Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 1-16017

ORIENT-EXPRESS HOTELS LTD.
(Exact name of registrant as specified in its charter)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None.

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (Not applicable. See third paragraph under Item 1—Business on page 4.)

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

        The aggregate market value of the Class A common shares held by non-affiliates of the registrant computed according to the closing price on June 30, 2003 (the last business day of the registrant's second fiscal quarter in 2003) was approximately $287,000,000.

        As of March 8, 2004, 31,790,601 Class A common shares and 20,503,877 Class B common shares of the registrant were outstanding (including 18,044,478 Class B shares owned by a subsidiary of the registrant (see Note 10(d) to the Financial Statements (Item 8)) and 11,943,901 Class A shares and 2,459,399 Class B shares owned by Sea Containers Ltd.).

DOCUMENTS INCORPORATED BY REFERENCE: None.

        Peliminary Note:    Forward-looking statements concerning the operations, performance, financial condition, plans and prospects of Orient-Express Hotels Ltd. and its subsidiaries are based on management's current expectations and are subject to various risks and uncertainties. Actual results could differ materially from those anticipated in the statements due to a number of factors, including those described in Item 1—Business, Item 7—Management's Discussion and Analysis, Item 7A—Quantitative and Qualitative Disclosures about Market Risk, and Item 12—Security Ownership of Certain Beneficial Owners and Management below. Orient-Express Hotels Ltd. undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

2

3

PART I

ITEM 1. Business

        Orient-Express Hotels Ltd. (the "Company" and, together with its subsidiaries, "OEH") is incorporated in the Islands of Bermuda and is a "foreign private issuer" as defined in Rule 3b-4 under the Securities Exchange Act of 1934 (the "1934 Act") and in Rule 405 under the Securities Act of 1933. As a result, it is eligible to file this annual report pursuant to Section 13 of the 1934 Act on Form 20-F (in lieu of Form 10-K) and to file its interim reports on Form 6-K (in lieu of Forms 10-Q and 8-K). However, the Company elects to file its annual and interim reports on Forms 10-K, 10-Q and 8-K, and does so as those forms apply to foreign private issuers.

        These reports and amendments to them are available free of charge on the internet website of the Company as soon as reasonably practicable after they are filed electronically with the U.S. Securities and Exchange Commission ("SEC"). The internet website address is http://www.orient-express.com.

        Pursuant to Rule 3a12-3 under the 1934 Act regarding foreign private issuers, the proxy solicitations of the Company are not subject to the disclosure and procedural requirements of Regulation 14A under the 1934 Act, and transactions in its equity securities by its officers, directors and significant shareholders are exempt from Section 16 of the 1934 Act.

Introduction

        OEH is a hotel and leisure group focused on the luxury end of the leisure market. It currently owns and/or part owns and manages 39 properties consisting of 30 highly individual deluxe hotels worldwide, three restaurants, five tourist trains and a river cruiseship. OEH acquires or manages only very distinctive properties in areas of outstanding cultural, historic or recreational interest in order to provide luxury lifestyle experiences for the elite traveler.

        The locations of OEH's various properties are shown in the map above, where they number 35 because the Hotel Cipriani and Palazzo Vendramin are both in Venice, the Hotel Splendido and Splendido Mare are both in Portofino, and three separate safari lodges operate as a unit in Botswana. These seven properties bring the total to 39.

        Hotels and restaurants represent the largest segment of OEH's business, contributing 85% of revenue in 2003. Tourist trains and cruises accounted for the remaining 15%. OEH's worldwide portfolio of hotels currently consists of 2,965 individual guest rooms and multiple-room suites, each known as a "key". Those owned in 2003 achieved an average daily room rate ("ADR") of $340 and a revenue per available room ("RevPAR") of $184. Approximately two-thirds of OEH's customers are leisure travelers, with approximately 51% of guests in 2003 originating from the United States, 34% from Europe and the remaining 15% from elsewhere in the world.

        Revenue, operating earnings and identifiable assets of OEH in 2001, 2002 and 2003 for its business segments and geographic areas are presented in Note 15 to the Financial Statements (Item 8 below).

        At the present time, Sea Containers Ltd. owns a 42% equity interest in OEH. See "OEH's Relationship with Sea Containers Ltd." below.

Owned Hotels—Europe

Italy

        The Hotel Cipriani and Palazzo Vendramin—103 keys—in Venice were built for the most part in the 1950s and are located on three acres on Giudecca Island opposite the Piazza San Marco. Most of the rooms have views over the Venetian lagoon. Features include fine cuisine in three indoor and outdoor restaurants, gardens and terraces encompassing an Olympic-sized swimming pool, a tennis

4

court and a private boat service to the Piazza San Marco. OEH acquired in 2000 an historic warehouse building adjacent to the hotel where, after light refurbishment, banquets and meetings can be held, thereby freeing up space in the main hotel. Accordingly a large deluxe suite was added in 2002 and six more new keys are planned. In 2004, a spa will be built.

        The Hotel Splendido and Splendido Mare—82 keys—overlook picturesque Portofino harbor on the Italian Riviera. Set on four acres, the main hotel was built in 1901 and is surrounded by gardens and terraces which include a swimming pool and tennis court. There are two open-air and enclosed restaurants as well as banquet/meeting rooms, and a shuttle bus linking the two parts of the resort. OEH acquired the Splendido Mare during 2001, having previously operated it under a long-term lease. Several of the guest rooms in the main hotel will be refurbished and enlarged in 2004.

        The Villa San Michele—45 keys—is located in Fiesole, a short distance from Florence. Originally built as a monastery in the 15th century with a façade attributed to Michelangelo, it has stunning views over historic Florence and the Arno River Valley. OEH has remodelled and expanded the guest accommodation to luxury standards, including the addition of a swimming pool. A shuttle bus service is provided into Florence. The property occupies ten acres. OEH has planning permission to add a further two keys and a spa.

        These Italian properties are seasonal and are closed for varying periods during the winter.

        OEH is rebuilding with up to 60 keys the Hotel Caruso in Ravello on three hill-top acres overlooking the Amalfi coast near Naples. Parts of the property date back to the 11th century. OEH has received grants from the European Union to help finance this redevelopment. Because of delays in obtaining local government planning permits, management does not expect to re-open the hotel until 2005.

Portugal

        Reid's Palace—164 keys—is the most famous hotel on the island of Madeira, situated on ten acres of semitropical gardens on a cliff top above the sea and the bay of Funchal, the main port city. Opened in 1891, the hotel has four restaurants and meeting facilities. Leisure and sports amenities include two fresh water swimming pools, a third tide-filled pool, tennis courts, ocean water sports and access to two championship golf courses. It is particularly favored in the British and German leisure markets and has year round appeal, serving both winter escapes to the sun and regular summer holidays. In 2004, a new spa and restaurant will be built and the meeting facilities will be reorganized as a conference center.

        The Lapa Palace—109 keys—is in the embassy district of Lisbon, near the city center and overlooking the Tagus River. The historic part of the hotel was originally built in the 1870s as the palace of a Portuguese noble family. It opened as a luxury hotel in 1992 after extensive conversion and expansion, including the addition of conference facilities and underground car parking. The hotel is set amid gardens with ornamental fountains and both indoor and outdoor swimming pools, occupying a total of three acres. During 2003, all of the guest rooms in the hotel's historic part were refurbished. OEH owns an adjoining parcel of land suitable for development and has applied for planning permission to add up to 46 more keys.

        OEH owned for many years the Hotel Quinta do Lago with 141 keys near Faro in the Algarve region, a popular golf destination, until November 2003 when the property was sold. See Note 2(b) to the Financial Statements.

Elsewhere in Europe

        Hôtel de la Cité—61 keys—is located in the central square of the beautiful walled medieval town of Carcassonne, France near Toulouse. Opened in 1909, the hotel incorporates one of the 50 watch towers in Carcassonne's ancient fortifications and features two restaurants, gardens, a swimming pool

5

and a nearby conference center, altogether occupying two acres. One of the restaurants has been awarded one star for fine dining by the influential Michelin Guide. The hotel also owns and operates a canal barge on the Canal du Midi providing day excursions for guests.

        In February 2002, OEH acquired La Residencia—62 keys—located in the charming village of Deià on the rugged northwest coast of the island of Mallorca, Spain in the Mediterranean. Mallorca is a popular European tourist destination throughout the year. The core of La Residencia was created from two adjoining 16th and 17th century country houses set on a hillside site of 30 acres. The hotel features three restaurants including the gourmet El Olivio, one of the foremost on the island, as well as two large outdoor swimming pools, tennis courts and a spa with an indoor pool. OEH is currently refurbishing the guest rooms and added three large suites in 2003. In 2004, the front entrance, one of the restaurants and the spa will be renewed.

        Also in February 2002, OEH acquired Le Manoir aux Quat' Saisons—32 keys—in Oxfordshire, England about an hour's drive west of London. The main part of the hotel is a 16th century manor house set in 27 acres of gardens. The property was developed by Raymond Blanc, one of Britain's most famous chefs, and the hotel's restaurant has two stars in the Michelin Guide, placing it among the best in the British Isles. Mr. Blanc has given a long-term commitment to remain the chef at the hotel.

Owned Hotels—North America

United States

        The Windsor Court—324 keys—opened in 1984 and is located in the central business district of New Orleans near the French Quarter and the Mississippi riverfront. Harrah's operates the only land-based casino in Louisiana across the street from the hotel. Each room has panoramic views over the river or the city. Facilities include three restaurants and lounges, a roof-top ballroom, several other banquet and meeting rooms, an outdoor swimming pool and a health club. The hotel's interior décor features a collection of historic European art and antique furniture. In 2004, the hotel plans to begin building a conference center on a nearby owned lot, for which it has planning permission, catering to small and medium sized business meetings.

