Altadis Results for the First Quarter of 2004.

Business Editors

PARIS--(BUSINESS WIRE)--May 12, 2004

The Board of Altadis examined, on Tuesday, May 11th, Group results for the first quarter of 2004.

Outstanding facts of the quarter were:

-- in France, the continuation of the strong downward reaction of

the duty-paid market to recent tax and subsequent retail price

increases late 2003 and early January 2004;

-- the strong euro, in average 16 % higher versus the dollar

during the first quarter, which had a direct translation

impact on the major part of Altadis cigar operation;

-- and the impact of the consolidation of the Regie des Tabacs du

Maroc (RTM), which is consolidated since July 1st, 2003.

As a consequence and as was expected, figures for the quarter cannot be taken as a standard for the rest of the year.

FINANCIALS

In Q1 2004, Altadis grew its economic sales by 6.5 % to Euro 800 million and its Ebitda by 4.1 % to Euro 233 million.

The impact of the weaker dollar was Euro - 28 million on economic sales and Euro - 9 million on Ebitda.

The impact of acquisitions was Euro + 66 million on economic sales and Euro + 32 million on Ebitda.

With an Ebitda of Euro 233 million, Altadis maintained a margin rate above 29 %.

Financial result decreased to Euro - 21 million compared to - 15 in 2003, reflecting a net debt of Euro 1.8 billion as of March 31st, 2004 (vs Euro 1.1 billion as of March 31st, 2003). This evolution was the direct consequence of the acquisition of RTM which was however largely financed by the high free cash flow generation of the past three quarters.

Net income for the first quarter of 2004 was Euro 84 million, - 10.3 % compared to the first quarter of 2003, mostly due to increased goodwill amortisation. Pre-goodwill net income, i.e. net income plus goodwill amortisation, was 120 million, + 3.1 % above last year.

As of March 31st, Altadis was holding 1.6 % of its outstanding shares within its plan to cancel 2.5 % in June.

Earnings per share were Eurocent 29.

An interim dividend of Eurocent 35 was paid on March 23rd, 2004 and, as announced previously, the Board will propose to the Annual General Meeting a total dividend payment of Eurocent 80 per share, the payment of the remaining Eurocent 45 is slated for June 22nd.

With respect to the balance sheet, it showed an improvement in working capital requirement since December 31st, 2003, a reduction of net debt, and, it reflected, naturally, the payment of the interim dividend. The generation of operating free cash flow was very strong during the quarter at Euro 440 million.

OPERATIONS

Restructuring 

The current restructuring plan, announced in the course of last year, is going through pre-implementation proceedings. The plan relates to the closure of 9 facilities, both in France and Spain, in all three divisions with implementation over 2004 and, mostly, 2005.

The corresponding costs of Euro 240 million have been charged for in the last quarter of 2003. Expected yearly benefits of Euro 70 million are to be progressively captured from 2004 onwards, and mostly in 2005 and 2006.

In Morocco, the voluntary leave plan that was launched in January will lead to more than 800 persons out of 2,300 leaving the company before the end of 2004, a transforming change for RTM. Yearly recurrent benefit will exceed Euro 10 million.

Cigarette: a quarter of contrasts

Economic sales of the Cigarette Division were Euro 468 million versus Euro 407 million in 2003. RTM cigarette sales contributed Euro 42 million and temporary increase of inventory levels contributed Euro 24 million. This inventory will be brought back down to a normal level within the end of the year. The recent heavy tax and related retail price increases in France were the other outstanding drivers of this quarter's figures.

Blond cigarette sales, which account for 71 % of the sales of the Division, showed a 26.9 % increase to Euro 331 million. On the positive side, there was the consolidation of RTM for Euro 28 million, continued market share gain in Germany and other European countries as well as excellent performance in the Middle East. Blond sales were driven negatively by the drop of the French market.

The dark cigarette market was down by 11.1 % in Spain and by 29.3 % in France, and Altadis volumes decreased similarly.

In Spain, Altadis blond sales increased to Euro 132 million (+ 28.9 %); however, at constant inventory level, the increase is 6 %. The total Spanish market in volume increased by 1.8 % and the blond segment by 4.8 %. Altadis achieved a 28.8 % market share of that segment, a figure slightly better than that of the first quarter last year.

