Metro Pacific Announces Interim Results

July 30, 1998 PSE CIRCULAR FOR BROKERS NO. 1780-98 METRO PACIFIC ANNOUNCES INTERIM RESULTS Metro Pacific Corporation ("MPC") today announced that its unaudited operating profit for the six-month period ended 30th June 1996 reached Pesos 2,520 million, compared with Pesos 77 million for the same period last year. Net income for the semester reached Pesos 117 million, which was affected adversely by an increase in financing charges compared with the previous year. Following the recent capital raising of Pesos 14 billion, certain asset disposals and a further fund raising later in the year through the issue of warrants, MPC's level of indebtedness will be reduced further with a consequential reduction in financing charges. Revenues increased from Pesos 2,189 million for the six-month period ended 30th June 1997 to Pesos 10,307 million for the first six months of 1998. This increase arose primarily because of the consolidation, from 30th June 1997, of Fort Bonifacio Development Corporation ("FBDC") and, from 30th September 1997, of Smart Communications, Inc. ("Smart"). The results of both companies for the six month period ended 30th June 1997 were accounted for as part of the equity in net earnings of affiliated companies , whereas both were consolidated in full in 1998. Equity in net earnings, therefore, decreased from Pesos 502 million for the first semester of 1997 to Pesos 48 million in 1998. Financing charges increased from Pesos 150 million in 1997 to Pesos 1,152 million in 1998 as a result of the consolidation of Smart and FBDC, increased indebtedness within the group and the higher interest rate environment. Outside interests, the portion of the net income for the period attributable to third party equity holders of subsidiary companies, increased to Pesos 1,243 million. The increase in outside interests in the group's income reflects the present group structure under which a significant portion of the economic interests in FBDC and Smart are shared with other equity investors. Total equity, including outside interests, in the consolidated balance sheet increased to Pesos 70.6 billion as of 30th June 1998 from Pesos 55.4 billion as of 31st December 1997. The increase was due to a deposit on subscription for new common shares in an amount of Pesos 14 billion, which was received in late June 1998 and used to repay foreign currency obligations. The effect of the increased equity and reduced debt has been to reduce the ratio of the total debt to total equity, which improved from 1.45 to 1.05 over the six-month period. The reduction in MPC's debt from this significant capital raising will also reduce the level of financing charges for the second semester. Total assets increased from Pesos 135.8 billion as of 31st December 1997 to Pesos 144.5 billion as of 30 June 1998, principally as a result of additional investments in telecommunications equipment by Smart and the acquisition, in April 1998, of a majority interest in Negros Navigation Co., Inc. aisadc The Group continues to maintain a cautious and prudent approach with respect to financing and its capital structure, and adopts a policy of transparency in financial reporting. The Group has reduced substantially its foreign currency exposure following the repayment of foreign currency denominated liabilities from the deposit for new shares received in June 1998. In addition, MPC is proposing to raise an amount of approximately Pesos 6 billion, through an issue of warrants later in the year, which will further strengthen the group's balance sheet and enhance its capital structure. In property development , FBDC continued its stable performance in spite of market conditions and reported income before tax of Pesos 1.8 billion for the first six months of 1998. FBDC was established in 1995 as a joint venture between BLC, a private consortium led at that time and now controlled by MPC, and the Bases Conversion and Development Authority ("BCDA"), a Government corporation. FBDC is developing a site of 214 hectares in Fort Bonifacio, as part of the Master Plan for the 440-hectare former military base in the heart of Metro Manila, into a world standard city. During the first semester, payments continued to be made by buyers on installment terms for their lots in Fort Bonifacio. This provided substantial funds for infrastructure development, designed to allow for the initial buildings to be occupied by the year 2000, and general working capital purposes. FBDC records revenues and net income on the basis of the percentage of the horizontal work performed, which increased to approximately 56.5 per cent as of 30th June 1998 from 45.2 per cent as of 31st December 1997. FBDC continues to ensure strict adherence to the Fort Bonifacio Master Plan, which regulates the design and size of all developments in addition to requiring the creation of a fully integrated city infrastructure. In the next three years, new residential and office buildings are expected to be completed and ready for occupancy, including the residential towers of Pacific Plaza, Essensa, and One McKinley Place. In August 1998, a new entertainment center will also be opened to provide restaurants, fine dining and coffee