        Keswick Hall—48 keys—is located in the rolling countryside of central Virginia, near Charlottesville. Originally a private home dating from 1912, it is popular for weekend breaks and business meetings because of the natural beauty of the area and the adjacent Keswick Club which features tennis courts, swimming pool, and an Arnold Palmer-designed golf course. The total site occupies 600 acres including vacant land around the golf course being sold in parcels for residential development. In 2004, management plans to add a restaurant, reconfigure its meeting space and build nine new keys in cottages near the hotel.

        The Inn at Perry Cabin—81 keys—was built in 1812 as a country inn and is located in St. Michaels, Maryland on the eastern shore of Chesapeake Bay. Set on 25 shoreside acres that include a health club, indoor and outdoor swimming pools, and boating and fishing on the Bay, it is an attractive conference and vacation destination, particularly for the Washington, D.C. market. A major renovation of the hotel took place in 2002 and 2003 with the addition of 40 keys and a new conference facility. In 2004, a spa will be built.

Caribbean

        La Samanna—81 keys—is located on the island of St. Martin in the French West Indies. Built in 1973, the hotel has two restaurants and comprises several buildings on ten acres of land along a 4,000-foot beach. Amenities include a freshwater swimming pool, a spa, tennis courts, fitness and conference centers, boating and ocean water sports. The hotel owns an adjacent 45 acres of land available for future development, and plans to begin developing in 2004 up to 150 vacation apartments

6

with shops, a restaurant and a marina on part of this land which OEH would sell and retain management. The hotel is open most of the year, seasonally closing during the autumn months. The hotel has also been closed for short periods in the past due to hurricane damage and is insured for this risk.

Mexico

        In March 2002, OEH acquired a 75% interest in Maroma Resort and Spa—58 keys—on Mexico's Caribbean coast 25 miles south of Cancun's international airport. OEH manages the hotel with continuing support from the previous owner, who retains a 25% interest over which OEH has a right of first refusal to acquire in certain circumstances. The resort opened in 1995 and has 25 acres of land, including some for future expansion, along a 750-foot beach with the Cozumel barrier reef offshore where guests may fish, snorkel and scuba-dive. Important Mayan archaeological sites are also nearby. Rooms are arranged in low-rise villas and there are extensive spa facilities. OEH plans the addition of up to eight new keys in 2004.

Owned Hotels—Rest of the World

South America

        Built in the 1920s on a three-acre site facing Copacabana Beach near the central business district of Rio de Janeiro, Brazil, the Copacabana Palace—225 keys—is one of the most famous in South America and features two gourmet restaurants, a 500-seat theater, several spacious function and meeting rooms, a large swimming pool and health club, and a roof-top tennis court and pool. Future expansion is planned subject to obtaining government planning permission.

        The Miraflores Park Hotel—81 keys—is located in an exclusive residential district of Lima, Peru surrounded by parkland and looking out at the Pacific Ocean, yet near the commercial and cultural center of the city. Opened in 1997, the hotel has a large ballroom, outdoor pool, health and beauty facilities and a business center for guests, and occupies about one acre of land. OEH has planning permission to expand.

Southern Africa

        The Mount Nelson Hotel—226 keys—in Cape Town, South Africa is an historic property opened in 1899 with beautiful gardens and pools and has long enjoyed a reputation as one of the foremost hotels on the African continent. It stands just below Table Mountain and is within walking distance of the main business, civic and cultural center of the city. The hotel has a ballroom, two swimming pools, tennis courts and a fitness center, all situated on ten acres of grounds and gardens. Expansion is planned through incorporation into the hotel of owned adjoining residential properties starting with a spa in 2004.

        The Westcliff Hotel—119 keys—is the only garden hotel in Johannesburg, South Africa, situated on six hillside acres with views over the city's zoo and park. Its resort amenities include two swimming pools, a tennis court and health club, and the hotel attracts business guests because of its proximity to the city center. It opened in 1998, and during 2003, OEH added a banquet and conference center on adjacent expansion land.

        Orient-Express Safaris—39 keys total—consist of three separate game-viewing lodges in Botswana called Khwai River Lodge, Eagle Island Camp and Savute Elephant Camp. Established in 1971, OEH leases the lodge sites in the Okavango River delta and nearby game reserves, where some of the best wildlife in Africa can be observed from open safari vehicles or boats. Each camp has 12 or 15 twin-bedded deluxe tents, and guests travel between the camps by light aircraft. Boating, fishing, hiking and swimming are offered at the various sites.

7

Australia

        The Observatory Hotel—96 keys—is in Sydney within walking distance of the central business district of the city. This hotel opened in 1993 and has two restaurant and lounge areas, extensive meeting and banquet rooms, a health club with indoor swimming pool, a tennis court and a large parking garage on a site of about one acre. OEH has planning permission to add keys in a new top floor to the hotel.

        The Lilianfels Hotel—85 keys—is in the Blue Mountains National Park west of Sydney. It is named after the original estate house, dating from 1890, where the hotel's gourmet restaurant is located. The main hotel, built in 1992, has a second restaurant and conference facilities. The resort's four acres of grounds encompass an indoor swimming pool, health club and spa, tennis court and extensive gardens with views over the Blue Mountains. The hotel was completely refurbished in 2003, and there is expansion land to add keys in the future.

French Polynesia

        The Bora Bora Lagoon Resort—80 keys—opened in 1993 and has bungalows situated over the lagoon water plus additional beach and garden bungalows, all built in traditional Tahitian style on a 12-acre site. Guests dine in two restaurants and enjoy extensive water sports and tennis. A major renovation program at this property was recently completed, involving a new swimming pool, spa and conference facility.

Hotel Management Interests

        In April 2003, through a 50%/50% joint venture company with a Spanish investment company, OEH acquired the famous Hotel Ritz—167 keys—in central Madrid near the financial district, Madrid Stock Exchange, Spanish Parliament and many of the city's well known tourist attractions like the Prado Museum, Royal Palace and Retiro Park. See Note 2(a) to the Financial Statements. Opened in 1910, the hotel has four spacious conference and banqueting suites, an indoor restaurant and the famous Ritz Terrace restaurant outdoors in the gardens. OEH manages the hotel under an exclusive long-term contract and plans extensive capital improvements with its 50% partner.

        The Charleston Place—442 keys—is located in the heart of historic Charleston, South Carolina, a popular destination for tourists, groups and business meetings. Opened in 1986, the hotel has two restaurants, extensive banqueting and conference space including a grand ballroom, a health club with spa and swimming pool and roof-top tennis court, and a shopping arcade of 25 retail outlets leased to third parties. The hotel also owns the adjacent historic Riviera Theater remodelled as an additional conference facility and three retail shops. Development of more meeting space is planned by enclosing one of the hotel's courtyards. OEH has a 19.9% ownership interest in the hotel, manages the property under an exclusive long-term contract, and receives interest on partnership loans which it assumed at the time of its original investment and other loans made since then.

        OEH has a 50%/50% joint venture with local investors in Peru which, under exclusive management of OEH, operates the following two hotels under 20-year renewable leases which commenced in 1995.

8

        The Hotel Monasterio—124 keys—is located in the ancient Inca capital of Cusco, the most important tourist destination in Peru. OEH is upgrading and expanding the property which includes a long-term lease on the adjoining Nazarenas convent for future development, a total site of about three acres. The hotel was originally built as a Spanish monastery in the 16th century and was converted to hotel use in 1995. The deluxe guest rooms and suites and two restaurants are arranged around open-air cloisters. Because of Cusco's high altitude, specially oxygenated ventilation has been added to some of the refurbished rooms.

        The Machu Picchu Sanctuary Lodge—31 keys—is the only hotel in the vicinity of the famous mountaintop Inca ruins. All of the rooms have been refurbished to a high standard. The joint venture also has a lease on seven acres at the foot of the ruins, close to the town where tourists arrive by train and where a larger hotel could be built, but it is unlikely that this project would be started for several years given the time required for permits, design and construction.

Restaurants

        OEH owns '21' Club, the famous landmark restaurant in mid-town New York City. Originally a speakeasy during Prohibition in the 1920s, this restaurant is open to the public, occupies three brownstone buildings in midtown Manhattan and features gourmet American cuisine. It serves à la carte meals in the original bar restaurant and a separate dining room refurbished in 2002, and also has a number of banqueting rooms used for functions, including the famous secret wine cellar.

        OEH has a 49% interest in Harry's Bar, a private dining club in the Mayfair area of London. The majority partner manages the restaurant with assistance from OEH's Italian hotels. Its menu features gourmet Italian cuisine. OEH has a right of first refusal to acquire the remaining interest in this property under certain conditions.

        OEH has re-established the famous La Cabaña steak house in Buenos Aires dating from the 1920s. OEH bought the contents and name of the restaurant some years ago and, after relocating to the La Recoleta area of the city, reopened in September 2003. The main dining room features a traditional open fire where steaks are seared, and three private dining rooms have regional Argentine themes.

        The purchase of two hotels in Spain and England in February 2002, as noted under "Owned Hotels—Europe" above, included a 50% interest in a group of four restaurants called Le Petit Blanc in England. OEH disposed of its interest in 2003.