In France, the blond market declined by 22.4 % in volume, reflecting the strong reaction of consumers purchasing habits to the 20 % and 9 % retail price increases of October 20th 2003 and January 5th 2004. The Group's blond sales in France decreased by only 15.4 % to Euro 52 million, reflecting a market share gain of 0.5 point to 19 %.

In Germany prices went up by Eurocent 40 per pack on March 1st, entailing both a tax and a manufacturers' take increase. The effect of the increase did not show in this quarter's figures, due to inventories existing at the time of the hike. The total cigarette market decreased by 6 %. Due to market share gain, Altadis sales were up by 8.2 % to Euro 33 million.

In Poland, operations still faced a very difficult environment and competition conditions, with a decrease of the total market and aggressive prices.

In Middle Eastern countries, Altadis sales increased at a very fast pace, 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 reaching very high market shares in countries such as Ivory Coast, Congo and Niger.

In Morocco, where the quarter was very good, consumers have been upgrading from dark cigarettes to the blond Marquise, which posted a strongly improved market share of 46 %, improving the mix of sales on that market. As planned, Gauloises Blondes has been launched in early April and Fortuna launch will take place in June.

With respect to brands, Gauloises Blondes, spearhead brand of the Group's portfolio, increased its global sales by 12.6 % to Euro 96 million. International sales of the brand increased by 35.7 % in volume and 29.8 % in value to Euro 75 million. The brand's market share improved in Germany to 5.4 % with 1.5 billion cigarettes sold and in Austria to 8.2 %; the brand now ranks # 3 in both countries. Sales and market shares 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, improved its market share to 1.7 % 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 21.9 %. 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, achieved a good performance, reaching a blond market share of 6.3 %, and News is up to 5.2 % of the French blond market, gaining respectively 0.2 point and 0.4 point of market share. Gitanes Blondes was the other brand fuelling our good performance in the Middle-East. Smart, launched in Finland in 1999, reached a double digit market share and is now ranking # 2.

The Cigarette Division grew its Ebitda by 21.5 % to Euro 173 million. The Ebitda margin improved by 1.9 point to 36.9 %.

Cigar: a strong performance and a strong 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 successfully its leadership strategy, taking the lead in product launches and increasing reasonably its prices. The momentum gained over the past two years benefits continuously our operation in America. From popular to premium cigars, volumes and sales in dollar increased. Total sales of Altadis USA in the US increased, in dollar, by 12.1 % to Dollar 120 million. As was to be expected, the dollar exchange rate strongly affected these figures when consolidated and sales in euro decreased by -3.7 % to Euro 96 million.

The scope of consolidation of the Division also included 800 JR Cigar, the major distributor of premium cigars in the United States, which was acquired last October and contributed Euro 11 million to economic sales.

Altadis cigar sales in Europe, which represent nearly 20 % of cigar sales, increased by 15.1 % to Euro 35 million. Growth in France was 11.2 %, strongly driven by a volume increase of 8.1 %, reorganised sales force, and emphasis on upscale brands like Fleur de Savane, Guantanamera and Flor de Copan. In Spain, Dux, which is now, a year after its launch, an established brand, achieved sales of 18 million cigars and a 7.2 % market share. Sales in Spain grew by 19.3 % to Euro 20 million.

Cuban cigar sales increased by approximately 32 %, confirming the recovery of the premium cigar market and the success of our strategy; they were also amplified by accelerated orders from distribution and retail.

Resulting overall cigar sales increased by 25.7 % in constant currency.

Ebitda of the Cigar Division grew by 20.2 % in constant dollar terms. In euro, despite the dollar, it increased by 2.5 % to Euro 37.5 million. Operations in America were the major driver, with a combination of volume growth, gain in market share and price increases. The Ebitda margin, at 20.4 %, was below last year's, particularly due to above average advertising expenses with numerous launches in the first quarter and will progress significantly over the year.

Logistics: a quarter of strong specificities

The Division posted economic sales of Euro 190 million, a figure close to last year's (Euro 193 million). The figure reflects the volume decrease of the French market, the consolidation of RTM for Euro 13 million and a high comparison base in 2003, due to increase in value of inventories in the first quarter of that year.

General (i.e. non-tobacco) logistic activities now represent 62 % of Altadis total logistic economic sales and grew by 3.7 % to Euro 117 million. Growth was achieved in Spain and Portugal, the best performances being those of the former Burgal Group and of the distribution of books and publications, both with a double digit growth rate.

