Cosmos Breaks Earnings Record For Fourth Straight Year

March 25, 1998 PSE CIRCULAR FOR BROKERS NO. 467-98 March 24, 1998 NEWS RELEASE RFM Corporation COSMOS BREAKS EARNINGS RECORD FOR FOURTH STRAIGHT YEAR Cosmos Bottling Corporation, the beverage subsidiary of food and beverage giant RFM Corporation, reported to its shareholders yesterday earnings of P508 million in 1997, its highest ever in its year history, and a 63% improvement over the P311 million it posted last year. "What is particularly impressive about Cosmos' 1997 performance is that more than a third (38%) of its net sales is cash operating income (operating income with depreciation and amortization added back). Cosmos earned P1.047 billion in cash operating income because more than 95% of our sales are in cash." explained Cosmos Chairman and Chief Executive Officer, Jose A. Concepcion III. asiadc "For a business that requires heavy investments in bottling plants, filling lines and glass bottles, cash income is more reflective of business profitability because the non-cash charges like depreciation are really substantial." stated Antonio I. Panajon, Cosmos President and Chief Operating Officer. Net sales surged from P1.75 billion in 1996, to P2.75 billion or by 58% on the back of an unprecedented 71% growth in sales volume. "The sales growth is very encouraging since this is the year the competition from our multinational colleagues in the industry really intensified beginning with major price rollbacks at the start of the year coupled with heavy advertising and summer promotions.' Concepcion said. This validates our belief that ours consumers buy Pop Cola not just because of its competitive price, but also because it is a good-tasting softdrink, at par with its multinational counterparts." Conception added. Concepcion said that the profit achieved was well beyond market expectations for the fourth straight year which makes Cosmos RFM's best performing listed subsidiary, and one of the best performing in the Philippine stock market. Cosmos, analysts noted, is one of very few Philippine businesses which was hardly hit by the peso devaluation, which shook the entire economy in July. With most of its inputs and costs denominated in pesos, Cosmos was able to escape the disastrous effects of the currency crisis and continues to enjoy very good margins despite not raising their prices for the last three years. Even dollar-denominated capital-expenditures did not hurt the company's bottomline because most of their spending occurred before the summer season and way before July 11, 1997. LLphil With its abundant cashflow, Cosmos also escaped the higher interest rates that slowed down most Philippine corporates in the latter half of the year, particularly those on short term working capital loans. The warmer weather brought about by the El Nino phenomenon also served to sustain the growth in demand for softdrinks, which is estimated to have grown by more than 20% in 1997. "Cosmos is in a very large and attractive industry which generates about P35 billion in revenues every year." Concepcion said. "It is an industry that may never see another new player again for quite some time because of the high entry barriers it has. Any new player will have to invest in bottling plants, filling lines, and especially, millions and millions of glass bottles, in order to be able to operate at the level of the current players." Panajon Prospects for the business in 1998, remain bright. "With the economic crisis, people are tracing down to lower priced but good quality local brands which deliver greater value-for-money. We believe that we are the only player in the industry today who can sustain a competitive pricing strategy since we have the lowest cost structure and much better asset utilization." Panajon said. "If the weather continues to be as warm as it is today, we can expect one of the longest summers in this country this year, and this will only mean stronger sales for Cosmos. For January and February for example, sales have remained at maximum capacity levels, matching those of summer last year. With new bottles coming in now, we expect this to grow even higher, since our main constraint right now is glass bottled." Panajon added. cdll Concepcion said that the elections this year will also help boost softdrink sales just like it did in 1992 when the industry suddenly grew by 21.5% after several years of flat growth. Concepcion explained that softdrinks are often served in campaign sorties and in many election activities, and this will have a direct effect on the growth of volumes this year. Concepcion spoke about the vision of Cosmos in terms of becoming a more complete beverage company with a wider array of strong beverage brands that will be major players in their respective categories. "We have already launched our Aqua Prima bottled water product in the 5-gallon jugs and retail packs late last year. We are producing Sunkist orange soda under license with Sunkist Growers of the US and we are reestablishing a licensing arrangement with Royal Crown Cola Company of the US also. There are a lot of world-class brands who are approaching us because Cosmos is the only independent bottler in this country, and this gives us a lot of new opportunities to grow into new beverage categories." Concepcion explained. Concepcion said that it is hard to believe the kind of growth that Cosmos has achieved over these past four years. "When we did our IPO in 1994, our market cap then was just over P2 billion. Today, Cosmos has a market cap of nearly P9 billion more than 4 times what it was four years ago. If we are able to sustain our growth at faster-than-industry levels, we should be able to improve on this over the next few years." Concepcion said. Cosmos Bottling Corporation is celebrating its 80th year anniversary this year. Founded in 1918 by the Wong family, it was acquired by RFM in 1989 and listed at the PSE in 1994. Since then it has been one of the best performing stocks in the local bourse. cdt