Tourist Trains and Cruises

        OEH's principal European tourist trains, called the Venice Simplon-Orient-Express, operate in two parts in a regularly scheduled overnight service between London and Venice and on short excursions in southern England. OEH owns 30 railway cars originally used on the historic "Orient-Express" and other famous European trains. All have been refurbished in original 1920s/1930s décor and meet modern safety standards. The services offered are a continuation of, and are marketed as, the Orient- Express trains of pre-World War II years. One train is based in Great Britain composed entirely of Pullman cars with a capacity for up to 250 passengers. The other on the Continent is made up of Compagnie Internationale des Wagons-Lits et du Tourisme sleeping cars and day coaches with capacity for up to 180 passengers. They operate once or twice weekly principally between London and Venice from March to November each year via Paris, Zurich and Innsbruck on a scenic route through the Alps. Passengers travel under the English Channel by bus on the Eurotunnel shuttle train. Occasional trips are also made from time to time to Rome, Prague and Istanbul and other European destinations.

        The British Pullman cars of Venice Simplon-Orient-Express operate all year, originating out of London on short excursions to places of historic or scenic interest in southern England, including some

9

overnight trips when passengers stay at local hotels. Both the British and Continental trains are available for private charter.

        The Northern Belle tourist train offers day trips and charter service principally in the north of Britain. It builds on the success of OEH's British Pullman business, which focuses on the south of England around London. This train consists of six dining cars elegantly decorated to be reminiscent of old British "Belle" trains of the 1930s, plus related service cars, and can carry up to 250 passengers. Full course gourmet meals are served on board and passengers stay in local hotels on overnight itineraries.

        PeruRail is a 50%/50% joint venture between OEH and Peruvian partners formed to operate part of the state-owned railways in Peru under a 30-year franchise acquired in 1999 with possible extension for a further 30 years. The joint venture pays the government a fee related to traffic levels which can be offset until 2009 against investment in track improvements. The 70-mile Cusco-Machu Picchu line carries mainly tourists visiting the famous Inca ruins, the principal means of access because there is no convenient road. A second rail line runs from Cusco to Matarani on the Pacific Ocean via Puno on Lake Titicaca and Arequipa and principally serves freight traffic at present. The Cusco-Machu Picchu line connects two of OEH's Peruvian hotels allowing creation of inclusive packages. OEH operates a deluxe daytime tourist train service on the Cusco-Puno route through the High Andes mountains using refurbished PeruRail passenger cars, and a 1920s steamer included in the franchise on day excursions for tourists on Lake Titicaca. In 2003, OEH began a deluxe tourist train service on the Cusco-Machu Picchu route using carriages acquired in Singapore.

        The Eastern & Oriental Express in Southeast Asia makes up to one round trip each week between Singapore, Kuala Lumpur and Bangkok. The journey lasts about 48 hours each way and includes two nights on board and side trips to Penang in Malaysia and the River Kwai in Thailand. Some overnight trips are also made from Bangkok to Chiang Mai and elsewhere in Thailand. Originally built in 1970, the 24 cars were substantially rebuilt to an elegant oriental style of décor and fitted with modern facilities such as air-conditioning and private bathrooms. The train is made up of sleeping cars with three types of berths, three restaurant cars, a bar car and an open air observation car and can carry 125 passengers. The Eastern & Oriental Express is available for charter by private groups. OEH manages the train exclusively and has a 25% shareholding in the owning company.

        OEH owns and operates a deluxe river cruiseship on the Irrawaddy River in central Burma, or Myanmar, called the Road to Mandalay. The ship was a Rhine River cruiser built in 1964 which OEH bought and refurbished. It has 66 air-conditioned cabins with private bathrooms, spacious restaurant and lounge areas and a canopied sun deck with swimming pool. The ship travels between Mandalay and Pagan up to eight times each month and carries 126 passengers who enjoy sightseeing along the river and guided shore excursions to places of historic interest. Five to eight night itineraries are offered including airfare to and from the ship and hotel accommodation in Rangoon. OEH also operates occasional cruises to different destinations, such as to Bhamo in the north of the country close to the China border. The ship does not operate in the hot summer season and occasionally when the water level of the Irrawaddy River falls below normal levels due to lack of rainfall.

        OEH managed for Queensland Rail the Great South Pacific Express deluxe tourist train in Australia until June 2003 when the state railway suspended service because of the decline in long-haul tourist numbers to Australia from abroad in 2002 and 2003. Comprised of 21 day and sleeping carriages, the train was based in Brisbane and traveled along the east coast on overnight itineraries south to Sydney and north to Cairns stopping at tourist destinations along the route. OEH has retained a right of first refusal to acquire the Great South Pacific Express carriages if Queensland Rail decides to sell them during 2004.

10

Pansea Hotels

        On February 2, 2004, OEH announced it was making an $8,000,000 investment in the Pansea group of five deluxe hotels in Southeast Asia. The properties are located in Luang Prabang, Laos; Koh Samui, Thailand; Rangoon, Burma; Siem Reap, Cambodia; and Bali, Indonesia. They total 234 keys at present but all are capable of expansion. A second hotel in Bali is under development. These hotels are not included in the discussion above because OEH will not manage them but will market them along with its other properties, in particular the Eastern & Oriental Express tourist train and the Road to Mandalay cruiseship.

        The investment has been structured as an $8,000,000 loan at 5% annual interest to the Pansea Asia holding company, convertible after three years into about 25% of the company's shares. At that time OEH has an option to acquire all of the shares. OEH has a further option to acquire all of the shares after five years, at which time the existing shareholders have the right to sell their shares to OEH at the same price. OEH paid $1,400,000 for its option rights. The loan conversion price and option exercise prices are based on multiples of the holding company's net book value or its earnings before interest, tax, depreciation and amortization, less the holding company's debt. The loan proceeds are to be used primarily to expand the existing Pansea properties and to fund new properties in the region.

Management Strategies

        As the foregoing indicates, OEH has a mix of hotel and other deluxe travel products that are geographically diverse and appeal to the high-end leisure market, reflecting an important management strategy. As a result, about two-thirds of annual revenue derives from leisure customers while corporate/ business travel accounts for the rest.

        OEH benefits from trends and developments favorably impacting the world hotel, travel and leisure markets, including strong demand growth trends in the luxury hotel market in many parts of the world, increased travel and leisure spending by consumers, favorable demographic trends in relevant age and income brackets of U.S. and European populations, and increased online travel bookings. These trends suffered a setback since 2001 due to slowing national economies, the shock of terrorist attacks, the build-up and aftermath of the wars in Afghanistan and Iraq and the SARS epidemic. Management believes that the public's confidence in world travel is returning and demand for luxury hotel and tourist products will resume.

        For the future, OEH plans to grow its business by increasing RevPAR and earnings at its established properties and newer acquisitions, by expanding existing hotel and restaurant properties where land or space is already available, by increasing the utilization of its tourist trains and cruiseship to add trips, and by acquiring additional distinctive luxury properties throughout the world. Factors in OEH's evaluation of a potential acquisition include the uniqueness of the property, attractions for guests in the vicinity, acceptability of initial investment returns, visible upside potential such as by pricing, expansion or improved marketing, limitations on nearby competition, and convenient access.

        OEH management plans to continue owning or part owning and managing most OEH properties. Ownership encourages OEH to develop the distinctive character of its properties and allows it to benefit from all of the current cash flow and future capital gains should it sell a property. Self-management has enabled OEH to capture the economic benefits otherwise shared with a third-party manager, to control the operations, quality and expansion of the hotels, and to use its experience with price changes, expansions and renovations to improve cash flow and enhance asset values.

        Many of OEH's individual properties, such as the Hotel Cipriani and '21' Club, have distinctive local brand identities. OEH links these together under its umbrella "Orient-Express Hotels" name

11

which originated with the legendary luxury European train in the late 19th and early 20th centuries and which is recognizable worldwide and synonymous with sophisticated travel and refined elegance.

Marketing, Sales and Public Relations

        OEH's sales and marketing function is based upon direct sales, cross-selling to existing customers and public relations. OEH has a global sales force of over 220 persons in 40 locations. Hotel marketing is coordinated through OEH's regional sales offices mainly in New York, Paris, Frankfurt and London while the tourist trains and cruiseship are marketed through sales and reservations offices in Providence (Rhode Island), London, Paris, Cologne, Tokyo, Singapore and Cusco. OEH also has local sales representatives at many of the hotels. The responsibilities of OEH's sales staff include promoting special events, working with group and corporate account representatives and planning direct mail efforts. OEH belongs to a number of international organizations, such as "The Leading Hotels of the World" and "Preferred Hotels and Resorts Worldwide", to promote its properties in conjunction with other non-branded, luxury operators.

        Internet usage is an important direct sales tool. Through OEH's website (www.orient-express.com), with its prize-winning design, OEH offers direct reservations services to customers. On-line sales have lower transaction costs by saving travel agent commissions and tour operator discounts. The internet also enhances marketing exposure and increases distribution.

        Because repeat customers appreciate the consistent quality of OEH's hotels, trains and restaurants, an important aspect of its strategy is to promote other OEH properties through various cross-selling efforts. These include direct mail to existing customers, in-house brochures and promotions, discounted special offers, and OEH's "Orient-Express Travel Club" website and in-house "Orient-Express Magazine". OEH also sells luxury souvenir goods branded with the names of its travel products.

        OEH's marketing strategy also focuses on public relations, which it believes is a highly cost-effective marketing tool for luxury properties. Because of the unique nature of the OEH properties, guests are more likely to hear about OEH's hotels and tours through word-of-mouth or magazine or newspaper articles rather than through direct advertising. OEH has two in-house public relations offices in London and New York and representatives in 13 countries worldwide, including contracts with third-party public relations firms, to promote its properties through travel magazines, newspapers and other media. During 2003, OEH hosted over 1,700 journalists at its various properties. As a result, about 6,000 articles and stories were published or broadcast about OEH's properties, many in publications with large local, regional or international circulations.

