P&O warns of difficult cruise market ahead of demerger

Saeed Shah
Wednesday 27 September 2000 00:00
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Lord Sterling's P&O found itself in troubled waters yesterday as the company revealed that the much-hyped demerger of the business will cost it £210m. The ports and ferries company also warned that one of the two new companies to be created - the cruise business - will continue to be hit by weak markets.

Lord Sterling's P&O found itself in troubled waters yesterday as the company revealed that the much-hyped demerger of the business will cost it £210m. The ports and ferries company also warned that one of the two new companies to be created - the cruise business - will continue to be hit by weak markets.

Documents published revealed that tax, professional adviser fees and restructuring costs for next month's demerger of the P&O empire into a cruise unit and a ports business would amount to £80m.

In addition, splitting the group forces P&O to redeem its expensive fixed-rate debt, which will cost it a further £130m. The company has £1.5bn debt, much of it held in 2015 sterling bonds, bearing a 11.5 per cent interest rate.

Reporting its last set of financial results before the break-up, the company cautioned that overcapacity in the holiday cruise industry had led to falling prices.

It said that sales would be down in the cruise business for the fourth quarter of this year and the first quarter of next. Capacity in North America would increase by a further 11 per cent next year.

Since the company announced the demerger in February, its shares have almost halved in value from more than 1,000p, to close yesterday down 6.5p to 588p.

Andrew Darke, an analyst at Williams de Broe, said the P&O valuation had been knocked over the past few months by market downgrades of its two large American cruise ship competitors, Carnival and Royal Caribbean.

Lord Sterling, the chairman of both P&O divisions, insisted that the long-term fundamentals for the holiday cruising market remained strong. "The 40-plus demographic, the prime market for cruising, is growing fast and is the richest segment of the United States population. Some 80 million Americans have indicated in surveys that they would consider taking a cruise," he said.

For the first half of the year, the operating profit in the cruise business increased from £99.3m to £109.3m. The rump of P&O, which consists of its ports and logistics activities, saw an increase in interim operating profits from £121.1m to £148.3m.

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