Altadis First Half Ebitda Up + 5.8 %.

PARIS -- The Board of Altadis examined, on Friday, August 27th, Group results for the first half of 2004.

Two outstanding facts, already highlighted in first quarter results, were:

--in France, the pronounced downward reaction of the duty-paid market (-24.9% for cigarette volumes) to tax and subsequent retail price increases late 2003 and early January 2004;

--and, still, a first time consolidation impact during this past semester of the Regie des Tabacs du Maroc (RTM) consolidated since July 1st, 2003.

After the end of the semester, three other outstanding facts took place that will impact Altadis future:

--in July and August Altadis progressed significantly towards the implementation of its restructuring plan;

--on July 30th, Altadis through its logistics subsidiary Logista has signed an agreement to purchase 96 % of Etinera, the Italian tobacco distribution company, for a consideration of Euro 566 million, on the basis of a Euro 373 million net cash position as of September 30th, 2003; the Group thus acquires a top position in a major market and reinforces its leading position in Logistics in Southern Europe;

--on August 9th, Altadis has signed an agreement to purchase at least 80.75 % and up to 100 % of the Russian cigarette company Balkan Star for a consideration of respectively Euro 147 million and Euro 182 million on a debt-free cash-free basis; by acquiring the most important independent cigarette company in Russia, Altadis gains access to the 4th largest cigarette market in the world and to a development platform in Central and Eastern Europe.

The two acquisitions combined will expand Altadis activity by approximately 8 % in economic sales terms.

The period since the beginning of the year illustrates perfectly Altadis long lasting strategy of organic growth, cost control, balance of risks, and sound acquisition policy in its three divisions.

FIRST HALF FINANCIALS

During the first half of 2004, Altadis grew its economic sales by 6.4 % to Euro 1,695 million.

In the second quarter specifically, the sales performance of the Group was similar since economic sales grew by 6.2 %.

On total economic sales of the semester, the negative impact of the dollar, which was in average 9.9 % below last year, was Euro - 38 million. The positive impact of acquisitions was Euro 135 million.

With an Ebitda of Euro 518 million (+ 5.8%), Altadis achieved a margin rate of 30.5 %, in line with last year's.

In the second quarter specifically, Ebitda performance was better that in the first quarter : Ebitda growth was 7.2 %, and Ebitda margin 31.8 %.

The impacts of the dollar and of acquisitions on Ebitda were Euro - 13 million and Euro 66 million respectively.

Financial result at Euro - 41 million compared to Euro - 23 million in 2003, as a consequence of a net debt of Euro 1.7 billion as of June 30th, 2004 (vs Euro 1 billion as of June 30th, 2003). This evolution was the direct consequence of the acquisition of RTM which was however also largely financed by the ongoing high free cash flow generation of the Group.

Net income for the first semester of 2004 was Euro 190 million, - 13.7 % compared to the first half of 2003, mostly due to increased goodwill amortisation. Pre-goodwill net income, i.e. net income plus goodwill amortisation, was Euro 271 million, + 1.7 % above last year. Per share figures were - 11.7 % for net earnings and + 4.0 % for pre-goodwill net earnings.

The cancellation of 7.3 million shares held in treasury stock was decided by the Annual General Meeting on June 15th.

A total dividend of Eurocent 80, 14.3 % higher than the dividend paid in 2003, was paid during the first half of 2004, in two instalments, Eurocent 35 on March 23rd and Eurocent 45 on June 22nd.

With respect to the balance sheet, the improvement in working capital requirement already achieved during the first quarter was amplified to Euro 417 million. Thus net debt has been reduced to Euro 1.7 billion, from Euro 2 billion as of December 31st, 2003. Naturally, net equity also reflected the dividend payment, Euro 228 million, and share buybacks for Euro 128 million. The generation of operating free cash flow was outstandingly strong during the semester at Euro 749 million.

Acquisitions will have a limited impact on the overall level of debt, bringing it to approximately Euro 2 billion and therefore Altadis will remain with a very strong balance sheet and will pursue with its stated policy with respect to returns to shareholders.

OPERATIONS

Restructuring

Since the workers council meeting of August 4th, 2004, the current restructuring plan is ready for implementation in France, whilst preparatory talks with Unions in Spain have accelerated in July. The plan relates to the closure of 9 facilities, both in France and Spain, in all three divisions. Implementation will take place over 2004 and, mostly, 2005. The corresponding costs of Euro 243 million are already charged for. Expected yearly benefits of Euro 70 million are to be progressively captured from 2004 onwards, and mostly in 2005 and 2006.