Industry Awards

        OEH has gained a worldwide reputation for quality and service in the luxury segment of the leisure and business travel market. Over the years, OEH's properties have won numerous national and international awards given by trade or consumer publications such as Conde Nast Traveller, Gourmet, Travel & Leisure and Tatler and private subscription newsletters such as Andrew Harper's Hideaway Report, or industry bodies such as the American Automobile Association. The awards are based on opinion polls of their readers or the professional opinion of journalists or panels of experts. The awards are believed to influence consumer choice and are therefore highly prized.

Competition

        OEH competes for hotel and restaurant acquisition opportunities with others who may have substantially greater financial resources. This competition may have the effect of increasing OEH's acquisition costs, reducing the number of suitable investment opportunities offered to OEH and increasing the bargaining power of property owners seeking to sell or to enter into management agreements.

12

        Competition for guests in the hospitality industry is based generally on the convenience of location, the quality of the property, pricing, range and quality of food services and amenities offered, types of cuisine, and name recognition. Demographic, geographic or other changes in one or more of OEH's markets could impact the convenience or desirability of the sites of OEH's hotels and restaurants, and so could adversely affect their profitability. Also, new or existing competitors could significantly lower prices or offer greater conveniences, services or amenities or significantly expand, improve or introduce new facilities in markets in which OEH's hotels and restaurants compete.

        OEH's strategy is to acquire only hotels which have special locations and distinctive character. Many are in areas with unique local history or high entry barriers because of zoning restrictions. OEH builds its competitive advantage further by offering high quality service and cuisine, often with a local flavor. Typically, therefore, OEH competes by providing a special combination of location, character, cuisine and service rather than relying on price competition.

        OEH's luxury trains have no direct competitors. Other trains exist on similar routes, but management believes OEH's trains and onboard service are so unique that guests consider an OEH train more as a luxury experience and an end in itself rather than as a means of transport.

Employees

        OEH currently employs about 5,300 persons, about 2,200 of whom are represented by labor unions. Approximately 4,600 persons are employed in the hotels and restaurants, 640 are employed in the trains and cruises business, and the balance are engaged in central administration and sales.

        Management believes that OEH's ongoing labor relations are satisfactory but these could deteriorate at any time due to disputes over wage or benefit levels, working conditions or OEH's response to changes in government regulation of workers and the workplace. OEH's operations rely heavily on employees providing high-quality personal service, and any labor shortage or stoppage caused by poor relations with employees could adversely affect OEH's ability to provide those services.

Government Regulation

        OEH and its properties are subject to numerous laws and government regulations such as those relating to food and beverage preparation and sale, liquor service, health and safety of premises, employee relations, the environment and handling of hazardous substances. Management believes that OEH is in compliance in all material respects with relevant laws and regulations with respect to its business. Changes in these and in government tax rates or regimes, however, may adversely affect the results of OEH's various properties.

        The expansion of existing properties may be dependent upon obtaining necessary planning/building permits or zoning variances from local authorities. The failure or delay to obtain these could adversely affect OEH's strategy of increasing revenues and net income through expansion of existing properties.

Certain Trading Factors

        OEH's business prospects, financial condition, results of operations or cash flow could be adversely affected by the following trading factors as well as others described in this report.

        OEH's operations are subject to factors generally encountered in the hospitality industry, such as

•

cyclical downturns arising from changes in general and local economic conditions,



•

dependence on varying levels of tourism, business travel and corporate entertainment,



•

rising or falling disposable income of consumers and the traveling public,



•

changes in popular travel patterns,

13

•

competition from other hotels and leisure time activities,



•

periodic local oversupply of guest accommodation, which may adversely affect occupancy rates and actual room rates achieved,



•

increases in operating costs due to inflation and other factors which may not be offset by increased revenues,



•

regional and local economic and political conditions affecting market demand, including recessions, civil disorder and acts of terrorism,



•

foreign exchange rate movements,



•

adverse weather conditions or destructive forces like fire or flooding, and



•

seasonality, in that many of OEH's hotels and tourist trains are located in the northern hemisphere where they operate at low revenue or close during the winter months.

        The effect of these factors varies among the hotels and other properties because of their geographic diversity. The recent SARS epidemic is Asia, for example, caused a reduction in passenger bookings on OEH's tourist train operating between Bangkok and Singapore and had a negative impact on travel to Australia and Tahiti. Although the SARS outbreak has been contained, it is possible that the disease could re-emerge. The occurrence of this or a similar event may have a negative impact on OEH's operations.

        In particular, international, regional and even domestic travel has been disrupted as a result of terrorist attacks in the U.S. on September 11, 2001, the continuing threat of terrorism and the wars in Afghanistan and Iraq. Demand for most of OEH's properties declined since the September 11 attacks, and the effects of the disruption are continuing to be felt. For example, American leisure travellers seem more reluctant to go abroad, and booking lead-times by guests, travel agents and tour operators have shortened.

        OEH's hotels and restaurants are subject to risk generally incident to the ownership of commercial real estate and often beyond its control. These include

•

changes in national, regional and local economic and political conditions,



•

changes in interest rates and in the availability, cost and terms of financing,



•

the impact of present or future governmental legislation and regulations (including environmental laws),



•

the ongoing need for capital improvements to maintain or upgrade properties,



•

changes in property taxes and operating expenses, and



•

the potential for uninsured or under insured losses.

        Local weather conditions such as storms and hurricanes, destructive forces like fire or flooding and, in the case of OEH's tourist trains, disruption of the railway networks on which they operate may adversely affect operations and revenue at individual OEH properties. OEH carries property and loss of earnings insurance in amounts management deems adequate, but damages may exceed the insurance limits or be outside the scope of coverage.

14

        Management intends to increase revenues and net income through acquisitions of new properties and expansion of existing ones. Pursuit of these opportunities depends on OEH's ability to identify suitable properties, to negotiate purchases or construction on satisfactory terms, to obtain the necessary financing and governmental permits, to build on schedule and with minimum disruption to guests, and to integrate new properties into OEH's operations. Also, the acquisition of properties in new geographic locations may present operating and marketing challenges that are different from those currently encountered in existing locations. OEH may develop new properties in the future which are subject to such adverse factors as market or site deterioration after acquisition, inclement weather, construction delays, labor or materials shortages, work stoppages and the unavailability of construction and permanent financing.

        The acquisition and expansion of leisure properties, as well as the ongoing renovations, refurbishments and improvements required to maintain or upgrade existing properties, are capital intensive. Current expansion plans call for the expenditure of up to an aggregate of $90,000,000 over the next few years to add new rooms or facilities at existing properties, and current acquisition plans contemplate expenditure of about $50,000,000 per year for new properties which would be financed mainly by a suitable level of mortgage debt. The availability of future borrowings and access to the capital markets for equity financing to fund these acquisitions and expansions depend on prevailing market conditions and the acceptability of financing terms offered to OEH. There can be no assurance that future borrowings or equity financing will be available to OEH, or available on acceptable terms, in an amount sufficient to fund OEH's needs. Future equity financings may be dilutive to existing holders of OEH shares, and future debt financings may involve restrictive covenants limiting OEH's flexibility to operate its business.

        Currency fluctuations may materially affect OEH's financial statements and operating margins because of the geographic diversity of its operations linked to foreign currencies. OEH financial statements are presented in U.S. dollars and can be impacted by foreign exchange fluctuations through both (i) translation risk, which is the risk that the financial statements for a particular period or as of a certain date depend on the prevailing exchange rates of the various currencies against the U.S. dollar, and (ii) transaction risk, which is the risk that the currency of OEH's costs and liabilities fluctuates in relation to the currency of its revenue and assets, which fluctuation may adversely affect operating margins. With respect to translation risk, even though the fluctuations of currencies against the U.S. dollar can be substantial and therefore significantly impact comparisons with prior periods, the translation impact is a reporting consideration and does not affect the underlying results of operations, as transaction risk does. OEH tries to match foreign currency revenues and costs and assets and liabilities to provide a natural hedge against translation risks although this is not a perfect hedge. With respect to transaction risk, OEH may try to mitigate its exposure by entering into forward foreign exchange contracts from time to time. See Item 7A—Quantitative and Qualitative Disclosures about Market Risk below.

        OEH may incur a significant amount of debt from time to time which could require OEH to dedicate much of its cash flow from operations to payments on indebtedness, thus

•

reducing the availability of cash flow to fund working capital, capital expenditures, product and service development and other general corporate purposes,



•

limiting OEH's ability to obtain additional financing,



•

increasing OEH's vulnerability to adverse economic and industry conditions and the seasonality of some OEH properties, or



•

limiting OEH's flexibility in planning for, or reacting to, changes in its business.

        Also, since most of OEH's long-term debt accrues interest at rates that fluctuate with prevailing interest rates, any increases in prevailing interest rates may increase interest payment obligations. From

15

time to time OEH enters into hedging transactions in order to manage its floating interest rate exposure. See Item 7A—Quantitative and Qualitative Disclosures about Market Risk below.

OEH's Relationship with Sea Containers Ltd.

        Sea Containers Ltd. ("SCL"), a Bermuda company with shares listed on the New York Stock Exchange, currently owns about 42% of the Company's Class A and B common shares (excluding the Class B shares owned by a Company subsidiary) having about 15% of the combined voting power of all outstanding Class A and B common shares of the Company. See Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters below. SCL engages in four main businesses, namely (i) ferry transport operations primarily in and around Britain and Scandinavia, (ii) high speed passenger rail servies in Britain, (iii) worldwide marine cargo container leasing primarily through its GE SeaCo joint venture with General Electric Capital Corporation and (iv) hotel and leisure operations through OEH. Until the initial public offering of the Company's Class A shares in August 2000, OEH was a wholly-owned subsidiary of SCL.

