4
P&O Princess Cruises PLC
Trading Update
8 October 2002
As indicated in our press release of 4 October, and in
accordance with the provisions of the Takeover Code, now that
the FTC has announced that it would not oppose both the Royal
Caribbean DLC combination or the Carnival takeover proposal, we
are required to update our 2002 profit forecast.
We are also taking this opportunity to provide a trading update.
We expect to announce our results for the third quarter of 2002
in the week commencing 21 October.
2002 forecast
* Since the announcement of our second quarter results in
July 2002 analysts' estimates for the Group's earnings have
increased, with the majority of analysts now forecasting
earnings for 2002 in the range of 42-44 cents per share, before
merger related costs. We expect the actual result for the full
year to be at the top end of or above this range, with all four
quarters of 2002 likely to show year over year increases in
earnings per share
* 2002 sailings are now almost fully booked
* For the third quarter, we expect yields for the Group as a
whole to be above our previous forecast, showing a decline on a
like for like basis of 5%, with favourable exchange rates
reducing the fall to 2% on an absolute basis
* We expect Group yields for the fourth quarter to show a
year over year increase, on a like for like basis, of 2% to 3%.
If exchange rates remain broadly unchanged from today's levels,
the absolute yield performance will be better than these like
for like figures
* For the year as a whole we now expect the reduction in
Group yields, on a like for like basis, to be in the range of 4%
to 5%. Our previous guidance, given at the time of our second
quarter results, was for a reduction of 5%
* We expect, for the Group as a whole, a reduction in
underlying unit costs of 8% for the year compared to the target
of 7% indicated at the time of the Q2 results. Higher fuel
costs and exchange rate movements are expected to offset
partially the underlying reduction in unit costs
Details of the formal profit forecast and the reports on the
forecast by KPMG and Schroder Salomon Smith Barney appear at the
end of this release.
Highlights
* The Group expects to increase its capacity by 24% in 2003,
before taking account of any delay to the delivery of Diamond
Princess
* In North America, the Princess brand is expected to grow by
12%; in the UK the P&O Cruises brand is expected to grow by 22%;
and in Germany the AIDA brand is expected to grow by 65%
* In 2003 we will also commence the operation of the new
contemporary brand, Ocean Village in the United Kingdom and it
will be the first full year of operations of the new A'ROSA
brand in Germany and of the new Pacific Princess premium product
in Australia
* On September 10, Princess bookings for 2003 sailings as a
percentage of available capacity were in line with the position
for 2002 sailings at the same time a year earlier. This was
despite the inclusion for 2003 of the capacity on Tahitian and
Pacific Princess for which the programmes had only just been
launched
* With last year's bookings distorted by the events of
September 11, Princess bookings for 2003 are now well ahead of
the equivalent position in 2002. More relevantly cumulative
bookings and the booking pace are in line with what one would
expect at this time in a normal year. Pricing on current
bookings is slightly below that which prevailed in 2001 prior to
the impact of September 11 but well above the position post
September 11
* In the UK we are on track to accommodate the 22% growth in
the P&O Cruises brand for 2003 with little yield dilution. At
this early stage it is not possible to discern any trends for
the new brand, Ocean Village
* Given the much later booking cycle in Germany, it is
difficult at this stage to assess any trends for 2003. AIDA had
a good 2002 and appears well placed to continue its growth in
2003, although with some weakness in the winter months. The one
ship A'ROSA brand is having a difficult introduction and remains
behind our expectations
* The Pacific Princess premium product has been well received
in the Australian market and the Pacific Sky continues to do
well
* We expect to continue to achieve reductions in underlying
unit costs in 2003, with these likely to be more in line with
the original business plan of 2% per annum, rather than the 5%
achieved in 2001 or the 8% forecast for 2002
P&O Princess Chief Executive Officer, Peter Ratcliffe commented:
"We today released a new profit forecast for 2002 which we are
pleased to report is an improvement on our previous guidance.
This improvement is a result of both improved revenues and
greater unit cost reductions.
