Altadis Results: Full Year 2003.

Business Editors

PARIS--(BUSINESS WIRE)--Feb. 25, 2004

The Board of Altadis has approved, on Tuesday, February 24th, Group results for full year 2003.

These results need appreciated towards five particularly outstanding events:

-- since July 1st, 2003 Altadis consolidates the Regie des Tabacs du

Maroc (RTM) of which it has acquired 80 %;

-- on October 2nd, 2003, Altadis made a Euro 1.1 billion bond issue;

-- on October 20th, 2003, an important increase in taxes and in

retail prices took place in France, which is a major market for

Altadis;

-- the Euro 240 million cost of the restructuring plan announced in

July has been charged for in Q4;

-- and, the 20 % increase of the euro versus the dollar, which has a

direct translation impact on the major part of Altadis cigar

operation.

FINANCIALS

In 2003, Altadis grew its economic sales by 6.4 % to Euro 3,385 million, its Ebitda by 11 % to Euro 1,078 million, its Ebit by 12.9 % to Euro 915.3 million and improved its Ebitda margin by 1.3 point to 31.8 %.

The normalised net income (i.e. net income before the charge for restructuring, which provides a better indication of the trend) grew by 3.2 % to Euro 449 million and its normalised earnings per share by 5.7 %. Net income, which was exceptionally affected by a Euro 240 million charge, was Euro 293 million.

Ex-RTM , figures are + 3.1 %, + 4.9 % and + 8.4 % for economic sales, Ebitda and Ebit respectively.

Specifically for the fourth quarter, the performance of which has been below yearly average, due to some of the outstanding events mentioned above, corresponding figures are + 4.8 % for sales and + 8.4 % for Ebitda.

Financial expenses at Euro 82.9 million compared to 36.8 in 2002 reflect the financing of the acquisition in Morocco on top of the loss in dollar-denominated balance sheet items booked in the first half. Interest expense per se reflects net debt of Euro 2.0 billion as of December 31st, 2003 (vs Euro 1.1 billion as of December 31st, 2002), of which Euro 1.1 billion is the bond issued on October 2nd, 2003. Balance sheet remains very strong.

15 million shares (4.9 % of the shares) have been cancelled in July as per the AGM's decision. Since that time, Altadis has purchased 1 % of the outstanding shares. Looking forward, the Group plans to continue to buy back its own shares at a pace compatible with its current credit rating.

Generation of operating free cash flow has been strong at Euro 700 million versus 335 in 2002.

The Board will propose to the Annual General Meeting a dividend payment of 80 eurocents per share, i.e. a 14.3 % increase, thus bringing the pay-out ratio to 51.8 % on normalised income. An interim payment of part of it, 35 eurocents, will be made on March 23rd, 2004.

OPERATIONS

Restructuring

In July 2003, Altadis announced plans to restructure its operations. The need to maintain competitiveness in an industry where manufacturers continuously concentrate and rationalise their production facilities, the decline of dark cigarette markets, the slowdown of overall tobacco consumption and the evolution of manufacturing for third parties are the major causes. The process is expected to lead to the closure of 9 facilities, both in France and Spain, and in all three divisions, cigarette, cigar and logistics. The total number of people affected (including transfers) would be 977 in Spain and 701 in France, the corresponding headcount net reduction figures amounting respectively to 743 and 533.

Estimate for the corresponding costs is Euro 240 million, with yearly recurrent benefits of Euro 70 million to be progressively captured from 2004 to 2006.

The consultation and negotiation processes prior to implementation are currently conducted in accordance with local laws and the plan is expected to be implemented over 2004 and 2005, as initially contemplated.

Regie des Tabacs du Maroc (RTM): half year Ebitda at Euro 59 million

Economic sales of RTM represented 5.8 % of the Group's economic sales during the second half of 2003. During this semester, RTM achieved economic sales of Euro 104 million, and an Ebitda of Euro 59 million. Figures reflect two seasonal effects: the usual peak of tourism in the third quarter and in the fourth quarter, the month of Ramadan, which weighs on consumption. RTM's market share with its own brands was 84 % in volume, with Marquise in the leading position posting a market share of 42 %. RTM has announced in January a voluntary leave plan to be implemented in 2004, and also confirmed the closure of the Casablanca factory before the end of the year.

Cigarette: blond cigarette sales are up 2.7 %

Economic sales of the Cigarette Division represented 51 % of the Group's economic sales.

As was expected since October last year, the sales of the division have been marked by the consequences of the 20 % tax-driven increase of retail prices on October the 20th in France.

Due, in particular to a strong initial reaction of consumers, French total market volume (blond, dark and RYO) went down by 26 % during the last quarter.