In Morocco, as a result of the voluntary leave plan that was launched in January, more than 800 persons out of 2,300 are currently leaving the company, thus improving considerably the productivity of RTM operations. Yearly recurrent benefit will exceed Euro 10 million.

Cigarette: resists despite market evolutions in France this year

Economic sales of the Cigarette Division were up 4.6% to Euro 920 million. RTM cigarette sales contributed Euro 82 million. Good performances in many markets have partially offset low figures of operations in France. Quarterly figures for both the first and the second quarter were heavily impacted by changes in inventories within the Group's distribution division (up in Q1, down in Q2), therefore first half figure provided a better indication of underlying trends.

Blond cigarettes sales, which accounted for 69 % of the sales of the Division, showed a 12.8 % increase to Euro 631 million. On the positive side, there was the consolidation of RTM for Euro 56 million, continued market share gain in Germany (but in a market that decreased by 13.5 %) and other European countries, as well as excellent performance in the Middle East.

For dark cigarettes sales in value, the consolidation of RTM (Euro 12 million) and the improved value per unit could not fully offset the volume decline in France (- 30.3 %) and Spain (- 12.4 %). As a consequence, sales decreased overall by - 19.3 %.

In Spain, Altadis Blond sales increased to Euro 220 million (+3.5 %). The total Spanish market in volume increased by 0.2 %, and the blond segment by 3.1 % due, to some extent, to foreign purchasers. Altadis achieved a 27.5 % market share of that segment, an estimated stable share of Spanish consumption, but 1.2 point below last year when considering total sales in Spain.

In France, the blond market declined by - 24.1 % in volume, reflecting the strong reaction of consumers purchasing habits to the combined 30 % increase in retail prices since October 2003, as was already fully perceptible in the first quarter. Due to the market share gain of 0.2 point to 18.8 %, the Group's blond sales in France decreased less steeply by - 19.1 % to Euro 110 million.

In Germany, where a price hike of Eurocent 40 per pack took place on March 1st, the total cigarette market decreased by 13.5 %. Due to market share gain, Altadis sales were almost stable at Euro 72 million. In Poland, operations still faced very difficult environment and competition conditions, with a decrease of the total market and aggressive prices. In Italy, Altadis volumes were up by 18.8 % and the market share reached 2.5 %.

In Middle Eastern countries, Altadis fast increase of sales already noted in the first quarter continued in a number of markets, particularly in Syria and Lebanon where market shares, estimated respectively above 15 % and 10 %, are still growing. Sales in Africa also improved faster, with Fine establishing very high market share positions in countries such as Ivory Coast, Congo, Niger and Chad.

In Morocco, Marquise posted a strongly improved market share of 45 % with sales of Euro 51 million, improving the mix on that market. As planned, Gauloises Blondes and Fortuna were launched in April and June, respectively, with encouraging initial performance. Prices increased in Morocco on August 2nd by an average 5.5 %.

With respect to brands, Gauloises Blondes, spearhead brand of the Group's portfolio, increased its global sales by 4.1 % to Euro 198 million despite rough conditions in France. International sales of the brand increased by 24 % in volume and 20 % in value to Euro 155 million. The brand, which is ranking # 3 in both Germany and Austria, still improved its market share in Germany to 5.4 % with 3.1 billion cigarettes sold and in Austria to 8.2 %. Sales and market share in Belgium, Luxembourg, Poland and the Czech Republic progressed as well. In Middle Eastern countries, Gauloises Blondes is one of the brands driving the performance and its sales increased at a very fast pace. Gauloises Blondes was launched in Morocco in April, as mentioned above.

Fortuna, the other major brand of the Group, improved its market share to 2.0 % in Italy. On the French market, where the brand expanded significantly in the recent years, its market share improved to 2.1 %. In Spain, still the major market for the brand by far, efforts were focused towards securing Fortuna's market share which was 21.1 %. In addition to Morocco, launches of the brand in other countries are currently being prepared.

Among other brands, which are aiming at more regional or local markets, Nobel, in Spain was stable at 5.9 % market share, and News is up to 5.1 % of the French blond market, gaining 0.2 point market share. Gitanes Blondes was the other brand fuelling our good performance in the Middle-East. Smart, which is ranking # 2 brands in Finland, reached a 15 % market share.

