Annual Report 1998

CORPORATE INFORMATION

Board of Directors

Dato’ Lim Kok Thay Chairman

Mr Colin Au Fook Yew President and Chief Executive Officer

Mr Lee Swee Hing

Mr William Ng Ko Seng

Mr Cong Ong

Secretary Mr Raymond E. Befroy , F.C.C.A., F.C.I.S.

Assistant Secretary Mr Tan Wooi Meng

Registered Office International House, Castle Hill, Victoria Road, Douglas, Isle of Man, IM2 4RB, British Isles

Head Office Suite 1503, Ocean Centre, 5 Canton Road, Tsimshatsui, Kowloon, Hong Kong SAR

Registrars and Transfer Office IFG International (Registrars) Limited International House, Castle Hill, Victoria Road, Douglas, Isle of Man, IM2 4RB, British Isles

Paying, Listing and Sub-Transfer Agent Banque Générale du Luxembourg S.A., 50 Avenue J.F. Kennedy, L-2951 Luxembourg

Transfer Agent M & C Services Private Limited 16 Raffles Quay, #23-01 Hong Leong Building, Singapore 048581

Auditors Messrs Price Waterhouse, Certified Public Accountants 22nd Floor, Prince’s Building, Hong Kong SAR

Internet Homepage http://www.starcruises.com

1 Annual Report 1998

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Fifth Annual General Meeting of the Company will be held at Suite 1503, Ocean Centre, 5 Canton Road, Tsimshatsui, Kowloon, Hong Kong SAR on Monday, 24 May 1999 at 9.00 a.m.

BUSINESS 1. To receive and adopt the Audited Financial Statements for the year ended 31 December 1998 and the Directors’ and Auditors’ Reports thereon. (Resolution 1)

2. To sanction the declaration of a final dividend. (Resolution 2)

3. To approve Directors’ fees of US$34,466 for the year ended 31 December 1998. (Resolution 3)

4. To re-elect Directors: Dato’ Lim Kok Thay (Resolution 4) Mr William Ng Ko Seng (Resolution 5) Mr Cong Ong (Resolution 6)

5. To appoint Auditors and to authorise the Directors to fix their remuneration.

Notice of Nomination pursuant to Section 13(1) of the Companies Act, 1982 has been received by the Company for the nomination of Messrs PricewaterhouseCoopers who have given their consent to act, for appointment as Auditors and of the intention to propose the following ordinary resolution :-

“That Messrs PricewaterhouseCoopers be and are hereby appointed as Auditors of the Company in place of the retiring Auditors, Messrs Price Waterhouse to hold office until the conclusion of the next Annual General Meeting at a remuneration to be determined by the Directors.” (Resolution 7)

6. To transact any other business of which due notice shall have been given.

By Order of the Board Raymond E. Befroy, F.C.C.A., F.C.I.S. Secretary

30 April 1999

Registered Office: International House, Castle Hill, Victoria Road, Douglas, Isle of Man, IM2 4RB, British Isles.

NOTES

1. A member entitled to attend and vote at this meeting is entitled to appoint a proxy or proxies to attend and vote instead of him. A proxy need not be a member of the Company.

2. The form of proxy in the case of an individual shall be signed by the appointor or his attorney, and in the case of a corporation, either under its common seal or under the hand of an officer or attorney duly authorised.

3. If the form of proxy is returned without any indication as to how the proxy shall vote, the proxy will vote or abstain as he thinks fit.

4. If no name is inserted in the space for the name of your proxy on the form of proxy, the Chairman of the Meeting will act as your proxy.

5. The form of proxy or other instruments of appointment shall not be treated as valid unless deposited at the Registered Office, International House, Castle Hill, Victoria Road, Douglas, Isle of Man, IM2 4RB, British Isles, not less than 48 hours before the time appointed for holding the meeting and at any adjournment thereof.

2 Annual Report 1998

CHAIRMAN’S STATEMENT

On behalf of the Board of Directors, I am pleased to present the Financial Statements and Annual Report of the PLC Group of companies ("Star Cruises" or "the Group") for the year ended 31 December 1998.

REVIEW OF RESULTS

Although 1998 was a difficult year for most companies in Asia due to the economic crisis, the Group was able to achieve record operating income from continuing operations of US$50.0 million in 1998 as compared to US$32.9 million in 1997, an increase of 52%. 1999 first quarter operating income of US$19.1 million was also a record, an increase of 163% compared to the operating income from continuing operations of US$7.3 million in the first quarter of 1998. The excellent performance was due to the following reasons:

(1) The SuperStar Leo

The launch of the SuperStar Leo, the first megaship in Asia-Pacific created enormous consumer interest and the number of cruise passengers on her exceeded expectations. More importantly, SuperStar Leo was able to stimulate cruise passengers from different source markets such as Australia, Europe, India, Japan, Hong Kong, Taiwan and other Asean countries. Many of them were experienced cruise passengers who were delighted with the level of service and facilities on the ship.

(2) Brand Leadership

Star Cruises has a dominant share of the Asia-Pacific cruise market and is a household name in the region. As reported in the March 1999 edition of "Asian Brand News", Star Cruises was rated as one of the top 50 brands in Asia by the international consultancy, "Interbrand". Star Cruises was mentioned as one of 3 brands with the most potential to move upwards in terms of brand recognition in Asia. This brand leadership permits Star Cruises to achieve better yields.

(3) Economies of Scale

With the increase to 1.3 million passenger cruise days in 1998 and more than 2 million passenger cruise days expected in 1999, Star Cruises is now enjoying significant economies of scale and marketing, selling and administrative costs can be amortized over more passenger cruise days. The megaships also have lower operating costs per passenger cruise day.

(4) Creative Itineraries

Before the arrival of SuperStar Leo, Star Aquarius sailed during the summer months to various islands in and Thailand in the . The change in ports of call stimulated repeat cruisers and drew first-time cruisers. These new itineraries are now adopted by SuperStar Leo with sailings to the South China Sea in Summer and the Straits of Malacca in Winter.

(5) Benchmark Against Major Cruise Companies

Management is focussed on achieving the same rates of return on capital employed, comparable profitability on a per passenger cruise day basis and similar operating margins to the three major cruise lines. This focus and benchmarking have| ensured marketing and operating policies are designed to achieve the financial goals.

During the year, the Group completed the issuance of 125 million new ordinary shares of US$0.10 each ("New Shares") to Resorts World Limited ("RWL"), a wholly-owned subsidiary of Resorts World Bhd, at a price of US$2.10 per share. The allotment and issuance of the New Shares to RWL was completed on 30 June 1998.

The proceeds of US$262.5 million from the issue of shares to RWL were used to repay the Group's entire short-term borrowings and the balance has been earmarked for progress payments for the two "Libra-Class" ships scheduled for delivery in the years 2001 and 2002.

In line with major international cruise companies, we will present our financial statements in accordance with the US Generally Accepted Accounting Principles in 1999.

3 Annual Report 1998

1998 versus 1997 Results

The operating income from continuing operations before exceptional items for 1998 is US$50.0 million, an increase of 52% compared with US$32.9 million for 1997. Passenger cruise days of 1,280,967 in 1998 increased by 17% from 1,095,979 in 1997.

Unaudited Proforma US$ Million 1998 1997

Revenue from continuing operations 282.6 310.8

Cost and Expenses operating cost 161.9 197.3 Marketing, selling and administrative 36.0 51.7 Depreciation and amortisation 34.7 28.9 ------232.6 277.9 ------Operating income from continuing operations before exceptional items 50.0 32.9

Passenger Cruise Days 1,280,967 1,095,979 Occupancy as percentage of total capacity 88% 88%

Revenue from continuing operations of US$282.6 million for 1998 is a decrease of 9% compared with US$310.8 million for 1997 mainly due to the devaluation of regional currencies in Asia.

Total expenses for 1998 in respect of continuing operations also decreased by US$45.3 million or 16% compared with 1997 mainly due to both the devaluation of regional currencies and better cost control. Total expenses decreased despite increased cruise capacity. As a result, Star Cruises was able to increase its operating income and improvements were achieved for all ships in the fleet and in all the key markets of Singapore, Hong Kong, Taiwan, Australia and Europe.

For 1998, Star Cruises incurred a loss of US$25.9 million from discontinued operations in relation to a cruise venture in the United States and an exceptional charge of US$21.2 million.

Unaudited Proforma US$ Million 1998 1997

operating income from continuing operations before exceptional items 50.0 32.9 (Loss) from discontinued operations (25.9) - Net interest expense, net of capitalised interest (0.8) (0.4) Exceptional items (21.2) 104.5 Taxation (0.5) (1.4) Minority interest 0.8 (0.1) ------Net income 2.4 135.5 ------

The exceptional item of US$21.2 million relates to the following:

(a) write-off of start-up costs for SuperStar Leo of US$6.1 million;

(b) reimbursement of US$7.9 million for the reduction in value of non-cruise property at the Port Klang Cruise Centre which was sold on the basis of "commercial" land use but was subsequently approved as "industrial" land use; and

4 Annual Report 1998

(c) net foreign exchange losses of US$7.2 million mainly relating to a Yen Loan taken up in anticipation of Yen proceeds from the positioning of a ship in Japan in 1998. This Yen position has been closed and the Group has no foreign exchange contracts| as of this date.

As a result of these charges, the 1998 Net Income of the Group is US$2.4 million. The Net Income is not comparable with 1997 as there was an Exceptional Gain of US$104.5 million in 1997 mainly due to gains arising from the restructuring scheme in 1997.

The taxation charge for the year 1998 is US$0.5 million (1997: US$1.4 million).

The net tangible assets per ordinary share of the Group as at 31 December 1998 was US$1.38 (1997: US$1.21)

Second Half 1998 versus First Half 1998 Unaudited Results

The operating income for the second half of 1998 is US$33.7 million which is 107% higher than the US$16.3 million for the first half of 1998. The passenger cruise days of 721,286 in the second half of 1998 is 29% higher than the 559,681 for the first half of 1998 mainly due to the start of SuperStar Leo service in September 1998.

