Altadis First Nine Months EBITDA up 3.2%.

PARIS -- The Executive Commission of Altadis examined, on Friday, November 5th, Group results for the first nine months of 2004.

Two outstanding facts of the year, already highlighted in first and second quarters results, were:

--in France, the pronounced downward reaction of the duty-paid market (- 24,7% for cigarette volumes over nine months) to tax and subsequent retail price increases late 2003 and early January 2004;

--and, the consolidation impact during the first six months of the Regie des Tabacs du Maroc (RTM) consolidated since July 1st, 2003.

In the course of the third quarter some particularly important news were disclosed by the Company:

--Altadis started to implement its restructuring plan in September;

--The Group announced the signature of 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; closing of that transaction is expected before the end of the year;

--Altadis also announced an agreement to acquire the Russian cigarette company Balkan Star; the closing of the transaction took place on November 4th, and Altadis has actually acquired 80.75% for Euro 147 million on a debt-free cash-free basis and Balkan Star will be consolidated starting from November 1st.

FIRST NINE MONTHS FINANCIALS

During the first nine months of 2004, Altadis grew its economic sales by 4% to Euro 2.60 billion.

In the third quarter specifically, economic sales were flat versus 2003 at Euro 904 million: international cigarette sales and cigar sales offset the drop of the French cigarette market.

On total economic sales of the nine months, the negative impact of the dollar, which was in average 8.6% below last year, was Euro - 51 million. The positive impact of acquisitions was Euro 150 million.

With an Ebitda of Euro 833 million (+ 3.2%), Altadis achieved a margin rate of 32%, improved on first half and in line with last year's.

In the third quarter specifically, Ebitda was Euro 315 million (Euro 317 million in 2003) and Ebitda margin at the seasonal high of 34.9%.

The impact of the dollar and of acquisitions on Ebitda was Euro - 12 million and Euro 72 million respectively.

Financial result stood at Euro - 61 million compared to Euro - 49 million in 2003, as a consequence of an average net debt of Euro 1.7 billion (vs Euro 1.3 billion during the first nine months of 2003). This evolution was the direct consequence of the acquisition of RTM which was however already largely financed by the ongoing high free cash flow generation of the Group.

Net income for the first nine months stood at Euro 347 million, a - 1.7% change versus last year. Net income performance has much improved versus the first half of the year when the change was - 13.7%. Increased goodwill amortisation in 2004. was a major driver weighing on net income growth performance. Pre-goodwill net income, i.e. net income plus goodwill amortisation, was Euro 464 million, 5.1% above last year. Per share figures were + 0.6% for net earnings and + 7.6% for pre-goodwill net earnings.

The cancellation of 7.3 million shares held in treasury stock decided by the Annual General Meeting in June is now effective, and the number of shares outstanding is 283.2 million, while the average number of shares over the first nine months was 284.9 million.

With respect to the balance sheet, the improvement in working capital requirement remains very strong at Euro 339 million. Net debt has been reduced to Euro 1.5 billion, from Euro 2 billion as of December 31st, 2003. Naturally, net equity also reflected the dividend payment, Euro 228 million, booked in the first and second quarter and share buybacks for Euro 128 million. The generation of operating free cash flow was outstandingly strong during the first nine months at Euro 891 million, a Euro 136 million improvement on 2003.

Acquisitions will have a limited impact on the overall level of debt, bringing it to approximately Euro 2 billion at the end of 2004, i.e. equal to that of end 2003, and therefore Altadis will remain with a very strong balance sheet and will pursue with its stated policy with respect to returns to shareholders, combining a double digit increase of dividends with share buybacks.

OPERATIONS

Restructuring

Implementation of the restructuring plan started in France and preparatory talks with Unions in Spain are progressing. One facility was closed early September and 8 other closures are planned, both in France and Spain, in all three divisions. Implementation, which has already started, will mostly take place in 2005. The corresponding costs of Euro 243 million are already charged for. Expected yearly benefits of Euro 70 million will be progressively captured from 2004 onwards, and mostly in 2005 and 2006. In Morocco, 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 Division weathers adverse conditions in France this year

The Group sold 81 billion cigarettes during the first nine months of 2004, including cigarettes licensed to third parties. Economic sales of the Cigarette Division were up 5.3% to Euro 1.36 billion. RTM cigarette economic sales contributed Euro 130 million (whilst they were not recorded in the division last year). Very good performances of international sales outside Europe have partially offset decreased figures of operations in France.

The performance of blond cigarettes sales, which accounted for 69% of the sales of the division, followed a better pattern than total cigarettes sales. A solid 13.1% increase to Euro 935 million was achieved. It was driven by the contribution of RTM for Euro 90 million, continued market share gain in Germany (albeit in a market that decreased by 15%) and other European countries, as well as further excellent performance in the Middle East, thus more than offsetting the decrease in France.

For dark cigarettes sales, the consolidation of RTM (Euro 19 million) and the improved value per unit could not fully offset the volume decline in France (- 33.3%) and Spain (- 10.6%). As a consequence, sales decreased overall by - 15.6%.

