PSE Circular for Brokers No. 2227-99

September 7, 1999 PSE CIRCULAR FOR BROKERS NO. 2227-99 Clarification or Explanation on the News Item which (illegible portion in Philippine Stock Exchange file) Gokongwei Losing Interest in Sugar Produce (illegible portion in Philippine Stock Exchange file) The financial difficulties of Victorias Milling Company, Inc. (VMC or the Company) blew up a February/March 1997 at the time VMC defaulted in servicing its maturing debt obligations with 32 banks whose loan exposure to VMC aggregated to around Php3.4 billion. In July 1997, the Company filed with the Securities and Exchange Commission (SEC) a "Suspension of Payment" for which the SEC issued a stay order restraining all creditors from enforcing their claims against the Company and allowing the Company to continue its business operations. In a later Order of August 1997, the SEC ordered the constitution of the Management Committee (Mancom) to oversee the Company's operation and rehabilitation. As mandated, the Mancom along with the VMC Management and Bankers Trust, the Financial Advisor, jointly developed the Rehabilitation Plan (Rehab Plan) for the Company. The issue of raising the fresh equity cash infusion took some time to resolve. The Mancom held the view that the infusion should be carried out through an out-right bidding by strategic investors while the VMC Management and Board of Directors maintained that the existing stockholders of the Company should be given the first crack through the exercise of their pre-emptive rights. On August 17, 1999, the SEC issued a modified Order, on the basis of a joint motion filed by the Mancom, and VMC Management and Board of Directors, under which, the Rehab Plan was approved and the implementation of the stockholders "Subscription Rights Offering" to raise the required fresh equity cash infusion. The work required to be carried out on the stockholder's Subscription Rights Offering is now underway. During the time that the Rehab Plan was being developed, the new Management of the Company, carried out the continuous operations of the Company. Among the initial steps it took was to concentrate its operations on the Company's core business which is that of producing sugar (milling and refining). Assets not related to the core business or non-performing were disposed to raise much needed funds. Non-core businesses was discontinued and/or spun off. For example, third parties were allowed to operate such non-core business as farming, swine, cattle, organic fertilizer, cutflower, agricultural engineering and shipping operations. The thrust of engineering services have been changed to focus more on servicing the Company's requirement. The schools (Don Bosco Technical Institute and Saint Mary Mazzerello School) were spun off since July 1998. Under the new management, the Company begun implementing certain key components of the Rehab Plan such as streamlining of manpower complement through retrenchment and staff training and undertaking upgrading of existing facilities. The adoption of the (illegible portion in Philippine Stock Exchange file) The Company' s operations have considerably improved since the New Management took over. While still showing losses, the level of losses has been reducing. From the and loss in fiscal year ended August 31, 1997 of Php2,050 million, the net loss was reduced to Php903 million the following fiscal year ended August 21, 1998 and P351 million in the first nine months (ended May 31, 1999) of the fiscal year ended August 31, 1999. The final net loss for the fiscal year is expected to be higher than Php351 million but definitely better than that of FY 1997/98. The performance of the sugar operations under the new Management has shown encouraging improvement. Based on sugar recovered in terms of 50-lb. bags (Lkg) per tonne of cane (TC) milled, the Company's mill yield of 1.58 Lkg/TC in fiscal year 1996/97 improved to 1.88 Lkg/TC in FY 1997/98 and 1.61 Lkg/TC in FY 1998/99. The drop in Lkg/TC in FY 1998-99 is attributed to the unusually high rainfall during the fiscal years on account of the La Nia phenomenon. The Company's performance during the last two fiscal years places it on top of the list of all mills in Negros Occidental Province. By comparison with other mills in the province, the next higher Lkg/TC was 1.74 in FY 1997/98 and 1.53 in FY 1998/99. During the last two years, the Company, with its impressive performance has regained the trust and confidence of the planters. There are more planters milling their canes with the Company now than ever before essentially to take advantage of the mill performance. The district planters who had milled with other millers in the past because of the distrust with the previous VMC management, have returned to the Company. The number of and the volume of canes from non-district planters milling with the Company have been increasing; some of them have never milled with the Company before. The Company's plans for the ensuing years include further, among others, improvements in the mill with the objective of balancing the process to increase milling capacity from the 12,000 metric tonne (MT) to 16,000 MT per day of canes crushed consistent with the campaign of assisting planters improve their farm productivity and cane deliveries. The Company will continuously maintain its ISO 9002 accreditation which is expected to be recluse shortly, a step towards our objective of being globally competitive in the new term. The Company will sustain its program to improve efficiency, increase revenue and cut cost, thus ultimately improving financial performance and soundness. cdlex