RNS Number:7703Q
First Pacific Capital (1997) Ld
31 January 2002
The Stock Exchange of Hong Kong Limited takes no responsibility for the contents
of this announcement, makes no representation as to its accuracy or completeness
and expressly disclaims any liability whatsoever for any loss howsoever arising
from or in reliance upon the whole or any part of the contents of this
announcement.
FIRST PACIFIC COMPANY LIMITED
(Incorporated in Bermuda with limited liability)
ANNOUNCEMENT
FIRST PACIFIC COMPANY LIMITED TO
RECORD ASSET IMPAIRMENT PROVISIONS
First Pacific announces that it is to record asset impairment provisions
totaling US$1.7 billion (HK$13.2 billion). In accordance with First Pacific's
prudent and conservative approach to financial reporting, First Pacific
regularly reviews the book values of its portfolio of assets against market
values, discounted cash flows and other accepted methods of financial valuation.
In conducting such a review for the purposes of preparing the Company's
financial statements for the year ended 31st December, 2001, the Board has taken
the view that, at this point in time, it would be prudent to revise downwards
the book values of its investments.
Based on preliminary calculations, it is estimated that a US$1.7 billion
(HK$13.2 billion) provision, comprising impairments relating to goodwill arising
on acquisitions of US$858 million (HK$6.7 billion), foreign exchange of US$270
million (HK$2.1 billion) and net tangible assets of US$565 million (HK$4.4
billion), should be recorded in the Group's financial statements for the year
ended 31st December, 2001.
The proposed provisions, which are non-cash in nature, ensure that First
Pacific's financial statements better reflect the estimated values of its
underlying investments at 31st December, 2001. The provisions affect neither
First Pacific's sound financial position nor the long-term growth and value
potential of its principal investments. The proposed provisions, which are
subject to external audit, will be recorded in the 2001 financial statements as
an "unusual" charge to the profit and loss account.
Background
In accordance with its accounting policies, First Pacific undertakes an annual
year-end review of each of its investments. This review assesses whether the
book values of First Pacific's investments, as stated in its financial
statements, continue to be appropriate by comparison to the estimated values
attributed to these same investments as at 31st December, 2001. Such values are
estimated by the directors of First Pacific within the context of prevailing
circumstances and by reference, where appropriate, to the present value of
future cash flows for each investment, and/or to likely disposal values. To the
extent that book values exceed estimated values, First Pacific prudently effects
impairment provisions where it is considered that such differences in value are
unlikely to be recovered in the near term. Such provisions are recorded within
the financial statements as an "unusual" charge to the profit and loss account.
This accounting treatment is consistent with Hong Kong GAAP, including SSAP 31
on Impairment of Assets.
Rationale for and calculation of proposed impairment provisions
First Pacific's reporting currency is the U.S. dollar and, accordingly, all
investments and transactions are recorded in U.S. dollars in First Pacific's
financial statements.
First Pacific's principal investments are located in the Philippines and
Indonesia, with such investments having been effected in local currencies and
recorded in U.S. dollar equivalents calculated at the then prevailing rates. The
significant depreciation of the peso and the rupiah against the U.S. dollar
since the acquisition of First Pacific's principal investments in BLC (through
MPC in 1995), PLDT (1998) and Indofood (1999) has reduced the value of these
investments when expressed in U.S. dollars. First Pacific's investments in MPC
(since 1986) and in PLDT (since 1998) were made at weighted average exchange
rates of Pesos 33 and Pesos 41 to the U.S. dollar respectively, while its
investments in Indofood (since 1999) were made at a weighted average exchange
rate of Rupiah 8,330 to the U.S. dollar. This compares with the close of
business exchange rates on 31st December 2001 of Pesos 51.6 to the U.S. dollar
and Rupiah 10,400 to the U.S. dollar.
Furthermore, the country risks associated with the Philippines and Indonesia
have adversely affected equity values in these countries and, as a result of
these prevailing circumstances, the estimated values of First Pacific's
investments in PLDT and Indofood are significantly below book acquisition
values. In addition to country risk factors, MPC's investment in BLC has been
significantly and adversely affected by the protracted decline in the Philippine
property market.
Due to the prolonged and continued negative sentiment in relation to these
countries, there does not appear to be any near-term prospect of a significant
increase in values. Accordingly, the above factors have resulted in the Board
determining that asset impairment provisions be made against the book value of
First Pacific's investments in the Philippines and Indonesia.
Based on preliminary calculations, by reference to market and by comparison to
the results of discounted cash flow valuations, it is estimated that provisions
totaling US$1.7 billion (HK$13.2 billion) should be recorded in the Group's
financial statements for the year ended 31st December, 2001.
In keeping with First Pacific's prudent and conservative approach to financial
reporting, the proposed provisions have the effect of writing down investments
to the lower end of their respective estimated value ranges. Calculations to
determine the estimated value of PLDT and Indofood, based on the present value
of future cash flows, indicate per share values in the following ranges:
PLDT: Pesos 700 (US$13.6; HK$105.8) to Pesos 1,000 (US$19.4; HK$151.2)
Indofood: Rupiah 1,200 (US$0.12; HK$0.9) to Rupiah 1,600 (US$0.15; HK$1.2)
The proposed provisions are detailed below. All financial information provided
below is provided as at 31st December, 2001 and on a consolidated basis.
