Metro Pacific Corporation Announces 16 Per Cent Decrease in Net Income and 539 Per Cent Increase in Total Assets

February 27, 1998 PSE CIRCULAR FOR BROKERS NO. 228-98 METRO PACIFIC CORPORATION ANNOUNCES 16 PER CENT DECREASE IN NET INCOME AND 539 PER CENT INCREASE IN TOTAL ASSETS Metro Pacific Corporation ("Metro Pacific") today announced that its consolidated net income for the year ended 31 December 1997 reached Pesos 712 million, a decrease of 16 per cent from its net income of Pesos 844 million for last year. Metro Pacific's net income for the year was affected adversely by exchange losses relating to certain foreign currency denominated working capital lines within the Group. The Group's net income for 1997 would have been approximately Pesos 418 million higher were exchange losses not to have arisen. The foreign exchange losses were offset, however, by gains during the year relating to the disposal of Philippine Cocoa Corporation, the gains in dilution resulting from the conversion into equity of certain bonds issued by Smart and other equity issues by subsidiary companies. Revenues increased by 88 per cent to Pesos 9.3 billion in 1997 from Pesos 4.9 billion in 1996. Operating profit grew from Pesos 265 million in 1996 to Pesos 1,757 million for the current year, an increase of 564 per cent; profit before other income increased by 300 per cent from Pesos 523 million in 1996 to Pesos 2,091 million. These increases were due primarily to the consolidation in 1997, and the continued success, of Fort Bonifacio and Smart Communications, Inc. ("Smart"). Basic earnings per share for the period decreased from 19.17 centavos in 1996 to 15.31 centavos in 1997, a decline of 20 per cent. Excluding foreign exchange losses, however, basic earnings per share increased to 28.09 centavos per share, representing a growth of 46 per cent over 1996. Balance sheet Total assets in Metro Pacific's consolidated balance sheet increased to Pesos 135.8 billion as of 31 December 1997 from Pesos 21.4 billion at the end of 1996, principally as a result of the acquisitions in June and September 1997 of additional interests in Bonifacio Land Corporation ("BLC") and Smart, respectively. These acquisitions increased Metro Pacific's total aggregate equity interest in BLC to approximately 60 per cent and Smart to approximately 52 per cent, resulting in their consolidation in the Group accounts for the respective periods of the year. Consolidated equity increased from Pesos 11.8 billion as at 31 December 1996 to Pesos 55.4 billion as of 31 December 1997. Improvements were also reported in the current ratio, which increased from 0.94 at year-end 1996 to 1.0 as of year-end 1997. The Group also had cash and cash equivalents of Pesos 6.0 billion at the end of 1997. Total debt to equity reached 1.45 following the consolidation of the liabilities relating to BLC and Smart. To reduce gearing, Metro Pacific has announced a rights issue to raise Pesos 14 billion in the first semester of 1998. Had the rights issue been realized as of 31 December 1997, the ratio of total debt to equity would have been 0.96. Review of operations Property Development : Fort Bonifacio Development Corporation, BLC's subsidiary, continued its strong performance and reported net income after tax of Pesos 3.3 billion for 1997, compared with Pesos 1.1 billion in 1996. In respect of the initial sales of land in 1996, which generated total receivables of approximately Pesos 28 billion, Pesos 14.3 billion was collected from buyers in cash during the year and a further Pesos 11 billion is scheduled to be received over future periods. The development of key infrastructure projects and the formation of new ventures to support the future city were also pursued during 1997. This development schedule will continue in 1998 to ensure that FBDC is able to deliver the infrastructure necessary for the initial residents and to satisfy its commitments under the joint venture agreement. The Group's residential development, Pacific Plaza Towers located in Bonifacio Global City has also made considerable progress during the year. The License to Sell was received from the Housing and Land Use Regulatory Board ("HLURB") and Contracts to Sell were completed with buyers in the first semester of 1997. The foundations are currently being completed and the main construction contract was awarded to SAE International Inc. and EEI Construction Corp. in the second semester of the year. Reservations continue to be made for the 393 units, and the market has evidenced strong acceptance of this prestigious development. Landco Pacific Corporation ("Landco") Metro Pacific's 40 per cent affiliate continued with the development of its various real estate projects, all of which are located outside