"2002 was the year when our strategic platforms, articulated during the merger of DBS Land and Pidemco Land, came to fruition."

Dear Shareholders

Two years after the merger, and managing in the midst of very difficult market conditions, we are pleased to announce that we achieved a profit before tax of S$484 million, and profit after tax and minority interests (PATMI) of S$290 million. The Group generated healthy net cash flow from operations, in excess of S$1 billion in 2002. During the course of the year, we monetised about S$1.1 billion of assets to strengthen our balance sheet and build platforms for a lasting and profitable company.

Turning Platforms into Profits

In many respects, 2002 was the year when our strategic platforms, articulated during the merger of DBS Land and Pidemco Land, came to fruition. We strengthened our balance sheet, grew our fee-based businesses, and created a new asset class by launching Singapore's first real estate investment trust, or REIT. In addition, we increased our return on equity and achieved cost savings through synergies among our various business units.

Throughout the year, we were well aware that our properties must remain top drawer assets to attract top-quality tenants. As a result, we actively implemented asset enhancement programmes, such as Six Battery Road's hotel-like lobby complete with concierge services, to improve yields and to provide greater value to tenants. Consequently, our Singapore office portfolio outperformed the market in 2002, with a 91% occupancy rate, as compared to the market average of 84%.

Similarly, the CapitaLand-owned and managed Singapore retail malls enjoyed 96% occupancy, as compared to the market average of 90%.

For our residential property business, we operated with focused attention in Singapore, China and Australia. China and Australia continued to make healthy contributions, while the Singapore market showed signs of stability. In terms of earnings before interests and tax (EBIT), China and Australia operations, which are primarily residential activities, contributed 32% of the total group EBIT, up from 29% in 2001.

While our core property businesses are in selected gateway cities, our hospitality businesses have wider global footprint, operating in 50 cities worldwide. Our serviced residences chain, The Ascott Group, steadily strengthened its presence in the UK, China, Japan and Australia and announced plans to acquire a 50% interest in Citadines, a pan-European serviced residence chain. Meanwhile, Raffles Holdings integrated its Swissôtel properties and secured new management contracts.

Besides successes in our core business, the Group has also successfully executed its strategy to lower its debt level. By end FY2002, the net debt level stood at S$5.7 billion, down substantially from S$8.2 billion in November 2000. Gearing has also improved to 0.73, from 0.92 at the time of the merger. The reduced borrowings have led to a substantial 30.6% reduction in interest expense. Moreover, we strengthened our balance sheet by divesting several non-core assets in Singapore and abroad. Specifically, we divested our stakes in two Indonesian companies, a healthcare operation in Malaysia, and non-core stakes in China. In Singapore, The Ascott Group sold some of its retail and residential holdings.

A Multinational with Multi-local Operations

As a multinational company, CapitaLand has successfully implemented its multi-local strategy in its international operations. The strategy calls for a synthesis of its international brand name and world-class competencies with a deep appreciation of the respective domestic real estate markets. Within the multi-local operations, we leveraged upon our full suite of property related and hospitality businesses.

China is a testament to the success of our multi-local strategy. We have built a strong local management team, operating within social sensitivities, and selling international standard properties to a dynamic middle class. We have a staff strength of 250 people, and as a team they have launched and sold residential projects such as Summit Panorama and Summit Residences to satisfied homebuyers. The Chinese government granted CapitaLand "Wholly Foreign-Owned Enterprise" (WFOE) status in 2002. WFOE will enable us to effectively operate as a local player in China with flexibility in capital flows and minimum administrative burden.

Our international presence, with the distinctive multi-local strategy, has also improved the quality of our earnings. In 2002, our international properties accounted for 61% of our revenue and 45% of our EBIT. While the UK market played a significant part in contributing to the bottomline in 2001, our China operations became significant contributors to our profitability in 2002. Australia continued to perform well over the years.

The Group's international strategy is also to work with strong local players. The Group formed strong alliances with top local players like Mitsubishi Estate and Okura in Tokyo to deepen our operations in Japan. Joint ventures elsewhere include our commercial project, Raffles City Shanghai, and the Cushman and Wakefield PREMAS joint venture to offer consultancy, agency and asset services to multinational companies in China.

"China is a testament to the success of our multi-local strategy."

New Revenues from Real Estate Financial Products

As a growth driver, CapitaLand Financial will pursue real estate financing and capital raising activities in Singapore and in regional markets. In Singapore, we successfully listed the CapitaMall Trust in July 2002. CapitaMall Trust (CMT), projected to yield 7%, was five times subscribed. It created a new asset class in the Republic and at its debut results announcement had outperformed expectations. CMT, together with the various management contracts clinched by our listed and unlisted business units, provided us with increased fee-based income.

Another notable "first" in 2002 was the company's S$380 million convertible bond, the first major Singapore dollar-denominated convertible bond. In addition, the company completed another Rated Securitised Bond, using residential progress payments from The Waterina condominium project in Singapore.

