Shares slip as P&O fears trade set-back

SHARES in P&O, the shipping, construction and property company, fell 10p to 340p after Lord Sterling, the chairman, warned that second-half profits would be lower than expected if trading continued to worsen.

Lord Sterling said: 'Since July there has, if anything, been a deterioration in some areas such as housebuilding.' The company has also been affected by the weakness of the dollar.

He was speaking after announcing an increase in interim profits to pounds 101m before tax, up from pounds 73.1m, and an interim dividend of 13.5p a share, which was unchanged. The dividend was again higher than earnings, which were 12.2p (10.4p) a share.

Lord Sterling also hinted that the final dividend would be maintained when he said: 'Our dividend policy is governed by the medium and long-term underlying prospects of the group rather than the short term.'

The company made a loss of pounds 13.5m (loss pounds 3.5m) from housebuilding and construction, though Lord Sterling said there was still an underlying need for an extra 1.5 million homes by the end of the century.

Shipping increased profits, with cruises and ferries contributing pounds 48.1m (pounds 43.7m) and container and bulk shipping making pounds 36.2m (pounds 30.9m). Lord Sterling said this would not have been possible without heavy investment in new ships, including Jervis Bay, the biggest container ship to have been built for the British merchant fleet.

He said capital spending was running at pounds 200m above the depreciation charge but would fall back next year, helping to reduce borrowings.

These rose to pounds 1.6bn during the first half as the company brought on to its balance sheet various Laing properties.

Lord Sterling admitted that the timing of the company's 1990 purchase of Laing Properties, together with Chelsfield, was mis-timed, given the subsequent fall in property values.

The company remains keen to join forces with other ferry operators ahead of the opening of the Channel tunnel and plans to apply again for permission to merge with Stena.

It said write-downs might be necessary on housebuilding land but these would only be 'a few hundred thousand pounds'. The value of the property portfolio, which is weighted towards shops in the North-west, might also have to be reduced.

The sale of part of the company's shareholding in Modern Terminals in Hong Kong for pounds 55m produced an extraordinary profit of pounds 46.1m, included in a total extraordinary charge of pounds 51.6m.