Cosmos Posts 19th Straight Quarter of High Earnings Growth

July 23, 1998 PSE CIRCULAR FOR BROKERS NO. 1701-98 July 21, 1998 COSMOS POSTS 19TH STRAIGHT QUARTER OF HIGH EARNINGS GROWTH Cosmos Bottling Corporation, the beverage subsidiary of food and beverage giant RFM Corporation, reported yesterday that it posted P283 million in net income after tax, from January to June 1998, a 29.5% growth from P218 million recorded in the same semester last year. This marks the 19th straight quarter of aggressive profit growth for the 80- year old softdrinks company. The growth in profits was boosted by a 33.8% growth in net sales which is also the 19th straight quarter of high double-digit sales volume growth for the only Filipino-owned softdrinks company in the country. "Cosmos is somewhat unique in this respect the company has been able to sustain rapid sales volume growth while growing earnings aggressively at the same time." stated Jose A. Concepcion III, RFM President and Chief Executive Officer. aisadc "Cosmos continues to grow because Filipino consumers have begun to appreciate the world-class quality and taste of Pop Cola which is being made available to consumers here at a very competitive price versus the multinational brands. This is now being communicated through our current ad campaign that is a re-issue of our old 'Bilib sila sa Pinoy' campaign, and with this we hope to gradually improve the image of Pop Cola as a truly Filipino but world-class softdrink brand" Concepcion explained. He added that there are several important reasons behind this consistent performance of Cosmos over the past 5 years. cd "Cosmos continues to enjoy an outstanding 95% cash sales to credit sales ratio because retailers and dealers are keen to get their orders because their customers are looking for the Cosmos brands in their shelves. We have focused our efforts and resources in fewer product lines and only two package sizes, and this has kept our inventory management simpler and our carrying costs lower. We continue to grow with essentially the same lean sales force and management structure that we had 5 years ago delivering volumes that are now 6 times bigger. Our balance sheet remains healthy with very little debt and a substantial net cash position." Concepcion said. Industry sources have placed softdrinks consumption growth at about 25% compared to the previous year. Analysts attribute this to the continuing warm climate and the fact that softdrinks today are among the most inexpensive beverage products in the market today. Asked about problems faced by Cosmos today, Antonio I Panajon, Cosmos President and Chief Operating Officer said that rising sugar costs are presently putting pressure on margins. "Sugar prices went up from P950 per 50kg bag, to P1100 as of June this year. Other inputs which are also sensitive to the devaluation of the peso such as crown caps increased also because of the rising costs of imported tin plates." Panajon added. cdt "But the main factor that is preventing Cosmos' faster growth this year is the relatively conservative capex budget we imposed on the company this year. In essence, we told our managers to grow within what their cashflow can afford this year. This has somehow placed a limitation on the bottle and shell float that we now have and this is the only thing limiting our sales. We have enough plants and bottling lines to grow more. All we need to do now is to put in more bottles." Panajon further stated. "The other major source of growth for Cosmos is to maximize distribution placement in Metro Manila, which is the market that accounts for most of its volumes. Right now, we are only sold in just about half of all the possible retail outlets for softdrinks in the area, mainly because our limited bottle float constrains us from servicing the entire demand in NCR. Just meeting the demand here, where we have the best turn over and utilization of our bottle assets, will push our volume growth to nearly double what it is today." Panajon said. Cosmos Bottling is the only listed softdrinks bottler in the country, and is also the fastest growing. The company was mentioned in a recent Fortune magazine article on the best emerging market stock picks in Asia.