 Penisular & Oriental Steam Navigation Co. (P&O) ha annunciato oggi il proseguimento del regolare svolgimento del piano per la separazione dal gruppo del settore crocieristico, che verrà completata nel prossimo ottobre e che consentirà a P&O di concentrarsi sulle attività portuali e sul business dei traghetti (inforMARE del 3 febbraio). Secondo quanto reso noto dal gruppo britannico, è possibile che P&O decida - valutando al momento le condizioni del mercato - di mettere a disposizione di investitori statunitensi una piccola quota, probabilmente pari al 5%, di P&O Princess, la nuova compagnia crocieristica nata dalla scorporazione. P&O Princess avrà sede a Londra e sarà quotata alla Borsa londinese e a New York.
P&O ha reso noti inoltre i risultati preliminari relativi al 1999, che indicano profitti ante imposte di 474,7 milioni di sterline. Di seguito riportiamo la relazione di Lord Sterling, presidente del gruppo britannico.
Il gruppo britannico ritiene che dopo la scorporazione dell'attività crocieristica P&O sarà una delle più importanti società mondiali del settore della logistica e del trasporto.Preliminary announcement of 1999 results
| The key figures are as follows: |
1999
£m | 1998
£m
|
Total operating profit:
Continuing operations | 577.8 | 506.8 |
| Discontinued operations | 40.2 | 53.7 |
|
|
|
| 618.0 | 560.5 |
|
|
|
| Headline profit | 474.7
| 415.9 |
| Profit/(loss) on sale of fixed assets and businesses | 50.7 | (47.0)
|
| Profit on ordinary activities before taxation | 525.4 | 368.9
|
| Profit attributable to stockholders |
402.0 | 272.0 |
| Earnings per £1 nominal of deferred stock (FRS 3 basis)
| 60.0p | 41.7p
|
|
Chairman's statement
16 March 2000
1999 results and dividend
I am pleased to report that operating profit increased by 10 per cent to £618.0 million (1998 £560.5 million). The strong performance by two of our core divisions, Cruises and Ports, and also Property, more than offset the effect of the sale of some businesses during the year. Headline profit increased by 14 per cent to £474.7 million (1998 £415.9 million) while profit before tax increased to £525.4 million (1998 £368.9 million). Profit attributable to stockholders increased to £402.0 million (1998 £272.0 million). Headline earnings per £1 nominal of deferred stock increased by 15 per cent to 56.3 pence (1998 49.1 pence), again an impressive result in view of the sale of businesses. The debt/equity ratio came down to 38.6 per cent (1998 46.6 per cent).
These excellent results underline the fact that we are preparing for a demerger from a position of strength and that the two new companies will have not only an impressive track record but a financial platform and competitive advantage that will provide a sound basis for their future success.
Your Board recommends a final dividend of 19.5 pence per £1 nominal of deferred stock (1998 18.0 pence) which, together with the interim dividend of 13.5 pence, amounts to a total of 33.0 pence for the year (1998 31.5 pence). The dividend will be paid on 6 June 2000 to deferred stockholders on the register at the close of business on 31 March 2000.
Demerger progress
Your Board announced on 3 February 2000 that it intended to demerge the Group's cruises interests to form a separate publicly quoted company while the ongoing P&O would focus on its high return logistics activities. This followed the considerable progress we have made over the last few years in investing in rapidly growing businesses offering high returns and moving out of other areas. In 1999 this included the sale of Bovis Group, Earls Court and Olympia, our Australian services business and a large part of our investment property portfolio.
We are now focusing on just two streams of business - cruises and logistics. They have different financial and operating characteristics as well as their own capital requirements. The demerger will enable both businesses to pursue the strategies that best meet their long term objectives and accelerate their future growth. It should also ensure that their values will be more fully recognised by the market.
We are making steady progress with the demerger which we now expect to complete in October. The headquarters of the cruise company, P&O Princess, will be in London. Applications will be made for a listing on both the London and New York stock exchanges. Under the terms of the demerger, P&O deferred stockholders will receive ordinary shares in P&O Princess in proportion to their existing holding of P&O deferred stock.