Unaudited Unaudited US$ Million 2nd Half 1998 1st Half 1998 Full Year 1998

Revenue from continuing operations 159.4 123.2 282.6 Cost and Expenses Operating 86.6 75.3 161.9 Marketing, selling and administrative 20.0 16.0 36.0 Depreciation and amortisation 19.1 15.6 34.7 ------125.7 106.9 232.6 ------Operating income from continuing operations before exceptional items 33.7 16.3 50.0

Passenger Cruise Days 721,286 559,681 1,280,967 Occupancy as percentage of total capacity 91% 84% 88%

Revenue of US$159.4 million in the second half increased 29% above the first half of US$123.2 million mainly due to seasonality and the new capacity provided by SuperStar Leo. Operating income margins showed significant improvement in the second half with better occupancies and higher passenger cruise days.

First Quarter 1999 versus First Quarter 1998 Unaudited Results

Star Cruises had a record first quarter earnings, posting a 163% increase in operating income to US$19.1 million in 1999 as compared to US$7.3 million in the first quarter of 1998. 1999 first quarter net income was US$16.4 million, an improvement of 125% as compared to the 1998 first quarter net income from continuing operations of US$7.3 million before exceptional item.

Unaudited First Quarter Ended 31 March, US$ Million 1999 1998

Revenue from continuing operations 88.2 64.9

Costs and Expenses Operating 46.7 38.2 Marketing, selling and administrative 11.6 10.7 Depreciation and amortisation 10.8 8.7 ------69.1 57.6

Operating income from continuing operations 19.1 7.3

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Unaudited First Quarter Ended 31 March, US$ Million 1999 1998 Other income/(expense) Interest income 1.5 0.1 Interest expense, net of capitalised interest (4.2) (0.2) Income tax expense (0.1) (0.1) Minority interest - 0.2 ------(2.8) (0.0)

Income from continuing operations 16.3 7.3

Loss from discontinued operations - (12.4)

Exceptional item - (7.9) ------Net income/(loss) 16.3 (13.0) ------Passenger Cruise Days 371,173 234,604

Occupancy as a percentage of total capacity 85% 77%

Revenues were US$88.2 million for the first quarter 1999 compared with US$64.9 million for the corresponding period last year, an increase of 36%. Passenger cruise days increased from 234,604 to 371,173, an improvement of 58% due to increases in most markets and the addition of SuperStar Leo. Occupancy improved from 77% in the first quarter of last year to 85% for the same period this year.

Dividends

Your Directors have recommended a final dividend of US$0.01 per ordinary share of US$0.10 each for the year ended 31 December 1998. Upon approval by shareholders at the forthcoming Annual General Meeting, the final dividend will be paid on 28 May 1999 to shareholders registered in the Register of Members at the close of business on 28 April 1999.

FLEET DEPLOYMENT

The arrival of SuperStar Leo in September 1998 marked a significant milestone for Star Cruises. She is the first newbuilding for Star Cruises and is the largest world-class passenger ship ever built for the Asia-Pacific cruise market. She was meticulously designed and built with state-of-the-art technology and is equipped with the latest navigation and safety features. In the first six months of operations, she created enormous consumer demand and set a new standard for cruising in Asia-Pacific.

With the delivery of SuperStar Virgo on August 7 this year, one month earlier than planned, Star Cruises will position her in Singapore and SuperStar Leo will be repositioned in Hong Kong, cruising in Summer to Sanya, Danang and Xiamen and in Winter to Halong Bay, Zhanjiang and Haikou.

The Group will be taking delivery of the SuperStar Europe (ex-Europa and rated as the best in the world in the Berlitz 1997 Complete Guide to Cruising & Cruise Ships) in June 1999 and after a re-fit, the vessel will be positioned in Bangkok in September 1999 with 5- and 2-night cruises to Saigon, Con Son Island, Phu Quoc Island and Ko Samui Island.

Star Pisces will be relocated to Japan in April 2000 after drydocking and conversion for the Japanese market. Star Aquarius will continue to operate from Taiwan to the Okinawa Island, Ishigaki Island and the Kerama (Zamami) Islands. SuperStar Gemini will continue her 7-night cruise itinerary in the Straits of Malacca and the Andaman Sea which is well received by European and Australian cruise passengers. The MegaStar vessels, Aries and Taurus will continue to operate out of Singapore and Malaysia.

In order to provide the highest standards of cruise experience in Asia-Pacific, Star Cruises will keep a modern and efficient fleet (an average age of about 6 years by the year 2002). In line with the Group's strategy to maintain a modern fleet, SuperStar Sagittarius, was sold to Hyundai Merchant & Marine Co. Ltd. ("Hyundai"). Simultaneously, SuperStar Capricorn was chartered to Hyundai in the fourth quarter of 1998 for a period of four years and she is expected to be sold in 2001.

6 Annual Report 1998

The Group has renewed its charter of the SuperStar Express, a high speed vehicle-cum-passenger carrying catamaran to P&O European (Portsmouth) Ferries Ltd for three years with an option to extend the charter for a further 2 years commencing on 15 March 1999 for the spring/summer season of each year.

Star Cruises also has two newbuilding contracts for two 91,000 gross-ton "Libra-Class" ships scheduled for delivery in the years 2001 and 2002. Star Cruises is currently planning the third series of newbuilding - the "Sagittarius-Class" for delivery in 2003 onwards.

By 2002, Star Cruises will have a modern fleet of eleven vessels with a total lower berth capacity of 12,000 with an annual growth of 25% per year for the corresponding period.

SALES AND MARKETING

Sales and Marketing is focussed on exceeding 100% occupancy in 1999 to match other major cruise lines' occupancy standards. To help achieve this, Star Cruises fly/cruise packages will be introduced by end 1999 for all the ships in the fleet and a seamless airport to cruise ship experience with optional pre and post cruise hotel stays will be offered to all cruise passengers.

Sales and Marketing Department and ground handling staff will be strengthened with additional manpower for the fly/cruise packages. The marketing headquarters in Singapore will be relocated to No. 1 Shenton Way, Singapore with a 50% increase in floor space. The new marketing headquarters has the additional advantage of street frontage for advertising on the main street in the financial district of Singapore.

Although the SuperStar Leo is positioned in Singapore, about 50% of the passengers on SuperStar Leo were non-Singaporeans which helped to balance occupancies. SuperStar Virgo, being a new ship will create greater demand when she replaces SuperStar Leo in September this year. With the repositioning of SuperStar Leo in Hong Kong, we expect significant increase in passengers in Hong Kong.

The positioning of SuperStar Europe in Bangkok has been well received by European and Australian travel agents and will bring awareness of cruising to Thailand.

By the end of 1999, Star Cruises will have ships positioned in the ports of embarkation of Singapore, Hong Kong, Taipei, Bangkok, Phuket and Port Klang with mainly 2, 3, 4, 5 and 7-night round trip cruises. By early 2000, Osaka/Kobe and Beppu in Japan will also be ports of embarkation.

It is also expected that SuperStar Leo in Hong Kong will have 50% of its cruise passengers from non-Hong Kong markets. SuperStar Gemini and SuperStar Europe will be mainly for cruise passengers from Europe and Australia while Star Aquarius and Star Pisces will be used to popularise cruising in the local markets where the ships are positioned. As a result, Star Cruises markets are geographically well-diversified.

Star Cruises, "The Leading Cruise Line in Asia-Pacific" has become a household name in most countries in Asia-Pacific. Star Cruises represents modern and exciting ships; no tipping policy; high crew to passenger ratio resulting in excellent service standards; "open sitting" dining and the most number of "alternative dining" restaurants on any ships in the world; the highest safety standards and exciting ports of call in Asia-Pacific.

Star Cruises has won the 1998 TTG Travel Award as "Best Cruise Operator", World Travel Market 1998 "Global Travel Award" and the 1998 Meetings & Conventions Gold Service Award for the "Best Cruise Company". In 1999, Star Cruises was awarded "Best Cruise Operator 1999" by the AFTA Western Australia Chapter Annual Award, the 1999 TTG Travel Award as "Best Cruise Operator" for the third consecutive year and the "New Player of the Year" award for SuperStar Leo by TravelAsia in conjunction with the 1999 Breakthrough Awards.

Star Cruises has offices in Australia (Sydney, Melbourne, Brisbane and Perth), Asia (China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, Taiwan and Thailand), Europe (Austria, Germany and United Kingdom) and the United States of America.

HOTEL OPERATIONS

On the SuperStar Leo, we have introduced a "Balcony Class" for passengers in balcony and suite staterooms as they comprise more than 30% of the ships passengers and about 50% of the revenue potential. "Balcony Class" passengers receive priority for check-in, embarkation, shore excursions, seating for dining and entertainment, disembarkation and baggage handling. The single card for access to the stateroom, which is also a charge card, is coded red in color to give "Balcony Class" passengers recognition and ensure all crew can distinguish these guests.

7 Annual Report 1998

Cruise passengers on the SuperStar Leo gave overwhelming endorsement of the "open sitting" practised for all the restaurants of the ship. Reservations are required only for Captain's Night and for the 8.30 p.m. seating at "Windows", one of the main dining room. Only the most expansive ships in the world practice "open sitting" and we are able to achieve this due to longer operating hours and the availability of the most number of alternative restaurants on any cruise ships in the world.

SuperStar Leo has achieved the highest efficiency standards on any megaship with embarkation port turnaround time in Singapore as short as 5 hours. With the excellent cooperation of the Singapore Cruise Centre and government authorities, embarkation, disembarkation, baggage handling and all aspects of shore operations were debottlenecked in the first 4 months of operation. Disembarkation and baggage retrieval within one hour has been achieved for up to 2,500 passengers.