Most figures of the Cigarette Division reflect this situation with figures below. Economic sales growth was 1.9 %. Blond sales, which account for 64 % of the sales of the Division, showed a 2.7 % increase to Euro 1,101 million, particularly driven by international sales and market share gains in France, Germany, Italy and Austria.

Altadis blond sales in the rest of the world are still outstanding with a very high 22 % increase from Euro 188 to Euro 229 million. This evolution corresponds to continued very positive performances, particularly in the Middle East.

In Spain, Altadis blond sales increased by 2.3 % to Euro 398 million with volume at 22 billion cigarettes growing actual volume sold to the market by 0.2 %. The total Spanish market in volume had been increasing by 1.2 %, with an increase of 4.4 % for the blond segment. Altadis achieved a 29 % market share of that segment, a figure improved vis-a-vis that of the first nine months.

French blond market declined by 11.8 % in volume in 2003, reflecting a strong reaction of consumers purchasing habits to the 9 % and 20 % retail price increases of January and October. For Altadis however, despite a market share gain sales decreased by 3.2 % to Euro 266 million. In spite of that Altadis gained market share by 0.9 point to 18.6 %.

In Germany, where prices, due to taxes, increased the same as they did in 2002, i.e. by 1 eurocent per stick on January 1st, the cigarette market decreased by 6.2 %. The very steady growth momentum of Gauloises Blondes nevertheless continued, bringing its market share to 5.4 % with 7.2 billion cigarettes sold. Altadis sales were thus up by 0.8 % to Euro 150 million.

With respect to brands, Gauloises Blondes, spearhead brand of the Group's portfolio, increased its global sales by 2.1 % to Euro 389 million. International sales of the brand increased by 14.5 % in volume and 8.2 % in value to Euro 273.3 million. The brand's market share improved in Austria, to 7.8 %, as well as in the Benelux countries. Gauloises Blondes is also one of the brands driving the performance in the Middle East with market share estimates above 10 % in Lebanon and 15 % in Syria.

Fortuna, the other major brand of the Group, is confirming its market share of 1.5 % in Italy after its launch in May 2002. On the French market, where the brand has expanded significantly in the recent years, its market share was 1.7 %. In Spain, efforts are oriented towards securing Fortuna's market share which was 22.6 %.

Among other brands, which are aiming at more regional or local markets, Nobel, in Spain, achieves a good performance, reaching a blond market share of nearly 6 %, and News is up to 5 % of the French blond market, gaining 1.5 point of market share.

In 2003, Altadis has strongly increased the prices of its dark cigarettes, by 19 % and 20 % in France in January and October, as the result of tax increases, and by 20 % in Spain. The reaction of the market in France was strong with a 23.7 % decrease in volume. In Spain, the decrease in volume, at -12.1 % is slightly faster than the underlying evolution.

The Cigarette Division has grown its Ebitda by 6.3 % to Euro 608 million. The Ebitda margin improved markedly by 1.4 point to 35.3 %. The improvement was driven by blond volumes, market share gains in most markets and benefits from previous restructuring.

Cigar: very good performance in the United States, partly offset by the strong change in the dollar exchange rate

The Cigar Division, which represents 23 % of the Group's sales, had a very good performance in the American market, where 63 % of the Group's cigar Division sales stem from.

Altadis, which is the market leader in the US, benefits from successful initiatives in product launches in the mass-market segment and price increases. The momentum gained in 2002 still carries on and new marketing initiatives maintain the dynamics and extend it to the natural segment. Consequently sales in the United States increased, in dollar, by 15.4 %. The dollar exchange rate very strongly affects these figures when they are consolidated and sales in euro decreased by - 3.5 % to Euro 435 million. Another driver has been the acquisition of a major distributor of premium cigars in the United States, 800 JR Cigar, on October 10th, which is consolidated for the first time in the fourth quarter of 2003.

Altadis cigar sales in Europe, which represent 20 % of cigar sales, increased by 3.5 % to Euro 151 million, with a clear improvement during the last quarter of the year. Growth in France was 2.4 %. In Spain, the new brand, Dux, which was launched in April, achieved sales of 44 million cigars and a 5.6 % market share in the second half, thus bringing sales back to growth. Cuban cigar sales increased by approximately 17 % in dollar terms, still improving the 9 months performance, but still lagging below full potential because of the international economic situation.

Resulting overall cigar sales increased by 15.0 % in constant currency and by 1 % in euro to Euro 762 million.

