P&O profits warning amid ferries price war

Stormy conditions battering the ferries business of P&O showed little respite today as rival firms continued to slash prices on cross-Channel routes.

P&O warned that results for the division were likely to be below current expectations as price cuts – such as those recently announced by Eurotunnel and other ferry operators – combined with the impact of higher fuel costs.

On a brighter note, P&O said its ports business had offset the adverse trends in ferries, with organic growth continuing at more than 15% a year.

As a result, the company expects little change to market forecasts for 2004 profits.

It also stuck by plans to announce a wide-ranging review of the ferries business in September – an initiative unveiled in March after profits on P&O’s Dover-Calais route declined by £25.1m (€37.7) to £16.2m (€24.4m) last year.

In addition to Dover-Calais, the group’s ferries business includes routes in the North Sea, Irish Sea and the western part of the English Channel.

As well as the impact of the Iraq war and other security concerns last year, P&O has been hit by the growth of low-cost airlines and, more recently, increases in French tobacco duty. It is also thought the Euro 2004 football tournament has caused holidaymakers to delay travel plans.

Earlier in the year, P&O cut capacity on the key Dover-Calais route from eight ships to seven after passenger numbers continued to come under pressure.

But a new high-speed catamaran service from Portsmouth to Caen launched in April has continued to perform well, the company added.

It said today: “The trends reported for the first quarter, including higher fuel costs, have continued.

“In addition, whilst further cost reductions are being achieved, there is some downward pressure on tourist pricing.”

Elsewhere, container volumes at P&O’s ports business have continued to grow at record levels, particularly in Asia, and profit growth is above market expectations, despite adverse currency movements, the company said.

In property, the group said it remains on track to meet its target of £250m (€376m) net sales in 2004.

Royal P&O Nedlloyd, in which P&O has a 25% stake, has seen container shipping volumes continue to grow strongly due to world trade growth.

The group is due to report first-half results on August 12.

Shares fell by more than 1% following today’s trading update.