With 1,300 crew on the SuperStar Leo, 400 more than megaships elsewhere, the high service standards in all aspects of the ship operations exceeded most cruise passengers' expectations.

Training centres are being set up in Philippines, Indonesia and China where we source most of the crew. With experienced staff from SuperStar Leo, we expect less start-up problems on the SuperStar Virgo and smooth start-up in future due to the greater pool of manpower available.

Food, entertainment and cruise experience on all ships are being systematised so that cruise passengers on all ships will have similar experience as the Company embark on selling all ships in the fleet to all markets by the end of this year.

MARINE OPERATIONS

As we continue to maintain a high level of safety standards in our operations, we have in February 1998 begun the installation of the Voyage Data Recorder ("VDR") system on our fleet of vessels. The VDR, a system designed by a Swedish company, Consilium Marine had been approved by the International Maritime Organisation ("IMO") Safety of Navigation and would fulfill all IMO's requirements. The VDR is essentially a powerful computerised tool which records and reviews all activities on the bridge.

In order to maintain the highest safety standards, the Group has invested in its own US$5 million state-of-the-art ship simulator, the first cruise line to do so, to train its officers. Known as the Star Cruises Ship Simulator ("SCSS"), it was commissioned in October 1998 and is located at the Star Cruises Terminal, Port Klang. The SCSS is a joint venture between Star Cruises and Danish Maritime Institute, a reputable institution in the field of marine simulators.

With the setting up of the SCSS, our bridge officers are now able to undergo various types of onboard exercises and training under the most difficult sea conditions. The facilities are also used by a number of international container lines for training of their officers.

CRUISE INFRASTRUCTURE

Our two Star Cruises terminals in Pulau Indah (Port Klang) and Pulau Langkawi in Malaysia have been frequented by an increasing number of international cruise ships visiting South East Asia. Star Cruises is developing a Star Cruises jetty in Awana, Malaysia and evaluating a number of other terminal proposals in the region to ensure appropriate infrastructure is developed for all its megaships.

INFORMATION TECHNOLOGY

"STARRES", Star Cruises reservation system is handling up to 10,000 reservations per day with online terminals with sales agents and branch offices. Bookings using the Internet has been tested in the Hong Kong market and will be system-wide by the end of this year.

A 24-hour call centre has been established in Port Klang to handle calls from Singapore, Malaysia and Hong Kong. This will also be expanded to all markets by the end of this year.

Star Cruises is using SAP Version 3.0 for accounting purposes and the Fidelio Micros systems on its fleet with integration on Ving locks. Star Cruises offers a single card for access to stateroom which is also a charge card for cruise passengers.

We believe SuperStar Leo is one of the few ships that has the most sophisticated technology onboard. The key cards are colour coded to distinguish the "Balcony Class" passengers.

8 Annual Report 1998

Star Cruises has installed the ATM (Asynchronous Transfer Mode) network onboard all its newbuilding starting with the SuperStar Leo and SuperStar Virgo. This ATM network facilitates communication between ship and shore and allows passengers the luxury of interactive television from the convenience of their staterooms. With the leased transponder on Measat-1 satellite, passengers will be able to have substantially cheaper form of communication with the shore and be able to access the Internet from the ship.

YEAR 2000

In March 1998, the Group embarked on its Year 2000 compliance program. Various teams were set up to address the Year 2000 issues. The compliance program covers all essential computer systems onshore (e.g. the reservation system, accounting and other associated systems) and onboard (e.g. the navigational, safety and other onboard systems).

All essential computer systems have been certified by the respective vendors and internal verification has been carried out by the Group. In addition, the compliance program also addresses the risks associated with the Year 2000 issues.

The compliance program will be completed for all essential computer systems by August 1999 and ongoing work will be carried out to ensure that all computer systems of the Group is Year 2000 ready.

PROSPECTS

Cruising is about 2% of the vacation industry in the US and less in Asia-Pacific. Despite the economic crisis, consumers continue to take vacations and they are choosing cruising as an alternative to land vacation and perceive the all-inclusive cruise package as great value for money. Cruising holds the highest guest satisfaction ratings among vacation products and we expect the prospects for cruising in Asia-Pacific to be bright.

Although cruising is a growth industry, there are significant barriers to entry. The three major cruise companies in the US and Europe have continually increased their market share due to economies of scale, huge capital for megaships, brand recognition, reservation systems, complexities of fleet operations and limited infrastructure. In Asia-Pacific, these entry barriers are more pronounced. With the newbuildings to be delivered to Star Cruises in the next few years, Star Cruises will remain the dominant brand in Asia-Pacific.

Further improvement in net income is expected in 1999 due to more capacity addition and economies of scale with the full year impact of SuperStar Leo and the start of service of SuperStar Virgo and SuperStar Europe in September 1999.

APPRECIATION

On behalf of the Board of Directors, I would like to take this opportunity to express our sincere thanks to the management, staff and crew for their invaluable support, dedication and commitment, particularly during this difficult year.

Our thanks and gratitude are also extended to our shareholders, business associates, financiers and various government authorities concerned for their co-operation, invaluable assistance and continued support.

We also wish to thank the travel industry for voting Star Cruises for the numerous awards in many countries, including the "Best Cruise Operator" in Asia-Pacific.

DATO' LIM KOK THAY Chairman

24 April 1999

9 Star Aquarius (1993) SuperStar Capricorn (1997)

Star Pisces (1994) SuperStar Express (1997)

MegaStar Aries (1994) SuperStar Leo (1998) The Star Cruises Fleet

As at end of 1998, Star Cruises owned a fleet of 8 ships. They are Star Aquarius MegaStar Taurus (1995) SuperStar Virgo (1999) and Star Pisces; MegaStar Aries and MegaStar Taurus; and SuperStar Gemini,

SuperStar Capricorn, SuperStar Express and SuperStar Leo. Their combined gross

tonnage also made her the fifth largest cruise line in the world. In 1999,

Star Cruises will also take delivery two more ships - SuperStar Virgo and SuperStar

Europe, thereby strengthening her fleet size to 10 and reaffirming her position as

“The Leading Cruise Line in Asia Pacific”. A further 2 ships, the SuperStar Libra and SuperStar Gemini (1995) SuperStar Europe (1999) SuperStar Scorpio will be delivered in 2001 and 2002. Annual Report 1998 Annual Report 1998

THE “LEO-CLASS” SHIPS

SuperStar Leo

On 9 August 1998, after five years of SuperStar Leo, at 76,800 gross tons, 268m long and

planning, SuperStar Leo, the first of two 32.2m wide, is both the biggest and most powerful

“Leo-Class” ships ordered by the Company, cruise ship built in modern time. At just under 59

sailed out from the Meyer Werft shipyard in megawatts of installed power, she delivers a trial speed

Papenburg, Germany to make her journey of 25.3 knots. She has 1,000 cabins with a passenger

home to Asia Pacific where she will be capacity of 2,800 and carries a crew of 1,100.

positioned. After undergoing successful sea

trials, she was officially handed over by She has 13 decks and features a stunning 7-deck high Tivoli Pool Meyer Werft, Germany on 25 September glass-top atrium lobby, a 1,000-seat “Moulin Rouge”

1998, in a brief ceremony at the Port of showroom, a 450-seat observation lounge and over 30 over 3 decks, a high proportion among cruise liners of

Southampton where she was showcased. dining, entertainment and recreation outlets. She has her class. The superb facilities are equally matched

Further showcases were held in Mumbai the most number of ”alternative dining“ restaurants and by attentive, efficient and hospitable service.

(Bombay) in India, Singapore and Port Klang and After two weeks of familiarisation cruises, SuperStar Leo has ”open sitting“ for most cruise passengers. Cuisines

Langkawi in Malaysia. commenced regular service on 1 November 1998, offered include Chinese, Japanese, French, Continental Since her debut in Asia, SuperStar Leo has received

replacing the 40,000 gross tons Star Aquarius’ and Asian delights to international buffet spreads. overwhelming response in the various ports of call in a

Her arrival marks a significant milestone in the itineraries. She offers 2 and 3-night cruises from A host of recreation facilities including a region where cruising is rapidly growing as a new

development of Star Cruises and also heralds Singapore in the Straits of Malacca and the Andaman Roman-themed Tivoli Pool deck with jacuzzis, holiday experience. SuperStar Leo will be repositioned

a new era of cruising in Asia Pacific as she is the first Sea to Phuket in Thailand and Langkawi Island, Malacca children’s fun pool, spa and fitness centre, gymnasium, in September 1999 to Hong Kong and will have 2 to 3-

world-class megaship custom built for Asian waters, and Port Klang (Kuala Lumpur) in Malaysia from driving range, jogging track, basketball, deck games night cruises to Halong Bay in Vietnam and Zhanjiang

with features that appeal to passengers from Asia, October to March and in the South China Sea to and cinema plus shopping arcade completes her status and Haikou in China from October to March and

Australia, Europe and America. Songkhla (Hat Yai) in Thailand and Perhentian Islands, as a world-class cruise ship. One of her special features Danang in Vietnam and Sanya and Xiamen in China

Awana Kijal and in Malaysia from April to is that 40% of the cabins have private balconies spread from April to September.

September.

