PSE Circular for Brokers No. 345-99

February 25, 1999 PSE CIRCULAR FOR BROKERS NO. 345-99 NOTICE OF ANNUAL STOCKHOLDERS' MEETING Earnings Up 9% to P330MM 4Q98 Review . Revenues in 4Q98 were up 45% to P809MM from P558MM in 4Q97 due to the improvement in volumes for both liquid and powdered milk products. Sales volume for liquid and powdered milk grew 2% and 42%, respectively. Cost of sales and operating expenses increased 41% to P735MM from P521MM in 4Q97 due in part to the increase in selling and administrative expenses relative to the absorption of the sales force of ATCI. Furthermore, the higher average foreign exchange rate increased SMP costs despite the continued downtrend in SMP prices. Operating margin for 4Q98 improved to 9% versus 6% in 1997, boosting operating income to P74MM in 4Q98 from P36MM in 4Q97. Income before tax earned P90MM, up 38% from 4Q97's P65MM. Net income for the quarter amounted to P64MM, 30% higher than the P49MM posted in the same period last year. LexLib 1998 Review . Revenues increased 21% to P2.87B from P2.38B last year. Higher selling price across all product lines boosted 1998 revenues. Correspondingly, cost of sales and operating expenses increased to P2.49B, up 22% from P2.04B in 1997. Operating income reached P388MM in 1998, higher by 15% from P337MM in 1997. However, due to higher average Peso SMP costs, coupled with increased selling and distribution expenses, operating margins dropped slightly to 13.5% in 1998 from 14.2% in 1997. Interest income increased from P69MM to P71MM, putting income before tax at P466MM. Unaudited net income for the year amounted to P330MM, up to 9% from the P303MM net income posted in 1997. Summary of Results : Sales Volume . Liquid and powdered milk volumes in 1H98 were higher than 1H97 by 4% and 18% respectively. Volumes declined in 3Q98 as selling and distribution operations ceased for two weeks in August to give way to the due diligence and audit conducted on ATCI. In October, a flood in the San Pedro plant caused a 3-week cessation of liquid milk production operations. Despite this, liquid milk volume grew by 29, in 4Q98 vs. 4Q97. However, 4Q98 growth was not enough to offset lower 3Q98 liquid milk volumes. As a result, total 1998 volume for liquid milk dropped 9% from 1997. Except for 3Q98, powdered milk enjoyed strong volumes in 1998, up by 10% from 1997 total volumes. LLpr 1998 Unaudited Year-End Financial Results (in P MM) 1998 1997 %Inc(Dec) Net Sales P2,874 P2,377 21% Operating Income 388 337 15% Net Income 330 303 9% Total Assets 2,403 1,976 22% Stockholders' Equity 1,916 1,625 18% Ratios: Earnings Per Share P0.35 P0.32 9% Operating Margin % 13.5% 14.2% Return on Sales % 11.5% 12.7% Return on Equity % 17.2% 18.6% Current Ratio 4.2x 4.8x Debt to Equity Ratio 0.2x 0.2x OUTLOOK VOLUME GROWTH . Strong volume growth is projected for all products lines as more improvements are made in the distribution of products by way of better coverage and service to retail outlets as well as key customer accounts in the retail trade. SMP PRICES . The average SMP cost for 1Q98 may fall below 1998 levels. AMC's SMP requirements are covered until June 1999. International market prices are currently at the US$1,500 level. aisadc MARKETING PROGRAMS . Two new versions of a tri-media campaign showcasing Team Alaska's newest endorser for liquid milk, Ms. Sharon Cuneta, will be launched in 1Q99. Ms. Cuneta will also be sporting a "milk mustache" in a new print and under the company's ongoing "Drink Your Milk" campaign. Sales Revenue . 1998 revenues were up 21% to P2.87B from P2.38B in 1997. Revenue growth was spurred by the full impact of the September 1997 and January 1998 price increases, as well as the strong volume growth for powdered milk Liquid and powdered milk revenues in 1998 grew 7% and 39%, respectively y-o-y. Revenues from L HT products, however, fell 48% as price increases effected earlier dampened demand. Combined revenues from Nabisco & Quaker contributed 8% of total 1998 revenues. Operating Costs . Cost of sales and operating expenses in 1998 were up 22% to P2.49B from 1997's P2.0B. This is due to the higher average foreign exchange cost of SMP over the year which raised the peso cost of SMP by 22% despite the decline in CLF prices to an average of US$1,700MT from US$1,875/MT last year. An n-crease in administrative and selling expenses relative to the assumption of distribution operations which is offset by the absence of a distribution margin, pushed up operating expanses. Higher selling prices due to the elimination of the distribution's margin, however, kept gross and operating margins stable during the year. cdlex Interest Income . 1998 interest income from placements increased 3% of P71MM from P69MM in 1997. The average net yield on placements in 1998 was at 12.6% vs. 12.1% in 1994 AMC's cash position as of end December amounted to P733MM. Net Income . Unaudited net income grew 9% in 1998 to P330MM from P303MM in 1997. This translates to an EPS of P0.35.