In Spain, Altadis blond sales increased to Euro 305 million (+ 3.8%). The total Spanish market in volume decreased 0.8%, whilst the blond segment by 1.3% due, to some extent, to foreign purchasers. Altadis achieved a 26.9% market share of that segment, 1.7 point below last year, explainable in part by increased purchases by foreigners.

In France, the blond market declined by - 23.94% 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 previous three quarters. Due to a small market share gain and to improved unit prices, the Group's blond sales in France decreased less steeply by - 19.1% to Euro 167 million.

In Germany, after the March 1st price hike of Eurocent 40 per pack of 19 cigarettes, the total cigarette market decreased by - 15%. Due to market share gain, Altadis sales were par with last year's at Euro 114 million. In Poland, the very difficult environment and strong competition carried on. In Italy, Altadis volumes were very strongly up by 25.8% and the market share reached 2.6%.

In Middle Eastern countries, Altadis fast increase of sales already highlighted in the first half 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 also Chad.

In Morocco, Marquise confirmed its strongly improved market share of 45% with sales of Euro 79 million, improving the mix on that market. As planned, Gauloises Blondes and Fortuna were launched in April and June, respectively. Fortuna launch met rapid success and the brand reached a spot market share of 3.5% in September. Sales also benefit from the price increase of August 2nd by an average 5.5%.

With respect to brands, Gauloises Blondes, the leading brand of the Group, increased its global sales by 3.4% to Euro 306 million despite rough conditions in France. The year 2004 will be an excellent year for the development of the brand's international sales which increased by 19.8% in volume and 18.4% in value to Euro 242 million. The brand is #3 in both Germany and Austria. It still improved its market share in Germany to 5.5% with 4.8 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.

Fortuna, the other major brand of the Group, increased its global sales to Euro 277 million posting a + 5.0% growth. It improved its market share to 2.1% in Italy. On the French market, where the brand expanded significantly in the recent years, its market share improved to 2.1% versus 1.6% in 2003. In Spain, the major market for the brand by far, Fortuna's market share was 20.6%. In addition to Morocco, launches of the brand have taken place in Luxembourg, Austria and Poland.

Among other brands, which are aiming at more regional or local markets, the Moroccan Marquise is now a significant brand, Nobel, in Spain was almost stable at 5.7% blond market share, and News is stabilising its 5.1% of the French blond market. Gitanes Blondes was the other brand fuelling our good performance in the Middle-East. Smart, which is #2 in Finland, consolidates a 14.7% market share.

The Cigarette Division grew its Ebitda by 7.1% to Euro 494 million. The Ebitda margin improved to 36.2% from 35.6%.

Cigar Division performs strongly although the dollar impact is still negative

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. Focus this year is turning strongly to upmarket cigars, i.e. the natural (leaf wrapper) and premium (hand made) segments. Specifically, premium cigar volumes were strongly up. Total sales of Altadis USA in the US increased, in dollar, by 9% to Dollar 401 million. As was to be expected, the dollar exchange rate still affected these figures when consolidated, and sales in euro decreased by - 1.1% to Euro 327 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 37 million to economic sales.

Altadis cigar sales in Europe, which represented 20% of cigar sales, increased by 10.9% to Euro 119 million. Growth in France was 7.4%, strongly driven by a volume increase of 5.2%, following an increase of total unit sales in the country, a new fact in this market that dates back to last January. In Spain, Dux, with sales of 50 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 13.8% to Euro 67 million.

Cuban cigar represented 2% of total cigar and 14% of total cigar economic sales, which witnesses the high value per unit of these cigars. Sales in Altadis accounts (i.e. 50% of the total, since they are consolidated proportionally) increased by 12.6% to Euro 84 million, driven by both hand made cigars (torcidos) and by the Mini Cubans. The recovery of the premium cigar in international markets was confirmed, and Altadis strategy based on both ultimate luxury (limited editions, special reserves) and affordable luxury (Mini Cubanos) proved to be successful.

Total economic sales of the Cigar Division were up by 18.7% in constant currency and 10.5% in euros at Euro 608 million. The weakness of the dollar impacted economic sales by Euro - 45 million. As mentioned JR Cigar sales contributed Euro 37 million.

Ebitda of the Cigar Division grew by an outstanding 27.8% in constant dollar terms and by 16.5% in euro to Euro 157 million. On top of acquisitions, operations across all markets contributed to the growth. The Ebitda margin, at 25.8%, was up by 1.3 point.

Logistics Division improved again despite French tobacco market volume fall

Logistics figures improved again in the third quarter, therefore the division posted economic sales of Euro 627 million for the nine months, up by 5.6%. The performance is affected by the heavy volume decrease of the French tobacco market (- 20.6%), and, on the positive side, the consolidation of RTM for Euro 40 million.

General (i.e. non-tobacco) logistic activities represented 57% of Altadis total logistic economic sales and grew by 1.2% to Euro 355 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 with economic sales of Euro 6 million.

In Morocco, the first move in general logistics was to add telephone cards in the product range. RTM now has a 8% share of Maroc Telecom telephone cards which are sold to more than 12,000 retailers and is finalising the launch of e-telephone cards. Another confirmation of the diversification potential for logistics in Morocco was the recent agreement to distribute stamps.

