A US$94.4 million exceptional gain, after tax and outside interests, on the sale of an associate kept Jardine Matheson to a 7 per cent fall in net profit last year - hiding a more severe dive in operating profit. The result prompted directors to freeze dividends for the first time 'since the early 1980s', according to managing director Alasdair Morrison. Hit by a downturn at Jardine Fleming and losses in its fashion and Australian restaurant operations, profit fell to $420 million, while earnings per share dropped 7 per cent to 72.05 cents. The real damage was at the operating level, where profit fell 28 per cent to $315.4 million. Operating margins were down from 4.59 per cent to 2.97 per cent. Stripping out the exceptional item - a gain on the sale of its stake in United Merchants Finance - earnings per share fell 28 per cent. The company declared a final dividend of 17.2 cents, leaving the dividend for the year unchanged at 25 cents. Profits at Jardine Strategic, which also reported yesterday and in which Jardine Matheson holds 55 per cent, fell 13 per cent to $291.7 million. Despite the downturn and the dividend freeze, chairman Henry Keswick was upbeat, claiming his group 'enters 1996 with considerably strengthened underlying businesses'. Profits at Jardine Matheson were particularly hurt by the performance of its half-owned stockbroker and fund manager Jardine Fleming, where profit dived 42 per cent to $121.9 million after a record year in 1994. Faced with low volume and increasingly competitive equity markets, brokerage commissions fell significantly, Mr Morrison said, but funds under management held up at $22 billion. Mr Morrison refused to comment on the reasons for the probe by Britain's Investment Management Regulatory Organisation into activities at Jardine Fleming Asset Management in London, but said this was the only part of Jardine Fleming under investigation. Last week the brokerage house sacked four of its employees for rat trading in Hong Kong and this week announced the surprise resignation of the chief investment officer of its investment management arm, Colin Armstrong. Trading arm Jardine Pacific also had a bad year. Net profits slumped from $124.4 million to $77.3 million. Mr Keswick said its performance 'was held back by poor consumer demand affecting trading and distribution businesses in Japan and Hong Kong and by difficulties in restaurant operations in Australia'. 'Our fashion businesses in Japan are making losses,' he said. 'They are now up for sale.' Trading profits at Jardine International Motors fell 18 per cent in Hong Kong's sluggish new-vehicle market, while profits at Dairy Farm and Hongkong Land were also lower. Mr Morrison said better financial markets, rising occupancy at Mandarin Oriental hotels and record order books at Gammon Construction and Jardine Schindler pointed to an improved performance this year.