        At the time of the initial public offering, the Company and certain of its subsidiaries and SCL entered into agreements providing for the separation of their business operations and various ongoing relationships between the companies such as shared services and offices, tax matters and noncompetition, and relating to the shares of the Company and SCL owned by their respective subsidiaries. See Item 13—Certain Relationships and Related Transactions below.

        As a result of sales by the Company and SCL of the Company's common shares since the initial public offering, SCL currently owns less than a majority of the equity shares in the Company (disregarding the Company shares owned by its subsidiary) and holds less than majority voting power for most matters submitted to a vote of Company shareholders. Accordingly, SCL no longer has power to elect the Company's Board of Directors or otherwise to control OEH's business direction and policies. Of the seven directors on the Company's Board, only three are also directors or officers of SCL. OEH has ceased to be a consolidated subsidiary of SCL and is accounted for in SCL's financial statements using the equity method of accounting. The Company has filed a registration statement with the SEC, which was declared effective on February 19, 2003, for sales by SCL from time to time, in one or more transactions, of any or all of its remaining common shares in the Company.

        OEH has guaranteed no debt of SCL. All former guarantees by SCL of OEH debt dating from before the Company's initial public offering have been or are being terminated. See Note 17 to the Financial Statements below.

ITEM 2. Properties

        OEH owns 26 hotels, three European tourist trains, a cruiseship and two restaurants, and owns interests of 50% or less in four hotels, its Southeast Asian tourist train and PeruRail, and a third restaurant, all as described in Item 1—Business above. The small regional sales, marketing and operating offices of the hotels, tourist trains and cruiseship are occupied under lease.

ITEM 3. Legal Proceedings

        There are no material legal proceedings, other than ordinary routine litigation incidental to OEH's business, to which the Company or any of its subsidiaries is a party or to which any of their property is subject.

ITEM 4. Submission of Matters to a Vote of Security Holders

        The Company submitted no matter to a vote of its security holders during the fourth quarter of 2003.

16

PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

        The Class A common shares of the Company are traded on the New York Stock Exchange under the symbol OEH. The Class B common shares of the Company are closely held and not listed. The following table presents the quarterly high and low sales prices of a Class A common share in 2002 and 2003 as reported for New York Stock Exchange composite transactions:

        The Company paid no cash dividends on its Class A and B common shares in 2002 and 2003. The Company paid its first quarterly cash dividend since its initial public offering in 2000 on January 20, 2004 at the rate of $0.025 per share.

        The Islands of Bermuda where the Company is incorporated have no applicable governmental laws, decrees or regulations which restrict the export or import of capital or affect the payment of dividends or other distributions to nonresident holders of the Class A and B common shares of the Company or which subject United States holders to taxes.

        At March 8, 2004, the number of record holders of the Class A common shares of the Company was approximately 20.

17

ITEM 6.    Selected Financial Data

Orient-Express Hotels Ltd. and Subsidiaries

*

The gain in 2003 related to the sale of the Hotel Quinta do Lago in Portugal and, in 1999, the sale of the Windermere Island Club in the Bahamas. Also included in 1999 was a special payment relating to the buy-out of OEH's right to an early termination fee under its former management contract for the Bora Bora Lagoon Resort.

**

Year ended December 31, 1999 includes the cumulative effect of change in accounting principle of $2,987,000 ($0.12 per share).

        See notes to consolidated financial statements (Item 8).

18

ITEM 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

        OEH has two business segments: (1) hotels and restaurants and (2) tourist trains and cruises. Hotels currently consist of 30 deluxe hotels, including La Residencia, Le Manoir aux Quat' Saisons and Maroma Resort and Spa, all acquired in early 2002, and a 50% interest in the Hotel Ritz Madrid acquired in 2003 (see Note 2 to the Financial Statements (Item 8 below)). Twenty-six of these hotels are wholly or majority owned, and are referred to in this discussion as "owned hotels". The other four hotels, in which OEH has an equity interest and operates under management contracts, are referred to in this discussion as "hotel management interests". Total revenue and other income referred to in this discussion consists of revenues from owned hotels, restaurants, tourist trains and cruises, earnings from unconsolidated companies and gains on sale of assets. In 2003, revenue from hotel management interests, including earnings from unconsolidated companies, was $13.5 million, or 4% of total revenue and other income, which consisted of $8.3 million from investments accounted for using the equity method and $5.2 million from management fees. Of the owned hotels, 11 are located in Europe, five in North America and ten in the rest of the world. One of the hotels in Europe, the Hotel Caruso in Ravello, Italy, is not currently operational as it is undergoing restoration and refurbishment.

        Also, OEH currently owns and operates the restaurant '21' Club in New York, has a 49% interest in Harry's Bar in London and owns and operates La Cabaña restaurant in Buenos Aires which opened in September 2003 (the "restaurants").

        OEH's tourist trains and cruises segment operates five tourist trains—three of which are owned and operated and two in which OEH has an equity interest and exclusive management contracts—and a river cruiseship.

        Revenue per available room, or RevPAR, is a key performance indicator used widely within the hotel industry as it is a function of the average daily room rate, or ADR, achieved for the rooms sold and average occupancy, being the rooms sold as a proportion of the rooms available to be sold. ADR on its own gives no indication of the relative occupancy of the hotel and could be shown as increasing while the number of rooms sold had fallen resulting in a reduction in rooms revenue over a prior period.

        Following the terrorist attacks in the United States on September 11, 2001, as well as weakening regional economies in 2001, OEH experienced a significant adverse impact on its business in common with other companies in the travel and hospitality sector. During 2002, the business showed some improving trends quarter on quarter. In the first half of 2003, however, with the prospect and then commencement of the Iraq War and the outbreak of the SARS epidemic, travel was further reduced with a consequential reduction in occupancy and OEH's profitability. In the second half of the year, business was generally better than in the first half, but RevPAR remained below pre-September 11 levels, primarily due to 15%-20% lower occupancy at the hotels compared to 2000 and 2001 occupancy (on a comparable or same store basis—see below). The improvement in business in the second half was not sufficient to reverse the impact of the Iraq War and SARS on the results of the first half, leading to earnings for 2003 at $23.6 million (including the $4.25 million gain on sale of the Hotel Quinta do Lago) being down from $25.3 million in 2002. Currently, while bookings are still relatively short-term, they are ahead of the same time last year and, assuming no recurrence of the types of adverse events of 2003, earnings of OEH for 2004 are expected to be better than 2003 if actual occupancy improves.

        In April 2003, OEH acquired the Hotel Ritz in Madrid, Spain with a joint venture partner, each taking a 50% interest, and OEH retaining a long-term agreement to manage the hotel (see Note 2).

19

        OEH has a strategy to grow its business through:

•

RevPAR growth: the unique nature of OEH's individual properties and the avoidance of a chain brand have historically enabled OEH to charge premium rates for rooms;



•

Expansion of hotels: the returns on investment by adding new rooms to a hotel are high as the incremental operating costs are low; and



•

Acquisitions: OEH looks to invest in unique properties at reasonable prices with expansion potential and near-term upside potential in earnings through increasing room rates and/or reducing costs. La Residencia, Le Manoir aux Quat' Saisons and Maroma Resort and Spa acquired during 2002 and Hotel Ritz Madrid partly owned and managed in 2003 met these criteria.

        On February 2, 2004, OEH announced it was making an $8 million investment in the Pansea group of five deluxe hotels in Southeast Asia (see Note 17).

        In November 2003, OEH sold the Hotel Quinta do Lago in the Algarve, Portugal, for $40 million cash, equivalent to a multiple of 16 times historic EBITDA. The hotel was not considered a long-term fit with OEH's portfolio and strategy so OEH took the opportunity to sell the property at an attractive price. Also, in November and December 2003, the Company issued and sold through underwriters 3,450,000 newly- issued class A common shares at $16 each, raising $51.9 million net of underwriters' fees and expenses. The proceeds from the sales of the hotel and new shares will be used to invest in other hotels and related assets and to fund expansion of some existing hotels as part of OEH's growth strategy outlined above.

        In 2003, 82% of OEH's revenue and other income were derived from the hotels and restaurants segment and the remainder from the tourist trains and cruises segment. In the hotels and restaurants segment, 87% of revenue and other income were from owned hotels, 6% was from restaurants, 5% was from hotel management interests and 1% was from the gain on sale of the Hotel Quinta do Lago.

        OEH derives revenue from owned hotel operations primarily from the sale of rooms and the provision of food and beverages. The main factors for analyzing rooms revenue are the number of room nights sold and the ADR, and RevPAR referred to above which is a measure of both these factors.

        Revenue from restaurants is derived from food and beverages sold to customers. Revenue from hotel management interests includes fees received under management contracts, which are based upon a combination of a percentage of the revenue from operations and operating earnings calculated before specified fixed charges. Other income includes OEH's share of the earnings of unconsolidated companies, interest income on loans made to unconsolidated companies, and the gain on sale of a hotel asset.

        The revenue from the tourist trains and cruises segment primarily comprises tickets sold for travel and food and beverage sales.

        Operating costs include labor, repairs and maintenance, energy and the costs of food and beverages sold to customers in respect of owned hotel operations, restaurants, tourist trains and cruises.

        Selling, general and administrative expenses include travel agents' commissions, the salaries and related costs of the sales teams, advertising and public relations costs, and the salaries and related costs of management. Some of the central general and administrative expenses are provided under agreement with SCL. See Note 16.

