P&O cruise demerger will result in dividend cut

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The Independent Online

P&O, the shipping group, yesterday said the planned demerger of its cruise operations from its core logistics business would lead to a cut in shareholders' annual dividends.

Lord Sterling of Plaistow, P&O chairman, said: "The dividend levels of both P&O Princess [the cruise division] and the ongoing P&O will reflect those of comparable companies which, in the case of P&O Princess, will be substantially lower than P&O's current dividend yield. The combined levels of the two separate companies will therefore be lower than the historic level of dividends paid by P&O."

Had the two companies been independent of each other in 1999 the combined recommended dividend would have been "of the order of 25p", Lord Sterling said. This compares to the total dividend of 33p shareholders received. Richard Hannah, analyst at Deutsche Bank, said the change amounted to "a back-door dividend cut".

Lord Sterling unveiled full-year profits up by 14 per cent. He said: "While the pricing environment [in the US cruise market] is indeed tighter this year, we believe this issue has been exaggerated." P&O shares fell sharply after a price squeeze warning by Carnival, the US cruise operator. But rising fuel prices could affect the business, he said.

The company reported underlying pre-tax profits for 1999 up by £58.5m to £415.9m. Turnover was up by £250m. Including one-off gains from property sales, overall profits were up by 42 per cent to £525.4m, slightly above expectations.

P&O said in February it would demerge its cruise interests into a separate company to be listed in London and New York. The group yesterday confirmed the process was on track to be completed in October. It said that there was no need to raise new equity for either company, but P&O may decide to make a small placing - less than 5 per cent of issued shares - for the P&O Princess unit in the US to raise its profile with US investors". P&O shareholders will receive a stake in the cruise business "in proportion to" their existing holding in the combined group.

P&O Nedlloyd, the container shipping venture, said fourth-quarter profits fell because of fuel costs and income lost from the sale of its European transport and distribution business.

P&O shares closed down 29.5p at 609.5p.