Overall logistics Ebitda was Euro 189 million versus 175 in 2003, up by 8.1%, the Ebitda margin being 30.1% up 0.7 point. Heavy negative impacts during the first quarter were more than offset in the following quarters.

Outlook

The heavy drop of the French tobacco market, that was triggered by tax increases, fully perceivable since the last quarter of 2003, continued without change during all first nine months of 2004. It has weighed markedly on cigarette and logistic operations.

Nevertheless the Group delivers growth. The performance in some cigarette markets, like the Middle East and Morocco, of the Cuban cigars, and in fact of the whole Cigar Division, were outstanding. Contribution of tobacco and general logistics in Spain was also satisfactory. Another major feature was that cash flow generation reached a very high level.

The results of the first nine months of 2004 and current trading (with a dollar weaker than expected) are driving the Group to a full year Ebitda growth towards the lower end of the foreseen range of 4 to 6%.

Looking forward to 2005, some key features are already identifiable. The fiscal environment in France should remain stable. The restructuring program will be implemented and provide savings. The latest acquisitions, Balkan Star in Russia and Etinera in Italy will be consolidated. Therefore 2005 will be a year of growth for Altadis.

P & L First nine months

(Euro Million)                                               2003-2004
                                              2003     2004  Change(3)
------------------------------------------ -------- -------- ---------
Economic sales                             2,497.4  2,598.4      +4.0%
EBITDA(1)                                    806.7    832.6      +3.2%
EBITA                                        720.2    735.2      +2.1%
Operating income (EBIT)                      693.2    701.1      +1.2%
Financial result                             (49.2)   (61.4)    -24.9%
Goodwill amortisation                        (87.6)  (116.4)    -32.9%
Associates                                     3.8     19.9       n.s.
Extraordinary result                          (6.8)    16.7       n.s.
Earnings before tax                          553.4    559.9      +1.2%
Corporate income tax                        (167.3)  (172.9)     -3.4%
Minority interests                           (32.5)   (39.6)    -21.7%
Net income group share                       353.6    347.4      -1.7%
Earnings per share (Eurocent)                  121      122      +0.6%
Average number of shares (million)(2)        291.6    284.9       2.3%
                                                              decrease
Pre-goodwill net income(4)                   441.2    463.8      +5.1%
Pre-goodwill earnings per share (Eurocent)     151      163      +7.6%
------------------------------------------ -------- -------- ---------

(1) Ebitda: Ebit + Depreciation & brand, and other intangible assets
    amortisation.

(2) Average number of shares = average of (total number of shares -
    treasury stock).

(3) + symbols are used for beneficial evolution, and reversely, -
    symbols for detrimental evolution.

(4) Pre-goodwill net income : Net income + Goodwill amortisation.


                  Quarterly Economic sales and Ebitda

Economic sales            Q1 2003  Q2 2003  Q3 2003  Q4 2003  FY 2003
(Euro million)
------------------------- -------- -------- -------- -------- --------
Cigarette                   406.5    472.9    415.2    426.1  1,720.7
Cigar                       163.2    193.1    193.8    212.2    762.3
Logistics                   192.7    201.5    199.7    201.3    795.2
Others and adjustments(5)   -11.1    -25.6     95.5     48.4    107.2
------------------------- -------- -------- -------- -------- --------
Total                       751.3    841.9    904.2    888.0  3,385.4
------------------------- -------- -------- -------- -------- --------


Ebitda                    Q1 2003  Q2 2003  Q3 2003  Q4 2003  FY 2003
(Euro million)
------------------------- -------- -------- -------- -------- --------
Cigarette                   142.4    169.2    149.4    146.8    607.8
Cigar                        36.6     46.0     52.0     42.6    177.2
Logistics                    54.2     58.7     62.0     57.3    232.2
Others and adjustments(5)    -9.5     -8.3     54.0     24.6     60.8
------------------------- -------- -------- -------- -------- --------
Total                       223.7    265.6    317.4    271.3  1,078.0
------------------------- -------- -------- -------- -------- --------


Economic sales             Q1 2004  Q2 2004  Q3 2004
(Euro million)
------------------------- -------- -------- --------
Cigarette                   468.4    451.3    443.3
Cigar                       183.5    212.7    211.8
Logistics                   190.0    220.7    216.7
Others and adjustments(5)   -41.6      9.6     32.0
------------------------- -------- -------- --------
Total                       800.3    894.3    904.8
------------------------- -------- -------- --------


Ebitda                     Q1 2004  Q2 2004  Q3 2004
(Euro million)
------------------------- -------- -------- --------
Cigarette                   173.0    152.2    168.5
Cigar                        37.5     57.3     62.1
Logistics                    45.1     74.9     69.0
Others and adjustments(5)   -22.7      0.3     15.4
------------------------- -------- -------- --------
Total                       232.9    284.7    315.0
------------------------- -------- -------- --------

(5) Others & adjustments include RTM in Q3 and Q4 2003. In 2004, RTM
    figures are broken down and included within Cigarette and
    Logistics Divisions.