PSE Circular for Brokers No. 161-98

February 18, 1998 PSE CIRCULAR FOR BROKERS NO. 161-98 February 16, 1998 NEWS RELEASE RFM CORPORATION COSMOS POSTS THIRD STRAIGHT YEAR OF RECORD EARNINGS There seems to be no end to the growth and expansion of the softdrinks business of the RFM Group. Cosmos Bottling Corporation, the beverage subsidiary of RFM Corporation, posted yet another year of record earnings with 1997 net income reaching P508 Million. cdlex This year's net income is 61% higher than the previous year and is about 4% beyond the market's expectation of P480 million. Riding on sales volume growth of 71% versus the previous year, Cosmos' net sales hit a record-high P3.25 billion, which is a hefty 69% more than the P1.92 billion registered in 1996. "Cosmos is really our best performing business, and its performance over the past three or four years has proven a lot of people wrong when they said in 1989 that we were foolish to acquire Cosmos and even more foolish to even try competing with Coke and Pepsi", said Jose A. Concepcion III, RFM President and Cosmos Chairman and Chief Executive. "Cosmos has not only proven our critics wrong, but it has surprised the whole industry by maintaining an extremely fast pace of growth since 1994, and at the same time doubling and even tripling earnings" Concepcion said. Many analysts describe Cosmos as an ideal business for a number of reasons. First, it has very high margins because it makes its own syrup and has the lowest cost structure in the business. This allows Cosmos to maintain and sustain a low-price strategy over a long period of time. Second, Cosmos is a cash-heavy business, mainly because it sells its products through the sari-sari stores, which always pay in cash. This effectively shields them from the high interest climate because their working capital are met adequately by their internal cashflow. Third, Cosmos is least import dependent. The only imported input is the glass bottle, which is used over so many times, and over so many years, such that any increase in its cost has very little impact on the cost of the product. Cosmos President and Chief Operating Officer, Antonio I. Panajon said that the success of Cosmos is a tribute to consistent strategy and experienced management. "The strategy is simple sell a good quality, good tasting softdrink at the lowest possible price in a market which is predominantly low income. Keep your cost structure low so that you can be consistent with your low price strategy. There is no magic here; just plain consistency of strategy" Panajon added. Cosmos was recently mentioned in an article in Fortune magazine as one of the top stock picks among emerging market companies. "This is a distinct honor. Now we can truly say that Cosmos is well on its way to becoming a truly world-class operation. And for this we are truly proud" stated Concepcion. "We owe this to our management team and to RFM's persistence in continuing with a business that many believed was bound to fail from day one. We are proud to say that we are still around, and the fastest growing and most profitable softdrink company at that" Concepcion said. "For 1998, Cosmos will once again display its resilience during these tough times" Concepcion stated. "Because its products are the most competitively priced in the market, we expect people to actually trade down to our brands from the imported brands since incomes are expected to be tight and purchasing power somewhat eroded". Concepcion said. Panajon added that the elections will have a demand-boosting effect on the industry just like what happened in 1992, when the industry expanded by 20.5% for the first time in five or six years. Carbonated softdrinks are standard fare in campaign rallies and sorties. With thousands of candidates campaigning between now and May 11, Concepcion believes that softdrink demand might post another 20+ percent jump this year. Many analysts are also saying that it is one business which is expected to thrive with El Nino weather, and one of very few products that can offer thirst-quenching relief for many blue collar workers who need a clean beverage to drink but cannot afford bottled water and the more expensive juices and softdrinks. Cosmos is celebrating its 80th year of operations this year. The Wong family founded the company in 1918. RFM bought controlling interest and took over management in 1989 and listed the company is 1994, offering its shares for the first time at P3.50 per share. Adjusted for the recent 100% stock dividend given out by the company to its shareholders, the current price of P4.50 is equal to a pre-stock split price of P9.00, which is 157% above the IPO price. Over the last two years, Cosmos' share price has held despite the regional turmoil that has seen the local bourse plunge to new lows. cdlex Today is widely touted to be the new darling among consumer stocks in the Philippines, and some say, even in the reason. END.