2000 Annual Report

BENPRES HOLDINGS CORPORATION 4/F Benpres Building Exchange Road 1605 Pasig City Philippines T [63-2] 910 3040 F [63-2] 634 3009 www.benpres-holdings.com T R O P E R L A U N N A 0 0 0 2 B E N P R E S H O L D I N G S C O R P O R A T I O N B E N P R E S H O L D I N G S C O R P O R A T I O N 2 0 0 0 A N N U A L R E P O R T A B E N P R E S G R O U P P U B L I C R E L A T I O N S P U B L I C A T I O N D E S I G N N I K K O C O R N E L I O - F A J A R D O S E P A R A T I O N C O L O R G U I D E P R I N T I N G A B S - C B N P U B L I S H I N G , I N C . 2 0 0 0 A N N U A L R E P O R T B E N P R E S H O L D I N G S C O R P O R A T I O N C O N T E N T S M E S S A G E O F T H E C H A I R M A N 2 C O M M U N I C AT I O N S 8 U T I L I T I E S 10 OT H E R I N V E S T M E N T S 14 F O U N D AT I O N S 16 C L I C K S A N D B R I C K S 18 2 0 0 0 M A P AWA R D 22 B O A R D O F D I R E C TO R S A N D O F F I C E R S 24 F I N A N C I A L S TAT E M E N T S M A N A G E M E N T R E S P O N S I B I L I T Y O F 26 F I N A N C I A L S TAT E M E N T S R E P O RT O F I N D E P E N D E N T P U B L I C A C C O U N TA N T S 27 C O N S O L I D AT E D B A L A N C E S H E E T S 28 C O N S O L I D AT E D S TAT E M E N T S O F 29 I N C O M E A N D R E TA I N E D E A R N I N G S C O N S O L I D AT E D S TAT E M E N T S O F C A S H F L O W S 30 N OT E S TO C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S 32 C O M PA N Y C H A RT 58 C O R P O R AT E A D D R E S S E S 59 2001 and beyond But the problems of the covered by a hedge against devaluation through its economy aggravated by the corruption and cronyism tariff foreign currency adjustment mechanism, this of the Estrada administration cannot be fixed did not completely shield it from the impact of the overnight. Soon enough, even the stock market peso’s fall. realized that it would take time and effort to win back the confidence of investors. For one, the huge And because of the nature of the areas assigned to budget deficit inherited by the new government will BayanTel, the crisis also significantly altered the continue to cast a cloud of doubt on the entire assumptions of its marketing strategy. The economy for many years more. population it covered was more vulnerable to a decline in consumer buying power resulting from the In the meantime, the new Arroyo government will be economic crunch. Subscriber count declined as severely tested even before investors reconsider consumers prioritized expenditure of their household their negative ratings of the Philippines. The budgets, aggravating our initial problems of assuring requisites of political stability, law and order, smooth interconnection with PLDT, the leading consistency in government policies and a strong carrier. regulatory framework for providers of basic necessities must be established. BayanTel managed to remain EBITDA-positive. But its inability to meet market projections meant it was Indeed, it is already conceded that 2001 will be even unable to generate the cash necessary to service its more difficult for business. The low daily trading debts, which had grown larger in peso terms. It volumes at the stock exchange gives this message didn’t help that an investment in cell phone service from the investing public. There will be a continuing provider, Extelcom, turned sour and had to be squeeze on investments, revenues and profits as the written off. world economy is threatened by new uncertainties. We must all relearn to live with and surmount the Thus, we began in 2000, a process to find a suitable same difficulties we faced in the past when political and permanent solution to BayanTel’s debt burden. and economic developments conspire to make life We sought debt restructuring of almost US$500 interesting for us. million in loans incurred for network and service rollout. Bank of America had been signed up to assist Peso devaluation In the meantime, we, and advice us on the debt restructuring. like other business organizations, must regroup as we dispose of problems brought about by the Also hard hit by the peso’s devaluation is our other regional economic crisis, by our local political subsidiary, Maynilad Water. In March 2001, Maynilad uncertainty as well as by mistakes we have made. filed a notice of force majeure with the regulatory The one problem that has hit everyone with some office. Unforeseen circumstances, especially the intensity is the devaluation of the peso. doubling of the exchange rate from PhP26.30 per US dollar during the 1997 auction to the current Up until the Asian economic crisis in 1997, the peso PhP50.00 per US dollar have derailed our operations as with other regional currencies like the Thai baht and thrown the business model, on which we based experienced a period of unprecedented stability. This our bid, out the window. The US$800 million debt gave our so-called emerging economies enough Maynilad absorbed from the Metropolitan Waterworks courage to borrow heavily in foreign currencies to and Sewerage System (MWSS), valued only at PhP20 finance a tremendous growth in basic infrastructure, billion at the time of the bid, is now PhP40 billion. among others. Because foreign exchange credit was readily available, it was not always used judiciously. R e g u l a t o r y c h a l l e n g e s In time, some excesses caught up with our emerging Compounding the issues that have limited your economies in the form of the devastating Asian company’s ability to perform is the rather regional economic crisis in 1997. We are only complicated task of operating under an unpredictable starting to deal with the consequences as the new regulatory framework. millennium came around in 2000. In the case of BayanTel, the problem of For us, it was BayanTel that first felt the aftershock. interconnection hounded levels of service from 1996 It had just completed a roll out of its landlines in up until August 2000, as regulators remained working class population centers at a cost of around ineffective in compelling interconnection among new US $220 million, raised when the foreign exchange carriers and the incumbent. What’s more, in the rate was at PhP25.24 per US$1. While it was partly move toward deregulation, rate structuring assumed C H A I R M A N ' S M E S S A G E that international gateway facility and cellular source of news anytime of the day in areas served by mobile telephone system (CMTS) operations would SKYCable and its affiliates. Our international subsidize the local exchange carriers (LECs). The operations catering to the millions of Filipinos abroad reverse happened with LECs receiving only PhP2.00 also started to deliver profits in 2000. per minute in access fees while serving as collecting agents for CMTS charges of as much as PhP9.00 per Our cable subsidiary, selling under the trade name minute. SKYCable, consolidated its market leadership with approximately 45% of cable homes. SKYCable also Meralco, for its part, has not had a tariff increase developed a way of jointly selling its products with since 1994, bringing its return-on-rate base below sister company BayanTel in a converged offering that required by creditors.

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