The ongoing P&O will focus on its core businesses of ports, ferries and other logistics activities. We will invest in those areas that offer above average returns, where we have a clear competitive advantage and that enable us to develop further synergies and leverage growth. As I have said before, in view of its size and capital requirements, we intend to seek a listing for our container shipping joint venture, P&O Nedlloyd, while continuing to exploit the synergies with our logistics businesses. We will move out of bulk shipping as soon as market conditions permit. We have largely withdrawn from investment property, at a time when the market has been strong. Property development still contains many profitable opportunities. Capital employed will reduce as individual projects come to fruition.
Both companies will have strong balance sheets. Although there is no need for new equity to be raised for either company, in the case of P&O Princess we may decide to make a small placing in the US at the time of the demerger so as to raise the profile of the new company with US investors. This would be within pre-emption limits, i.e. less than 5 per cent of the issued shares, and would of course depend on market conditions.
Of the Group's net borrowings at the end of 1999, we expect to allocate approximately £700 million to P&O Princess. This will give the company a debt/equity ratio of around 60 per cent before any equity placing in the US. The ongoing P&O will retain around £650 million of the net borrowings at the end of 1999, together with a share of joint venture and associate borrowings of approximately £550 million. Looking forward, the cash outflows from
the 1999 final and 2000 interim dividends, and the bulk of the demerger costs, will fall within the ongoing P&O, but these will be offset by the proceeds of property sales. This will give a debt/equity ratio for the ongoing P&O, including the share of joint venture and associate borrowings, of some 50 per cent.
We have received tax clearance in principle from the Inland Revenue for the demerger. Looking ahead, the introduction of a UK tonnage tax will have a significant beneficial effect for P&O Princess which will have a tax rate of around 5 per cent. The ongoing P&O will also benefit from the tonnage tax and will have a tax rate of around 25 per cent.
The interim dividend for the six months ending 30 June 2000 will be declared prior to the demerger. The dividend levels of both P&O Princess 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 dividends 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 during 1999 the combined recommended total dividends would have been of the order of 25 pence - 12 pence per ordinary share in P&O Princess and 13 pence per £1 nominal of deferred stock in the ongoing Group.
We intend to send a circular to stockholders in early September 2000 giving full details of the proposed demerger, convening an extraordinary general meeting of the Company to approve the demerger and including listing particulars in respect of P&O Princess. Concessionary and preferred stockholders will continue to hold stock in P&O and their rights will be unaffected by the demerger. We also intend shortly to send a circular to holders of the convertible stock proposing that those who convert into deferred stock during the conversion period commencing on 12 April 2000 will benefit from an enhanced conversion rate. This proposal will be subject to class consent of the convertible stockholders and consent of the Company at the annual general meeting. Details will be sent to all stockholders in the Report and Accounts.
Cruises
The Cruises division had another strong year. Our ships sailed 100 per cent full. Net revenue yields maintained the high levels achieved in 1998. Our increasing size and new ships enabled us to reduce our unit costs. As a result, the increase in operating profit once again exceeded the increase in capacity. The return on capital employed, excluding ships under construction, was over 15 per cent.
This is not the first year that we have reported such strong results. Over the last ten years, Cruises' operating profit has increased by 17 per cent compound and our return on capital has consistently exceeded our cost of capital. The factors behind this outstanding performance need to be clearly understood. While some relate to the sector as a whole, others are specific to P&O.
Cruising is still a relatively young industry. Despite demand growing by an average of 8 per cent a year in the US for the past 20 years, it still accounts for less than 5 per cent of the total leisure market. In Europe it is much lower and in Asia lower again. Increased supply has consistently generated increased demand while market surveys indicate that there are still many more people who want to go cruising than have yet done so. In part this is caused by favourable demographics, with the 50-59 year age bracket - the prime cruising age - forecast to double in number in the US between 1990 and 2010. The new ships that are being introduced are also highly attractive and offer a range of features comparable to those of even the most highly specified land based resorts. Cruising's value for money means that it is seen as an increasingly affordable vacation choice.
For all of these reasons, the number of new passengers is growing strongly year by year. Cruising also has high satisfaction levels. The number of repeat cruisers is therefore considerable, at over two thirds in the case of P&O Princess. These factors provide for significant price elasticity. Through selective use of sophisticated yield management systems, small adjustments in price are able to produce marked increases in demand. Finally, the industry is relatively consolidated with the leading operators having a strong position.
