Cruises had a strong year, rising from pounds 100.1m to pounds 110.7m and, but for the one-off cost of the division’s Star Princess liner being grounded, profits would have risen by more than 20 per cent.At the heart of P&O’s presentation to shareholders was a cash flow projection that Lord Sterling claimed would secure the dividend at current levels for at least the next three years as well as ongoing capital expenditure requirements. UBS analyst Richard Hannah said he would be upgrading his 1996 pre-tax profit forecast to around pounds 350m from his previous estimate of pounds 340m and others followed suit.One said: “The moves announced today are a good starting point for a rerating of P&O but it still can’t change overnight from being an underperformer to an outperformer.”Nine of P&O’s 11 divisions actually bettered their 1994 profits last year but their aggregate improvement was not enough to offset heavy falls from the ferries business, which was hit hard by the Channel Tunnel, and container shipping, where deregulation around the world has increased competition.Profits from P&O Ferries tumbled from pounds 113.9m to pounds 74.8m, while containers slipped from pounds 63.2m to pounds 40.9m. An attempt to strike a deal with Stena Sealink is expected later this year to shore up the ferries’ defence against the threat now posed by the Channel Tunnel.Full-year pre-tax profits of pounds 320.4m compared badly with 1994’s pounds 349.5m but were at the top end of analysts expectations. Combined with the restructuring plans they resulted in a 8p rise in the share price to 522p, well down on the high of 732p achieved at the beginning of 1994 but an improvement on the low reached at the end of last year before whispers of an imminent shake-up at the company underpinned the price.Analysts welcomed the new openness from P&O after years of poor relative performance and an unwillingness to discuss group strategy with the City. P&O is keen to reverse undertakings made 20 years ago by his predecessors at the company that it would not move on its rivals. He is understood to believe that cash is better invested in new ships than in Cunard’s increasingly tired fleet.He upped the ante, however, in his acrimonious stand-off with the Government over whether or not further consolidation should be allowed in the overcrowded cross-channel ferry market.

Fears about the company’s ability to continue that level of payout had been the prime cause of a dramatic underperformance of the market by P&O’s shares in recent years, making it at times the highest yielding stock in the FT-SE 100 index of leading companies.Lord Sterling responded to recent criticism of P&O’s performance by leading fund managers by saying: “We are single minded in our commitment to getting back to a higher return on capital employed and in the meantime making strategic asset disposals where appropriate. I am confident that what I have announced today will enable us to achieve enhanced shareholder value.”Announcing better than expected full-year results, Lord Sterling poured cold water on rumours that P&O is poised to swoop on Cunard, the cruise business owned by Trafalgar House. He confirmed widely leaked plans to spin off Bovis Homes, the group’s housebuilding arm, in a flotation next year. Other cash raising measures include pounds 500m of sales from P&O’s pounds 2bn property portfolio and a reduction in the group’s exposure to bulk shipping.
Those steps underpinned P&O’s dividend, which was maintained in 1995 at 30.5p. Lord Sterling launched a charm offensive in the City yesterday and won immediate approval from analysts for his plans to reverse the recent underperformance of P&O, the cruises, ferries and transport conglomerate he has headed since 1983. Some analysts have suggested the Forte bid marked a shift away from the television and consumer equipment rentals interests which traditionally were the company’s core.The appointment of a telecoms executive underlines Granada’s conviction that the communications and entertainment businesses are set for further convergence, following advances in technology.In addition to the launch of satellite and cable services in the UK, the Government intends to encourage the development of digital terrestrial television and even video-on-demand services, offered via telephone and cable lines into homes and offices.Many media analysts believe films and big sporting events could be soon be delivered by telephone on a pay-per-view basis, a prospect viewed as crucial to the long-term strategy of BT, the telecoms market leader.Successful programme makers such as Granada are also expected to benefit from changes in the way entertainment is delivered to the consumer.Mr Lewis’s appointment may also be viewed as astute in the light of his experience running a company in competition with a dominant market player, in the form of BT.

Granada has been eager to expand into cable and satellite entertainment services, a market currently dominated by Rupert Murdoch’s BSkyB.Hedging its bets, Granada recently unveiled a joint venture with BSkyB to launch five satellite channels, including a Granada Gold, dedicated to broadcasting hits from Granada’s programme library.. A successor for Mr Ross has yet to be announced.Granada, which earlier this year clinched a pounds 3.8bn hostile bid for Forte, the hotels and restaurants group, is eager to underline its long-term commitment to television. It is thought that C&W had required Mr Lewis not to work in the telecoms industry for some months after he left.Mr Lewis was also on the short list to become chief executive of Cable & Wireless after Mr Ross left in November. C&W was plunged into turmoil by a row between Mr Ross and Lord Young, then chairman, who also left the group. His departure shocked the City and the industry, as he had been credited with turning the telecoms company around. Mr Lewis was believed to have clashed with James Ross, then chief executive of Mercury’s parent, Cable & Wireless, over the strategic direction of the group.