The financial performance of the Cigar Division has been very positive, since the Ebitda of the Division grew by 24.5 % in constant dollar terms, and increased in euro by 3.2 % to Euro 177 million, despite the dollar. The Ebitda margin improved by 0.6 point to 23.3 %. Operations in America have been the major driver, with a combination of volume growth, gain in market share and price increases.

Logistics: strong growth of general logistics

Figures of the Logistics Division, which represents 23 % of the Group's sales, showed a relatively limited perimeter effect (Burgal acquisition), with an impact of Euro 30.7 million on sales. The Division posted a 7.4 % increase to Euro 795 million, organic growth being 3.2 %.

General (i.e. non-tobacco) logistic activities now represent 60 % of Altadis total logistic economic sales and grew by 19.6 % to Euro 479 million. Ex perimeter effect, growth has been achieved in the three markets of Spain, France and Portugal, with an overall rate of 11.9 %.

The performances of the distribution of books and publications in Spain on the one hand, and of wholesaling in France on the other, have been particularly good, with economic sales growth rates of 14 % to Euro 98 million and 5.7 % to Euro 114 million, respectively. Telephone cards are still very active, progressively shifting to e-recharged cards and to parking cards.

As usual, price and volumes have been the drivers of evolutions for tobacco logistics. Total sales evolution for Spain, France and Portugal has been - 7.1 %, thus reaching Euro 316 million. Given Altadis tobacco distribution market shares, operations are closely linked to market volumes.

Overall logistics Ebitda grew by 0.5 % to Euro 232 million. The Division achieved a high Ebitda margin of 29.2 %, which is very close to the Group's average, despite the dilutive impact of expansion in general logistics.

Outlook

Tax and pricing events in France, will obviously have an impact on Altadis cigarette operations in that market which represent 16 % of the Group's total revenues. Evolutions in other markets and other Divisions are expected to positively offset this impact progressively over the second half of the year.

Altogether, the Group foresees operations in 2004 prolonging previous growth at the level of total Ebitda and providing further strong free cash flow generation.

                 Full year profit and loss account

                                                             2002-2003
                                                               Growth
           (Euro Million)                    2002      2003      (a)
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Economic sales                             3,182.1   3,385.4     +6.4%
----------------------------------------------------------------------
EBITDA                                       971.1   1,078.0    +11.0%
----------------------------------------------------------------------
Operating Income                             810.5     915.3    +12.9%
----------------------------------------------------------------------
Financial result                             (36.8)    (82.9)  -125.4%
----------------------------------------------------------------------
Goodwill Amortisation                        (94.5)   (118.0)   -24.8%
----------------------------------------------------------------------
Associates                                    26.6      15.7    -40.9%
----------------------------------------------------------------------
Extraordinary result                         (32.1)   (250.7)  -681.5%
----------------------------------------------------------------------
Earnings before tax                          673.6     479.4    -28.8%
----------------------------------------------------------------------
Corporate Income Tax                        (196.8)   (142.5)   +27.6%
----------------------------------------------------------------------
Minority Interests                           (41.6)    (43.7)    -4.8%
----------------------------------------------------------------------
Normalised net income Group Share            435.2     448.9     +3.2%
----------------------------------------------------------------------
Normalised earnings Per Share (Eurocent)       146       154     +5.6%
----------------------------------------------------------------------
Average number of shares (mn)                297.8     290.9     -2.3%
----------------------------------------------------------------------

   Average number of shares = average of (total number of shares -
treasury stock)
   (a) + symbols are used for beneficial evolution, and reversely, -
symbols for detrimental evolutions.

For the record, Net income and Earnings per share after the charge for restructuring were as follows:

Net income Group Share                     435.2      293.2     -32.6%
----------------------------------------------------------------------
Earnings Per Share (Eurocent)                146        101     -31.0%
----------------------------------------------------------------------

For the record, number of shares as of December 31st:

Total (share capital) (mn)                 305.5      290.5    - 4.9 %
----------------------------------------------------------------------
Treasury stock (mn)                         11.5        3.1       N.S.
----------------------------------------------------------------------


                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
----------------------------------------------------------------------
RTM, others and adjustments     -11.1   -25.6    95.5    48.4   107.2
----------------------------------------------------------------------
Total                           751.3   841.9   904.2   888.0 3,385.4
----------------------------------------------------------------------


Ebitda
(Euro million)                 Q1 2003 Q2 2003 Q3 2003 Q4 2003 FY 2003
----------------------------------------------------------------------
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
----------------------------------------------------------------------
RTM, others and adjustments      -9.5    -8.3    54.0    24.6    60.8
----------------------------------------------------------------------
Total                           223.7   265.6   317.4   271.3 1,078.0
----------------------------------------------------------------------