Consumer demand for liquor remained weak in 2006 as the high cost of energy and taxes continued to depress consumer spending for non-basic commodities. The spate of typhoons in the latter part of the year somehow also affected consumer demand.

The local liquor market was flat with brandy continuously taking away market share from gin and rum especially in Luzon. Rum continued to dominate Visayas and Mindanao but had to contend with the entry of brandy and lower-priced liquor of backyard producers.

Revenues in 2006 of P6.6 billion were 5% lower than the P6.8 Billion posted in 2005 primarily due to lower sales volumes on rum and brandy. Double digit increases were however posted by gin and vodka. Higher operating expenses were incurred due to inflationary pressures, depreciation on new capital assets and costs related to the syndicated long term loan. Likewise, operating accounts of the subsidiaries acquired in mid-2005 were consolidated on a full-year basis in 2006. These all translated to a 16% reduction in net income after tax from P735 million in 2005 to P620 million in 2006. This translates to an earnings per share of P0.19 as compared to P0.23 last year.

In September 2006, our Company acquired Unimark Investments Corporation (Unimark), a special asset vehicle company that is authorized under RA 9182 to acquire and sell non-performing assets of local banks with certain tax exemption benefits as incentive to relieve local banks of their “distressed assets”. At the time of our acquisition, Unimark had existing inventories of loans and real properties available for sale with a fair value of P2.9 billion. Our move to acquire Unimark was to capitalize on the opportunities presented by the SPV law and the booming real property business. This will also diversify our Company’s sources of revenues.

The consolidated net income in 2006 included a one-time accounting gain of P605 million representing negative goodwill on the acquisition of Unimark. This represented the excess of the fair value of the net assets of Unimark over our acquisition cost. The 2005 consolidated net income also included a similar negative goodwill of P279 million pertaining to the acquisition of Asian Alcohol.

Total assets increased to P12.3 billion from P9.3 billion primarily due to the P2.9 billion assets of newly-acquired subsidiary, Unimark, the P176 million expenditures on the El Salvador Plant in Misamis Oriental and the P200 million new bottling line in the Murcia Plant.

Total liabilities jumped 64% to P7.0 billion from P4.3 billion due to the P5.2 billion long-term debt of Tanduay Distillers (TDI) and Unimark. The new debts were used to pay-off maturing short-term loans of P3.65 Billion and to acquire the non-performing assets of a local bank. Deferred tax liability increased by P492 million representing the tax on the negative goodwill on the Unimark acquisition.

Total equity amounted to P 5.3 billion or an increase of P330 million coming from the net income of P620 million reduced by the P0.10 per share dividends declared in January 2006. Equity pertaining to minority shareholders of subsidiaries amounted to P191 million.

Faced with a maturing rum customer base and a small share of the growing brandy market, our Company conducted a critical analysis of our product portfolio and revitalized our product development process. In December 2006, we launched the New Barcelona Brandy with a new formulation and packaging. The New Barcelona emerged as winner over the competitors’ brands in numerous taste tests and will serve as our best bet to capture a bigger slice of the brandy market. In early 2006, we rolled-out Cossack Vodka in a bid to “own” the local vodka market and capitalize on vodka’s growing popularity in the world market. As a strategy to capture the young drinkers segment, we also designed a new advertising theme for Tanduay Five Years Rhum, highlighted by a new logo, new jingles and rhum-rock concerts throughout the country. These marketing initiatives were the result of a much improved product development process that will serve as our long term growth platform.

Our Company is in a period of transformation --- we know where we are as a company and we realize that we cannot stay where we are now if we want to maintain our leadership position in our business. Slowly but surely, we are traversing the road to what we want to become. As we move towards our goals, we will be counting on the full support of all our stakeholders, more than ever!