Grand Centrum (Atrium Lobby) Windows Restaurant Moulin Rouge Celebrity Disco

12 13 Annual Report 1998 Annual Report 1998

THE “LEO-CLASS” SHIPS

SuperStar Virgo SuperStar Europe

SuperStar Virgo, the second of the The SuperStar Europe will join the Star

”Leo-Class“ ships, is expected to arrive in Cruises fleet in October 1999, after a

September 1999. With the same gross multi-million dollar re-fit programme.

tonnage, capacity and speed as her twin

sister-ship, SuperStar Leo, SuperStar Virgo As the MS Europa, she was rated as “The

has also been conceived such that each area Best Cruise Ship In The World” by the

of space is designed to flow from one renowned “1997 Berlitz Complete Guide

interesting decor concept to another. She to Cruising and Cruise Ships”. She will be

will boast of different decor and themes the most sophisticated, internationally

with more facilities and enhanced features recognised cruise ship to be sailing Asian

and fittings. Her interiors will exude a waters bringing about a new dimension of

different ambience, offering a colourful yet From September 1999, SuperStar Virgo will replace the cruising in Asia in luxurious spacious surroundings. SuperStar Europe will begin cruises out of Laem

classical feel throughout. SuperStar Leo’s itineraries. The 38,000 gross tons ship with a passenger Chabang, a port outside of Bangkok, to Koh Samui

capacity of about 700 in generously proportioned in Thailand and to Ho Chi Minh City and the islands

She will feature an exciting and magnificent With the arrival of SuperStar Virgo, Star Cruises will cabins offers one of the highest passenger area ratio of Con Son and Phu Quoc in Vietnam.

Grand Piazza and 6-deck Atrium with glass elevators, have taken delivery of two of the fastest cruise ships in for any liner.

exuding a grand ltalianate feel with an elaborate and the world at a total cost of US$700 million, delivering The three new additions of SuperStar Leo, SuperStar

colourful back-lit glass-domed ceiling. Just like her yet another new cruise experience to passengers from Fitted with exquisite interior decor, elegant dining Virgo and SuperStar Europe represent Star Cruises

sister-ship, SuperStar Virgo will also offer the wide array around the world. Both megaships will cruise to some outlets, piano and show lounges, first-class recreation efforts and strategy to offer world-class cruising to

of dining, recreation, entertainment and shopping of the most exciting cities, beach resorts and beautiful facilities and impeccable service, SuperStar Europe Asia. The ships and her abundant facilities will also

and other guest services. Dining and entertainment islands in Malaysia, Thailand, Singapore, Hong Kong, will be a showcase of Star Cruises commitment bring about a new experience in cruise holidays.

outlets will feature Italian, African, Arabian and China and Vietnam. to provide world-class quality cruise holidays More importantly, these new ships will reinforce

Mediterranean themes. and services. Star Cruises further as “The Leading Cruise Line in

Asia Pacific” and a household name in Asia Pacific.

The Pavilion Room The Lido Europa Lounge Indoor Pool

14 15 Annual Report 1998 Annual Report 1998

SuperStar Gemini Star Aquarius & Star Pisces

SuperStar Gemini was the fifth vessel There is a wide range of recreation facilities - swimming

to join the Star Cruises fleet in 1995. pool, indoor and outdoor spa, sundeck, fitness centre

The 20,000 gross tons ship has a capacity of and a jogging track. Other amenities include a shopping

900 passengers. arcade, a video arcade, library, a beauty salon,

children’s deck-cum-playground, souvenir and

Cruise guides have described SuperStar drugstore, card and mahjong rooms, and a Business

Gemini as “impressive in its shipboard Centre. A 210-seat auditorium-cum-cinema and 8

appointments”,“elegant and dramatic”, meeting rooms equipped with full audio visual facilities

“stylish ambience”, “large picture and secretarial services are also available for companies

windows”, “lovely, exhibiting tasteful decor to hold ‘meetings and conventions with a difference’.

and understated elegance”. She boasts a

5-deck skylighted atrium lined by a Star Aquarius and Star Pisces were the company’s first continuous glass wall, a grand staircase and over ‘Ocean Palace’ and 260-seat ‘Mariners Buffet’ are ships, acquired in 1993. These 40,000 gross tons ships 400 luxurious passenger cabins. The 400-seat known to serve a delightful array of cuisines. Other have over 600 passenger cabins each reaching facilities include the 400-seat ‘Galaxy of the Stars’ 12 decks high and can accommodate 1,900 passengers. theatre showroom, card room, library, discotheque, Star Aquarius was launched in December 1993, shopping arcade, salon, gymnasium and swimming followed by the Star Pisces 5 months later, in May 1994. pool.

The two sister-ships underwent extensive refurbishment SuperStar Gemini currently plies the Straits of and became Asia’s largest “cruise hotel resorts”, Malacca and Andaman Sea with calls in Phuket, offering a whole new vacation concept and appealing , Langkawi Island, Port Klang (Kuala Lumpur and Appealing to first-time cruisers in North Asia, to first-time cruisers. Included were the addition of Port Dickson), Malacca and Singapore, offering exciting Star Pisces has been operating out of Hong Kong Ocean Palace fresh water-making facilities, high-tech garbage disposal sights and sounds of some South East Asia’s most offering cruises to destinations in China such as Haikou, and incinerator system, extra crew cabins and a large exotic destinations. SuperStar Gemini’s 8-day/7-night Shantou, Sanya and Xiamen. Star Pisces will be storage area for food and other facilities. cruise itinerary covering 7 different destinations in repositioned to Osaka/Kobe by April 2000.

3 different countries, is designed to cater to seasoned Each ship has over 10 food and beverage outlets that cruisers and the fly/cruise markets from Europe, In 1998, Star Aquarius was repositioned to Keelung serve Asian delights, Chinese, Japanese, Italian and Thai Australia, Asia and the United States, who seek (Taipei) and offers 2 and 3-night cruises to ports in the cuisines and international buffet spreads. Entertainment longer cruise itineraries. Okinawa Islands such as Naha, Zamani Islands and facilities include a 210-seat cinema, karaoke lounge and Ishigaki. private rooms, and the 400/465seat ‘Galaxy of the Stars’

5-storey Atrium nightclub featuring nightly world-class performances.

16 17 Annual Report 1998 Annual Report 1998

MegaStar Aries & MegaStar Taurus SuperStar Capricorn

Rated by the “Berlitz’s Complete Guide to In 1998, SuperStar Capricorn was positioned to operate

Cruises” as “two of the finest cruise ships out of Keelung (Taipei) in Taiwan, offering cruises to the

in their size category” (under 5,000 gross Okinawa Islands.

tons), the MegaStar ships - MegaStar Aries

and MegaStar Taurus are ideal for private In September 1998, the ship was chartered to the

charters or as one’s personal yacht. Korean conglomerate “Hyundai” for 4 years and it is the

Passenger comfort and service quality are Company’s interest to sell her by 2001.

emphasised onboard and guests will find opulence in every detail. Generously large SuperStar Express and well-equipped cabins offer superb sea

views through large picture windows.

SuperStar Capricorn, the former “Golden Princess” was The two MegaStar ships measure 85 metres in length purchased in August 1996. About US$5 million was and have a carrying capacity of 70 passengers. They are also equipped with an intimate dining room, spent to upgrade the 28,000 gross tons vessel With their rich luxurious decor, well-appointed lounge, hair salon, pool, auditorium, gymnasium, to a SuperStar-class ship. She has 430 passenger accommodation and pampered service, they appeal to library, lecture hall, drugstore and a 3-deck teak cabins which can accommodate 1,375 passengers. the niche market of sophisticated cruisers wishing to sundeck with an unobstructed circuit for fitness walks. There are two outdoor swimming pools, travel in style. a fully-equipped gymnasium, sauna, bars, lounges, The ships have an added advantage of visiting showroom, library, beauty salon and dining facilities. destinations that are only accessible to smaller ships as The US$40 million high speed vehicle-passenger their size permits them to anchor very near off shore catamaran - Superstar Express is the world’s largest Cruise guides have described SuperStar Capricorn islands around the region. catamaran and the first of its kind to have entered as “sleek and handsome, with plenty of open service in South East Asia. This sleek 5,419 deck sunning space”, “spacious dining room”, gross tons vessel can accommodate 900 “elegant setting”, “tasteful decor”, “excellent fitness passengers and 175 cars. She operated between and sports facilities”, “fine outdoor, wrap around Butterworth and Langkawi from November 1997 promenade deck” and “all cabins are extremely to March 1998. well equipped and have good closet, drawer and

storage space” and she has been rated four stars In April 1998, the vessel was chartered out to by the Berlitz Guide. P&O plying the English Channel between

Portsmouth (United Kingdom) and Cherbourg (France).

18 19 Annual Report 1998 Annual Report 1998

Cruise Infrastructure Ship Simulator Centre

The safety, health and well-being of cruise passengers know-how to meet Star Cruises’ need for highly qualified

are Star Cruises’ top priorities. The Group has one of and trained officers. The simulator, developed and

the youngest and modern cruise fleets in the world, manufactured in Germany, even features realistic back-

Star Cruises ships have the latest in navigational control up systems for steering, propulsion, thrusters and more.

and fire system with additional safety features such as

hi-fog sprinklers. The simulator is a ‘duplication’ of the Leo’s class of

ships’ state-of-the-art bridge and navigation system.

The Star Cruises Ship Simulator Centre (the “Centre”), The Centre will be used by Star Cruises’ Captains and

the only one of its kind in Asia owned by a cruise Officers in the training of all aspects of handling and

company, is located within the Star Cruises Terminal bridge management, including potential onboard

Star Cruises Terminal Building and Jetty in Port Klang complex in Port Klang. The US$5 million (RM20 million) emergency and safety procedures. This will ensure that

simulator is a Joint-Business arrangement between Star Cruises provides the highest standards of safety

Star Cruises Terminals in Port Klang and Langkawi are the only dedicated cruise Star Cruises and the Danish Maritime Institute, a well- and ship management procedures.

passenger terminals in Malaysia. Designed and purposed-built to world-class established and reputable organisation with 30 years

standards, they are both capable of handling vessels of up to 100,000 gross tonnage experience in the field of maritime simulators. This The Centre is able to simulate the environments of the

300 metres in length. arrangement enables Star Cruises to be equipped with various ports of calls and climatic conditions. Various

the latest ship training programmes and technical audio effects and communication traffic related Star Cruises Terminal in Port Klang, accommodate 429 port calls by cruise ships from to a particular port-of-call will be projected as

around the world for the year 1998, and amongst the world-class ships were virtual-realistic a scenario as possible. Star Cruises’

SuperStar Leo, MV Rotterdam VI, MW Oriana, MV Nieuw Amsterdam and officers can visualise the actual port scenes of

MV Silver Wind. It also achieved a passenger throughput of 284,025 passengers Singapore, Straits of Malacca, Port Klang, Hong Kong,

representing a 90% year-on-year increase from 1997. The status of the Terminal was SuperStar Leo at Star Cruises Terminal in Port Klang Xiamen, Phuket, Keelung and Langkawi. reaffirmed when it was awarded the “Most Improved Port Facilities” award in the

“Rest of the World” category in 1997 publication of Dream World Cruise Destination. Besides training its own officers, the Centre also offers first-class training programmes to other shipping

In line with the achievements in Port Klang, Star Cruises Terminal in Langkawi companies, maritime academies and port authorities.

similarly recorded 238 port calls with a total passenger throughput of 187,283

passengers. The uniqueness of this terminal is the incorporation of facilities and The setting up of the Centre is yet another

ramps to handle passengers roro vessels such as the SuperStar Express. development by Star Cruises to provide the best possible training in order to maintain and ensure the

highest Safety Standards, as this is our top priority and

also our promise to our passengers.