        Depreciation and amortization includes depreciation of owned hotels, restaurants, tourist trains and the cruiseship.

20

        When OEH discusses results for a period on a "comparable" or "same store" basis, OEH is considering only the results of hotels owned and operating throughout the period mentioned and excluding the effect of any acquisitions or dispositions.

Results of Operations

        OEH's operating results for years 2003, 2002, and 2001, expressed as a percentage of total revenue and other income, are as follows:

21

        The revenue and other income and the earnings before interest, tax, depreciation and amortization (EBITDA) of OEH's operations for the years 2003, 2002, and 2001 are analyzed as follows (dollars in millions):

        Management believes that EBITDA is a useful measure of operating performance, to help determine the ability to incur capital expenditure or service indebtedness, because it is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is also a financial measure commonly used in the hotel and leisure industry. However, EBITDA does not represent cash flow from operations as defined by U.S. generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to earnings from operations before net finance costs under U.S. generally accepted accounting principles for purposes of evaluating results of operations.

        The following table reconciles EBITDA as defined with OEH's earnings from operations before net finance costs and with net earnings, as derived from the audited financial information for the years ended December 31, 2003, 2002 and 2001 (dollars in millions):

22

        Operating information for OEH's owned hotels for the years ended December 31, 2003 and 2002 is as follows:

Year Ended December 31, 2003 compared to Year Ended December 31, 2002

Revenue and Other Income

        Total revenue and other income increased by $40.2 million, or 14%, from $289.3 million in 2002 to $329.5 million in 2003. Hotels and restaurants revenue (including earnings from unconsolidated companies) increased by $32.6 million, or 13%, from $244.0 million in 2002 to $276.6 million in 2003, and the revenue from tourist trains and cruises (including earnings from unconsolidated companies) increased by $3.4 million, or 8%, from $45.3 million in 2002 to $48.7 million in 2003. A gain on the sale of the Hotel Quinta do Lago of $4.25 million was recorded in 2003 and included in revenue (2002—$nil).

        The increase in hotels and restaurants revenue (including earnings from unconsolidated companies) consisted of the following:

•

$32.0 million attributable to owned hotels,



•

an increase in revenue from hotel management interests (including earnings from unconsolidated companies) of $1.1 million, or 9%, from $12.4 million in 2002 to $13.5 million in 2003 primarily due to the acquisition in April 2003 of a 50% share and long-term management contract for the Hotel Ritz in Madrid, Spain, and



•

a decrease in restaurants revenue (including earnings from unconsolidated companies) of $0.5 million, or 3%, from $18.1 million in 2002 to $17.6 million in 2003 mainly due to a decline in revenue at the '21' Club of $1.1 million partly offset by revenue from La Cabana restaurant which opened in the third quarter of 2003 of $0.4 million.

23

        The increase in owned hotels revenue of $32.0 million is analyzed by region as follows:

        Europe.    Revenue increased by $16.0 million, or 16%, from $99.9 million in 2002 to $115.9 million in 2003. The Hotel Quinta do Lago was sold in November 2003 with effect from the beginning of the fourth quarter. The revenue derived from this hotel in the fourth quarter of 2002 was $1.9 million. Excluding the effect of this, revenue increased by $17.9 million, or 18%, from $98.0 million in 2002 to $115.9 million in 2003. This was mainly due to the translation effect of the euro being stronger against the dollar in 2003 on average compared to 2002.

        On a same store basis in euros, RevPAR declined by 4% in 2003 over 2002 but when translated to U.S. dollars increased by 15%. The decline in RevPAR in local currency was mainly caused by the adverse effect upon travel prior to and during the war in Iraq.

        North America.    Revenue increased by $7.8 million, or 13%, from $58.8 million in 2002 to $66.6 million in 2003. Excluding the effect of the acquisition of Maroma Resort and Spa in March 2002, revenue increased by $4.1 million. This was mainly due to the re-opening of the Inn at Perry Cabin in 2003 following an expansion of the hotel from 41 rooms to 81 rooms which resulted in increased revenue in 2003 of $2.9 million.

        On a same store basis RevPAR actually declined by 2% over 2002.

        Rest of the World.    Revenue increased by $8.2 million, or 15%, from $54.8 million in 2002 to $63.0 million in 2003. This increase was mainly caused by the relative weakness of the dollar in 2003 against the currencies earned in the hotels located in the rest of the world, especially the South African rand, and the resulting impact upon the translation of the revenues and the costs of the operations into U.S. dollars.

        RevPAR declined by 5% in local currencies but increased by 12% in U.S. dollars. The decline in RevPAR in local currency was mainly driven by the adverse effect upon travel prior to and during the war in Iraq and the outbreak of the SARS epidemic, especially in OEH's Australasian operations.

Depreciation and Amortization

        Depreciation and amortization increased by $5.8 million, or 29%, from $19.5 million in 2002 to $25.3 million in 2003 primarily due to the effect of the relative weakness of the dollar in 2003 which led to the translation of depreciation on assets denominated in other currencies into higher dollar amounts and capital expenditure.

Operating Expenses

        Operating expenses increased by $22.4 million, or 16%, from $136.2 million in 2002 to $158.6 million in 2003. This was primarily due to the translation of operating costs incurred in hotel currencies which were stronger against the U.S. dollar in 2003 compared to 2002.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased by $15.7 million, or 18%, from $86.1 million in 2002 to $101.8 million in 2003. The primary reason for this, as with operating expenses, was the translation of selling, general and administrative costs incurred in local currencies.

Earnings from Operations before Net Finance Costs

        Earnings from operations decreased by $3.6 million, or 8%, from $47.5 million in 2002 to $43.9 million in 2003. The earnings from operations in 2003 include a gain of $4.25 million on the sale of the Hotel Quinta do Lago during the year. Excluding the gain, earnings from operations decreased

24

by $7.9 million, or 17%, from $47.5 million in 2002 to $39.6 million in 2003. Earnings from operations represent total revenue less depreciation and amortization, operating expenses and selling, general and administrative expenses.

Net Finance Costs

        Net finance costs decreased by $1.2 million, or 6%, from $18.4 million in 2002 to $17.2 million in 2003. This was mainly due to foreign exchange gains on euro cash balances held by OEH.

Taxes on Income

        The provision for income taxes decreased by $0.8 million, or 21%, from $3.8 million in 2002 to $3.0 million in 2003. The Company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax provision was attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax. The decrease of $0.8 million was due to reduced profitability of these subsidiaries.

Net Earnings

        In 2003, OEH's net earnings decreased by $1.7 million, or 7%, from $25.3 million in 2002 to $23.6 million in 2003 including a gain on the sale of the Hotel Quinta do Lago of $4.25 million. Net earnings represent earnings from operations less net finance costs and provision for income taxes. The year 2003 was adversely affected by the various factors discussed above including the build-up and actual war in Iraq during OEH's prime booking period early in the year as well as the SARS epidemic that impacted both OEH's Australasian properties and outbound travel in general from that region.

Year Ended December 31, 2002 compared to Year Ended December 31, 2001

Revenue and Other Income

        Total revenue and other income increased by $28.0 million, or 11%, from $261.3 million in 2001 to $289.3 million in 2002 (on a same store basis, excluding acquisitions in 2001 and 2002, revenue decreased by $2.2 million). Hotels and restaurants revenue and other income increased by $23.6 million, or 11%, from $220.4 million in 2001 to $244.0 million in 2002 (on a same store basis, excluding acquisitions in 2001 and 2002, revenue and other income decreased by $6.6 million), and the revenue and other income from tourist trains and cruises increased by $4.4 million, from $40.9 million in 2001 to $45.3 million in 2002.

        The increase in hotels and restaurants revenue and other income consisted of the following:

•

$30.0 million attributable to owned hotel acquisitions made in 2001 and 2002,



•

on a same store basis, a decrease in owned hotels revenue of $8.2 million, or 4%, from $185.6 million in 2001 to $177.4 million in 2002. The overall RevPAR was $168 in 2002 compared to $173 in 2001; comparable RevPAR decreased by 2% in U.S. dollars, or 4% in local currency. As discussed in the overview above, the group's hotel and restaurant operations continued to be adversely impacted in 2002 by worldwide concerns over terrorist activities, economic slowdowns and towards the end of 2002 the uncertainties surrounding a potential war in Iraq. However, same store RevPAR did show recovery over 2001 quarter on quarter with RevPAR down 12% in the first quarter, down 8% in the second quarter, up 5% in the third quarter and up 6% in the fourth quarter,



•

an increase in revenue and other income from hotel management interests of $1.5 million, or 14%, from $10.9 million in 2001 to $12.4 million in 2002, and

25

•

an increase in restaurants revenue and other income of $0.3 million, or 2%, from $17.8 million in 2001 to $18.1 million in 2002.

        The increase in owned hotels revenue of $21.8 million (including acquisitions of $30.0 million) is analyzed by region as follows:

        Europe.    On a same store basis, revenue decreased by $0.5 million, or 1%, from $79.8 million in 2001 to $79.3 million in 2002. The acquisitions of La Residencia in Mallorca, Spain and Le Manoir aux Quat' Saisons in Oxfordshire, England during the first quarter of 2002 accounted for an additional $20.6 million of revenue.

        RevPAR on a same store basis decreased by 1% in U.S. dollars in 2002 over 2001 and 6% in local currency. The Hotel Cipriani suffered from a decline of U.S. visitors and the Lapa Palace Hotel in Lisbon had fewer business travelers than normal.

