P&O Reports Profits Are Flying High

Peninsular & Oriental Steam Navigation Co. posted full-year profits ahead of expectations last week, and said the recently announced demerger of its cruises division would be completed in October.

The results, which included an attempt to reassure investors that the company was not facing pricing pressures in its Princess cruise unit, initially pleased investors, perking up the shares six percent.

But lingering concerns over possible discounting and worries that P&O is not hedged against rising fuel costs set in after analysts met company executives and the stock made a u-turn.

The markets have been worried about price pressures in the cruise industry since bearish comments about the "wave period" -- the crucial two months of the year when some 65 percent of the year's capacity is sold -- by Princess' rival U.S.-based Carnival Corp.

Chairman Lord Sterling said he thought reaction to the comments, which has buffetted both companies' shares, was exaggerated. He said P&O prices for Princess through to the summer period were in line with the high levels of last year. However, P&O did acknowledge that at this stage the final quarter of 2000 did not look as strong as last year for Princess and that it expected to sail 100 percent full at rates that are close to last year -- a statement which some analysts said could mean lower rates, and therefore revenues.

"As an industry, the cruise business is trading extremely well and Princess is expanding capacity 23 percent. When you take account of that expansion, bookings are really going very well," Sterling said in an interview. "We're just putting out those caveats, we thought it was desirable to state it because everybody is asking. But frankly I'm amazed at the reaction that has taken place," he said.

P&O also gave further details about the nuts and bolts of the demerger of its cruise business -- the third largest cruise group in the world. The demerger, which was announced early last month, is aimed at allowing P&O's ongoing business to focus on running its ferries and ports.

P&O said that while there was no need for new equity to be raised for either company, it may make a small placing of P&O Princess in the United States at the time of the demerger, "to raise the profile of the new company with U.S. investors". This would be within pre-emption limits, under five percent of issued shares, and would depend on market conditions.