PSE Circular for Brokers No. 2049-99

August 17, 1999 PSE CIRCULAR FOR BROKERS NO. 2049-99 August 16, 1999 RFM'S COSMOS POSTS 18% SURGE IN SALES Cosmos Bottling Corp., beverage subsidiary of food giant RFM Corporation, led the charge for RFM in the first semester, as its net sales grew by 18% from P1.67 billion to P1.97 billion year-on-year, on the back of a 4% increase in sales volume. This was achieved despite a reported 10% decline in total softdrink volumes versus the same period last year according to a report the company disclosed to analysts yesterday. Cosmos Chairman and Chief Executive Officer Jose A. Concepcion III, said that "This is the true test of the power of the Pop Cola brand, when it withstood the aggressive pricing moves of our competitors during the industry's four-month summer peak, even after we increased prices of Pop in November 1998." "We attribute this to heavier advertising spending behind the Pop Cola brand, whose image and awareness levels have improved considerably over the past two years that we have been airing our ad campaigns." Concepcion added. Cosmos Operating Income however, declined by 24.6% Prom P407 million to P307 million year-on-year, precisely because of the heavy advertising and promotions expenditures, and a 25% increase in sugar prices. Net Income followed suit with a more moderate 15.6% decline from P295 million last year, to P249 million this year. Cosmos parent company RFM Corporation on the other hand reported a 16% improvement in its consolidated operating performance. "RFM continues to grow despite the delayed effects of the Asian Crisis on consumption and business growth." Concepcion reported. "Again our heavier spending behind our brands 'Pop Cola', 'Sarsi', 'Sunkist', 'Swift', 'Sariwanok', 'Blue Bay', 'Selecta', 'Hersheys', 'White King', 'Fiesta', 'Jumbo', 'Little Caesar's Pizza', 'Dairy Queen' and 'Orange Julio' helped boost our sales during this period of dampened consumer demand. RFM's total marketing expenditures nearly doubled for the period ending June, as it grew from P84 million last year, to about P165 million this year. Despite the increased marketing spending, Income from operations still improved by 16% to P624 million for the first six months of 1999, on the back of net sales growth of 3.4% to P8.47 billion. Cash Operating Profit (or EBITDA Earnings before interest, taxes, depreciation and amortization) grew even more by 23% year-on-year, from P823 million last year, to P1.013 billion this year. aisadc Swift Foods continues to be RFM's most improved performer posting a 633% recovery in operating income, from P23 million last year, to P176 million this year, because of a 5% increase in chicken selling prices, a drop in corn and soya meal prices, strong growth in hotdogs, and improvements in operating efficiencies. "Swift's recovery strengthens the core of RFM's business, because it generates a substantial amount of cash profits." Concepcion added. "One of the strengths we would like to develop further in Swift is a large and extensive sales and distribution system for our one-way packaged products. As we sell more and more of our products through this system, we will be able to realize substantial savings in selling and distribution costs and greater distribution strength." Concepcion said. Despise the good performance of Swift and Cosmos, RFM's consolidated recurring Net Income After Tax, declined from P190 million last year, to P114 million for the first semester this year, as RFM recognized lower income from the discontinued operations of the ice cream business of Selecta, higher minority interest with the spin-off of the said business, and higher financing charges. RFM's balance sheet however, stands to gain from a recent infusion of P1.625 billion into the business by new financial partner WP Argosy Limited. "This infusion arms with resources to make strategic food and beverage acquisitions. We made a bid recently for a major bottled water company but we came in second behind a very aggressive bid by another conglomerate. Despite this, we will be aggressive in exploring opportunities in water, juice and powdered beverages" Conception said. WP Argosy Limited is a subsidiary of E.M. Warburg, Pincus & Co., LLC of New York, a private equity investment firm with US$12 billion under management and US$300 million invested in 7 companies in emerging Asia. "Warburg and Argosy chose RFM because it is a market leader in key food categories, has an extensive sales and distribution network, his a lot of potential in realizing greater value, and has open-minded management." stated Warburg, Pincus Managing Director Rajiv Lall. "In addition to the P1.625 billion in cash which it recently infused into the business, WP Argosy brings international standard corporate governance, expertise in financial management, and a global network of strategic relationships that RFM can tap into to broaden its food and beverage portfolio." said Nonoy Colayco, Argosy Managing Partner. RFM Corporation is the second largest listed food and beverage company in the Philippines with nearly P24 billion in total assets. The company is also partnered with global companies such as Unilever NV, Sunkist Growers, Hershey Foods International, The Walt Disney Company, PT Aqua, International Dairy Queen, and Little Caesar's Enterprises.