shops and other casual eating and drinking places. As of 30th June 1998, FBDC had received 118 hectares of land from BCDA, including the entire Big-Delta area, but excluding a 64-hectare sports and recreation area. Under the terms of the joint venture agreement with BCDA, the remaining area was required to be turned over to FBDC with vacant possession by 10th February 1998. The final delivery did not occur by that date, and discussions continue to be held with BCDA and other representatives of Government regarding alternative arrangements for delivery and payment, including the possibility of a joint development of a portion of this area. Management remains confident that a mutually acceptable, equitable and commercial compromise will be reached with BCDA regarding this matter. The Group's residential development, Pacific Plaza Towers , which is located in the Global City, also continued to capitalize on its successful concept and design, and has made significant progress during the quarter. Reservations and contracts have been received for approximately 50 per cent of the 393 units, notwithstanding the difficult market conditions in the property sector. The foundations are presently being completed, following which the superstructure will begin to rise, overlooking Manila Golf. With the initial tenants anticipated to occupy the units from mid-year 2000, Pacific Plaza Towers represents MPC's signature residential project in Fort Bonifacio. Landco Pacific Corporation ("Landco"), MPC's investment in property developments outside Metro Manila, was able to secure continued demand throughout the six-month period; although, at lower levels than experienced in the previous year. Landco's diversified portfolio now includes residential subdivisions, resorts, golf courses, memorial parks, and shopping centers, demonstrating the breadth depth of skills of the management team. In light of the support provided by MPC, and the close working relationship between the two group's, agreement has also recently been reached for MPC to increase its shareholding interest in Landco to 60 per cent from the present 40 per cent. The additional interest will be arranged through a primary issue at par value of new shares in an amount of Pesos 171 million, and the new ownership structure will reflect the existing congruence between the two groups of operational and strategic decision making. In telecommunications , Smart achieved a growth of 16 per cent in its cellular subscriber base in the six-month period to 30th June 1998 to reach approximately 720,000 subscribers, net of disconnections. Smart has the largest subscriber base of any cellular operator in the Philippines, and continues to experience the highest growth rate in new subscribers. This prodigious growth, and Smart's leadership position, are attributed to the reliability of its cellular system, extensive national coverage through the wide distribution of cell sites and its microwave infrastructure, and the focused approach to customer service. Smart is also continuing to progress the rapid build-out of the Local Exchange Carrier ("LEC") project. Smart has consistently adopted a prudent approach in the management of its financial affairs. This has enabled it to maintain tight control over its accounts receivable and fraud, which has affected other operators in the Philippines, has been substantially avoided. Since the commencement of its operations, new accounts have been systematically and consistently screened and rigorous credit and collection policies adopted. In addition, sophisticated software controls have been integrated into the system's design to maximize its efficiency and reliability. In consumer products , the Group continued to focus on personal care, packaged water, and other beverage products. The division manufactures many popular consumer products, including "Eskinol", the market leader in facial astringents, "Block and White", "Dial" and "Dr. Kaufmanns" soap, "Defiance" anti-wrinkle cream, "Wilkins Distilled Drinking Water", the leading packaged water in the Philippines, and "Riunite Wine". The division performed satisfactorily in the first semester with increased market shares for Wilkins Distilled Drinking Water and various of the division's personal care products. The economic environment has, however, caused a general slowdown in the consumer products market with demand at levels similar to those experienced in 1997. With increased competition, associated higher marketing expenditure, and losses reported by Holland Pacific Paper, Inc. ("Holland Pacific" the division's manufacturer of bathroom and packaged tissue products), the division's contribution to net income declined compared with the previous year. On 29th July 1998, MPC announced that it had signed a share purchase agreement with a major European multinational, specializing in the manufacture of paper related products, for the sale of Holland Pacific. The manufacturing operations of Holland Pacific were relocated to Cavite in 1996 and new brands were introduced, which resulted in the company reporting losses. The divestment, which was achieved at carrying cost, will allow the consumer products division to focus on its leading personal care and water