As at 31st December, 2001 Pre-adjusted Adjusted Market
US$ million book value(7) Provision book value value(1)
Impairment provisions
MPC (2) 842 (744) 98 87
PLDT(3) 1,122 (563) 559 334
Indofood(3) 793 (286) 507 264
Escotel(4) (9) - (9) n/a
Infrontier 4 - 4 n/a
Metrosel(5) - - - n/a
2,752 (1,593) 1,159
Provisions for other (100)
exposures(6)
(1,693)
As at 31st December, 2001
HK$ million Pre-adjusted Provision Adjusted book value Market value(1)
book value(7)
Impairment provisions
MPC (2) 6,568 (5,803) 765 679
PLDT(3) 8,752 (4,391) 4,361 2,605
Indofood(3) 6,185 (2,231) 3,954 2,059
Escotel(4) (70) - (70) n/a
Infrontier 31 - 31 n/a
Metrosel(5) - - - n/a
21,466 (12,425) 9,041
Provisions for other (780)
exposures(6)
(13,205)
(1) Market value is based on the closing prices of the listed shares of MPC, PLDT and Indofood on their
respective stock exchanges on 31st December, 2001. Escotel, Infrontier and Metrosel are not listed.
(2) Adjusted book value represents US$90 million/HK$702 million of loan, and US$8 million/HK$63 million of
accrued interest due from MPC.
(3) Adjusted book value represents Pesos 700/share and Rupiah 1,200/share for PLDT and Indofood, respectively.
(4) The negative book value represents the amount by which the share of post-acquisition losses of US$72 million
/HK$562 million exceeds the investment cost of US$63 million/HK$492 million.
(5) Full impairment provision made in 1998.
(6) General risk, including provision for the potential effect of further depreciation in the peso and the
rupiah.
(7) Representing acquisition cost plus the Company's attributable share of post-acquisition reserves.
The proposed provisions, which relate principally to the Group's Philippine
investments and are subject to external audit, will be recorded in the 2001
financial statements as an "unusual" charge to the profit and loss account of
approximately US$1.7 billion (HK$13.2 billion). The US$1.7 billion (HK$13.2
billion) provision comprises impairments relating to goodwill of US$858 million
(HK$6.7 billion), foreign exchange of US$270 million (HK$2.1 billion) and net
tangible assets (principally development properties) of US$565 million (HK$4.4
billion).
Pro forma impact of proposed impairment provisions
Pro-forma figures are based on the reported position at 30th June 2001 after
reflecting the impairment provisions but excluding transactions in the period
1st July to 31st December 2001. The pro-forma impact of the proposed provisions
on the Company shareholders' equity and consolidated shareholders' equity would
be as follows:
Company Consolidated
US$ million Share capital Revenue Exchange Sub-total Goodwill Total
and premium reserve reserve (before reserve
goodwill)
Shareholders' equity
At 30 June 2001 2,487 941 1,658 (385) 2,214 (1,897) 317
Impairment (1,631) - (1,693) 270 (1,423) 858 (565)
provisions
Pro-forma at 31 856 941 (35) (115) 791 (1,039) (248)
December 2001
Number of ordinary 3,140
shares in issue
(millions)
Company Consolidated
HK$ million Share capital Revenue Exchange Sub-total Goodwill Total
and premium reserve reserve (before reserve
goodwill)
Shareholders' equity
At 30 June 2001 19,399 7,340 12,932 (3,003) 17,269 (14,797) 2,472
Impairment (12,722 - (13,205) 2,106 (11,099) 6,692 (4,407)
provisions
Pro-forma at 31 6,677 7,340 (273) (897) 6,170 (8,105) (1,935)
December 2001
Number of ordinary 3,140
shares in issue
(millions)
On a pro-forma basis, the impact on Company shareholders' equity would be a
reduction of approximately US$1.6 billion (HK$12.7 billion) to approximately
US$856 million (HK$6.7 billion) at 31st December 2001.
Consolidated shareholders' equity on a pro-forma basis would be reduced by
approximately US$565 million (HK$4.4 billion) to approximately US$(248) million
(HK$(1.9) billion) at 31st December 2001, net of goodwill of approximately
US$1.0 billion (HK$8.1 billion) which has been eliminated against reserves in
prior years.
Impact on First Pacific
The provisions represent accounting adjustments to better align First Pacific's
book values of its investments with market-implied values at this point in time.
In keeping with First Pacific's prudent and conservative approach to financial
reporting, provisions made are sufficient to reduce investment values to the
lower end of their respective valuation ranges. Accordingly, the revised
valuations reflect neither the inherent value of First Pacific's significant
shareholdings in these investments nor the potential for long-term value
development, and do not acknowledge the anticipated improvement in sentiment in
the Philippine and Indonesian markets. The provisions are non-cash in nature and
should have no impact on the fundamentally sound financial position of First
Pacific.