        North America.    On a same store basis, revenue decreased by $3.8 million, or 6%, from $59.2 million in 2001 to $55.4 million in 2002. The acquisition of Maroma Resort and Spa in the second quarter of 2002 accounted for $3.4 million of revenue. The Inn at Perry Cabin was closed for a large part of the year while major works were carried out, and New Orleans had a soft market for conventions and other major events which impacted results at the Windsor Court Hotel.

        On a same store basis RevPAR declined by 5% in 2002 compared to 2001.

        Rest of the World.    On a same store basis, revenue decreased by $3.9 million, or 8%, from $46.6 million in 2001 to $42.7 million in 2002. The acquisition of the Miraflores Park Hotel accounted for $4.0 million of revenue. The Mount Nelson Hotel in Cape Town and the Westcliff in Johannesburg showed marked improvement while Orient-Express Safaris in Botswana were down due to fewer arrivals from the U.S. A large part of the room stock at the Copacabana Palace Hotel was off-line for refurbishment and the Brazilian elections depressed business travel. Forest fires in Sydney and major refurbishment at Lilianfels in the Blue Mountains, west of Sydney, caused a decline in results in the Australian owned hotels.

        The revenue decline of $3.9 million was primarily driven through a decline in same store RevPAR of 3% in U.S. dollars.

Depreciation and Amortization

        Depreciation and amortization increased by $3.1 million, or 19%, from $16.4 million in 2001 to $19.5 million in 2002 primarily due to the effect of acquisitions.

Operating Expenses

        Operating expenses increased by $16.2 million, or 14%, from $120.0 million in 2001 to $136.2 million in 2002. Excluding the effect of acquisitions, operating expenses increased by $2.4 million.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased by $13.8 million, or 19%, from $72.2 million in 2001 to $86.1 million in 2002. Excluding the effect of acquisitions, selling, general and administrative expenses increased by $3.8 million. Rising insurance costs were an important component of this increase.

26

Earnings from Operations before Net Finance Costs

        Earnings from operations decreased by $5.2 million, or 10%, from $52.7 million in 2001 to $47.5 million in 2002. Earnings from operations represent total revenue less depreciation and amortization, operating expenses and selling, general and administrative expenses.

Net Finance Costs

        Net finance costs decreased by $0.3 million, or 2%, from $18.7 million in 2001 to $18.4 million in 2002. OEH has benefited from the effect of lower interest rates, which has been offset by the increases in debt relating to capital expenditure and acquisitions financed in 2001 and 2002.

Taxes on Income

        The provision for income taxes decreased by $0.4 million, or 9%, from $4.2 million in 2001 to $3.8 million in 2002. The Company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax provision was attributable to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax. The decrease of $0.4 million was due to reduced profitability of these subsidiaries.

Net Earnings

        In 2002, OEH's net earnings decreased by $4.6 million, or 15%, from $29.9 million in 2001 to $25.3 million in 2002. Net earnings represent earnings from operations less net finance costs and provision for income taxes.

Liquidity and Capital Resources

Working Capital

        OEH had cash and cash equivalents of $81.3 million at December 31, 2003, $43.4 million more than the $37.9 million at December 31, 2002. At December 31, 2003, there were undrawn amounts available to OEH under a secured revolving credit facility of $32.0 million and committed short-term lines of credit of $35.8 million ($22.8 million at December 31, 2002), bringing total cash availability at December 31, 2003 to $149.1 million.

        Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital surplus of $10.8 million at December 31, 2003, a working capital increase of $38.0 million from a deficit of $27.2 million at December 31, 2002. The overall increase in working capital was comprised of the following:

•

a increase in current assets of $46.4 million, of which $43.4 million was due to increased cash, $2.7 million increased prepayments and $3.3 million increased inventories, partly offset by a reduction of $3.0 million in accounts receivable;



•

a decrease in current liabilities (excluding the current portion of long-term debt) of $5.6 million, of which $4.6 million was due to a reduction in working capital facilities drawn and $2.5 million was due to a reduction in deferred revenue, partly offset by an increase of $1.5 million in accounts payable and accrued liabilities; and



•

an increase in the current portion of long-term debt of $14.0 million.

        OEH's business does not require the maintenance of significant inventories or receivables and, therefore, management believes working capital is not the most appropriate measure of liquidity.

27

Cash Flow

        Operating Activities.    Net cash provided by operating activities decreased by $2.1 million to $33.2 million for the year ended December 31, 2003, from cash provided by operating activities of $35.3 million for the year ended December 31, 2002. The decrease was primarily attributable to a decrease in net earnings of $1.7 million after adjustment for certain non-cash items, including depreciation and amortization.

        Investing Activities.    Cash used in investing activities was $40.6 million for the year ended December 31, 2003, compared to $119.0 million for the year ended December 31, 2002, a decrease of $78.4 million of which $39.6 million was due to proceeds from asset sales and $34.9 million was due to reduced expenditure on acquisitions and investments.

        Financing Activities.    Cash provided from financing activities for the year ended December 31, 2003 was $48.3 million as compared to cash provided from financing activities of $63.3 million for the year ended December 31, 2002, a decrease of $15.0 million. This increase was mainly due to the proceeds from the issuance of common shares of $51.9 million and decreased proceeds from the long-term debt, partly offset by reduced proceeds from working capital facilities of $22.8 million and increased principal payments under long-term debt of $28.2 million.

Capital Commitments

        There were $11.0 million of capital commitments outstanding as of December 31, 2003 mainly on investments in owned hotels.

Indebtedness

        At December 31, 2003, OEH had $554.2 million of consolidated long-term debt, including the current portion, secured by OEH assets with a number of commercial bank lenders which is payable over periods of one to 12 years with a weighted average interest rate of 3.83%. These financing agreements contain covenants that include limits on the ability to raise additional debt secured by these properties, limits on liens on the properties and limits on mergers and asset sales and, in some cases, financial covenants on the relevant properties such as a minimum interest coverage ratio and debt service coverage ratio. Some of the Company guarantees of these facilities contain financial covenants on OEH covering a minimum consolidated tangible net worth and a minimum consolidated interest coverage ratio. OEH is in full compliance with these covenants, and management believes they will not substantially limit OEH's ability to finance future acquisitions or capital expenditure plans. See Note 6 regarding the maturity of long-term debt.

        Approximately 50% of the outstanding principal was drawn in euros at December 31, 2003, and the balance primarily drawn in U.S. dollars. At December 31, 2003, 97% of borrowings of OEH were in floating interest rates.

        At December 31, 2003, $19.1 million of OEH's consolidated long-term debt was guaranteed by SCL (2002—$110.8 million) and contained cross-default clauses to SCL borrowing agreements (2002—$35.1 million). This indebtedness predated the Company's initial public offering in August 2000. In March 2004, the loan agreement evidencing this debt was being amended to substitute the Company for SCL on the guarantee and cross-default clauses so that SCL will no longer be involved in any OEH long-term indebtedness.

Liquidity

        Management plans to invest over the next few years in the expansion of existing hotel properties consistent with its growth strategy, subject to market conditions. In addition, OEH aims to acquire more properties which it expects to finance with an appropriate level of debt secured on the properties,

28

and the balance through available cash resources. At December 31, 2003, OEH had capital commitments of $11.0 million overall.

        Management expects to have available cash from operations and appropriate debt finance sufficient to fund its working capital requirements, capital expenditures, acquisitions and debt service for 2004 and later years.

Contractual Obligations Summary

        The following table summarizes OEH's material known contractual obligations, excluding accounts payable and accrued liabilities, in 2004 and later years as of December 31, 2003. The data are derived from Notes 5 (Working capital facilities), 6 (Long-term debt and obligations under capital leases), and 12 (Commitments and contingencies) to the Financial Statements below (dollars in thousands):

Off-Balance Sheet Arrangements

        OEH had no material off-balance sheet arrangements at December 31, 2003 other than those involving its equity investees reported in Notes 2(c), 6(a) and 16, and commitments and contingencies and derivative financial instruments reported in Notes 12 and 13.

Critical Accounting Policies and Estimates

        The preceding discussion and analysis of OEH's financial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires OEH management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, OEH management evaluates these estimates, including those related to the recoverability of long-lived assets including intangible assets, purchase price allocations and tax valuation allowances. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances, the result of which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

        Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. OEH management believes the following are OEH's most critical accounting policies and estimates.

Revenue and other income recognition

        OEH's revenue and other income are primarily derived from the following sources: (1) hotel and restaurant revenues at OEH's owned and unconsolidated joint venture properties; (2) tourist train and cruise revenues at OEH's owned and unconsolidated joint venture operations; (3) management fees and loan interest; and (4) other revenues which are ancillary to OEH's operations. Generally, revenues

29

are recognized when the services have been rendered. The following is a description of the composition of revenues for OEH:

•

Hotel and restaurant revenues at OEH's owned and unconsolidated joint venture properties represent revenues primarily derived from hotel operations, including the rental of rooms, food and beverage sales, telephone usage and other services provided. Revenue is recognized when rooms are occupied and services have been rendered.



•

Tourist train and cruise revenues at OEH's owned and unconsolidated joint venture operations represent revenues primarily derived from operations, including the purchase of tickets, food and beverage sales and other services provided. Revenue is recognized upon commencement of tourist train and cruise journeys.



•

Management fees represent fees earned on hotels and tourist trains managed worldwide, usually under long-term contracts. Management fees consist of a base fee, which is generally based on a percentage of gross revenues, and an incentive fee, which is generally based on the property's profitability. Base fee revenues are recognized when earned in accordance with the terms of the contract. Loan interest is recognized on an accrual basis relating to the principal amount and the interest rate.