SuperStar Leo at Star Cruises Terminal in Langkawi. Primary Bridge

20 21 Annual Report 1998

REPORT OF THE DIRECTORS

REPORT OF THE DIRECTORS

The Directors take pleasure in submitting their report on the activities and financial statements of the Group and of the Company for the year ended 31 December 1998 which have been prepared in accordance with the provisions of the Companies Acts, 1931 to 1993.

PRINCIPAL ACTIVITIES

The principal activity of the Company is that of an investment holding company and the Group is principally engaged in the business of cruise and cruise related operations.

SUBSIDIARIES

On 13 May 1998, Inter-Ocean Limited, a subsidiary of the Company, acquired the entire issued and paid-up share capital of Superstar Scorpio Limited.

On 20 July 1998, Star Cruise Services Limited (“SCSL”), a subsidiary of the Company, acquired the entire issued and paid-up share capital of Grand South Limited.

On 25 September 1998, SCSL incorporated Superstar Europe Services Limited as its wholly-owned subsidiary.

On 25 September 1998, Star Cruise Management Limited, a subsidiary of the Company, acquired the entire issued and paid-up share capital of Martley Shipping Inc.

On 12 October 1998, SCSL incorporated Superstar Leo Services Limited as its wholly-owned subsidiary.

RESULTS

The audited results of the operations of the Group for the year ended 31 December 1998 are as follows:

Group US$’000 Operating income / (loss) - continuing operations 49,987 - discontinued operations (25,858)

Net interest expense (821) Exceptional items (21,223) ––––––––––––––––– Income before taxation 2,085 Taxation (496) ––––––––––––––––– Income after taxation 1,589 Minority shareholders’ interests 785 ––––––––––––––––– Net income attributable to shareholders 2,374 Unappropriated income at beginning of year 76,006 ––––––––––––––––– Income available for appropriation 78,380 Appropriation: Proposed final dividend - US$0.01 per ordinary share (6,244) ––––––––––––––––– Unappropriated income at end of year 72,136 –––––––––

22 Annual Report 1998

CAPITAL STRUCTURE

On 30 June 1998, the issued and paid-up share capital of the Company was increased from US$49,944,724 to US$62,444,724 by the issue and allotment of 125,000,000 new ordinary shares of US$0.10 each at an issue price of US$2.10 per share to Resorts World Limited, a wholly-owned subsidiary of Sierra Springs Sdn Bhd, which in turn is a wholly-owned subsidiary of Resorts World Bhd, a company incorporated in Malaysia whose shares are listed on the Kuala Lumpur Stock Exchange.

The new ordinary shares rank pari passu in all respects with the existing ordinary shares of the Company.

DIVIDEND

The Directors recommend payment of a final dividend of US$0.01 per ordinary share of US$0.10 each in respect of the year ended 31 December 1998 to be paid on 28 May 1999 to shareholders registered in the Register of Members at the close of business on 28 April 1999.

Based on the issued and paid-up share capital of the Company as at the date of this report, the final dividend would amount to US$6,244,472.43.

DIRECTORS

The following persons have served on the Board as Directors of the Company since the date of the last report:

Dato’ Lim Kok Thay Mr Colin Au Fook Yew Mr Lee Swee Hing Mr William Ng Ko Seng (Appointed on 28 August 1998) Mr Cong Ong (Appointed on 28 August 1998)

Dato’ Lim Kok Thay is due to retire by rotation under Article 100(A) of the Company’s Articles of Association and he, being eligible, has offered himself for re-election.

Mr William Ng Ko Seng and Mr Cong Ong are due to retire under Article 91 of the Company’s Articles of Association and they, being eligible, have offered themselves for re-election.

SIGNIFICANT EVENTS DURING THE YEAR

(i) The entire issued and paid-up share capital of the Company was listed on the Luxembourg Stock Exchange on 2 March 1998 and subsequently quoted on the Central Limit Order Book International (“CLOB International”) of the Stock Exchange of Singapore on 3 April 1998.

(ii) On 30 June 1998, the Company completed the issue and allotment of 125,000,000 new ordinary shares of US$0.10 each at an issue price of US$2.10 per share to Resorts World Limited, which aforesaid issue of shares was approved by shareholders of the Company at the Extraordinary General Meeting held on 5 June 1998.

AUDITORS

Our auditors, Price Waterhouse, have merged with Coopers & Lybrand and a resolution to appoint the new firm, PricewaterhouseCoopers, as auditors of the Company will be proposed at the forthcoming Annual General Meeting.

On behalf of the Board

DATO’ LIM KOK THAY Chairman

9 March 1999

23 Annual Report 1998

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 1998

Note 1998 1997 US$’000 US$’000

REVENUE FROM CONTINUING OPERATIONS 3 282,629 179,417

Cost and Expenses: Operating Cost (162,037) (141,840) Marketing, Selling and Administrative Expenses (35,923) (13,949) Depreciation and Amortisation (34,682) (28,414) ------(232,642) (184,203) ------SHARE OF ASSOCIATES’ INCOME - 18,847 ------OPERATING INCOME FROM CONTINUING OPERATIONS 49,987 14,061 ------

REVENUE FROM DISCONTINUED OPERATIONS 3 7,433 -

Cost and Expenses: Operating Cost (19,170) - Marketing, Selling and Administrative Expenses (14,121) ------(33,291) ------OPERATING LOSS FROM DISCONTINUED OPERATIONS 3 & 4 (25,858) -

NET INTEREST EXPENSE (821) (416) EXCEPTIONAL ITEMS 5 (21,223) 104,527 ------INCOME BEFORE TAXATION 6 2,085 118,172

TAXATION 7 (496) (1,383) ------INCOME AFTER TAXATION 1,589 116,789

MINORITY SHAREHOLDERS’ INTERESTS 785 (141) ------NET INCOME ATTRIBUTABLE TO SHAREHOLDERS 19 2,374 116,648 ------EARNINGS PER SHARE 23 0.42 cents 46.68 cents

EARNINGS PER SHARE (ADJUSTED TO EXCLUDE EXCEPTIONAL ITEMS) 23 4.19 cents 4.85 cents

The notes set out on pages 29 to 44 form an integral part of these financial statements.

24 Annual Report 1998

BALANCE SHEETS AS AT 31 DECEMBER 1998

Group Company 1998 1997 1998 1997 Note US$’000 US$’000 US$’000 US$’000 EMPLOYMENT OF CAPITAL FIXED ASSETS 9 1,034,481 649,886 - - SUBSIDIARIES 10 - - 757,240 684,090 INVESTMENT 11 49,759 36,645 - - GOODWILL ON CONSOLIDATION 12 252 303 - -

CURRENT ASSETS Stocks 13 10,269 7,235 - - Debtors 14 21,587 29,521 2,471 48 Bank balances and deposits 15 150,164 33,977 107,559 1,233 ––––––––––––––––––––––––––––––––––– ------–------182,020 70,733 110,030 1,281 ––––––––––––––––––––––––––––––––––– ------–------LESS: CURRENT LIABILITIES Creditors 16 121,880 45,543 8,215 46 Amount due to former holding company - 20,918 - 18,758 Bank overdraft and other borrowings 17 27,137 60,294 - 60,000 Taxation 1,077 1,587 - - Proposed dividend 6,244 - 6,244 - ––––––––––––––––––––––––––––––––––– ------–------156,338 128,342 14,459 78,804 ––––––––––––––––––––––––––––––––––– ------–------NET CURRENT ASSETS / (LIABILITIES) 25,682 (57,609) 95,571 (77,523) ––––––––––––––––––––––––––––––––––– ------–------1,110,174 629,225 852,811 606,567 –––––––––––––––––––– –––––––––––––––––– CAPITAL EMPLOYED SHARE CAPITAL 18 62,445 49,945 62,445 49,945 RESERVES 19 800,868 553,430 790,366 531,622 ––––––––––––––––––––––––––––––––––– ------–------863,313 603,375 852,811 581,567 TERM LOAN 20 246,400 25,000 - 25,000 RESERVE ON CONSOLIDATION 21 431 550 - - MINORITY INTERESTS - 183 - - DEFERRED TAXATION 22 30 117 - - ––––––––––––––––––––––––––––––––––– ------–------1,110,174 629,225 852,811 606,567 –––––––––––––––––––– ------NET TANGIBLE ASSETS PER ORDINARY SHARE US$1.38 US$1.21

Approved by the Board of Directors on 9 March 1999

DATO’ LIM KOK THAY MR COLIN AU FOOK YEW Chairman President and Chief Executive Officer

The notes set out on pages 29 to 44 form an integral part of these financial statements.