First Pacific's principal investments retain their excellent potential for
growth and continue to successfully contend with difficult operating
environments as Southeast Asian economies remain weak and negative sentiment
prevails. In this regard,
- Indofood continues to deliver strong, recurring cash flows sufficient
to meet its own funding and capital expenditure requirements. In
addition to resuming dividend payments, Indofood is progressing its share
buy back program and has already bought back 2 per cent of its issued
shares;
- PLDT is effecting measures taken to improve PLDT's financial position, while
nurturing and developing diversified revenues to sustain and generate future
revenues and cash flows;
- MPC has committed to reducing its overall levels of debt and, in tandem with
other on-going initiatives, is continuing negotiations to sell its interest
in BLC, together with First Pacific's secured interest, in order to achieve
this objective, and
- Infrontier is tailoring its range of products and services to maximise
revenue growth while minimising its funding requirements.
In addition, First Pacific continues to review its strategic investments in
Escotel and Metrosel. Escotel, now cash flow break-even, has secured
approximately 8 per cent of the overall Indian cellular market having garnered
more than 450,000 subscribers, while the Company will continue its efforts to
derive value from Metrosel's cellular licence in Indonesia.
At the end of 2001, First Pacific held cash in excess of US$210 million (HK$1.6
billion) and had zero bank debt. Subsequent to the 2001 year-end, First Pacific
initiated the early repayment of its convertible bonds, originally issued in the
principal amount of US$350 million (HK$2.7 billion), funded through a
combination of cash and bank debt. Subsequent to providing for the full
settlement of its convertible bonds, First Pacific will hold cash in excess of
US$50 million (HK$390 million) and bank debt of US$190 million (HK$1.5 billion).
Notwithstanding the need for prudent provisioning at this time, First Pacific
will continue to channel its management efforts into developing strong
fundamentals, within each of its investments, in the pursuit of long-term value
enhancement that is at least comparable to the average annualized cash return of
15 per cent achieved on past investments.
Definitions
In this Announcement, unless the context otherwise requires, the following
expressions have the following meanings:-
"BLC" Bonifacio Land Corporation is a 55.0 per cent shareholder in a joint venture project with
the Philippine Government that commenced, in 1995, the re-development of a 155-hectare
portion of a new Metro Manila central business district (namely the "Bonifacio Global
City"), that previously was a Philippine military base. MPC holds a 69.6 per cent
interest in BLC and, accordingly, BLC is accounted for as a subsidiary of the Company;
"Board" the board of directors of First Pacific;
"Escotel" Escotel Mobile Communications Limited, which is based in New Dehli, provides GSM cellular
telephone services in Uttar Pradesh (West), Haryana and Kerala. The Group holds a 49.0
per cent attributable economic interest in Escotel and, accordingly, Escotel is accounted
for as an associated company of First Pacific;
"First Pacific" or "the First Pacific Company Limited;
Company"
"Group" First Pacific and its subsidiaries;
"Hong Kong GAAP" Hong Kong generally accepted accounting principles, as embodied in Statements of Standard
Accounting Practice issued by the Hong Kong Society of Accountants;
"Indofood" P.T. Indofood Sukses Makmur Tbk, which is based in Jakarta and listed on the Jakarta and
Surabaya Stock Exchanges, is Indonesia's leading processed-foods group. The Group holds a
48.7 per cent attributable economic interest in Indofood, which is accounted for as a
subsidiary of the Company;
"Infrontier" Infrontier Limited, a wholly-owned subsidiary of First Pacific, which is headquartered in
Hong Kong and is a business solutions provider offering supply chain management and
wireless applications in hosted and traditional environments;
"Metrosel" PT Metro Selular Nusantara, which is based in Surabaya, is licensed to provide
mobileK'llular services in central and east Java. The Group holds a 35.0 per cent
attributable economic interest in Metrosel and, accordingly, Metrosel is accounted for as
an associated company of First Pacific;
"MPC" Metro Pacific Corporation, which is based and listed in Manila, principally holds
property assets in the Philippines. The Group holds an aggregate direct and indirect
attributable economic interest of 80.6 per cent and, accordingly, MPC is accounted for as
a subsidiary of the Company, and
"PLDT" Philippine Long Distance Telephone Company, which is based and listed in Manila, is the
leading supplier of domestic and international telecommunications services in the
Philippines. The Group holds an aggregate direct and indirect attributable economic
interest of 24.5 per cent. and PLDT is accounted for as an associated company of First
Pacific.
Unless stated otherwise, values are as at 31st December, 2001. Translations of
values have been made on an approximate basis at the approximate closing rates
on 31st December, 2001 of US$1 = HK$7.8 = Pesos 51.6 = Rupiah 10,400.
Percentages, and figures expressed in billions and millions, have been rounded.
By Order of the Board
FIRST PACIFIC COMPANY LIMITED
Ronald A. Brown
Executive Director and Company Secretary
Hong Kong, 31st January, 2002
Please also refer to the published version of this announcement in the South
China Morning Post (English) and Hong Kong Economic Times (Chinese).
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