PSE Circular for Brokers No. 959-98

May 7, 1998 PSE CIRCULAR FOR BROKERS NO. 959-98 May 6, 1998 NEWS RELEASE RFM CORPORATION RFM POSTS 27% INCOME SURGE DESPITE TRYING TIMES Against the backdrop of depressed corporate sales and earnings reports, food and beverage giant RFM Corporation, reported a net income of P279.3 billion for the first quarter of 1998, a 27% increase from the P220.3 million it posted the previous year. RFM's impressive earnings performance was achieved on the back of a 13% growth in revenues from P3.6 billion in 1997, to P4.1 billion this year, which the company attributed to strong demand growth for softdrinks, juices and ice cream, and resiliency in the demand for flour and chicken. RFM President and CEO Jose A. Concepcion III said that RFM's earnings performance is a reflection of the company's growing capability to manage during hard times. "Despite higher interest rates, more expensive imported inputs, and a sluggish economy dampening overall consumer demand, we are very happy about our management's ability to continue registering growth in our earnings year-on-year" Concepcion said. RFM's CEO attributes this performance to the company's correct decision year ago to shift more of its business into higher margin, higher value-added and branded businesses like softdrinks, ice cream and juices. "Today, Cosmos and Selecta are the primary drivers of RFM's growth. With strong brands, sound competitive strategies, lower costs, better operating efficiencies, abundant cashflows and stronger balance sheets, these two subsidiaries are paying back much of the investment we have put into them for the past five years." Concepcion added. cdt Cosmos Bottling Corporation reported a 30% surge in net income from P93.2 million posted in the first quarter of 1997, to P121.3 million for the same period this year. This came on the back of a 22% growth in revenues resulting from the continuous rapid growth of its volumes. Company reports state that Cosmos' strategy of keeping the price of its flagship brand Pop Cola at the same pre-devaluation levels, has kept the demand for its product high throughout the past quarter, which also saw the over-all demand for softdrinks expand substantially because of the warmer weather. Company officials said that it is only Cosmos' more conservative capital expenditure program that is presently limiting volume growth. "We believe that adopting a more conservative financial management strategy this year in consideration of the tighter credit climate, is necessary for us to avoid incurring presently more expensive debt and help prepare the company for more aggressive growth when the economy resumes its fast growth." Concepcion explained. cdlex Selecta Dairy Products Inc. also posted an impressive earnings performance in the first quarter, posting a 66% growth in net income from P14 million last year, to P 24 million this year, on the back of an unexpectedly strong 46% increase in revenues. Its successful introduction of new ice cream flavors and variants, as well as new and innovative packaging formats for its fruit juice line has boosted volumes to better than expected levels, riding also on the strong demand for its products due to the warmer weather. RFM officials pointed out that the strong first quarter performance of these two subsidiaries augur well for the rest of the year since the past quarter is usually their weakest. Record sales and earnings are expected for the second quarter, which is characterized by peak demands for softdrinks, juice drinks and ice cream. Swift Foods Inc. posted a loss of P82 million for the quarter just passed, and company reports stated that this was expected because of the seasonally weaker demand for chicken and meat products during the first quarter, and the relatively higher costs and financing charges of Swift, which is a direct result of the peso devaluation and higher interest rates. "The second quarter though will be a completely different picture for Swift because of the currently higher selling prices of chicken" Concepcion explained. Prices for live chicken are estimated to have gone up 30% from December 1997, and 37% for dressed chicken. "The improvement in selling prices is expected to be sustained because of the normalized supply and demand situation in chicken." Concepcion said. On the meat side, company officials explained that a major reorganization in its sales and distribution organization slowed down sales volumes in the first quarter, but is expected to boost sales for the balance of the year. "The crisis has forced us to look for radical changes in the way we operate in order to bring down our costs and shore up margins. These changes are now in place and are expected to dramatically improve the outlook for Swift." Concepcion added. Swift announced in a recent shareholders' meeting that they expect to make close to P300 million in net income this year, and have not changed its outlook to date. cdt Concepcion added that Swift will probably be one of RFM's biggest stories for this year. "We believe that the poultry and meat industry has reached a point where it has become ripe for consolidation. We expect talks between the existing players to lean towards major strategic alliances, mergers and acquisitions. Despite two bad years, we are fortunate that Swift is still in a position to be a consolidator in this new environment." Concepcion declared. RFM as a whole is raising cash at the parent company level to pay down debt and build a war chest for selective acquisitions the company is planning this year. The company is planning to welcome strategic investors to take meaningful positions in Cosmos in preparation for the faster growth of the company in the medium term. Selecta is also considering a major strategic alliance that will expand its business dramatically over the next few years. Swift is similarly opening itself up to new investors who are interested in taking part in the company's plan to play a lead role in consolidating the poultry and meat business in the country. "If we are able to complete all these initiatives this year, and there is a very good chance that we can, RFM will become the major force to contend with in the Philippine food and beverage industry, with strong fundamentals, a stronger balance sheet and faster earnings growth prospects. As we also focus more on our core food and beverage businesses bakery products, chicken and meat, softdrinks, ice cream and juice drinks we expect more predictable earnings and better shareholder values as we enter into a new millennium." Concepcion declared. cdlex END