PSE Circular for Brokers No. 508-00

February 29, 2000 PSE CIRCULAR FOR BROKERS NO. 508-00 February 28, 2000 1999 CONSOLIDATED RESULTS FOR NEGROS NAVIGATION CO., IN C. 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 1999 amounted to P135 million compared with a loss of P107 million (restated) for last year. llcd There were no major changes in the Group's corporate structure during the year. However, the Company closed its conventional ferry business line in the third quarter incurring closure costs of P106 million from the disposal and write down respectively of the two remaining ferry vessels. The Company's interest in the ferry business is now limited to fast ferries through its 50% interest in the affiliate, Philippine Fast Ferry Holdings Corporation ("PFFHC"). The Group has reduced its overall indebtedness to banks and other financial institutions by 56% to P1,112 million. This was achieved through a long term loan of P1,514 million from the parent company, Metro Pacific Corporation ("MPC"). Consolidated income statement Consolidated revenue for the year fell marginally to P2,003 million (1998:P2,073 million) together with consolidated operating costs and overhead expenses at P2,138 million (1998 P2,181 million restated). This reflected growth in the Company's coastwise passage revenue and an increase in fuel cost, offset by the de-consolidation of revenues and costs attributable to the fast ferry subsidiary that became an affiliate in September 1998. The Company's revenue fell 4% to P1,890 million (1998:P1,972 million) as charter-hire revenues of P281 million and costs of P308 million related to the fast ferry business in 1998, did not recur in 1999. The Company's recurring coastwise revenue rose 12% to P1,890 million (1998:P1,691 million) representing a 24% growth in coastwise passage revenue to P1,167 million (1998:P944 million), and a 3% contraction in coastwise freight and other revenue to P723 million (1998:P747 million). The Company's operating and overhead expenses fell 4% to P2,059 million (1998:P2,141 million) due to the 1998 fast ferry expenses of P308 million which did not recur in 1999. Recurring costs rose 12% over 1998 overall, principally due to fuel price-increases in the last quarter, while other operating costs were contained at near 1998 levels as a result of various cost-cutting initiatives. Consolidated other charges principally represented the Company's financing costs which fell to P385 million (1998:P675 million) on the back of reduced interest rates as the average cost of funds by year-end fell to 11 % per annum from 17% per annum a year earlier. Furthermore, debt was reduced at the end of 1998 with proceeds from the P1,151 million deposit for preferred shares received from MPC. The losses from discontinued operations and the loss on closure of a business line arose from the Company ceasing its conventional ferry business in the last quarter of the year. The extraordinary loss arose from the accidental fire that destroyed one of the Company's coastwise RORO vessels while in port in January 1999. Consolidated balance sheet Total equity, including minority interests, in the consolidated balance sheet fell to P1,046 million as at 31st December 1999, principally due to the loss incurred for the year of P778 million. The Company made significant progress in reducing consolidated indebtedness to banks and other financial institutions which fell by 56% to P1,112 million. Short-term bank borrowings were reduced by 79% to P96 million by re-scheduling facilities into long-term loans. The parent company advanced a long-term loan of P1.5 billion during the year to reduce long-term bank borrowing to a more serviceable level. The net effect of these actions has been to reduce the ratio of debt to equity, excluding borrowings from the parent company, from 1.9 times to 1.7 times over the year. Consolidated statement of cash-flows An P11 million cash-flow deficit arose for the year overall as financing was raised to meet operating cash requirements. Net cash used in operating activities of P320 million related principally to interest payments on debt servicing. Cashflows used in investing activities related to coastwise vessel rehabilitation and advances to the fast ferry affiliate, PFFC, also for debt servicing. This was marginally offset with proceeds from the disposal of a ferry vessel and a coastwise vessel during the year. Cashflows from financing activities relate to various trade loans and short-term advances from the parent company during the year. The P1.5 billion proceeds of the long-term loan received from the parent company were applied to settle outstanding bank loans and related interest. Operational review The overall coastwise passage market volume for 1999 contracted by almost 4% from 1998. However, the Company's passage volume improved 9% as market share rose to 38%, up from 34% a year earlier. The Company maintained its core market share in Western Visayas while continuing to register growth in its non-core markets of Mindanao, Palawan, and Central Visayas. The Maritime Industry Authority ("MARINA") approved an increase of 17% in regulated passage fares in the last quarter of the year, substantially less than the increase applied for by the Domestic Shippers Association ("DSA"). The overall freight market volume for 1999 remained the same as 1998. However, the Company's market share slipped from 12% to 10% due to its strategic focus on higher value shippers, as well as fierce competition over freight forwarding business during the middle of the year. MARINA approved a freight rate increase of 17% in the last quarter that helped lessen the decline in the Company's freight revenue for the year. The Company's ship management division performed well as their routine vessel repair and maintenance program kept costs to a minimum while the fleet operated throughout the year-without any major engine breakdowns. In addition, all of the Company's passenger vessels and land-based operation were certified with the International Management Code for the Safe Management and Operation of Ships and for pollution prevention ("ISM Code"). Accreditation was attributable to the Company's safety management systems ("SMS") developed in co-operation with two internationally recognized certifying bodies, Det Norske Veritas ("DNV") and the American Bureau of Shipping ("ABS"). In light of the continuing difficult market conditions, the Company decided in the last quarter of 1999 to close its conventional ferry vessel service plying the route between Bacolod and Iloilo. Of the two ferry vessels previously operating this route, one was sold in October 1999 and the other is scheduled for sale early in 2000. Management believe that the conventional ferry market is declining as passengers have continued to migrate to fast ferries over the past three years. However, the Company operates the largest fast ferry business in the Philippines through its interest in an affiliate, Philippine Fast Ferry Holdings Corporation. Nenaco Sales Corporation ("NSC"), the Company's land transportation subsidiary, suffered from a decline in freight volumes, much of which was referred to it from the Company. Similarly, worsening traffic congestion around North Harbor has lowered the efficiency of Manila truck utilization. NN Tours, the Company's tour operator, continued its rationalization program and further limited its loss for the year. Overall, management maintain a cautious outlook for 2000 in light of recent increases in fuel prices. Forecast Operating conditions in the Group's core inter-island passenger and freight transportation market remain stable as it belongs to the "basic need" sector where we do not foresee any significant contraction in the overall market. LibLex It is anticipated that the price competition between the inter-island passenger shipping operators will ease further following the full deregulation of passage fares for the Company's vessels. Fare increases in 2000 are expected to accommodate the rapid increase in imported fuel costs that occurred during the fourth quarter. The difficult conditions in the financial markets have eased and borrowing costs have fallen significantly. However, continued restrictions in bank lending have slowed the Group's implementation of cost-cutting initiatives that require a significant capital outlay. For further information, please contact: Negros Navigation Co. Inc. Daniel L. Lacson (Chairman and CEO) Tel: 034 434 5333 Francis G. Gaston (President) Tel: 02 245 2914 Robin M Arrowsmith (Director and Chief Financial Adviser) Tel: 02 247 7097 Metro Pacific Corporation Grant S Ferguson (Director and Chief Financial Adviser) Tel: 02 888 0807