PSE Circular for Brokers No. 335-99

February 24, 1999 PSE CIRCULAR FOR BROKERS NO. 335-99 SECURITIES AND EXCHANGE COMMISSION SEC FORM 11-C CURRENT REPORT UNDER SECTION 11 OF THE REVISED SECURITIES ACT (RSA) AND RSA RULE 11 (a)-1 (b)(3) THEREUNDER 1. 23 February 1999 Date of Report (Date of earliest event reported) 2. SEC Identification Number: 1275 3. BIR Tax Identification No. 000-199-315 4. NEGROS NAVIGATION COMPANY, INC. Exact name of registrant as specified in its charter 5. Metro Manila, Philippines Province, country or other jurisdiction of incorporation 6. (SEC Use Only) Industry Classification Code: 7. 33/F Rufino Pacific Tower, 6784 Ayala Ave. Cor. Hererra St., Makati City, Metro Manila 1200 Address of Principal Office Postal Code 8. (632) 811-0115 to 16 Registrant's telephone number, including area code 9. 21/F Far East Bank Center, Sen Gil J. Puyat Ave., Makati City, Metro Manila Former name or former address, if changed since last report 10. Securities registered pursuant to Sections 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock Outstanding and Amount of Debt Outstanding common stock 723,843,750 11. Indicate the item numbers reported herein: Item No. 9 Please see Press Release attached PRESS RELEASE 23rd February 1999 1998 CONSOLIDATED RESULTS FOR NEGROS NAVIGATION CO . INC . Negros Navigation Co. Inc. ("the Company") and its subsidiary companies ("the Group") announced today that their consolidated loss before financing charges, exceptional items, and taxation for the year ended 31st December 1998 amounted to P95 million compared with a loss of P114 million (restated) for last year. aisadc There were two major changes in the Group's corporate structure during the year. Firstly, in September, the Company divested its interest in an affiliated company, TA Bank at book value. Latterly, in October, the Company completed the merger of its fast ferry business with that of Aboitiz Parkview Transport Holdings Inc ("APTH"), to form the Philippine Fast Ferry Holdings Corporation ("PFFHC"), in which the Company has a 50% equity interest. The Group has reduced its overall indebtedness to banks by 43%, principally through cash injections totaling P2,279 million from its new parent company, Metro Pacific Corporation("MPC"). The initial P900 million took the form of a subscription deposit for 900 million new ordinary shares to be issued at their par value of one Peso, while a further P1,150 million took the form of a subscription deposit for new preferred shares. The Group's short-term bank borrowings fell by 81% to P450 million by renegotiating and rescheduling short-term bank loans into five-year loans at reduced interest rates. Simultaneously, related foreign currency denominated loans were converted into Peso loans. LexLib Consolidated income statement Revenues increased to P2,125 million (1997: P1,778 million restated) for the year reflecting a healthy 20% increase over 1997. Freight revenues grew over 10% while passage revenue growth exceeded 25%. The passage market enjoyed a modest increase in fares in the fourth quarter while freight market rates were contained at 1997 levels. Consequently, revenue growth was principally attributable to volume increases as the Company increased its market share over its competitors. Cost of sales and expenses increased to P2,220 million (1997: P1,892 million restated), reflecting increases in the cost of imported fuel, vessel spare parts, and cargo handling equipment. Additional terminal operating costs were incurred to support the higher volume of freight handling, and the new branches opened in 1997. Vessel and terminal repair and maintenance work, deferred from 1997, has also increased costs significantly this year compared with last. Financing charges rose from P647 million (restated) in 1997 to P691 million as a direct result of significantly increased interest rates and the Peso depreciation against the U.S. dollar. However, the average cost of funds by year-end had fallen to approximately 17% per annum. The consolidated income statement for 1997 was restated for certain accounting errors, the effect of which was to increase the 1997 net loss for the year from P 153 million to P941 million. Further details are set out in note 9 to the consolidated financial statements. cdlex Consolidated balance sheet Total equity, including minority interests, in the consolidated balance sheet rose to P1,914 million as at 31st December 1998 from P687 million (restated) as at 31st December 1997. The deposits on subscription by PC for new ordinary and preferred shares in an amount of P2,050 million was offset by the retained loss for the year of P821 million. The Company made significant progress in reducing consolidated bank indebtedness which fell by 43% to P2,531 million through the de-consolidation of the Sea Angels fast ferries subsidiary, the divestment of TEA. Bank, and subscription deposits from MPC. Short-term bank borrowings were-reduced by 81% to P450 