Consolidated Financial Results of the HOOP Group

HOOP, Poland’s leading producer of beverages and mineral water, is steadily strengthening its market position and reports a rise in revenue after the four quarters of 2003. As at the end of 2003, the HOOP Group’s consolidated sales revenue (based on comparable data) amounted to PLN 353,665K, which represents a 7.03% increase in relation to the preceding year.

In the fourth quarter of 2003 alone, the Group’s sales revenue totalled PLN 70,528K – up by 20.87% on the analogous period of 2002 (PLN 58,349K).

The Group’s consolidated net profit for 2003 amounted to PLN 4,997K.

Rise in HOOP’s Sales in 2003

In 2003, HOOP recorded a material growth in sales on the carbonated beverage market and the mineral water market. In 2003, sales volume of carbonated beverages rose by 19%. A particularly marked increase in sales was seen in the mineral water segment, where, with the support of an intensive advertising campaign, HOOP recorded a 106% surge in sales, including a 51% rise in sales of the Arctic mineral water.

In terms of value, sales of carbonated beverages in 2003 improved by 14%. In the mineral water segment they were up by 76%, including a 52% rise in sales of the Arctic mineral water.

On the non-carbonated beverage market, HOOP’s sales dropped by 22%.

HOOP Group’s Sales in Q4 2003

The rise in sales volumes in Q4 2003, in relation to the analogous period of 2002, amounted to 15% for carbonated beverages, 3% for non-carbonated beverages, and 154% for mineral water (including 88% for the Arctic mineral water).

In terms of value, in Q4 2003, the Group’s sales increased as follows: 14% for carbonated beverages, 12% for non-carbonated beverages, and 107% for mineral water (including 77% for the Arctic mineral water).

Growth in Market Shares in Individual Market Segments in Q4 2003

According to the most recent data for Q4 2003 published by ACNielsen, there was a material increase in market shares of HOOP’s products in relation to Q4 2002.

In the fourth quarter of 2003, HOOP’s carbonated beverages gained a 11.8% market share (in quantitative terms), as compared with 9% in the analogous period of the preceding year.

HOOP’s share in the market of non-carbonated beverages sold in PET packaging stood at 34.9% (in terms of value) in the fourth quarter, relative to 32.3% recorded in Q4 2002.

On the mineral water market, expanding faster than any other segment of the non-alcoholic beverage market, the HOOP Group recorded an increase in the market share (in terms of value) from the 5.3% in 2002 to 6.6% in 2003.

Also in terms of value, in Q4 2003 the share of the Arctic water in the mineral water market reached 6.1%, up from 4.8% in Q4 2002.

Implementation of the Group’s Acquisition Strategy in 2003

The year 2003 represented a turning point for the HOOP Group. It saw a number of brave ventures and investments made by the Company.

One of the most important tasks to be dealt with by the Executive Board of HOOP in 2003 was the Company’s stock exchange debut. HOOP raised PLN 63m of new capital from the issue of shares. In the last quarter of 2003 the Company carried out its equity investment plans on the Russian market and invested in Polish distribution companies.

The most significant achievements of HOOP in Q4 2003 included:

a) Growing dynamics of sales compared with the analogous period of 2002,

b) Sharp increase in the market share of the Company’s products,

c) Execution of investment plans connected with the acquisition of shares in Megapack of Russia and Polish distribution companies,

d) Adjusting the Company’s corporate regulations to the principles of corporate governance.

Factors Material to the Group’s Net Financial Result in 2003

The most material factor which had a bearing on the financial results achieved by the HOOP Group in 2003 was the rise in financial expenses, driven by a steady growth of the euro exchange rate and the drop in the U.S. dollar exchange rate at the end of 2003. These disadvantageous fluctuations in the exchange rates produced currency exchange losses: Q4 2003 unrealised foreign exchange losses stood at PLN 921K, totalling PLN 8,326K for the entire 2003, while Q4 2003 realised foreign exchange losses amounted to PLN 2,134K (PLN 3,169K for the entire 2003).

At present, HOOP’s Executive Board is considering implementation of an active hedging policy with respect to currency risk. The planned development of export activities should also neutralise to some extent the negative effect of the fluctuations in foreign exchange rates.

The results achieved by the Capital Group in Q4 2003 were also materially affected by the higher production costs of HOOP beverages, which followed from a rise in the prices of basic ingredients and materials as compared with the analogous period of 2002. The higher prices of ingredients and materials were due to the high prices of crude oil, which led to an increase in the prices of materials, including preform, caps and heat-shrinkable film, and to the weakening of the Polish złoty in relation to the euro, which translated into a rise in the prices of concentrates and emulsions used in production.

Furthermore, the investments executed in 2003, which significantly boosted the Company’s production capacity, and the expansion of the new production plant in Grodzisk Wielkopolski contributed to a material rise in the costs of depreciation and amortisation, salaries and wages, as well as other production costs.

Yet another factor to adversely affect the Group’s financial performance was an increase in the costs of transport of products, which followed from the high prices of crude oil. This resulted in an upward swing in HOOP’s selling costs in comparison with 2002 (based on comparable data).

In line with the Company’s earlier announcements, the marketing expenses incurred by the Company in Q4 2003 were approximately PLN 2m lower than those incurred in the analogous period of 2002. For 2003 as a whole, the marketing expenses were almost flat with the preceding year.

The higher costs and expenses in Q4 2003 were partly attributable to the rise in general and administrative expenses upon the acquisition of Megapack.

The Group’s financial results were also affected by the revaluation of deferred income tax assets, made following the reduction in the CIT rate from 27% in 2003 to 19% in 2004.

Data Comparability

In order to ensure comparability, the data for the quarter preceding Q4 2002 were restated on a statistical basis to account for the changes in the policy for valuating balance-sheet items and measuring the financial result, introduced under the amended Polish Accountancy Act.

In the profit and loss account, the 2003 and 2002 data are not fully comparable. This is due to the fact that until the end of February 2003, HOOP settled promotional campaigns organised by its customers and cash discounts granted to them on the basis of invoices and credit notes issued by the customers. Since March 2003, such settlements were carried out on the basis of correcting invoices issued by HOOP. In terms of the profit and loss account, this lowered the revenue on sales of products and the selling costs by the same amount relative to the values the Company would have recorded if no change had been made with respect to the rules in effect until the end of February 2003.

In January 1st – December 31st 2003, the Company issued collective correcting invoices totalling PLN 14,352K. Furthermore, as at December 31st 2003, it created a PLN 70K provision for the collective correcting invoices to be issued in January 2004 with respect to the sales of December 2003. The provision increased other operating expenses.