related products. cd The packaging group , under Steniel Manufacturing Corporation, is the leading corrugated box and flexible packaging manufacturer in the Philippines, and also produces rigid plastic containers. The corrugated carton division continued to record improved efficiencies in its new state of the art plant in Cavite, where the Luzon operations were consolidated in 1997. However, the Luzon market continues to experience from an oversupply of corrugated carton boxes that is unlikely to be reversed for some time. As a consequence, continued pressure on margins in Luzon and the general slowdown in economic activity affected adversely the Cavite plant. This was offset, however, by strong performances by the division's plants in Cagayan de Oro and Cebu. The group's flexible packaging subsidiary, Starpack Philippines Corporation ("Starpack"), has been able to create a stable production platform following improvements achieved in its operations in 1997. With a well-deserved reputation for quality and technological strengths, Starpack has also been able to regain customer confidence but reported lower volumes as a result of market conditions. Through continued cost control and improvements in operating performance, however, Starpack was able to report a higher net income in the first semester compared with the same period in 1997. Commenting on the results, Mr. Napoleon L. Nazareno, President and Chief Executive Officer of MPC stated, 'The market conditions, which remain difficult, have affected the results of all the companies in the group. Consumer confidence, and consequential consumer spending, remains weak and our view is that this is likely to continue in the short-term. The sectors in which the group operates, however, are resilient in the long-term to such changes in sentiment and we are confident that the group will be able to benefit at an early stage from improvements in market conditions. The high interest rate environment and the continued depreciation of the Peso also adversely affected the results for the first six months. The recent increase in equity by Pesos 14 billion, the largest capital raising exercise ever undertaken by MPC, has created a stronger platform for the group's operations, and also enabled MPC to reduce significantly its foreign currency debts. With a further capital increase of approximately Pesos 6 billion planned for later in the year in the form of a warrants issue, the group should be well-placed to withstand the current economic conditions." METRO PACIFIC CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited) For the six-month period ended 30 June (In thousands) 1998 1997 Revenues 10,307,516 2,189,324 Cost of sales 6,120,729 1,616,692 Operating expenses 1,667,243 495,189 Operating profit 2,519,544 77,443 Equity in net earnings of affiliated companies 48,360 501,654 Financing charges, net (1,152,581) (149,738) Profit before other income 1,415,323 429,359 Other income, net 74,302 154,072 Profit before taxation 1,489,625 583,431 Taxation 129,303 18,943 Net income before outside interests 1,360,322 564,488 Outside interests (1,242,928) 9,964 Net income for the period 117,394 574,452 Retained earnings Beginning of period 2,084,449 1,577,210 Dividends paid - (205,405) End of period 2,201,843 1,946,257 ========== ========= METRO PACIFIC CORPORATION CONSOLIDATED BALANCE SHEETS (Unaudited) As at 30 June 31 December 30 June (In thousands) 1998 1997 1997 ASSETS Current assets Cash and cash equivalents 5,122,821 5,991,698 8,663,932 Receivables 7,888,753 8,620,656 2,595,862 Due from affiliated companies 584,708 856,713 513,293 Inventories 1,848,462 1,845,494 847,928 Development properties held for sale 4,819,484 2,904,488 9,472,418 Prepayments and other current assets 3,765,691 2,511,431 2,555,240 Deferred income tax asset 133,147 539,031 707,342 Total current assets 24,163,066 23,269,511 25,356,015 Long-term receivables 9,874,239 9,343,007 3,976,218 Investments in affiliated companies 3,541,755 3,043,227 4,604,432 Development properties 67,727,276 67,504,027 54,644,343 Property, plant and equipment 31,758,299 24,988,620 3,166,050 Goodwill 13,176 170,021 177,365 Other assets 7,435,042 7,506,601 4,279,953 Total assets 144,512,853 135,825,014 96,204,376 ========== ========== ========== LIABILITIES AND EQUITY Current liabilities Loans and notes payable 13,419,896 10,249,553 9,591,228 Current portion of long-term debts 1,871,384 884,048 94,349 Current portion of long-term liabilities and provisions 1,430,420 4,420,949 5,140,000 Accounts payable and accrued expenses 7,299,998 6,307,087 6,619,178 Income tax payable 5,596 1,252,712 1,398,525 Total current liabilities 24,027,294 23,114,349 22,843,280 Long-term debts 25,499,982 32,972,678 12,897,415 Long-term liabilities and provisions 24,424,403 24,317,947 6,377,871 Equity Stockholders' equity Capital stock 4,707,460 4,570,121 3,427,161 Additional paid-in capital 6,653,342 5,968,777 5,901,509 Deposit on stock subscriptions 14,000,000 823,283 819,426 Retained earnings 2,201,843 2,084,449 1,946,258 Outside interests 42,998,529 41,973,410 41,991,458 Total equity 70,561,174 55,420,040 54,085,810 Total liabilities and equity 144,512,853 135,825,014 96,204,376 ========== ========== ==========