Metro Manila. Through the careful selection of sites, thorough master planning for each of the developments and innovative marketing, Landco has created an excellent reputation for its residential and resort subdivisions. Landco has also progressively extended its portfolio of projects to include memorial parks, golf clubs and courses, and shopping centers, and is increasingly becoming a diversified property development company. Notwithstanding market conditions, Landco was able to maintain its level of income compared with 1996. Telecommunications : Smart had an outstandingly successful year by achieving its aim in early 1997 of becoming the largest cellular operator in the Philippines. Prodigious growth continued throughout the year, and Smart had approximately 620,000 cellular subscribers by the end of the 1997, with its closest-competitor reporting less than 320,000 subscribers. Smart also pursued aggressively the development of its fixed line network and reported an installed capacity of over 180,000 lines by the end of 1997, with approximately 85,000 subscribers. This consistent growth in Smart's customer base was achieved while management continued to exercise stringent credit policies, designed to reduce cloning and fraud problems, and to demonstrate prudent financial and operating policies. As a consequence, Smart reported net income of approximately Pesos 411 million for the year ended 31 December 1997, compared with Pesos 255 in 1996. Strong growth is expected for Smart in 1998, as the rewards of being the largest cellular operator are increasingly experienced, and its fixed line network and International Gateway Facility provide improved returns. LLjur 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 Kaufmann" soap, "Wilkins Distilled Drinking Water", the leading packaged drinking water in the Philippines, "All Pro", "Riunite Wine", "Softee", "Gem" and "Jolly". Packaging : The Steniel Manufacturing Corporation group is the leading corrugated box and flexible packaging manufacturer in the Philippines, and also produces rigid plastic containers. The corrugated carton division obtained improvements in operating efficiencies at its new Cavite plant during the year; however, the division was affected adversely by foreign exchange losses and higher interest charges. Starpack Philippines Corporation (formerly AR Packaging Corporation), the flexible packaging company in the group, reported significantly higher sales in 1997 compared with last year and increased its operating margin, but was also affected by exchange losses resulting from the depreciation of the Peso. Banking : PDCP Development Bank, Inc. continued to strengthen the platform for its operations through an increased focus on its branches, further reductions in its operating expenses and a planned expansion of its loan portfolio with an emphasis on high quality borrowers. The consolidation of the First Bank branches acquired in 1996, however, continued to affect adversely the operations, and net income for 1997 was reduced significantly from the previous year. Summary and prospects Commenting on the results, Mr. Napoleon L. Nazareno, President and Chief Executive Officer of Metro Pacific, stated that: "Notwithstanding the progressively difficult operating conditions, significant achievements have been made by the Metro Pacific Group during 1997. The strategy to acquire additional interests in Bonifacio Land Corporation and Smart, and their resultant consolidation in the Group accounts in 1997, has enabled us to create a more substantial platform for each business line, and for the Group as a whole. This will provide greater stability in these challenging times by creating more diversified sources of income and cash flows for Metro Pacific. All the Group companies have responded quickly and effectively to the changing economic environment resulting from the depreciation of the Peso and the high interest rates. These factors have naturally affected the performance of the Group for 1997, however, and consolidated net income reduced slightly compared with the prior year. Management expects that conditions will remain difficult in 1998, and that the Group's results will therefore continue to be affected by the relative weakness in the market and high interest rates. In the medium term, improvements are expected to occur as a result of the inherent strengths and advantages of the Philippines. The Metro Pacific Group is also well positioned to benefit from such changes in view of its highly successful investments in key sectors of the economy. Management remains confident that the strategies that have been developed over recent years for the Metro Pacific Group will result in significant improvements in earnings in the medium term."