Dear Fellow Shareholders

2007 has been a year of strong operating performance and profit results for your Company. We reported an historic high net profit for the year. And our core income in 2007 has approached the highest recorded by First Pacific since 1996. I am in fact confident that in 2008, we have the ability to achieve a core net income at its highest ever in our twenty six years history.

All our operating businesses performed above expectations during the year:

• PLDT recorded its fifth consecutive year of historic high profits.
• Indofood reported its fourth consecutive year of significantly improved performance.
• MPIC posted profits after several years of restructuring losses, signifying a turnaround in its fortunes.

During the year, we have assessed a number of significant investment opportunities in line with our long-term investment strategy, in accordance with the criteria set forth below.

Investment Criteria

• Related to existing core businesses
• Strong cash flow
• Enable a significant management influence
• Offer long-term value appreciation
• Growth and return potential
• Emerging markets in Asia

We believe that opportunities continue to exist in Asia and, given the recent adverse developments in the global and regional equities markets – where asset values have been marked down – it is likely that a new window of investment opportunities is opening up. It is of course not clear how long this investment window will stay open. We will continue to review and evaluate such opportunities in accordance with the investment criteria described above.

Regrettably, our shares currently trade at an unacceptably steep discount. In that light, we need to consider capital management initiatives shortly, having regard to the progress we can make about closing value enhancing acquisitions, our available cash and funding resources which may be available externally.

During the year, PLDT’s robust cash flows enabled it to raise its capital expenditure level and increase its dividend payout to 100 per cent of core earnings. PLDT recorded its fifth consecutive year of historic high profits. Growth in the cellular, data and broadband businesses are expected to continue in 2008. The strategic challenges at PLDT will revolve around its continued ability to stay innovative and competitive, to sustain growth in profitability and cash flows, and to manage the transition of its revenue mix from traditional voice to data and expand its revenue base beyond its current, organic businesses. Indeed, PLDT has to re-invent itself yet again.

The acquisition of a 64.4 per cent of PT Perusahaan Perkebunan London Sumatra Indonesia Tbk (Lonsum) by Indofood through IndoAgri was concluded in November 2007. This investment represents a significant earnings enhancement for our food business at a time when the cost of raw materials is putting pressure on the margins of our processed, branded products. Indofood has now become one of the world’s major palm oil plantation companies upon closure of the Lonsum transaction. On the branded side, Indofood will continue to maximize its extensive distribution system in 2008 through increased product offerings, third party as well as in house. However, it will continue to face cost pressures from rising prices  of fuel and wheat, but with the enhanced  supply of palm oil through its acquisition of Lonsum, the risks arising from increased palm oil prices is reduced.

The turnaround of MPIC has been accomplished in the year 2007. Its first healthcare investment in Makati Medical Center has performed above plan despite the start of a significant redevelopment and rehabilitation of its facilities which can cause business interruption in the interim. A solid start was made in executing the aggressive plans we have for the Maynilad Water franchise. In order to deliver water supply to a greater number of the population within our Metro Manila concession area, capital expenditures at Maynilad have been raised, with more funds being earmarked to roll out the network expeditiously. Maynilad Water successfully exited its rehabilitation status in February 2008, thus increasing the flexibility of its financing options and contributing to better earnings in the future. After having achieved a profitable position, MPIC can now look at other new investment areas to enhance earnings in the coming years.

Our cash position has, as a result of the significantly better operating performances of our businesses, improved during 2007. We enter 2008 with the same commitment to build shareholder value by making investments in complementary businesses in the emerging markets of Asia, and by considering any capital management initiatives that our financial position and pending investment plans allow or indeed call for.

Looking ahead to 2008, our view is cautiously positive. I see no reason why our core profits for 2008 should not rise above what we reported in 2007. I believe that the fundamental strengths of our businesses will withstand the pressures that will surface in our markets as a result of higher raw material costs and the challenges posed by the turmoil in global financial markets, and the constraints posed by slowing economic growth.

Again, I would like to thank our shareholders most sincerely for their continued support and patience.

Most cordially

MANUEL V. PANGILINAN
Managing Director and Chief Executive Officer

31 March 2008