25 Annual Report 1998

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 1998

1998 1997 Note US$’000 US$’000

NET CASH INFLOW FROM OPERATING ACTIVITIES A 47,211 15,085

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of fixed assets (376,958) (154,705) Proceeds from disposal of fixed assets 32,852 610 Purchase of long term investment (10,658) (36,645) Acquisition of SCSL B - 53,968 Acquisition of remaining interest in an existing subsidiary - (52)

Net cash outflow from investing activities (354,764) (136,824)

CASH FLOW FROM FINANCING ACTIVITIES

(Decrease) / Increase in amount due to former holding company (20,918) 80,368 Proceeds from borrowings 283,235 85,000 Repayment of borrowings (101,912) - Proceeds from issue of shares to minority shareholder of a subsidiary - 23 Proceeds from issue of shares 262,500 -

Net cash inflow from financing activities 422,905 165,391 ------INCREASE IN CASH AND CASH EQUIVALENTS C 115,352 43,652 ------

The notes set out on pages 29 to 44 form an integral part of these financial statements.

26 Annual Report 1998

NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

1998 1997 US$’000 US$’000

A NET CASH INFLOW FROM OPERATING ACTIVITIES

Income before taxation and exceptional items but after 23,308 13,645 charging net interest expense

Adjustments for:

Share of associates’ income - (18,847) Provision for doubtful debts 1,375 711 Amortisation of goodwill on consolidation 51 50 Amortisation of reserve on consolidation (119) (86) Interest income (3,955) (143) Depreciation of fixed assets 34,682 28,414 Interest expense 4,776 559 (Gain) / Loss on disposal of fixed assets (3,549) 256 Assets written off 33 223

33,294 11,137 ------Operating income before working capital changes 56,602 24,782

Increase in stocks (3,034) (4,786) Decrease / (Increase) in debtors 6,559 (9,777) (Decrease) / Increase in creditors (4,053) 20,543 Changes in net intercompany balances - 477 (528) 6,457 ------Cash inflow from operations 56,074 31,239

Tax paid (1,114) (991) Interest paid (5,599) (829) Interest received 3,955 143 ------Cash inflow before exceptional items 53,316 29,562

Expenses incurred in relation to the start up of a cruise ship (6,105) (3,849)

Expenses incurred in relation to proposed cruise infrastructure facilities now written off - (2,045)

Additional drydocking costs due to the need to comply with prevailing International Safety Management Code - (8,583) ------47,211 15,085 ––––––––––––––––––––

The notes set out on pages 29 to 44 form an integral part of these financial statements.

27 Annual Report 1998

1998 1997 US$’000 US$’000

B ACQUISITION OF STAR CRUISE SERVICES LIMITED (“SCSL”) IN 1997

Net assets acquired:

Fixed assets - (1,130) Reserve arising on consolidation - 27,575 ------26,445 Net working capital - (27,278) ------(833) Net assets previously accounted for as associates - 27,641 ------26,808 Bank balances of subsidiaries acquired - 27,160 ------53,968 ------

C ANALYSIS OF CASH AND CASH EQUIVALENTS

At 1 January 33,683 14,419 Net inflow before adjustments for the effect of exchange rate changes 115,352 43,652 Effect of currency translation 1,129 (24,388) ------At 31 December 150,164 33,683 ------Represented by:

Bank balances and deposits 150,164 33,977 Bank overdraft - (294) ------150,164 33,683 ------

The notes set out on pages 29 to 44 form an integral part of these financial statements.

28 Annual Report 1998

NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 1998

1. PRINCIPAL ACTIVITIES

The principal activity of the Company is that of an investment holding company and the Group is principally engaged in the business of cruise and cruise related operations.

2. SIGNIFICANT ACCOUNTING POLICIES

(a) Accounting Basis

The financial statements have been prepared under the historical cost convention modified to include the revaluation of certain fixed assets and comply with International Accounting Standards.

(b) Basis of Consolidation

The consolidated financial statements are based on the audited financial statements of the Company and all its subsidiaries made up to 31 December 1998.

The results of subsidiaries acquired or disposed of are included in the consolidated financial statements from the effective date of acquisition or to the date of disposal.

(c) Goodwill and Reserve on Consolidation

On the acquisition of a subsidiary, fair values are attributed to the share of the net assets acquired. Goodwill on consolidation arises where the consideration paid exceeds the values attributable to such assets acquired. Goodwill on consolidation is amortised using the straight-line method over a period not exceeding 5 years.

Reserve on consolidation arises when the fair value of net assets acquired exceeds the consideration paid. Reserve on consolidation is recognised in the balance sheet as deferred income and is recognised as income using the straight-line method over a period not exceeding 5 years.

(d) Associates

An associate is an enterprise in which the Group has a long term interest of between 20% and 50% and where the Group is in a position to exercise significant influence.

The Group’s share of the results of associates is included in the consolidated income statement and the Group’s interest in associates is stated at cost plus adjustments to reflect changes in the Group’s share of the net assets of the associates.

(e) Investments

Investments in subsidiaries and other long term investments are stated at cost. Long term investments are only written down when the Directors consider that there is a permanent diminution in the value of the investments.

(f) Fixed Assets and Depreciation

Cruise ships are stated at Directors’ valuation with subsequent additions at cost. Conversion and renovation costs incurred subsequent to the revaluations are included in the cruise ships at cost. Such assets are depreciated to their estimated attributable residual value, on a straight-line basis over their estimated useful service life ranging from 13 to 30 years.

29 Annual Report 1998

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(f) Fixed Assets and Depreciation (Continued)

Other fixed assets are stated at cost and are depreciated over their estimated useful life using the straight-line method. The annual rates of depreciation used for the major groups of fixed assets are as follows:

Building improvements 33 1/3% Equipment and motor vehicles 5% to 33 1/3%

The Group revised the estimated useful life of onboard machinery and equipment from a range of 5 to 10 years to a range of 10 to 20 years to more realistically reflect their remaining estimated useful lives. This change in the estimated useful life has the effect of reducing the depreciation charge for the year and increasing the current year’s income by about US$5,900,000.

The initial cost of operating assets such as soft furnishing and kitchen utensils amounting to approximately US$7,600,000 (1997: US$4,000,000) at balance sheet date have been capitalised and are not depreciated. Subsequent acquisitions to replace these operating assets are written-off in the year in which they are acquired.

(g) Interest Capitalisation

Interest incurred on external borrowings on the construction of fixed assets which require a period of time to get them ready for their intended use are capitalised.

(h) Stocks

Stocks are valued at the lower of cost and net realisable value. Cost is determined on the weighted average basis. In arriving at the net realisable value, due allowance is made for all obsolete and slow moving items.

(i) Assets under Lease

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are charged to the income statement as incurred over the lease term.

(j) Deferred Taxation

Deferred tax accounting using the “liability” method is adopted by the Group. Deferred taxation provides for the tax effects of all temporary differences arising between the tax bases of assets or liabilities and their carrying value for financial reporting purposes.

The principal temporary differences arise from depreciation on fixed assets and tax losses carried forward. Deferred tax assets relating to the carryforward of unused tax losses are recognised to the extent that it is probable that future taxable income will be available against which the unused tax losses can be utilised.

(k) Foreign Currencies

The financial statements are stated in United States Dollars (“US$”).

Transactions in currencies other than US$ during the year have been translated into US$ at the rates ruling on the dates of the transactions. Monetary assets and liabilities in currencies other than US$ at the balance sheet date have been translated into US$ at approximately the rates ruling on that date. Gains and losses arising from translation are included in the income statement.

Income statements of subsidiaries in reporting currencies other than US$ are translated into US$ at average rates for the financial year and the balance sheets are translated at rates approximate to those ruling at the balance sheet date. Exchange differences arising from the translation of income statements at average rates and balance sheets at year end rates, and the restatement at year end rates of the opening net investments in such subsidiaries are taken to reserves.

30 Annual Report 1998

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(l) Financial Instruments

The Group is a party to derivative financial instruments that reduce exposure to fluctuations in foreign currency exchange and interest rates. These financial instruments, which mainly consist of forward foreign currency and cross currency interest rate swap contracts are recognised in the financial statements at fair value at the balance sheet date.

Interest rate swap contracts protect the Group from movements in interest rates. Any differential to be paid or received on an interest rate swap contract is recognised as a component of interest revenue or expense over the period of the contract.

Gains and losses on early termination of interest rate swaps or on repayment of borrowings are taken to the income statement.

(m) Drydocking

Drydocking costs are accrued evenly over the period to the next scheduled drydocking and are included in accrued liabilities.

(n) Cruise Revenue and Related Expenses

Cruise revenue comprise principally package revenue from passengers for cruise sales and revenue from sales of merchandise and services provided onboard the cruise ships.

Cruise revenue and all associated direct costs of a voyage are recognised in the income statement on a pro rata basis, computed using the number of days completed during the reporting period.

3. SEGMENT ANALYSIS

Income / (Loss) Revenue before taxation Assets Employed 1998 1997 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 By geographical location

Continuing operations - Asia Pacific 282,629 179,417 27,943 118,172 1,265,142 757,567

Discontinued operations - North America 7,433 - (25,858) - 1,370 ------–––––––––––––––––––––––––––––– –––––––––––––––––––––––––––––––– 290,062 179,417 2,085 118,172 1,266,512 757,567 ––––––––––––––––– –––––––––––––––– -–––––––––––––––––

The Group operates predominantly in cruise and cruise related businesses and accordingly, no information on the Group’s operations by activity has been provided.

4. OPERATING LOSS FROM DISCONTINUED OPERATIONS

In October 1998, the Group ceased its cruise operations in North America. Therefore, the results of the subsidiaries operating in North America are reported in the financial statements as arising from discontinued operations.