The Cigarette Division grew its Ebitda by 4.4 % to Euro 325 million. The Ebitda margin was stable at 35.4 %.

Cigar : a strong performance and a less adverse dollar exchange rate

The Cigar Division had a very good performance in the American market, where approximately 60 % of the Group's Cigar Division sales stemmed from.

In the United States, Altadis implements its leadership strategy. Since flavoured popular cigars are meeting increased competition, focus is turned to enhancing of promotional efforts in that segment and to new initiatives in the natural and premium segment. Specifically, premium cigar volumes were up by 21 %. Total sales of Altadis USA in the US increased, in dollar, by 8.1 % to Dollar 256 million. As was to be expected, the dollar exchange rate still affected these figures when consolidated, and sales in euro decreased by - 2.7 % to Euro 209 million.

The scope of consolidation of the Division also included JR Cigar, the major distributor of premium cigars in the United States, which was acquired last October and contributed Euro 24 million to economic sales.

Altadis cigar sales in Europe, which represented 20 % of cigar sales, increased by 13.8% to Euro 79 million. Growth in France was 9.1 %, strongly driven by a volume increase of 7.2 %, following an increase of total unit sales in the country, a new fact in this market. In Spain, Dux, with sales of 32 million cigars is now, a year after its launch, an established brand and a growth driver. Farias and Vegafina were the other strongly performing brands. Sales in Spain grew by 19.4% to Euro 45 million.

Cuban cigar represented 2 % of total cigar pieces and 14.1 % of total cigar economic sales. Sales in Altadis accounts (i.e. 50 % of the total) increased by 22.3 % to Euro 56 million, driven by both hand made cigars (torcidos) and by the Mini Cubans. Once again the recovery of the premium cigar market and the success of our strategy were confirmed.

Total economic sales of the Cigar Division were up 20 % in constant currency and 11.2% in euros at Euro 396 million. The weakness of the dollar impacted economic sales by Euro - 31 million. As mentioned JR Cigar sales contributed Euro 24 million.

Ebitda of the Cigar Division grew by 26.9 % in constant dollar terms and by 14.8 % in euro to Euro 95 million. On top of acquisitions, operations across all markets contributed to the growth. The Ebitda margin, at 23.9 %, was up by 0.7 point.

Logistics: turn around in the second quarter despite French market volume fall

As had been announced, Logistics figures improved considerably in the second quarter, therefore the division posted economic sales of Euro 411 million for the semester, up by 4.2 %. However the performance reflected the important volume decrease of the French tobacco market (-20.5 %), and, on the positive side, the consolidation of RTM for Euro 26 million, whereas the high comparison base effect perceptible in first quarter figures was eliminated. A cost-cutting program was initiated and we are exploring ways to switch costs from fixed to variable as much as possible.

General (i.e. non-tobacco) logistic activities represented 58 % of Altadis total logistic economic sales and grew by 2.2 % to Euro 240 million. Growth was achieved across all operating areas in Spain and Portugal. In France, some product lines and particularly stationery goods lagged behind expectations.

The "Pharma project", which was launched during the first quarter after the completion of a specialised warehouse in Madrid and first shipments, provides encouraging initial results.

In Morocco, the first move in general logistics was to add telephone cards in the product range. RTM, represents a 6 % share of Maroc Telecom telephone cards sold to more than 10,000 retailers, which confirms the potential of diversification of logistics in Morocco. The range of non-tobacco products will be progressively widened.

Overall logistics Ebitda was Euro 120 million versus 113 in 2003, up by 6.3 %, the Ebitda margin being 29.2 % up 0.6 point. Heavy negative impacts of the first quarter were partially offset in the second quarter.

Outlook

In this first half of 2004, tax and pricing change in France had still a strong negative impact which was reflected in figures for the Cigarette and Logistic Divisions. Nevertheless the performance of the Group has improved in the second quarter. Contribution of some markets, Middle East and Morocco for cigarette, Cuban cigars, and the whole Ebitda performance of the Cigar Division, were outstanding. Contribution of general logistics in Spain was also satisfactory. Cash flow generation reached a very high level.

First half results, despite the difficult situation in some European cigarette markets, comfort the Group's expectation of an Ebitda growth within a range of 4 to 6 % and of a strong free cash flow generation in 2004.

