Steniel Announces 1997 Results

February 27, 1998 PSE CIRCULAR FOR BROKERS NO. 229-98 STENIEL ANNOUNCES 1997 RESULTS Steniel Manufacturing Corporation ("Steniel") today announced a consolidated net loss for the year ended 31 December 1997 of Pesos 396 million, compared with a net loss of Pesos 246 million for last year. The Steniel Group's results for 1997 were affected adversely by the challenging market conditions in the Philippines and, in particular, the depreciation of the Peso, the escalation in interest rates, and reduced economic growth. In addition, further restructuring charges were recorded during the year in connection with the closure of the corrugated plant in Cainta, and the resultant transfer of production to Cavite and other locations. The Group's loss for 1997 would have been only Pesos 99 million were these exchange losses and other restructuring costs not to have been incurred. LLjur Financial review Revenues increased by 3 per cent to Pesos 2,535 million in 1997 from Pesos 2,457 million in 1996, principally as a result of growth in the flexible packaging operations. The consolidated gross profit improved from Pesos 286 million in 1996 to Pesos 335 million for the current year, while income from operations increased from Pesos 1 million in 1996 to Pesos 36 million in 1997. These increases were due primarily to improvements in production efficiencies throughout the Group, and particularly in the Luzon corrugated operations and the flexible packaging business. Significant accomplishments were made in the corrugated carton division, which continued its restructuring during the year through the closure of the old plant in Cainta, as announced in 1996, and the resultant consolidation of the Luzon operation in the modern Cavite facility. The closure was successfully accomplished without labor unrest, and the division now operates three facilities in Cavite, Cebu, and Cagayan de Oro. By redistributing equipment amongst the three locations, the division has ensured that it is able to maintain its leadership position in terms of production capacity, geographical coverage and customer service. In flexible packaging, Starpack Philippines Corporation ("Starpack") formerly AR Packaging Corporation had also overcome its problems in 1996. To return the company to profitability, the management team was reinforced at the beginning of the year through certain new senior appointments. All aspects of the production processes were then reviewed to instill greater discipline and to-recapture the company's traditional efficiencies and quality, supported by the advanced technology provided by VAW Europack. These efforts were coordinated with both customers and suppliers to further develop their confidence and loyalty as Starpack's business partners. As a consequence, Starpack was able to report a significant improvement in its operating performance in 1997 compared with 1996. Metroplas Packaging Products Corporation has operated in a niche market in the manufacture of rigid plastic containers, and has demonstrated improvements over the last two years. The company again reported a modest operating profit in 1997 through stringent cost control measures and greater production efficiencies. As a result of the high interest rate environment, the Group's financing charges for 1997 increased to Pesos 193 million from Pesos 156 million; foreign exchange losses for the year amounted to Pesos 283 million, of which only Pesos 47 million were realized in the year and Pesos 236 million were unrealized provisions. Restructuring costs of Pesos 14 million were also incurred in 1997 and are not expected to recur in subsequent periods. As a result of the effect of these additional costs, the Group was unable to achieve a complete turnaround of all its operating units in 1997. However, the improvements made in the operating performance by all Group companies, particularly towards the end of the year, support the strategy adopted in restructuring the Group. A sound platform has now been created for the Group to capitalize on its inherent strengths as the market leader, and to benefit from future improvements in the economy. Total assets in the consolidated balance sheet increased to Pesos 3.7 billion as of 31 December 1997 compared with Pesos 3.3 billion at the end of 1996. Total consolidated equity increased from Pesos 1,225 million at 31 December 1996 to Pesos 1,245 million as of 31 December 1997. LLjur Summary and prospects Commenting on the results, Augie Palisoc, Jr., President and Chief Executive Officer of Steniel, stated that: "The management team extended significant efforts during the year to restructure and improve the operations. There have been many important accomplishments, including the successful consolidation of the Luzon corrugated operations and improvements in production efficiencies throughout the entire Group. In light of the challenging market conditions, principally the depreciation of the Peso and high interest rates, a loss was incurred in 1997. The structural changes implemented during the year, however, have been part of a strategy designed to return the Group to profitability at an early stage. Whilst the difficulties in 1997 have delayed the turnaround, the Group entered 1998 as the market leader, with an increasing level of orders, and operations that have been stabilized. As a consequence, we believe that the future prospects remain promising for the Group overall."