Managing Cost for Profit Contribution

The Group achieved its target of over S$50 million in synergistic cost savings in 2002, as proposed in the merger plan. This is a significant and important accomplishment in a difficult year. Among the initiatives to harness synergistic cost management is to out-source non-key functions, such as the online procurement of engineering, hospitality and office supplies, centralisation of media buying, and streamlining of all contracts. The Group pioneered an ambitious Energy Programme, which when fully implemented, will result in more than S$5 million of annual recurrent savings from energy procurement, management and conservation.


Talents Managed for Tomorrow's Growth

Given its multinational operations, the management of talent and human capital continued to be strategic business drivers. International talents, who fill more than 20% of senior management positions in the Group, enabled a healthy cross-fertilisation of ideas. In this regard, the Group, with its multinational operations, has capitalised on online systems for staff management. Both its hospitality businesses have implemented effective platforms for such information to be easily retrieved via the World Wide Web.

The Group benefits from international expertise and perspective through its International Advisory Panel (IAP). The IAP comprises 11 industry leaders and chief executives of global companies. We truly value their guidance and counsel on the Group's business strategy, growth plans for overseas expansion, and initiatives related to the Group's real estate financial products and hospitality businesses.

Committed to Corporate Governance

2002 was a year in which investors were shocked by high-profile accounting scandals and corporate governance lapses. CapitaLand's Board has from the beginning, been highly independent. Our Board, comprising nine non-executive directors and one executive director, has been actively engaged in company affairs, with the non-executives heading and leading all the board committees including audit, budget and finance, investment and risk assessment.

Management has placed high priority on fair and full disclosure. Besides hosting dozens of meetings with investors in Singapore, senior management has met with investors in other Asian cities, the US and Europe. We also brought the media to take a look
at our operations in Australia and China, so that our business philosophy, strategy and activities will be better reflected in their coverage.

Contributing to Causes

CapitaLand's philosophy on community relations has been to give back to society in a meaningful way, and not just through cash donations. In 2002, the Group contributed time, funds and efforts to several children's charities. This includes building a resting cabin at National University Hospital for parents and caregivers of cancer-stricken children and supporting events for children with disabilities. The Group also participated in fund-raising activities at home and abroad, supporting the Community Chest of Singapore, Singapore Red Cross Society, Cambodian Red Cross, Veterans International for Landmine Victims, Wild Aid and the SOS Children's Villages.

"We will continue to strengthen our key profit drivers for the coming year."

Looking Ahead

We will continue to strengthen our key profit drivers for the coming year. Given our healthy cash flow, we are in a better position to consider the purchase of new parcels for development. We will capitalise on pro-market government policy changes, such as Central Provident Fund rules, and maintain our course of deploying capital for residential development in China.

While mindful of a continuing difficult market condition, we will keep up the initiatives that we have instituted to improve the yields of our commercial properties. We also anticipate growing our trading income from commercial properties as we actively seek to increase asset turnover. CapitaLand Financial will step up its focused attention on origination, structuring, distribution and management of property funds and real estate-related financial products in Singapore and abroad.

While the global slowdown is likely to linger, our hospitality divisions, Raffles Holdings and The Ascott Group, will pursue accretive opportunities. In the coming years, The Ascott Group will reap benefits from its overseas acquisitions, such as the recent agreement for the Citadines purchase which adds the European market to its portfolio. Raffles Holdings expects to generate further benefits from its Swissôtel operations. Our property services division, PREMAS International, will grow both organically, especially by securing additional contracts for higher value-added services, and through strategic alliances to strengthen regional expansion.

We expect to see higher yields and continued profit contribution from China and Australia. Most of our China activity will be in Shanghai with several property launches in the pipeline for 2003. We have started the process of looking at other cities, beginning with Beijing. In Beijing, we are already a successful operator of a hotel and two serviced residences. Recently, we purchased a site in Chaoyang district near the Olympic Village for a residential project to be launched by end 2003. In Shanghai, beyond successfully building and marketing residential projects, we look forward to the targeted completion of Raffles City Shanghai by the end of the year. We expect contribution from this office and retail complex which is centrally located and adjacent to the historic People's Square. In Australia, we expect positive growth from Australand, which is the one of the leading builders of homes in that country.

While the overall operations, barring unforeseen circumstances, are moving at a good clip to contribute to the bottomline, the Group will keep extracting cost savings benefits in 2003 as it did last year. It will continue to harness technology to streamline its work processes, improve productivity and lower operations cost.

On behalf of the Board, we wish to express our deep appreciation to Vernon Loucks and Hsieh Fu Hua for their invaluable services as Board members. Mr Loucks completed his term as a director, and we are glad to welcome him as a member of our International Advisory Panel. We congratulate Mr Hsieh on his appointment as the CEO of the Singapore Exchange Limited, an appointment which requires him to resign from our Board.

We also wish to thank all our shareholders, customers, tenants and business partners for their support, confidence and trust. Most of all, we want to thank our staff for their valued contributions. We join you in looking forward to a successful 2003.