P&O POSTS STRONG PROFIT FOR 1997

P&O POSTS STRONG PROFIT FOR 1997

Peninsular and Oriental Steam Navigation Co. reported strong overall financial results for 1997, with its combined container shipping operation with Nedlloyd Lines the only weak spot on the balance sheet.

P&O Group's 1997 profits - before factoring in the costs of forming the P&O-Nedlloyd container shipping joint venture in late 1996 - were 401.2 million ($666 million), a 25 percent increase from 1996 profits.With the cost of the P&O-Nedlloyd reorganization factored in, the group's year-to-year profit increase dropped to 17 percent. However, the sale of other assets, such as British home-builder Bovis Homes, bumped up the year-to-year profit to 30 percent. ''It has been a pretty productive year,'' the company's chairman, Lord Jeffrey Sterling, told a news conference on Tuesday.

He added that strong profits in the company's two largest divisions, cruises and property, were the biggest contributors to the overall results.

P&O Ferries was helped by the misfortune of a key competitor - a fire in the Channel Tunnel in November 1996, which shut down the tunnel and caused freight and passenger business to switch to ferries for several months.

This past Jan. 1, P&O Ferries raised its cross-channel freight rates by 12 percent, the first time that those rates were increased after a long period of decline.

P&O-Nedlloyd, like other container shipping lines, suffered from rate declines during 1997. However, the company cut $200 million in costs during 1997 and plans further cost reductions for 1998, said P&O-Nedlloyd Chief Executive Tim Harris.

Despite the cost savings, the company's return on assets during 1997 was only 2 percent - down from P&O Containers' pre-merger profit of around 3.5 percent in 1996.

''It goes without saying that 2 percent is inadequate,'' Lord Sterling said. ''But we are on the right road. We have combined the two companies, cut costs, increased throughput and strengthened our markets.''

The main problem for the container venture is that ocean shipping rates ''have been fragile, to say the least,'' with most container shipping lines showing worse results, Lord Sterling said.

However, he added, the number of scrappings of older vessels in the industry has increased in recent months, while P&O has commissioned new vessels, and ''what's key is who has the newer ships.''

Asia's economic difficulties did not affect P&O-Nedlloyd during 1997, but the 1998 outlook is less certain, said Mr. Harris.

Imports into Asia have declined by about 10 percent so far this year, while exports out of Asia have increased by 10 percent, widening an existing imbalance in the east-west trade. ''That's an imbalance challenge that we have to get on top of,'' he said.

In another area of group operations, P&O Bulk Shipping formed a joint venture with Shougang Corp., a large Chinese steel producer. The merger will produce the world's biggest independent fleet of capesize dry bulk carriers.