Annual report and accounts 2002 Stock ticker: LSE: POC NYSE: POC Certain statements contained in this annual report are ‘forward-looking statements’ that involve risks, uncertainties and assumptions with respect to P&O Princess Cruises and its subsidiaries, including certain statements concerning the dual listed company combination with Carnival Corporation, profit forecasts, working capital, future results, strategies, plans and goals and other events which have not yet occurred. These statements are intended to qualify for the safe harbours from liability provided by Section 27A of the U.S. Securities Act of 1933, as amended, and Section 21E of the U.S. Securities Exchange Act of 1934, as amended, which are part of the U.S. Private Securities Litigation Reform Act of 1995. You can find many (but not all) of these statements by looking for words like ‘will’, ‘may’, ‘believes’, ‘expects’, ‘anticipates’, ‘forecast’, ‘future’, ‘intends’, ‘plans’ and ‘estimates’ and for similar expressions. Because forward-looking statements involve risks and uncertainties, there are many factors that could cause the statements, events or transactions described herein not to occur and/or P&O Princess Cruises’ actual results, performance or achievements to differ materially from those expressed or implied in this report. These factors include, but are not limited to, economic and business conditions in general and conditions in the cruise and land-based vacation industries including increases in capacity offered by cruise ship and land-based vacation alternatives and competition from other cruise ship operators and other vacation alternatives, the impact of operating internationally, the international political and economic climate, armed conflict, terrorist attacks and other world events and negative media publicity and their impact on the demand for cruises, accidents and other incidents at sea affecting the health, safety and security of passengers, and changes in the tax, environmental and other regulatory regimes under which the Company operates. In addition, the paragraph entitled ‘Risk Factors’ in P&O Princess Cruises Annual Report on Form 20-F for the year ended December 31, 2002, filed on or after the date of this report with the U.S. Securities and Exchange Commission contain important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of the Company’s forward-looking statements and/or adversely affect its respective businesses, results of operations and financial position, which statements and factors are incorporated herein by reference. Subject to any continuing obligations under applicable law or any relevant listing rules, P&O Princess Cruises expressly disclaims any intention or obligation to disseminate, after the date of this report, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based. 2002 P&O PRINCESS CRUISES PLC 1 Contents A word from your Chairman 2 A word from your Chief Executive 3 Background to the cruise industry 4 Financial highlights 5 Overview of the brands 6-15 Board of directors 16 Environmental statement 17 Operating and financial review 18-24 Five year record 26-27 Quarterly information for 2002 28 Quarterly information for 2001 29 Directors’ report 30-31 Corporate governance 32-34 Remuneration report 35-40 Report of the independent auditors 41 Group profit and loss account 42 Group balance sheet 43 Group cash flow statement 44 Company balance sheet 45 Group statement of total recognised gains and losses 46 Reconciliation of movements in shareholders’ funds 46 Notes to the financial statements 47-73 Shareholder information 74-75 Glossary of terms 76 Contacts 2 P&O PRINCESS CRUISES PLC 2002 A word from your Chairman P&O Princess has enjoyed great success over the past few years as part of the P&O Group and then, after the demerger two years ago, as an independent company. During that time P&O Princess has grown considerably and further modernised its fleet, expanded its North American, European and Australian businesses and established a position in the fast growing German cruise sector. As we have done this, we have continued to record good financial results. All this has been achieved through the creativity, professionalism and dedication of our management and seafarers and staff to whom I would like to pay special tribute. On 8 January 2003, your Board approved and recommended Carnival Corporation’s offer to combine with P&O Princess. The UK parent company of the combined group will be called Carnival PLC and the Dual Listed Company (DLC) structure will enable all shareholders to continue to invest in the cruise industry – an industry that is one of the fastest growing sectors of the leisure market and has significant growth potential in the major vacation markets of North America, Europe, Australasia and South America. The combined group will be the world’s largest cruise company. Its strength will include having some of the finest cruise brands