(Euro Million)                        H1 2003  H1 2004      2003-2004
                                                             Change(c)
------------------------------------ --------- -------- --------------
Economic sales                        1,593.2  1,694.6           +6.4%
------------------------------------ --------- -------- --------------
EBITDA(a)                               489.3    517.6           +5.8%
------------------------------------ --------- -------- --------------
EBITA                                   434.3    448.7           +3.3%
------------------------------------ --------- -------- --------------
Operating Income (EBIT)                 417.0    426.1           +2.2%
------------------------------------ --------- -------- --------------
Financial result                        (22.6)   (41.3)         -82.3%
------------------------------------ --------- -------- --------------
Goodwill Amortisation                   (46.3)   (80.8)         -74.7%
------------------------------------ --------- -------- --------------
Associates                                0.3     13.3            n.s.
------------------------------------ --------- -------- --------------
Extraordinary result                     (4.5)    (5.1)         -14.6%
------------------------------------ --------- -------- --------------
Earnings before tax                     343.9    312.2           -9.2%
------------------------------------ --------- -------- --------------
Corporate Income Tax                   (105.5)   (99.7)          +5.5%
------------------------------------ --------- -------- --------------
Minority Interests                      (18.3)   (22.5)         -22.6%
------------------------------------ --------- -------- --------------
Net income Group Share                  220.1    190.0          -13.7%
------------------------------------ --------- -------- --------------
Earnings Per Share (Eurocents)             75       66          -11.7%
------------------------------------ --------- -------- --------------
Average number of shares
 (millions)(b)                          292.4    285.9   2.2% decrease
------------------------------------ --------- -------- --------------
Pre-goodwill net income(d)              266.4    270.8           +1.7%
------------------------------------ --------- -------- --------------
Pre-goodwill net income per share          91       95          +4.0 %
------------------------------------ --------- -------- --------------

(a) Ebitda: Ebit + Depreciation & brand, and other intangible assets
amortisation.
(b) Average number of shares = average of (total number of shares -
treasury stock).
(c) + symbols are used for beneficial evolution, and reversely, -
symbols for detrimental evolutions.
(d) Net income pre-goodwill: Net income + Goodwill amortisation.



                  Quarterly Economic sales and Ebitda

Economic sales       Q1     Q2     Q3     Q4      FY      Q1     Q2
(Euro million)       2003   2003   2003   2003    2003    2004   2004
------------------- ------ ------ ------ ------ -------- ------ ------
Cigarette           406.5  472.9  415.2  426.1  1,720.7  468.4  451.3
------------------- ------ ------ ------ ------ -------- ------ ------
Cigar               163.2  193.1  193.8  212.2    762.3  183.5  212.7
------------------- ------ ------ ------ ------ -------- ------ ------
Logistics           192.7  201.5  199.7  201.3    795.2  190.0  220.7
------------------- ------ ------ ------ ------ -------- ------ ------
Others and
 adjustments(e)     -11.1  -25.6   95.5   48.4    107.2  -41.6    9.6
------------------- ------ ------ ------ ------ -------- ------ ------
Total               751.3  841.9  904.2  888.0  3,385.4  800.3  894.3
------------------- ------ ------ ------ ------ -------- ------ ------


Ebitda               Q1     Q2     Q3     Q4      FY      Q1     Q2
(Euro million)       2003   2003   2003   2003    2003    2004   2004
------------------- ------ ------ ------ ------ -------- ------ ------
Cigarette           142.4  169.2  149.4  146.8    607.8  173.0  152.2
------------------- ------ ------ ------ ------ -------- ------ ------
Cigar                36.6   46.0   52.0   42.6    177.2   37.5   57.3
------------------- ------ ------ ------ ------ -------- ------ ------
Logistics            54.2   58.7   62.0   57.3    232.2   45.1   74.9
------------------- ------ ------ ------ ------ -------- ------ ------
Others and
 adjustments(e)      -9.5   -8.3   54.0   24.6     60.8  -22.7    0.3
------------------- ------ ------ ------ ------ -------- ------ ------
Total               223.7  265.6  317.4  271.3  1,078.0  232.9  284.7
------------------- ------ ------ ------ ------ -------- ------ ------

(e) Others & adjustments include RTM in Q3 and Q4 2003