"We expect to report increased earnings in each of the five
quarters following the events of September 11 2001; a
performance which we believe is matched by few other major
companies in the vacation industry.
"Notwithstanding the current economic and political
uncertainties we remain positive about our prospects for 2003
and are pleased that our booking pace and pricing appears to
have recovered from the impact of September 11.
"We expect that our new ships with their industry leading number
of balconies, and our strong brand positions in the three
largest vacation markets in the world will have a positive
impact on our 2003 performance."
Enquiries:
P&O Princess Cruises plc
Caroline Keppel-Palmer +44 20 7805 1214
+44 7730 732015
Brunswick
Sophie Fitton +44 20 7404 5959
John Sunnucks
Website www.poprincesscruises.com
Analyst conference call
We are holding a conference call for UK and European analysts and
investors at 09.30 BST and one for US analysts and investors at
15.00 BST/10.00 EST. An audio webcast will be available on our
website at www.poprincesscruises.com. Below are details of the
dial in numbers:
09.30 BST Dial in number: +44 208 515 2344
Replay number + 44 208 797 2499 (pin 118025 #)
15.00 BST/ Dial in number 1 800 218 8862 (US)
+44 20 8515 2344 (UK and rest of world)
10.00 EST Replay number 1 800 405 2236 (pin 502778#)
+44 208 797 2499 (pin 118032 #)
P&O Princess
P&O Princess Cruises plc is a leading international cruise company
with some of the strongest cruising brand names: Princess Cruises
in North America; P&O Cruises, Swan Hellenic and Ocean Village in
the UK; AIDA and A'ROSA in Germany; and P&O Cruises in Australia.
It is a leading provider of cruises to Alaska, the Caribbean,
Europe, the Panama Canal and other Exotic destinations. The
current complement of 19 ships and two river boats offering 31,130
berths is set to grow in the next two years with six new ocean
cruise ships and two river boats on order.
P&O Princess Cruises has approximately 20,000 employees worldwide
and carried over one million passengers in 2001, generating a
revenue of approximately $2.5 billion (approximately GBP1.7
billion). Headquartered in London, P&O Princess Cruises' ordinary
shares are quoted on the London Stock Exchange and as ADSs on the
New York Stock Exchange (under the symbol "POC").
The directors of P&O Princess accept responsibility for the
information contained in this announcement. To the best of the
knowledge and belief of the directors of P&O Princess (who have
taken all reasonable care to ensure that such is the case), the
information contained herein for which they accept
responsibility is in accordance with the facts and does not omit
anything likely to affect the import of such information.
Salomon Brothers International Limited, trading as Schroder
Salomon Smith Barney ("Schroder Salomon Smith Barney") is acting
for P&O Princess and no one else in connection with the matters
referred to herein and will not be responsible to any other
person for providing the protections afforded to clients of
Schroder Salomon Smith Barney or for providing advice in
relation to the matters referred to herein.
"Schroder" is a trademark of Schroder Holdings PLC and is used
under licence by Salomon Brothers International Limited.
Certain statements contained in this announcement are ``forward-
looking statements'' that involve risks, uncertainties and
assumptions with respect to P&O Princess Cruises and its
subsidiaries, including certain statements concerning profit
forecasts, working capital, future results, strategies, plans
and goals and other events which have not yet occurred. These
statements are intended to qualify for the safe harbours from
liability provided by section 27a of the US Securities Act of
1933, as amended, and section 21e of the US Securities Exchange
Act of 1934, as amended, which are part of the US Private
Securities Litigation Reform Act of 1995. You can find many (but
not all) of these statements by looking for words like ``will'',
``may'', ``believes'', ``expects'', ``anticipates'', ``plans''
and ``estimates'' and for similar expressions. Because forward-
looking statements involve risks and uncertainties, there are
many factors that could cause the statements, events or
transactions described herein not to occur and/or P&O Princess
Cruises', actual results, performance or achievements to differ
materially from those expressed or implied in this announcement.