Carrying values of long-lived assets and goodwill

        OEH management periodically evaluates the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. These evaluations include analyses based on the cash flows generated by the underlying assets, profitability information including estimated future operating results, trends or other determinants of fair value. If the value of the asset determined by these evaluations is less than its carrying amount, a loss is recognized for the difference between the fair value and the carrying value of the asset. Future adverse changes in market conditions or poor operating results of the related business may indicate an inability to recover the carrying value of the asset, thereby possibly requiring an impairment charge in the future.

        In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill must be evaluated annually for impairment. The impairment testing under SFAS No. 142 is performed in two steps, first, the determination of impairment based upon the fair value of a reporting unit as compared with its carrying value and, second, if there is an impairment, the measurement of the amount of impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. As of December 31, 2003 and 2002, OEH determined the carrying value of all its operating segments was less than their respective derived fair values, indicating that there was no impairment of the recorded goodwill. To determine fair value, OEH relied on valuation models utilizing discounted cash flows.

Depreciation

        Real estate and other fixed assets are recorded at cost and are depreciated over their estimated useful lives by the straight-line method. The depreciation rates on freehold buildings range from 20 to 60 years with a 10% residual value, and on machinery and other remaining assets from 5 to 25 years. Leasehold improvements are depreciated over the shorter of the estimated useful life or the respective lease terms.

Pensions

        OEH's primary pension plan is accounted for using actuarial valuations required by SFAS No. 87, "Employers' Accounting for Pensions", and SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits other than Pensions". OEH's minimum pension liability was approximately

30

$2,304,000 as of December 31, 2003. Management considers accounting for pensions critical to all of OEH's operating segments because management is required to make significant subjective judgments about a number of actuarial assumptions, which include discount rates, health care cost trends and rates, salary growth, long-term return on plan assets and mortality rates.

        Management believes that a 7% long-term return on plan assets in 2003 is reasonable despite the recent market volatility in which OEH's plan assets had gains of approximately 15% for the year ended December 31, 2003 and losses of approximately 25% for the year ended December 31, 2002. In determining the expected long-term rate of return on assets, management has evaluated input from OEH's actuaries and financial advisors, including their review of anticipated future long-term performance of individual asset classes and the consideration of the appropriate asset allocation strategy given the anticipated requirements of the plan to determine the average rate of earnings expected on the funds invested. The projected returns are based on broad equity and bond indices, including fixed interest rate gilts of long-term duration since the plan is in the U.K. OEH's expected long-term rate of return is based on a planned asset allocation of 60% in equity investments, with an expected long-term rate of return of 7%, and 40% in fixed income investments, with an expected long-term rate of return of 7%. OEH's actual asset allocation as of December 31, 2003 was in line with planned allocations.

        Management regularly reviews OEH's actual asset allocation and periodically rebalances investments to targeted allocations when considered appropriate. While the analysis considers recent fund performance and historical returns, the assumption is primarily a long-term, prospective rate. Management will continue to evaluate the expected rate of return at least annually, and will adjust as necessary.

        Depending on the assumptions and estimates used, pension expense could vary within a range of outcomes and have a material effect on OEH's consolidated financial statements. Lowering the expected long-term rate of return on OEH's pension plan by 0.5% (from 7% to 6.5%) would have increased pension expense for fiscal 2003 by approximately $21,000. Management is currently monitoring and evaluating the level of pension contributions based on various factors that include investment performance, actuarial valuation and tax deductibility. Management will evaluate the need for additional contributions in 2004 based on these factors. Management believes that the cash flows from OEH's operations will be sufficient to fund additional contributions, if any, to the plan. See Note 7 regarding pensions.

Tax assets

        OEH maintains a valuation allowance to reduce its gross deferred tax assets to reflect the amount, based upon OEH's estimates of income that would likely be realized. If OEH's future operations differed from those in the estimates, OEH may need to increase or decrease the valuation allowance, which could affect its reported operations.

        See Note 1 to the Financial Statements for a discussion of accounting policies with respect to these and other items.

Recent Accounting Pronouncements

        For a discussion of OEH's adoption of recent accounting pronouncements, see Note 1(t) to the Financial Statements.

31

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

        OEH is exposed to market risk from changes in interest rates and foreign currency exchange rates. These exposures are monitored and managed as part of its overall risk management program, which recognizes the unpredictability of financial markets and seeks to mitigate material adverse effects on consolidated earnings and cash flow. OEH does not hold market rate sensitive financial instruments for trading purposes.

        The market risk relating to interest rates arises mainly from the financing activities of OEH. Earnings are affected by changes in interest rates on floating rate borrowings, principally based on U.S. dollar LIBOR and EURIBOR, and on short-term cash investments. OEH management assesses market risk based on changes in interest rates using a sensitivity analysis. If interest rates increased by 10% with all other variables held constant, annual net finance costs of OEH would have increased by approximately $2,100,000 based on borrowings outstanding at December 31, 2003. The interest rates on substantially all of OEH's long-term debt are adjusted regularly to reflect current market rates. Accordingly, the carrying amounts approximate fair value.

        The market risk relating to foreign currencies arises from buying, selling and financing in currencies other than the U.S. dollar, principally the European euro, South African rand, Brazilian real and Australian dollar. Some non-U.S. subsidiaries of the Company borrow in local currencies, and OEH may in the future enter into forward exchange contracts relating to purchases denominated in foreign currencies. There are no foreign currency derivative financial instruments currently in effect relating to OEH.

        Ten of OEH's owned hotels in 2003 operated in currencies linked to the euro, two operated in South African rand, two in Australian dollars, one in British pounds sterling, one in Mexican pesos, one in Botswanan pula, one in Brazilian reais and one in Peruvian nuevo soles. The Venice Simplon-Orient-Express, British Pullman and Northern Belle tourist trains operate primarily in British pounds sterling and currencies linked to the euro. OEH faces exposure arising from the impact of translating its global foreign currency earnings into U.S. dollars, and anticipates this foreign exchange rate risk will remain a market exposure for the foreseeable future.

        OEH management uses a sensitivity analysis to assess the changes in the values of the U.S. dollar on foreign currency denominated monetary assets and liabilities. The primary assumption used in this model is a hypothetical 10% weakening or strengthening of the U.S. dollar against OEH's currency exposure. At December 31, 2003, as a result of this analysis, OEH management determined that the impact of a 10% change in foreign currency exchange rates in relation to the U.S. dollar would not be material to OEH's net earnings.

        As far as it can, OEH matches foreign currency earnings and costs and so provides a natural hedge against currency movements. In addition, a significant proportion of the guests at OEH hotels located outside of the United States originate from the United States. When a foreign currency in which OEH operates devalues against the U.S. dollar, OEH has considerable flexibility to increase prices in local currency, or vice versa. Management believes that when these factors are combined, OEH does not face a material exposure to its net earnings from currency movements, although the reporting of OEH's revenues and costs translated into U.S. dollars can, from period to period, be materially affected. The gains or losses OEH has incurred from transactions denominated in foreign currencies have not been material.

32

ITEM 8. Financial Statements and Supplementary Data

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Orient-Express Hotels Ltd.
Hamilton, Bermuda

        We have audited the accompanying consolidated balance sheets of Orient-Express Hotels Ltd. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in Item 15. The financial statement schedule and the consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Orient-Express Hotels Ltd. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

        As disclosed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets".

/s/ Deloitte & Touche LLP

New York, New York
March 12, 2004

33

ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.

34

ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS

See notes to consolidated financial statements.

35

ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS

See notes to consolidated financial statements.

36

ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

See notes to consolidated financial statements.

37

ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Summary of significant accounting policies and basis of presentation

(a)    Business

        In this report Orient-Express Hotels Ltd. is referred to as the "Company", and the Company and its subsidiaries are referred to collectively as "OEH". At December 31, 2003, Sea Containers Ltd., a Bermuda company ("SCL"), owned 42% of the equity shares in the Company.

        At December 31, 2003, OEH owned or partially owned and managed 30 deluxe hotels and resorts located in the United States, Caribbean, Europe, southern Africa, South America, Australia and South Pacific, three restaurants in London, New York and Buenos Aires, five tourist trains in Europe, Southeast Asia and Peru, and a river cruiseship in Burma.

(b)    Basis of presentation

        The accompanying consolidated financial statements reflect the results of operations, financial position and cash flows of the Company and all its majority-owned subsidiaries. The consolidated financial statements have been prepared using the historical basis in the assets and liabilities and the historical results of operations directly attributable to OEH, and all intercompany accounts and transactions between the Company and its subsidiaries have been eliminated. Unconsolidated companies that are 20% to 50% owned are accounted for on an equity basis.

        Cash and cash equivalents include all cash balances and highly-liquid investments having original maturities of three months or less.

        The consolidated financial statements include an allocation of certain general corporate administrative expenses from SCL and its subsidiaries which are provided under a shared services agreement with SCL. In the opinion of management, general corporate administrative expenses have been allocated to OEH on a reasonable and consistent basis using management's estimate of services provided by SCL and its subsidiaries. However, such allocations are not necessarily indicative of the level of expenses which might have been incurred had OEH been operating as a separate, stand-alone entity during the periods presented. Therefore, the financial information included herein may not necessarily reflect the consolidated results of operations, financial position and cash flows of OEH had OEH been a separate stand-alone entity for the years presented.

        Certain items in 2002 and 2001 have been reclassified to conform to the current year's presentation.

        "FASB" means Financial Accounting Standards Board and "APB" means Accounting Principles Board, the FASB's predecessor. "SFAS" means Statement of Financial Accounting Standards of the FASB, and "FIN" means an accounting interpretation of the FASB.

(c)    Foreign currency translation