P&O Princess is one of the market leaders. We have three of the industry's strongest brands: P&O, Princess and Aida. We are the number one cruise line in the premium segment in the major destination trades in the US. Importantly, however, we are the most international of the three leading cruise companies with approximately 25 per cent of our revenue and profit coming from outside of the US. We are the leading cruise line in the UK. We have the fastest growing cruise company in Germany and we have a strong position in Australia.
Our product is highly attractive. Our ships are consistently recognised as trend setters. We were the first company to introduce balconies on standard cabins with the additional revenue they earn. Over 30 per cent of all the standard cabins in the Princess fleet have balconies, well in excess of our main competitors. The amount of choice and our customer satisfaction programmes have differentiated our product and further increased earnings. Finally, we are continually expanding our IT systems. Travel agents in the US can now book on-line over the internet and we are about to deploy a completely new, state of the art yield management system.
Recently, some comments have been made about pricing pressure in the US. While the pricing environment is indeed tighter this year, we believe the issue has been exaggerated. What has made cruising so successful is that, by keeping prices competitive and offering great value for money, it has grown strongly. This in turn has brought unit costs down and improved margins, with further cost benefits from new, more efficient ships and improved IT and other systems. The benefit of this will reduce if fuel prices stay at their current high levels.
In the case of P&O Princess, I have already remarked that we are more international than our two major competitors and therefore a greater proportion of our earnings comes from outside of the US. Even within the US, our focus is on the destination trades such as Alaska, where we have created a strong land side position, rather than the Caribbean trade. As a premium operator we also tend to attract a slightly more affluent customer.
As a result of these factors, prices for P&O Princess through the summer period are in line with the high levels of last year. At this stage the final quarter of 2000 does not look as strong as last year although this is not surprising as it is a period of significant capacity increase and compares to the last quarter of 1999, when we benefited from the millennium. Having said this, we still expect to sail 100 per cent full at rates that are close to last year and with a high return on capital in a low tax environment. This is despite increasing our overall capacity by 23 per cent. Only in a strong and far from mature market could one expect to achieve such results.
Looking beyond the current year, I would reiterate what I have said about the fundamentals of the industry. The product is improving all the time. It offers exceptionally good value for money and more and more people are going cruising. Once they have taken a cruise there is a strong likelihood that they will do so again. Even in the US there is ample room to grow let alone in other countries such as the UK, where we are introducing Aurora this April. Aida is having a good year and our Australian company is also doing well. We are committed to our expansion programme and to increasing our global reach. We will continue to invest in our brands, reduce unit costs and provide an outstanding product.
The future P&O
Following the demerger, the ongoing P&O will be one of the world's leading logistics and transport companies with excellent growth opportunities. It is the most internationally diverse port operator with a strong track record in a business where there are significant barriers to entry. It is the UK's leading ferry operator. Despite the doubling of capacity on the Short Sea brought about by the advent of Eurotunnel in 1995, followed by the loss of duty free sales in mid-1999, P&O Ferries has made consistently good returns. P&O Trans European now has the coherence and critical mass to become one of the leaders in European business to business logistics. Our cold logistics company has a leading position in its chosen markets. The increased use of a standard e-platform worldwide and laser controlled stock picking has helped it to become one of the world's top six companies in its sector.
These are high growth, high return businesses with significant competitive advantages. In 1999 they increased operating profit by 22 per cent compared to 1998 and made a return on net operating assets of 13 per cent. This is despite the loss of duty free sales and the adverse effect of the strength of sterling on UK exports. We have achieved similarly strong returns for the last five years. By working together and leveraging off each other, these businesses are uniquely positioned to benefit from the increases in world trade that will result from growth in GDP strengthened by further trade liberalisation and technological change.
The focus on logistics will yield increasing benefits for the ongoing Group as we move forward. The key factors will be our brand name and reputation, financial strength, global presence, customer interface and IT capabilities. P&O is one of very few logistics companies whose name is recognised worldwide. We have a formidable reputation and a strong balance sheet. These are decisive issues when it comes to winning new business. Our ability to win new contracts is further enhanced by having global customers which are common in our different areas of business. Finally, through a Group wide approach to IT development we will be able to apply best practice in each area in order to bring our businesses closer together.