These include, but are not limited to, economic and business
conditions in general and, conditions in the cruise, travel and
vacation industries in particular, including changes in industry
cruise ship capacity and competition from other cruise ship
operators and other vacation alternatives, safety and security
concerns, incidents at sea, weather conditions, the political
climate, fluctuations in interest rates, fluctuations in the
price of oil, changes in the tax and regulatory regimes under
which the company operates, capital expenditures, and factors
impacting P&O Princess Cruises' international operations. In
addition, the paragraph entitled ``risk factors'' in section 5
of the EGM Circular dated 27 December 2001 and P&O Princess
Cruises' annual report on form 20-F for the year ended 31
December 2001 filed with the US Securities and Exchange
Commission contain important cautionary statements and a
discussion of many of the factors that could materially affect
the accuracy of the company's forward-looking statements and/or
adversely affect its respective businesses, results of
operations and financial position, which statements and factors
are incorporated herein by reference.
Subject to any continuing obligations under applicable law or
any relevant listing rules, P&O Princess Cruises expressly
disclaims any intention or obligation to disseminate, after the
date of this announcement, any updates or revisions to any such
forward-looking statements to reflect any change in expectations
or events, conditions or circumstances on which any such
statements are based.
Details of trading update
North America
Whilst it is early days for bookings for 2003 sailings, with the
full year only some 25% booked, bookings at this time are in
line with a normal year and in line with our expectations.
Pricing for current bookings is slightly below the levels that
were being achieved in 2001 prior to the events of September 11,
although they are well above the rates that prevailed after
those events.
The booking pace is showing remarkable resilience in the face of
the continuing economic and political uncertainty with the
exception of certain slowness in the pace of bookings for the
two ships scheduled to be in the Mediterranean next summer. We
believe that the pace of bookings has been favourably impacted
by the introduction of the new Coral, Island, Diamond, Pacific,
and Tahitian Princess' which, when they all are delivered, will
increase the proportion of balconies in the Princess fleet to
52% of total cabins, well above industry competitors.
As previously reported, the Diamond Princess has suffered major
fire damage whilst under construction in the Nagasaki shipyard
of Mitsubishi Heavy Industries. The full extent of the damage
will take some time to assess and at this stage it is not
possible to determine the extent of any delay to the scheduled
delivery date of May 31 2003 although it will clearly be
significant. However, P&O Princess has in place contractual
arrangements with the yard and insurance arrangements that it
believes, irrespective of the length of any delay in delivery,
should ensure that there will be no significant adverse economic
impact on the Group, nor any material impact on 2003 profits.
The two 688 lower berth former Renaissance Cruises vessels,
recently acquired and renamed Pacific Princess and Tahitian
Princess, have been well received and are booking strongly.
United Kingdom
In 2003 the UK division is planning an increase in capacity of
41%. Over the next 7 months, the P&O Cruises brand will receive
Ocean Princess and Sea Princess from Princess Cruises and rename
them Oceana and Adonia. In addition, Victoria will be retired
and Arcadia will be transferred to the new Ocean Village brand,
giving a net growth for the P&O Cruises brand of 22%. A former
Renaissance Cruises vessel, to be renamed Minerva II, has been
taken on long term charter and will be introduced into the Swan
Hellenic brand to replace the existing Minerva in April 2003.
Although at an early stage, bookings and pricing for P&O Cruises
and Swan Hellenic are on track to accommodate the growth in
capacity without any material reduction in pricing. Initial
bookings for P&O Cruises' summer 2003 programme are particularly
encouraging. For winter 2002/3 the booking position for Round
World cruises is sound whilst pricing in the fly cruise market
to the Caribbean for winter 2002/3 is under some pressure. We
believe the booking pace has benefited from the fact that the
four `white sisters' ships of P&O Cruises, Oriana (built in
1995), Aurora (2000), Oceana (2000) and Adonia (1998), all with
1,800 - 2,000 berths and with an average of 35% of their cabins
having balconies, comprise the most modern cruise fleet in
Europe today.
