Ferry shake-up hits P&O profits

Ferries are facing competition from budget airlines

UK ports and ferries operator P&O has revealed a pre-tax loss of £210m ($401m) for 2004 after a number of one-off costs hit its balance sheet.

Writedowns of £380m wiped out pre-tax pre-exceptional profits of £170m.

The bulk of the exceptional charge, £267m, was due to last year's revamp of its ferries business which saw routes and jobs axed.

However, P&O said underlying pre-tax profits rose 65% after rising container volumes boosted its ports business.

Shares in P&O closed down 5.63% at 301.5 pence on the news.

Fleet cut

P&O chief executive Robert Woods said: "The group results reflect a substantial improvement in trading performance. We also made considerable strategic progress during the year.

"Excluding our rapidly reducing property business, where we have announced net sales of over £500m since the beginning of last year, operating profit is anticipated to improve further in 2005."

We are operating on fewer routes with fewer ships and a cost base that is becoming substantially lower and more flexible Robert Woods, P&O chief executive Check the P&O share price

Last September, P&O announced it was cut 1,200 jobs as part of a radical shake-up to revive its faltering ferry business. The group announced the closure of four of its 13 ferry routes and cut eight ships from its fleet.

The shake-up followed a far-reaching review of its ferry operations in the face of rising competition from no-frills airlines and Eurotunnel.

Announcing its 2004 results the firm said passenger numbers fell 3% on its ferries last year, and average spending by passengers fell sharply.

This was put down to the impact of the rise in cigarette prices following increases in French tobacco duty. As a result, net revenue generated from on-board sales was down by 23%.

'More flexible'

"In September we announced proposals to change fundamentally the way we run our Ferries business in response to difficult industry conditions," said Mr Woods.

"Those proposals are being implemented quickly following agreement with trade unions and the benefits are starting to be seen.

"We are operating on fewer routes with fewer ships and a cost base that is becoming substantially lower and more flexible," he added.

Analysts have lauded P&0's increasingly valuable international ports assets.

Shares in P&O have risen sharply since September as investors pick up on the high price that rivals are prepared to pay to get access to well-sited container terminals, according to Investec analyst John Lawson.