31 Annual Report 1998

5. EXCEPTIONAL ITEMS

These comprise the following: Group 1998 1997 US$’000 US$’000

Revaluation loss on outstanding cross currency interest rate swaps and forward foreign currency contracts (9,537) -

Net gain arising from early settlement of a foreign currency term loan - Foreign exchange gain on full settlement of the foreign currency term loan 3,344 - - Loss on early termination of all associated cross currency interest rate swap contracts (1,021) -

2,323 -

Expenses incurred in relation to the start up of a cruise ship (6,105) (3,849)

Gains arising on Genting International PLC’s (former holding company) restructuring scheme - Gains on disposal of investments in Genting International Management Limited and Genting International Properties Limited - 91,429

- Reserve on consolidation arising from the acquisition of remaining equity interest in SCSL Group - 27,575

- Reimbursement to Resorts World Limited in respect of the reduction of the value of non-cruise properties pursuant to the Share Sale Agreement of Lafleur Limited (see Note 25 (iii)) (7,904) -

(7,904) 119,004 Additional drydocking costs due to the need to comply with prevailing International Safety Management Code - (8,583)

Expenses incurred in relation to proposed cruise infrastructure facilities now written off - (2,045) ------(21,223) 104,527 ------

32 Annual Report 1998

6. INCOME BEFORE TAXATION

Included in income before taxation are the following charges and credits: Group 1998 1997 US$’000 US$’000

Charges:

Rental of buildings 3,306 2,769 Directors’ remuneration - fees 70 67 - other emoluments 1,133 1,590 Provision for doubtful debts 1,375 711 Interest on bank overdraft and other borrowings 4,776 559 Assets written off 33 223 Auditors’ remuneration 223 200 Amortisation of goodwill on consolidation 51 50 Fees paid to a firm in which certain directors are members - 34 Net exchange losses - 973 Loss on disposal of fixed assets - 256 –––––––––––––––––

Gain on disposal of fixed assets - a cruise ship and its onboard assets 3,540 - - other assets 9 - Net exchange gains 1,556 - Interest income on fixed deposits 3,955 143 Amortisation of reserve on consolidation 119 86 –––––––––––––––––

7. TAXATION Group 1998 1997 US$’000 US$’000 Foreign taxation - Current taxation 584 1,343 - Deferred taxation (88) 40 –––––––––––––––––––––––––––––––– 496 1,383 –––––––––––––––––

All the Group’s income are in respect of activities undertaken outside the Isle of Man and are not subject to taxation in the Isle of Man.

Taxation is provided on revenue arising from cruise sales of subsidiaries based on the tax rates applicable to the countries from which the passengers embarked.

33 Annual Report 1998

8. DIVIDEND Group 1998 1997 US$’000 US$’000 Proposed final dividend of US$0.01 per ordinary share (1997: Interim dividend of US$0.22 per ordinary share) 6,244 44,000 –––––– ––––––

9. FIXED ASSETS

Equipment Cruise Cruise Building and motor ships under ships improvements vehicles construction Total Group US$’000 US$’000 US$’000 US$’000 US$’000

1998

Cost/Valuation

At beginning of year 550,785 892 70,889 108,643 731,209 Exchange differences - 9 144 - 153 Reclassification 343,046 - - (343,046) - Additions 82,819 - 22,259 343,456 448,534 Assets written off - - (57) - (57) Disposals (30,960) - (542) - (31,502) ------At end of year 945,690 901 92,693 109,053 1,148,337 ------Less: Accumulated depreciation

At beginning of year 50,086 535 30,702 - 81,323 Exchange differences - 6 68 - 74 Charge for the year 27,350 180 7,152 - 34,682 Assets written off - - (24) - (24) Disposals (2,077) - (122) - (2,199) ------At end of year 75,359 721 37,776 - 113,856 ------Net book value at end of year 870,331 180 54,917 109,053 1,034,481 ------Representing:

- Assets at 1995 valuation 98,000 - - - 98,000 - Assets at 1994 valuation 284,649 - 15,277 - 299,926 - Assets at cost 563,041 901 77,416 109,053 750,411 ------945,690 901 92,693 109,053 1,148,337 ------

34 Annual Report 1998

9. FIXED ASSETS (CONTINUED)

Equipment Cruise Cruise Building and motor ships under ships improvements vehicles construction Total Group US$’000 US$’000 US$’000 US$’000 US$’000

1997

Cost/Valuation

At beginning of year 463,372 729 57,522 52,089 573,712 Exchange differences - (165) (1,120) - (1,285) Subsidiaries acquired - 45 2,383 - 2,428 Additions 87,413 461 13,484 56,554 157,912 Assets written off - - (232) - (232) Disposals - (178) (1,148) - (1,326) ------At end of year 550,785 892 70,889 108,643 731,209 ------Less: Accumulated depreciation

At beginning of year 32,122 301 20,351 - 52,774 Exchange differences - (36) (658) - (694) Subsidiaries acquired - 21 1,277 - 1,298 Charge for the year 17,964 311 10,139 - 28,414 Assets written off - - (9) - (9) Disposals - (62) (398) - (460) ------At end of year 50,086 535 30,702 - 81,323 ------Net book value at end of year 500,699 357 40,187 108,643 649,886 ------Representing:

- Assets at 1995 valuation 98,000 - - - 98,000 - Assets at 1994 valuation 284,649 - 15,277 - 299,926 - Assets at cost 168,136 892 55,612 108,643 333,283 ------550,785 892 70,889 108,643 731,209 ------

Interest capitalised during the year into cost of fixed assets amounted to US$4,076,000 (1997: US$3,207,000). A capitalisation rate of 7% representing the weighted average borrowing cost of the Group was used for this purpose.

Certain cruise ships and onboard machinery were revalued by the Directors of the subsidiaries concerned at 31 December 1994 and 1 January 1995 based on independent valuations carried out by a firm of professional valuers using the open market value basis.

35 Annual Report 1998

9. FIXED ASSETS (CONTINUED)

Had the fixed assets been included in the financial statements at cost less depreciation, the carrying amount of each class of fixed assets would have been : Group 1998 1997 US$’000 US$’000

Cruise ships 809,524 436,684 Building improvements 180 357 Equipment and motor vehicles 52,551 37,573 Cruise ships under construction 109,053 108,643 ------971,308 583,257 ------10. SUBSIDIARIES Company 1998 1997 US$’000 US$’000

Unquoted - at cost 0.010 0.010 Amounts due from subsidiaries 767,299 741,842 Amounts due to subsidiaries (10,059) (57,752) ------757,240 684,090 ------The principal subsidiaries are listed in Note 26 to the financial statements.

The amounts due from/(to) subsidiaries are unsecured and have no fixed repayment terms. The Company allocated interest expenses of US$3,908,000 to subsidiaries during the year.

11. INVESTMENT Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Shares in unquoted overseas corporation - at cost 49,759 36,645 ------

The shares in the unquoted corporation represents the Group’s investment in Cape Thunder Sdn Bhd (“CT”), a company involved in cruise infrastructure development. The Group owns 2% of the equity interest in CT and 100% of the issued preference shares in CT. Under the terms of the subscription for the preference shares in CT, all economic benefits and obligations will accrue to the Group as long as the preference shares are outstanding.

36 Annual Report 1998

12. GOODWILL ON CONSOLIDATION Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

At beginning of year 303 353 - - Amortisation charge (51) (50) - - ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– At end of year 252 303 - - -–––––––––––––––––––––––––––––––––––––

13. STOCKS Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Food and beverages 1,538 1,744 - - Supplies, spares and consumables 8,731 5,491 - - ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 10,269 7,235 - - -––––––––––––––––––––––––––––––––––––– 14. DEBTORS Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Trade debtors 9,229 5,313 - - Less: Provision for doubtful debts (2,199) (824) - - ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 7,030 4,489 - - Non-trade debtors 14,557 25,032 2,471 48 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 21,587 29,521 2,471 48 -––––––––––––––––––––––––––––––––––––– 15. BANK BALANCES AND DEPOSITS Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Deposits with banks - maturing within 3 months 120,368 5,964 107,551 1,225 Cash and bank balances 29,796 28,013 8 8 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 150,164 33,977 107,559 1,233 -–––––––––––––––––––––––––––––––––––––

37 Annual Report 1998

16. CREDITORS Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Trade creditors 6,714 20,592 - - Non-trade creditors and accruals 115,166 24,951 8,215 46 ------121,880 45,543 8,215 46 ------

Included in the Group non-trade creditors and accruals is an amount of US$67,500,000 (1997: US$ NIL) being the balance of purchase consideration in respect of a cruise ship.

17. BANK OVERDRAFT AND OTHER BORROWINGS

Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Secured - Current portion of long term loan 27,137 - - - (see Note 20)

Unsecured - Revolving short term bank loans - 60,000 - 60,000 - Bank overdraft - 294 ------27,137 60,294 - 60,000 ------18. SHARE CAPITAL

Group/Company 1998 1997 US$’000 US$’000 Authorised: 999,990,000 ordinary shares of US$0.10 each 99,999 99,999 10,000 1% non-cumulative redeemable preference shares of US$0.10 each 1 1 ------100,000 100,000 ------Issued and fully paid: Ordinary shares of US$0.10 each

At 1 January 49,945 20,000 Issued during the year 12,500 29,945 ------At 31 December 62,445 49,945 ------

On 30 June 1998, the issued and paid-up share capital of the Company was increased from US$49,944,724 to US$62,444,724 by the issue and allotment of 125,000,000 new ordinary shares of US$0.10 each at a premium of US$2.00 per share.

38 Annual Report 1998

18. SHARE CAPITAL (CONTINUED)

During the year, options were granted under “The Star Cruises Employees’ Share Option Scheme”, in exchange for the unexpired share options granted by its former holding company. No options were exercised during the year.