Ocean Village has been well received in the market place,
although it is too early in the booking cycle of this "fun in
the sun" type of product to evaluate any meaningful trends.
Germany
The booking cycle in Germany is much closer to sailing than is
the case for the P&O Cruises and Princess Cruises brands and
therefore there is still some way to go for 2002 and there are
insufficient bookings at this time to enable any guidance to be
given for 2003.
Our German business as a whole is expected to expand its
capacity by 70% in 2003 following its 88% expansion in 2002.
These rates of growth result from the increase of capacity to
four ships to service two brands in what is an underdeveloped
cruising market in the second largest vacation market in the
world.
The "club ship" AIDA brand continues to operate well and is
absorbing the growth as planned, and is doing so profitably. The
A'ROSA brand, with one 1,600 berth ocean going ship, is taking
more time to establish itself than we had hoped. This brand
appears to have been more affected by the general weakness in
German overseas destination travel. On the other hand, the two
Danube riverboats which also operate under the A'ROSA brand,
with a third scheduled to be delivered in 2003, performed well
in their first year.
Australia
Bookings and pricing for 2003 sailings on Pacific Sky are
broadly in line with the equivalent position in 2002. The new
premium product on Pacific Princess is being well received in
the Australian marketplace for its first six-month secondment
from Princess for the Southern Hemisphere summer.
New Ships
P&O Princess remains favourably disposed to adding further new
ships to the Princess brand for delivery in 2005 and beyond and
is actively examining a number of attractive commercial
opportunities to do so.
Costs
In 2001 we reduced Group underlying unit costs by 5%, with a
reduction of 8% forecast for 2002. These savings have been
achieved through a combination of the introduction of large,
new, cost efficient ships, economies of scale as the business
has grown, and through an increased management focus on costs
following the demerger from the P&O Group in 2000.
Looking forward to 2003, further unit cost savings can be
anticipated. The newly built ships being delivered will bring
down unit costs, although this benefit will be partly offset by
the higher unit operating costs of the three smaller former
Renaissance Cruises ships joining the fleet (including the
chartered vessel for Swan Hellenic). Capital costs per berth
will rise with the introduction of the new ships, offset by the
very low capital cost per berth of the two former Renaissance
ships that have been acquired.
Benefits from economies of scale, particularly in overhead, will
contribute to lower unit costs in 2003. The build up of
overhead and promotion in the UK ahead of and during the
significant increase in capacity, including the launch of the
new brand, will put some upward pressure on costs. Against this
the comparison to the prior year will be assisted because unit
overhead and promotion costs in Germany were above normal levels
in 2002 due to the expansion there.
Overall, 2003 budgets and operating plans are being prepared on
the basis of underlying cost reductions more in line with the
annual reduction target of 2% set two years ago. This target
covers ship operating costs together with overhead and promotion
costs, thereby covering all costs between net revenue and
EBITDA, but excludes the effects of changes in the price of fuel
or exchange rates.
Market position
The company's position has continued to strengthen during the
year. We have increased net earnings in each of the three
quarters reported on after the events of September 11 and expect
to do so for the remaining two quarters of this year, an
achievement matched by few other major companies in the vacation
industry.
Since its demerger from the P&O Group, in October 2000, the
company has succeeded in significantly reducing its cost
structure with unit cost reductions, excluding fuel and exchange
rate movements, of 13% in two years. We anticipate further
although more moderate decreases next year. This has been
achieved without impacting the satisfaction levels of our
passengers or our operating standards for which all our
employees deserve tremendous credit.
The company has an industry leading array of consumer brands
with leading brands in the United Kingdom, Germany and
Australian markets and in the premium segment of North American
market. We have also recently launched two new brands and
introduced a new product: the contemporary Ocean Village brand
in the United Kingdom, the premium A`ROSA brand in Germany, and
the Pacific Princess premium product in Australia. By
supplementing our existing brands, these new brands will enable
us to provide a full range of products catering to a wide
variety of consumer tastes in these three countries.