in the world such as Carnival, Holland America, Cunard, Costa, Princess Cruises, P&O Cruises, Swan Hellenic and AIDA. Each of these brands will continue to focus on its target market and in particular, P&O Cruises will continue to operate with the best of British traditions. The combination will provide our passengers with a truly broad range of brands and greater choice. As I will be standing down from the board of P&O Princess on the expected completion of the combination with Carnival in Spring 2003, I would like to take this opportunity to thank my Board colleagues for their wise counsel and dedicated efforts. Finally, on a personal note, I have known Micky Arison for many years. We share similar values and pride in our respective companies and I have every confidence in the future of the combined group. THE LORD STERLING OF PLAISTOW, GCVO, CBE, CHAIRMAN February 6, 2003 2002 P&O PRINCESS CRUISES PLC 3 A word from your Chief Executive Since becoming an independent The continued strength of our brands is company in October 2000, P&O Princess Cruises has expanded by testament to the professionalism and around 30%, grown its brands and launched new cruise lines within the dedication of our staff fast growing German and UK cruise By combining with Carnival under a to the company. They have delivered sectors. It has modernised its fleet DLC structure to create the largest outstanding vacations for our customers and introduced new ways to give cruise vacation group in the world, throughout this period of growth passengers more personal choice your company will be even better and development for the company. and greater flexibility within their placed to capture future growth in They have helped to improve the cruise holiday experience. Its cost this industry. The new group will efficiency of all our operations and structure has improved through the include some of the best known to deliver strong performance and introduction of larger and more cruise brands globally and will be able enhanced shareholder value. Their cost effective ships and through to offer a wider range of vacation contribution has been outstanding. management action, including the choices and be better placed to The continued strength of our brands integration of systems and purchasing attract customers from land-based is testament to the professionalism across its global operations. vacations to cruise vacations. The and dedication of our staff. DLC structure allows a continued We believe that the cruise industry participation in the future of this has strong long-term growth potential industry for all our shareholders. With underpinned by demographic trends significant growth plans and a strong and high levels of customer satisfaction. position in this industry, the combined Through continued investment in its group offers exciting career opportunities well-known local brands, and with for its employees. its modern fleet and strong global reach, your company has improved I would like to thank the staff of its potential for continued success. P&O Princess for their commitment PETER RATCLIFFE, CHIEF EXECUTIVE OFFICER February 6, 2003 4 P&O PRINCESS CRUISES PLC 2002 Background to the cruise industry Cruise Industry – North America Cruising is one of the fastest growing segments of the travel industry. Over 8 the last five years, demand for cruising within North America, the largest 6 cruise sector in the world, has grown by an average of 8% per year. MILLIONS - 4 Although Europe is one of the largest vacation markets, the cruise industry 2 there still remains relatively underdeveloped. Growth rates over the past PASSENGERS 0 five years have been even stronger in Europe than in North America and 1997 1998 1999 2000 2001 2002 there is significant potential for future growth. 2002 represents preliminary estimates Cruise Industry – Europe We believe that growth in cruising has been driven by demographic trends, 2.0 together with high levels of customer satisfaction and the introduction of innovative new facilities onboard ships which continues to help generate 1.5 MILLIONS - increased demand. 1.0 0.5 Cruising today appeals to a broad spectrum of individuals encompassing all PASSENGERS 0.0 ages and interests. It has traditionally appealed to the middle and older segments 1996 1997 1998 1999 2000 2001 of the population. These segments are forecast to expand over the next 10 years. UK Germany Italy France Spain and Portugal Cruise vacations generally have high levels of customer satisfaction, which we believe generates strong levels of repeat business. The cruise industry continues to introduce greater personal choice for its customers through the introduction of private balconies on outside cabins and multiple restaurants and entertainment amenities. We believe that these innovative new facilities and the increased levels of choice introduced onboard cruise ships are enhancing customer satisfaction levels.