During the quarter, the implementation of the "Pharma project" was launched with the completion of a specialised warehouse in Madrid and first shipments.

In Morocco, logistics added Maroc Telecom telephone cards to its range of products in January, reaching rapidly a high number of points-of-sale, and economic sales of Euro 1 million in the first quarter.

Volumes and, to some extent, prices were the usual drivers of evolutions for tobacco logistics in Spain and France, therefore with a strong impact of the latter. Additionally, RTM is now consolidated. Total sales evolution was - 8.7 %, thus reaching Euro 73 million.

Overall logistics Ebitda was Euro 45 million versus 54 in 2003, the Ebitda margin being 23.7 %. The figure was strongly impacted by first quarter specific items: the tobacco situation in France, the launch costs of the "Pharma project" in Spain, with, on the positive side, RTM consolidation on top of high 2003 comparison base. Average Ebitda margin expected for the year will be significantly above that of the quarter and in line with 2003.

Outlook

In this first quarter of 2004, tax and pricing change in France had a strong negative impact which was reflected in figures for the Cigarette and Logistic Divisions. Contribution of some markets, Middle East for cigarette, the United States for cigar, and the whole sales performance of the Cigar Division, were outstanding. Contribution of recent acquisitions, RTM and of the former Burgal Group, was very good. Cash flow generation was high.

Evolution of operations during the year is expected to lead to an improved performance during the upcoming quarters.

Although made more difficult by the evolution of some European cigarette markets, and in particular the French one, the Group foresees operations in 2004 prolonging significant Ebitda growth and providing further strong free cash flow generation.

                        Profit and loss account

(Euro million)                        Q1 2003    Q1 2004    2004-2003
                                                            Growth(3)
------------------------------------ ---------- ---------- -----------
Economic Sales                           751.3      800.3        +6.5%
EBITDA(1)                                223.6      232.9        +4.1%
EBITA                                    196.4      198.6        +1.1%
Operating Income (EBIT)                  187.8      187.0        -0.4%
Financial Results                        (14.5)     (20.8)      -43.4%
Goodwill Amortisation                    (22.3)     (35.6)      -59.6%
Associates                                 6.0        6.4        +6.7%
Extraordinary Results                     (4.1)       2.3          N/S
Earnings Before Tax                      152.9      139.3        -8.9%
Corporate Income Tax                     (50.6)     (47.1)       +6.9%
Minority Interests                        (8.4)      (7.9)       +5.9%
Net income Group Share                    93.9       84.2       -10.3%
Earnings Per Share (Eurocents)              32         29        -8.4%
Average Number of Shares (mn)(2)         293.5      287.3         2.1%
                                                              decrease
Net income pre-goodwill(4)               116.2      119.8        +3.1%
------------------------------------ ---------- ---------- -----------

(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 evolutions

(4) Net income pre-goodwill: Net income + Goodwill amortisation




                       Quarterly Economic sales

Economic sales  Q1 2003  Q2 2003  Q3 2003  Q4 2003  FY 2003   Q1 2004
(Euro million)
--------------  -------  -------  -------  -------  --------  --------
Cigarette        406.5    472.9    415.2    426.1   1,720.7     468.4
Cigar            163.2    193.1    193.8    212.2     762.3     183.5
Logistics        192.7    201.5    199.7    201.3     795.2     190.0
Others and
 adjustments(5)  -11.1    -25.6     95.5     48.4     107.2     -41.6
--------------  -------  -------  -------  -------  --------  --------
Total            751.3    841.9    904.2    888.0   3,385.4     800.3
--------------  -------  -------  -------  -------  --------  --------


                           Quarterly Ebitda

Ebitda          Q1 2003  Q2 2003  Q3 2003  Q4 2003  FY 2003   Q1 2004
(Euro million)
--------------  -------  -------  -------  -------  --------  --------
Cigarette        142.4    169.2    149.4    146.8     607.8     173.0
Cigar             36.6     46.0     52.0     42.6     177.2      37.5
Logistics         54.2     58.7     62.0     57.3     232.2      45.1
Others and
 adjustments(5)   -9.5     -8.3     54.0     24.6      60.8     -22.7
--------------  -------  -------  -------  -------  --------  --------
Total            223.7    265.6    317.4    271.3   1,078.0     232.9
--------------  -------  -------  -------  -------  --------  --------

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