The company's fleet continues to improve in quality with the
delivery of new ships and the disposal of the fleet's five older
ships in recent years. The company has the most modern fleet in
the United Kingdom, German and Australian markets and in North
America will have a very innovative and modern fleet with an
industry leading number of balcony cabins amounting to over 50%
of its total cabins by the summer of 2003.
We are operating in an industry that is growing and globalising.
Our own market research confirms that cruising should continue
to increase its share of the total vacation market in our three
main theatres of operation namely the United States, the United
Kingdom and Germany - the three largest vacation markets in the
world.
The Board wishes to take this opportunity to thank all the
company's employees for all their commitment and expertise in
making the company as successful as it now is.
APPENDIX
2002 Profit Forecast
The Directors forecast that for the year ending 31 December 2002
P&O Princess' basic earnings per share under UK GAAP will be at
the top end of or above the range of 42 to 44 cents per share.
Bases of preparation
This profit forecast is based upon the published unaudited
interim results for the six months ended 30 June 2002 (see
below), unaudited management accounts for the two months ended
31 August 2002 and forecast results for the four months ending
31 December 2002.
This profit forecast has been prepared using the UK GAAP
accounting policies normally adopted by P&O Princess and, in
relation to the Group's new accounting policy for deferred tax
arising from adoption of Financial Reporting Standard 19, as set
out in the 2002 interim statement.
No account has been taken of the financial consequences of
completion of either the proposed merger with Royal Caribbean or
the proposed takeover by Carnival. Also no account has been
taken of the costs that would still be incurred if neither
transaction is completed which the Directors estimate would be
approximately $55 million, not including any break fees payable
to Royal Caribbean.
Assumptions
Assumptions for factors outside the influence of the Directors:
* There will be no major disruptions to the business from
natural disasters, ship operating incidents, wars and other
hostilities, or other third party actions
* There will be no material adverse change in the legal,
governmental, regulatory or taxation environment that applies to
P&O Princess' business
* There will be no significant change in interest rates,
exchange rates or fuel prices from those prevailing at the
present time
* Any insurance recoveries subsequent to the recent fire on
Diamond Princess, the vessel under construction in Nagasaki,
will fall to be credited to the 2003 results not the 2002
results
SUMMARISED GROUP PROFIT AND LOSS ACCOUNT FOR THE THREE MONTHS
AND SIX MONTHS ENDED 30 JUNE 2002
----Three months to 30 June------------Six months to 30 June--
2002 2001 2002 2001 2001
(Unaudited)(Unaudited) (Unaudited)(Unaudited)(Unaudited)
Restated As previously
reported
US$ million
Turnover (gross revenue) 638.1 647.6 1,150.2 1,189.7 1,189.7
Direct operating costs (389.5) (407.4) (733.2) (795.4) (795.4)
Selling and (87.5) (92.5) (174.0) (177.1) (177.1)
administrative expenses
Depreciation and (43.4) (36.5) (83.2) (73.3) (73.3)
amortisation
(520.4) (536.4) (990.4) (1,045.8) (1,045.8)
______ ______ _______ ______ _______
Group operating profit 117.7 111.2 159.8 143.9 143.9
Share of operating (0.1) - - - -
results of joint
ventures
_______ ______ _______ _______ _______
Total operating profit 117.6 111.2 159.8 143.9 143.9
Profit/(loss) on sale of 0.2 (1.9) 1.2 (1.9) (1.9)
fixed assets
_______ ______ _______ _______ _______
Profit before interest 117.8 109.3 161.0 142.0 142.0
Net interest and similar (18.9) (15.5) (35.0) (29.3) (29.3)
items
_______ ______ _______ _______ _______
Profit before taxation 98.9 93.8 126.0 112.7 112.7
Taxation (4.9) (4.7) (6.3) 91.2 (5.6)
_______ ______ _______ _______ _______
Profit after taxation 94.0 89.1 119.7 203.9 107.1
Equity minority - (0.1) - (0.1) (0.1)
interests