Exercisable Period Subscription 1998 From price per share Number of shares ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 19 December 1998 onwards US$1.356 10,000,000

5 December 2001 onwards US$2.275 6,119,400

19. RESERVES Non-Distributable Distributable –––––––––––––––––––––––––––––––––––––––––––––––––––– ––––––––––––––––––– Share Capital Exchange Unappropriated premium reserve differences income Total US$’000 US$’000 US$’000 US$’000 US$’000 Group

At 1 January 1997 180,000 76,928 (217) 3,358 260,069 Created during the year 245,547 - - - 245,547 Movement during the year - - (24,834) - (24,834) Net income for the year - - - 116,648 116,648 Interim dividend - - - (44,000) (44,000) –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– At 31 December 1997 425,547 76,928 (25,051) 76,006 553,430 Created during the year 250,000 ---250,000 Movement during the year - - 1,308 - 1,308 Net income for the year - - - 2,374 2,374 Proposed dividend - - - (6,244) (6,244) –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– At 31 December 1998 675,547 76,928 (23,743) 72,136 800,868 ––––––––––––––––––––––––––––––––––––––––––––––––– Company

At 1 January 1997 180,000 - - 40,086 220,086 Created during the year 245,547 - - - 245,547 Net income for the year - - - 109,989 109,989 Interim dividend - - - (44,000) (44,000) –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– At 31 December 1997 425,547 - - 106,075 531,622 Created during the year 250,000 --- 250,000 Net income for the year - - - 14,988 14,988 Proposed dividend - - - (6,244) (6,244) –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– At 31 December 1998 675,547 --114,819 790,366 –––––––––––––––––––––––––––––––––––––––––––––––––

Capital reserve represents the surplus arising from the revaluation of certain cruise ships and onboard machinery.

39 Annual Report 1998

20. TERM LOAN

Analysis by year of repayment: Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Between one and two years 17,600 2,778 - 2,778 Between two and five years 52,800 22,222 - 22,222 After 5 years 176,000 ------Non-current portion 246,400 25,000 - 25,000

Portion repayable within one year (see Note 17) 27,137 ------273,537 25,000 - 25,000 ------

On 22 January 1998, a Syndicated Term Loan for an amount up to US$521.6 million was obtained by two subsidiaries, as joint and several borrowers to part finance the new buildings of m.v. SuperStar Leo and m.v. SuperStar Virgo respectively. The tranches in respect of m.v. SuperStar Leo have been fully drawndown during the year.

The term loan is secured by the following:

- Panamanian Ship Mortgages - First Insurance Assignments - First Earnings Assignments - Assignments of Operating and Management Agreements - Issue of debentures for fixed and floating charges over the assets of the two subsidiaries - Charges over shares of the two subsidiaries - Guarantees given by the Company - Assignment of the shipbuilding contract and the benefit of the refund guarantees from the builder pursuant to the said shipbuilding contract.

The Syndicated Term Loan bears interest at a rate which varies according to the London Interbank Offer Rate and is repayable in 24 equal half yearly instalments commencing 6 months from the relevant ship delivery date, with a maturity date payment to be paid on the relevant maturity dates.

To manage the risk arising from the fluctuation in foreign currency and interest rates, the Group makes use of the following derivative financial instruments:

(i) US$/JPY Cross Currency Interest Rate Swap ––––––––––––––––––––––––––––––––––––––––––––––––– In anticipation of the relocation of a cruise ship to Japan in 1998, the Group entered into various cross currency interest rate swap contracts that entitle it to receive floating rate on US$ and oblige it to pay fixed rate on JPY (“Japanese Yen”).

At 31 December 1998, the following forward foreign currency contracts were outstanding :

(a) Two cross currency interest rate swap contracts that entitled the Group to receive a floating rate in US$ and obliged it to pay a fixed rate of 2.067% and 2.3% in JPY respectively. The swap principals amount to US$30.0 million and this would be received by the Group in return for the payment of JPY4,302.5 million. These swaps terminate on 29 September 2000.

40 Annual Report 1998

20. TERM LOAN (CONTINUED)

(b) A forward contract that entitled the Group to receive US$15.0 million in return for a payment of JPY1,912.5 million. This forward contract terminates on 11 January 1999.

The effect of the above transactions effectively convert part of the US$ floating rate term loan into a JPY fixed rate liability.

Subsequent to the year end, the Group terminated the above forward foreign currency contracts with no further material losses to the Group.

(ii) Amortising Interest Rate Swap ––––––––––––––––––––––––––––––––– This is an interest rate swap contract converting US$30.0 million of the term loan into a 6.97% fixed rate obligation. Under this interest rate swap, the Group agrees with the other party to exchange at specified intervals (six monthly), the difference between the fixed rate and the floating rate interest amount calculated by reference to the agreed amortising notional principal amount. The notional principal amount decreases equally over the specified intervals to an amount of US$7.0 million on 25 March 2010. This swap terminates on 25 September 2010.

The effect of this transaction effectively fixes the interest rate payable on this portion of the term loan.

Credit risk ––––––––––– The Group has no significant concentrations of credit risk. Derivative financial instruments are entered into with, and cash is placed with internationally well-established financial institutions. The credit exposure of derivative financial instruments are represented by the fair values of the contracts as disclosed below.

Fair values ––––––––––– The fair value of the Group’s derivative financial instruments at balance sheet date which have been calculated using the rates quoted by the Group’s bankers to terminate the contracts at balance sheet date, were as follows:

Group 1998 1997 US$’000 US$’000

Cross currency interest rate swap contracts 37,697 - Forward contract 16,840 ------54,537 ------

Financial instruments on the balance sheet include cash and bank balances, investment, receivable, trade payable and borrowings. The carrying amounts of these financial instruments approximate to their estimated fair value.

41 Annual Report 1998

21. RESERVE ON CONSOLIDATION Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

At beginning of year 550 432 - - Arising from acquisition of remaining interest in an existing subsidiary - 204 - - Amortisation (119) (86) ------At end of year 431 550 ------

22. DEFERRED TAXATION Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Excess of capital allowances over depreciation 30 117 ------

Deferred tax assets are recognised for temporary differences only to the extent that realisation of the related tax benefit is probable. Temporary differences of approximately US$61.1 million (1997: US$35.8 million) have not been recognised in the financial statements due to uncertainty of their recoverability.

23. EARNINGS PER SHARE

(i) Earnings per share is calculated by dividing the Group’s net income attributable to shareholders by the weighted average number of ordinary shares in issue during the year.

Group 1998 1997

Group’s net income attributable to shareholders in US$’000 2,374 116,648 Weighted average number of shares in issue in thousand 562,803 249,908 Earnings per share in US cents 0.42 cents 46.68 cents

(ii) The adjusted earnings per share before exceptional items is calculated by dividing the income for the year before exceptional items but after charging taxation and minority interests by the weighted average number of ordinary shares in issue during the year. Group 1998 1997 US$’000 US$’000

Group’s net income attributable to shareholders 2,374 116,648 Exceptional items 21,223 (104,527) ------Group’s net income before exceptional items 23,597 12,121 ------Adjusted earnings per share before exceptional items in US cents 4.19 cents 4.85 cents

42 Annual Report 1998

24. COMMITMENTS

(a) Commitments for capital expenditure Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Authorised capital expenditure but not provided for in the financial statements:

Cruise ships under construction 992,204 559,800 - - Cruise ship - 67,500 - - Others - 3,899 - - –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 992,204 631,199 - - ––––––––––––––––––––––––––––––––––––––– (b) Lease commitments

As at the year end, non-cancellable operating lease commitments in respect of rental of office premises payable in the next twelve months, analysed according to the period in which the lease expires, are as follows:

Group Company 1998 1997 1998 1997 US$’000 US$’000 US$’000 US$’000

Future rental payments: - expiring in the first year 754 948 - - - expiring in the second to fifth year inclusive 142 867 - - –––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 896 1,815 - - –––––––––––––––––––––––––––––––––––––––

25. SIGNIFICANT RELATED PARTY DISCLOSURES

(i) Golden Hope Limited, a company incorporated in the Isle of Man acting as trustee for Golden Hope Unit Trust controls the Company by virtue of its holding of an equity interest in the Company of more than 50%.

(ii) The Group extended a short term loan of US$2,352,000 in October 1998 to an executive director of the Company. An initial amount of US$18,000 was repaid during the year. This amount is secured and bears interest at a rate equal to the deposit rate of the Group. As at year end, the remaining balance is included in the non-trade debtors of the Group and Company.

(iii) The Group will reimburse Resorts World Limited (“RWL”), an amount of US$7,904,000 (1997: US$NIL), in respect of the reduction of the value of non-cruise properties pursuant to the Share Sale Agreement of Lafleur Limited between Genting International PLC (“GIPLC”), the former holding company, RWL and the Company. The agreement was entered into and form an integral part of GIPLC’s restructuring scheme as set out in the Circular to shareholders of GIPLC dated 17 April 1997. As at year end, this amount is outstanding.

43 Annual Report 1998

26. PRINCIPAL SUBSIDIARIES Effective Country of Class of Percentage of Incorporation Shares Held Ownership Principal Activities 1998 1997

Inter-Ocean Limited Isle of Man Ordinary 100 100 Investment holding and cruise services

Star Cruise Management Limited Isle of Man Ordinary 100 100 Investment holding, ship management and marketing services

Cruise Properties Limited Isle of Man Ordinary 100 100 Investment holding

Star Cruise Services Limited Isle of Man Ordinary 100 100 Investment holding and onboard club services

44 Annual Report 1998

REPORT OF THE AUDITORS TO THE MEMBERS OF STAR CRUISES PLC (Incorporated in the Isle of Man with limited liability)

We have audited the financial statements set out on pages 24 to 44 which have been prepared in accordance with International Accounting Standards. These financial statements are the responsibility of the Company’s Directors. Our responsibility is to express an opinion on these financial statements based on our audit.

Our audit was conducted in accordance with International Standards on Auditing. Those Standards require that the audit is planned and performed to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Directors, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements give a true and fair view of the financial position of the Company and the Group as at 31 December 1998 and of the results and cash flows of the Group for the year then ended in accordance with International Accounting Standards and the Isle of Man Companies Acts, 1931 to 1993.

Price Waterhouse Certified Public Accountants Hong Kong

9 March 1999

45