hong Kong in September to take up the position of General Manager of the flagship hotel, The Peninsula Hong Kong. Prior to his appointment at the Bangkok property in 1999, he had been Hotel Manager at The Peninsula Hong Kong and is therefore already familiar with its operations.

Mr Coughlan�s extensive operational management background includes positions held in Britain, Switzerland and the USA before he came to Asia in 1992.

Ms Rainy Chan
Ms Chan will be promoted to General Manager of The Peninsula Bangkok and will take up her new role in August 2004. She joined the group in 1994 as Front Office Manager at The Peninsula Hong Kong, and after successive promotions within that hotel, was appointed Resident Manager at The Peninsula New York. She returned to The Peninsula Hong Kong in December 2001 as Hotel Manager.

Ms Chan began her career in Maui, Hawaii in 1989 when she joined the Inter-Continental Resort.