_______ ______ _______ _______ _______
Profit for the period 94.0 89.0 119.7 203.8 107.0
_______ ______ _______ _______ _______
Basic earnings per share 13.6c 12.9c 17.3c 29.4c 15.4c
Diluted earnings per 13.5c 12.9c 17.2c 29.4c 15.4c
Share
Basic and diluted $0.54 $0.52 $0.69 $1.18 $0.62
earnings per ADS
Dividend per share 3.0c 3.0c 6.0c 6.0c 6.0c
Dividend per ADS $0.12 $0.12 $0.24 $0.24 $0.24
Weighted average number
of shares in issue
(millions)
- Basic 692.3 692.6 692.2 692.6 692.6
- Diluted 697.8 692.6 697.5 692.6 692.6
Set out below is the text of a letter from KPMG relating to the
Profit Forecast:
The Directors
P&O Princess Cruises plc
77 New Oxford Street
London WC1A 1PP
The Directors
Salomon Brothers International Limited,
trading as Schroder Salomon Smith Barney
Citigroup Centre
33 Canada Square, Canary Wharf
London E14 5LB
8 October 2002
Dear Sirs
P&O Princess Cruises plc
We have reviewed the accounting policies and calculations for the
forecast of basic earnings per share of P&O Princess Cruises plc and
its subsidiary undertakings ("P&O Princess") for the year ending 31
December 2002 set out in an appendix to P&O Princess' announcement
dated 8 October 2002 ("the announcement"). The Directors are solely
responsible for the forecast.
The forecast includes results shown by published unaudited interim
management accounts for the six months ended 30 June 2002 and by
unaudited management accounts for the two months ended 31 August
2002.
We conducted our work in accordance with Statements of Investment
Circular Reporting Standards issued by the Auditing Practices Board.
In our opinion the forecast, so far as the accounting policies and
calculations are concerned, has been properly compiled on the basis
of the assumptions made by the directors set out in the announcement
and is presented on a basis consistent with the accounting policies
normally adopted by P&O Princess.
The above opinion is provided solely on the basis of and in
accordance with practice established in the United Kingdom. In the
United States, reporting standards and practice are different and
the role of the reporting accountant does not provide for the
expression of an opinion with respect to a forecast of attributable
profit except in the context of minimum presentation guidelines with
which the profit forecast presented herein does not comply.
Consequently, under United States practice and standards, we are
unable to express any opinion with respect to the profit forecast.
The work we have carried out on the forecast is solely for the
purposes of reporting to the Directors of the Company and hence to
the existing members of the Company, and to the directors of Salomon
Brothers International Limited, trading as Schroder Salomon Smith
Barney. As a result, we assume no responsibility to any offeror in
respect of or arising out of or in connection with our work on the
forecast.
Yours sincerely
KPMG Audit Plc
Set out below is the text of a letter from Schroder Salomon
Smith Barney relating to the Profit Forecast:
Schroder Salomon Smith Barney
Citigroup Centre
Canada Square
Canary Wharf
London E14 5LB
8 October 2002
The Directors
P&O Princess Cruises plc
77 New Oxford Street
London WC1A 1PP
Dear Sirs,
We have discussed the profit forecast and the basis and
assumptions on which it has been prepared with you as directors
of P&O Princess Cruises plc ("P&O Princess"). We have also
discussed the accounting policies and calculations for the
profit forecast with KPMG Audit plc, P&O Princess's auditors,
and we have considered their letter of today's date addressed to
yourselves on this matter.
On the basis of the foregoing, we consider that the profit
forecast referred to above, for which you as directors are
solely responsible, has been compiled with due care and
consideration by the directors.
Yours faithfully,
for and on behalf of
Salomon Brothers International Limited
Ian Hart
Managing Director
Salomon Brothers International Limited
Registered Office: Citigroup Centre, Canada Square, Canary
Wharf, London E14 5LB
Registered in England Registered Number 1763297 Regulated
by the FSA