One of the main objectives for the ongoing Group will be to develop these synergies so as to leverage growth in those high return areas where we have a competitive advantage. One recent notable success was the joint venture agreement between P&O Ports, Trans European and Duisburg Port to develop a major inland terminal and logistics centre at Duisburg, Germany.
Our Ports division achieved an excellent result last year with operating profit increasing 60 per cent to £73.1 million (1998 £45.7 million). Container throughput increased by 50 per cent of which 10 per cent was organic and 40 per cent new investment. We now have investments in 19 countries, with 25 container terminals and more than 30 other ports. P&O Ports are located within many of the world's fastest growing economies. Recent success in securing concessions in India and China underlines P&O Ports' position as one of the leading international port developers and service providers. The outlook for the further development of this business remains very positive.
Ferries had a good year, responding well to the loss of duty free in the second half. The freight market on the Short Sea strengthened with improved rates and increased volume. Tourist vehicle rates also increased. After some further adjustment for the loss of duty free in the first half of 2000, and the impact of higher fuel prices, we expect the division to resume its strong growth supported by two new cruiseferries - the world's largest - for the North Sea in 2001 and two new ferries for the Irish Sea later this year.
After some years of development, Trans European has the regional presence and IT systems to achieve good returns. It can now provide a seamless managed logistics chain between raw materials producers, manufacturing plants and distribution centres across Europe. Its web-based customer interface enables it to take over a company's supply chain management down to the level of individual site requirements.
As with Trans European, the P&O brand has played a key role in the expansion of Cold Logistics. From a leading position in the Australian market it has moved successfully into the US, Argentina and Brazil. It has developed a competitive advantage in temperature controlled logistics through the provision of market leading systems and technology in the retail sector, ranging from inventory management to internet fulfilment. There are many good investment opportunities, particularly with the increased demand for outsourcing.
We are announcing separately today that our container shipping joint venture, P&O Nedlloyd, made a small operating profit in 1999. The increase in fuel costs had a significant adverse effect. In other respects the outlook is more positive than it has been for some years. Average revenue rates are gradually improving and a major new cost reduction programme is underway. The industry is continuing to consolidate and there is an approximate balance between supply and demand going forward. In view of its size, capital requirements and the need for consolidation, P&O Nedlloyd should have a quotation in its own right. With profitability improving and a brighter industry outlook, the prospects for achieving this have improved. In the meantime we will continue to exploit the synergies with Ports and Trans European.
The trading environment has also improved for our bulk shipping joint venture, Associated Bulk Carriers. Rates have improved considerably over the past few months although higher fuel costs have had an adverse effect. This company will become independent as soon as market conditions permit.
Our Property division had an excellent year. We achieved significant disposals from our investment property portfolio, taking advantage of strong market conditions. Although some sales remain to be completed, we have largely left that business, a year or more in advance of our original timetable. Property development contains many profitable opportunities from which the ongoing P&O will continue to benefit as individual projects come to fruition and capital employed reduces.
The Board
With the sale of the Bovis Group last year, Sir Frank Lampl stood down from the Board. Tim Harding, who is responsible for our Property division, will be retiring from the Board in April this year. I should like to pay tribute to their splendid contributions to the company. We have benefited greatly from their immense knowledge of their areas of business as well as their wider perspective.
I was very pleased to welcome Peter Smith to the Board. He joined the Group in 1994 and has executive responsibility for communications, investor relations and other corporate affairs.
Employees
Our employees played a critical part in achieving our excellent results last year. The credit is even greater as the success has come at a time when the Group is undergoing considerable change. In thanking them for their contribution I have in mind those whose businesses have now left the Group as well as those who remain with us. The demerger of P&O Princess and the focus on logistics in the ongoing Group will provide new opportunities as well as further change. I am sure that our employees will once again be more than equal to the challenges ahead.
The future
As we approach our demerger I am pleased to report that our two main streams of business are trading well. Our companies are world class and we are moving forward from a position of strength. The demerger will enable both businesses to pursue the strategies that best meet their long term objectives and to accelerate their future growth. It is very much in the interests of our stockholders, customers and employees.
[Other results: see P&O website]
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