Comment by P&O Chairman, Lord Sterling

"The weakness in container shipping rates has been a major disappointment. P&O Nedlloyd is a fine international company but there has to be further industry consolidation. Elsewhere we are making good progress, albeit in a nervous environment. Our container terminals business is expanding strongly. We are achieving major synergies through consolidating Ferries and we are continuing to allocate capital where it will create the most shareholder value. While there are still uncertainties ahead, our core businesses should achieve an improved overall performance in 2002 and we would hope to make further good progress in 2003."

A presentation of the results was held at London. This presentation with accompanying audio is webcast live on the group website www.pogroup.com.

P&O is a major international logistics and transport company. Its fastest growing business is the development of container ports around the world. P&O provides contract and cold logistics services internationally and owns half of P&O Nedlloyd, one of the world's largest container shipping lines. It is also the leading ferry operator in the UK.

The P&O Group had an operating profit for the 6 months to 30 June 2002 of £23.8 million (U$D 37m ) well down on the £135.7m in the same period the previous year (£135.7 million).

Although earnings from core businesses - Ports, Logistics and Ferries - were slightly ahead despite the difficult trading environment; the decline in Group earnings was principally due to the downturn in container shipping and resulted in a loss of £47.9 million for their share of P&O Nedlloyd.

Ports

P&O Ports is the container terminal operator and stevedore. World leader in cargo handling services and port management throughout Europe, the United States, South America, Asia, Africa and Australasia. P&O Ports is headquartered in London. P&O Ports is a leading global port operator. With 24 container terminals and logistics operations in 84 ports it has a presence in 17 countries.

For P&O Ports, there was strong volume growth, but the operating profit for Ports was £51.2m (down from £52.9m previous year). A key reason for the slightly reduced profit year on year is that our terminal in Buenos
Aires was impacted by the economic crisis in Argentina, with import volumes halved and export volumes flat.

P&O Ports' global Container throughput for the first six months was 5.6 million teu, 19% ahead of 2001 (4.7 million teu).

In Asia, trading conditions are healthy with Nhava Sheva International Container terminal (NSICT) in India continuing to trade strongly.

Organic growth of 12% was driven by strong flows in Asia and was ahead of estimates of growth in the industry. Established container terminals achieved a good increase in profit while newer terminals expanded strongly.

At Chennai (India), acquired in November 2001, service levels have improved dramatically and ship-waiting times.

At Qingdao (China), the staged transfer of volume from the old port to the P&O terminal has accelerated and all international trades will be transferred there before the end of this year.
The Port Newark (US) redevelopment will be completed by the year end resulting in an increase in capacity to approximately 800,000 teu together with significant operational improvements.

In the Americas, the recession in Argentina continues to have a significant impact on Terminales Rio De La Plata. Year to date import cargo is 55% lower than in 2001 and although volumes appear to have reached a floor, no short-term recovery is expected.

Export cargo during the same period has increased by little more than 1% due to the difficulties caused by a lack of credit.

Cargo shipping

P&O's share of the result for P&O Nedlloyd was an operating loss of £47.9 million (£23.8 million profit). Total throughput for P&O Nedlloyd increased by 11% to 1.7 million teu (1.5 million teu), compared to an increase in slot capacity of 9%. The operating loss was principally due to a decline in average freight rates, which fell 15% year on year due to uncertainties in world trade growth exacerbated by the introduction of more new ships into the industry.

P&O Nedlloyd continues on course to deliver cost savings of $350m annualised by the end of 2003 with an increased target of $250m annualised by the end of 2002. In H1 2002 the company has also enhanced its services by introducing refinements to its e-commerce product and re-branding its value added service activities as P&O Nedlloyd Logistics.

World economic growth is set to continue but the rate of growth remains uncertain and the industry continues to be affected by over capacity. The recent weakness in the US dollar will potentially have a negative impact on the result for the second half year. The outlook for freight rates is not clear although on many routes they appear to have stabilised and on some, including the significant Europe/Asia trades, there are signs of improvement.

Outlook

World trade remains at the heart of P&O's business. Despite the generally difficult conditions since the second half of 2001, the core businesses produced a slightly better overall result. The trading environment for the rest of the year remains uncertain. The pace and sustainability of US economic growth will be a key feature. The situation in Argentina and concerns over Iraq will also figure prominently.

These factors will have some effect on P&O businesses, most notably P&O Nedlloyd. However, their container ports continue to expand rapidly supported by strong growth in Asia and accelerating throughput from the newer terminals.