PSE Circular for Brokers No. 2322-99

September 16, 1999 PSE CIRCULAR FOR BROKERS NO. 2322-99 Clarification or Explanation on the News Item which Appeared in the Business World issue of September 3 and 8, 1999 captioned "Gokongwei Losing Interest in Sugar Producer Victorias" and "VMC wants to Spread Out Investors Interest in Company", respectively 1. Victorias Milling Company, Inc. (VMC or the Company) suffered financial difficulties which blew up in February/March 1997 when it 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 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 the later Order of August 1997, the SEC constituted the Management Committee (Mancom) to oversee the VMC operation and rehabilitation. prcd 2. As mandated, the Mancom, along with the VMC Management and Bankers Trust, the Financial Advisor, jointly developed the Rehabilitation Plan (Rehab Plan) for VMC. A component of the Rehab Plan pertaining to the issue of raising the fresh equity cash infusion took some time to resolve. The Mancom stood for an outright bidding by strategic investors while the VMC Management and Board of Directors maintained that the existing stockholders' should exercise their pre-emptive rights. On August 17, 1999, the SEC issued a modified Order, on the basis of a joint motion filed by the Mancon, and VMC Management and Board of Directors, approving the Rehab Plan and implementing the stockholders "Subscription Rights Offering" to raise the required fresh equity cash infusion of Php567 million by November 5, 1999, failing which the entire Php567 million will be offered for bidding. Accordingly, stockholders or assignees will be refunded of their subscription payments. LibLex 3. Not all shareholders will participate in the subscription rights offering. The VMC Management therefore, intends to tap three to four new investors to take-up the shortfall to complete the required Php567 million fresh capital infusion. 4. It was mention in the print that some companies such as JG Summit Holding of businessman John Gokongwei Jr.; sugar distributor Noah's Ark; Conjuangco-led Central Azucarera de Tarlac; and the Central Azucarera de Don Pedro of the Roxas family have expressed interest in VMC. None of these companies have, however, formally approached VMC. The companies may either participate in taking up the short fall or in the bidding. 5. The work required to carry out on the stockholder's Subscription Rights Offering is now underway. 6. The new Management has carried out the continuous operations of VMC. Among initial steps it took was to concentrate VMC's operations on its core business, that of producing sugar (milling and refining). LexLib 7. Assets not related to the core business or non-performing were disposed to raise much needed funds. Non-core businesses were 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 has 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. 8. VMC begun implementing certain key components of the Rehab Plan. Upgrading of existing facilities is being undertaken; streamlining of manpower complement is being implemented through retrenchment and staff training; and "Clean Cane" campaign has been introduced to improve cane quality and enhanced sugar recovery. These efforts were carried out through internally generated funds, as the Company had no access to credits. 9. Under the new Management, the VMC's operations considerably improved. While still showing losses, the level has been decreasing. From the net loss of Php2,050 million in fiscal year ended August 31, 1997, the net loss was reduced to Php903 million the following year ended August 31, 1998. Net loss was Php351 million in the first nine-months ended May 31, 1999; and projected to be around Php570 million subject to final audit, for the fiscal year ended August 31, 1999. 10. The performance of the sugar operations has shown encouraging improvements. Based on sugar recovery in terms of 50-lb. bags (Lkg) per tonne of cane (TC) milled, VMC'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 year on account of the La Nia phenomenon. VMC'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 performance of the next highest mill was 1.74 Lkg/TC in FY 1997/98 and 1.53 in FY 1998/99. 11. VMC with its impressive performance, has regained the trust and confidence of the planters. There are more planters milling their canes with VMC 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 their distrust with the previous VMC management, have returned to VMC. The number of non-district planters milling with VMC and the volume of their canes have been increasing; some of them have never milled with the VMC before. 12. VMC's plans for the ensuing years includes, among others, further 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. VMC will continue to maintain its efforts to improve mill efficiency consistent with its ISO 9002 accreditation expected to be released shortly, a step towards its long term objective of being globally competitive. VMC's sustained program to improve efficiency is expected to increase revenue and cut cost, and thus continuously improve the Company's overall performance and strengthen its financial stability. aisadc SIGNATURES Pursuant to the requirements of the Revised Securities Act, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. VICTORIAS MILLING COMPANY, INC. Registrant (SGD.) ROMEO L. HERMOSO Chief Financial Officer