million through the rescheduling of short-term borrowings into long-term loans. The net effect of these achievements has been to reduce the ratio of debt to equity from 7.9 times (restated) to 1.9 times over the year. LLpr Certain charges related to prior years, totaling P1,105 million, were made directly against retained earnings during the period. Further details of these adjustments are set out in note 9 to the financial statements. Consolidated statement of cash-flows A P95 million cash-flow deficit for the year arose, principally as the P2,279 million capital and advances infused by MPC were used in retiring bank borrowings, meeting operating cashflow requirements, investing in the new affiliate, PFFHC, and in the rehabilitation of vessels and other equipment. Proceeds of P263 million from the sale of an affiliate, T.A. Bank, were applied against bank debt. Cdphil Additional working capital requirements were minimized as savings achieved from improved inventory management were partly applied against accrued bank interest payable. The increase in trade receivables was fuelled by the improved freight business combined with a tightening in bank lending which adversely affected customers' liquidity. Financing activities were predominantly related to the rescheduling of the Company's short-term debts, and the capital and loan financing provided by MPC for working capital requirements and the new investment in PFFHC. cdll Operational review Over 1997, the Company has continued to increase its freight and passenger volumes in what has been a relatively static market. However, the improvement of terminal facilities and the increased cost of imported materials resulted in a disproportionate increase in vessel and terminal operating costs. In light of the difficult market conditions, the Company is undergoing a period of consolidation, focusing on improving the profitability of its existing vessel routes, together with an overhead cost reduction exercise. In August, the Company started plying a new route between Manila and Cebu on a twice-weekly basis. The vessel servicing the new route was made available by re-routing and re-scheduling other vessels to improve the overall fleet utilization and to contain incremental operating costs to a minimum. Despite the difficult conditions, management maintain an optimistic outlook for 1999. The renovation of the new flagship vessel acquired in early 1997, the M/V Mary Queen of Peace, was completed by year-end and the vessel entered service in early January 1999. Operational review (continued) With effect from 1st September, the Company's fast ferry business for passenger travel merged with APTH, owner of the fast ferry operator with the Supercat brand name. It is expected that the newly combined entity, PFFHC, will achieve significant rationalization benefits on routes and on overhead costs which will enable it to operate more profitably in an increasingly competitive market environment. With a fleet of twelve vessels valued at P1.7 billion, the new entity is the largest fast ferry operator in the country. LLcd Nenaco Sales Corporation ("NSC"), the Company's land transportation subsidiary, benefited from increased freight volumes, much of which was referred to it from the Company. However, competitive pricing has cut NSC's gross margins and reduced its overall profitability. NN Tours, the Company's tour operator, suffered from the decline in tourist business in the Western Visayas region and underwent a rationalization program that has curtailed its operations but improved profitability. LexLib Forecast Operating conditions in the Group's core inter-island passenger and freight transportation market have been relatively stable as it belongs to the "basic need" sector where we do not foresee any significant contraction in the overall market. It is anticipated that the intense price competition between the inter-island passenger shipping operators during the past two years will ease to a level that can accommodate the increases in operating costs, particularly in relation to imported fuel and vessel spare parts, which have occurred over that period. The difficult conditions in the financial markets are easing but continue to have. an adverse affect on all of the companies in the Group due to increased borrowing costs and the restriction in bank lending. However, the Group's financing costs have fallen following the re-negotiation and rescheduling of bank debt in the fast quarter and the continuing decline in interest rates. For further information, please contact: Negros Navigation Co. Inc. Daniel L. Lacson (Chairman and CEO) Tel: 034 434 5333 Robin M Arrowsmith (Director and Chief Financial Adviser) Tel: 034 433 4949 Metro Pacific Corporation Cora P. Guidote (GVP Corporate Communications and Tel: 02 811 0367 Investor Relations) 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. cdt NEGROS NAVIGATION CO., INC. By: (SGD.) ROBIN M. ARROWSMITH Director/Chief Financial Adviser