PSE Circular for Brokers No. 642-00

March 13, 2000 PSE CIRCULAR FOR BROKERS NO. 642-00 March 10, 2000 RFM POSTS HIGHER SALES, OPERATING INCOME Pursuing a strategy of brand-building and refocusing on its core food and beverage business, RFM Corporation is expected to report higher sales and operating income for 1999, although net income will be lower as a result of non-recurring items. LexLib This was disclosed by the company yesterday as it gave notice to the Securities and Exchange Commission (SEC) of the holding of its annual shareholders meeting on April 12, 2000 at 9 a.m. at the company's head office in Mandaluyong. Based on unaudited figures, RFM reached P18.3 billion in total sales in 1999, up by 4 per cent from the prior year's P17.6 billion, despite the generally weak consumer demand in the country last year. Operating income amounted to P1.325 billion, an increase of 11 per cent over the P1.194 billion posted in 1998. Even as RFM more than doubled its marketing spending to build its brands, higher operating income was achieved as a result of cost management and yield improvement programs implemented in 1999. Net income on a recurring basis is expected to be lower at P153 million compared to P357 million in 1998, due to higher provisioning for income tax payments. After non-recurring items, net income is expected to be reduced to about P14 million in 1999. "Basically 1999 was the first year of transition in our overall strategy to refocus on our core food and beverage business," Jose A. Concepcion III, RFM president and CEO, said. "We have begun the process of rationalizing our investments in non-core businesses such as banking, so that we can redirect our resources to our food and beverage businesses." LexLib "In line-with this strategy, we are building our brands, developing our distribution system, and upgrading our operations and supply-chain management," Concepcion said. The company is also strengthening its financial position, and harnessing information technology to take part in the so-called new economy. Concepcion said the brand-building effort was demonstrated in its beverage unit, Cosmos Bottling Corporation. Cosmos earlier reported sales of P4.08 billion in 1999, an increase of 15 per cent from the year before, despite an estimated 10 per cent decline in total softdrinks industry volumes last year. Net income reached P510 million. Swift Foods, Inc., the poultry and meat subsidiary, posted a turn-around in 1999 as it registered total sales of P9.1 billion, up by 15.6 per cent from the previous year's sales, and net income of P250 million from a loss the year before. Swift also serves as the nationwide sales and distribution arm of the group for all its products, excluding bottled softdrinks and ice cream. "In Swift, we have integrated and streamlined our sales and distribution efforts into one powerful force that is now reaching all the way to the farthest corners of the country," Concepcion said. The company's ice cream joint venture with Unilever, Selecta-Wall's, Inc., focused its efforts on upgrading its operations and distribution model in line with world-class standards. With these improvements in place, towards the end of the year SWI rolled out a highly-successful introduction of its frozen novelty line, Cornetto, which is currently breaking sales expectations. Concepcion said the group intends to bring to an even higher level in the Year 2000 these strategic priorities in building brands, developing, distribution and upgrading operations. With the P2 billion investment of Warburg Pincus Argosy in RFM last year, Concepcion said the company will also continue to strengthen its financial standing and will seek to comply with higher reporting standards, such as the U.S. GAAP, in its financial disclosures. He said the company decided to take a charge in 1999 of P186 million to provide for the accretion of the premium on its US$65-million convertible bond issuance. He also revealed major capital expenditures in information technology, centered on the installation of an enterprise resource planning system, to pave the way for RFM's participation in the new technology-oriented marketplace. "Our vision is to become the largest branded food and beverage company in the Philippines Whether in the old economy or the new economy, we intend to get there," Concepcion said. cdlex