Annual report 2004 (English) - PDF 3546K - Imperial Tobacco

Annual Report 2004

Altadis Worldwide 

Alabama 

Florida 

Honduras 

Pennsylvania 

Virginia 

Cuba 

Dominican 

Republic 

Puerto Rico 

A leader in Southern European logistics 

Morocco 

France 

Cigarette production RYO production 

Cigar production Logistics, promotion 

Belgium 

Finland 

Luxembourg 

Spain Italy 

Poland 

Logistics Raw tobacco, agricultural products and by-products 

Research center 

Portugal 

The Canary Islands 

Russia 

3 in Western Europe 

NO. 

Reunion 

Philippines 

Tahiti 

NO. 1 worldwide

Economic sales* 

(in millions of euros) 

3,182 

3,518 

3,385 

2002 2003 2004 

+3,9% 

*Sales of Group-produced products plus its margin 

on logistics activities. Does not include economic 

sales of products manufactured under license. 

2004 economic sales by segment 

Logistics 

Cigars 

25% 

23% 

52% 

NUMBER 

OF EMPLOYEES 

Cigarettes 

27,400 

worldwide 

EBITDA 


971 

1,113 

1,078 

2002 2003 2004 

+3,3% 

2004 economic sales by region 

Morocco 

USA 

Western Europe 

Other 

14 % 

6 % 

14 % 

8 % 

23 % 

35 % 

France 

Other 

(employees, etc.) 

Spain 

SALES 

+3.9% 

Logistics 

Cigars 

Ownership structure 

at December 31 2004* 

4% 

10% 

Individual 

investors 

*Source: Altadis estimate. 

86% 

2004 EBITDA by segment 

23% 

19% 

Institutional 

investors 

58% 

Cigarettes

Contents 

2 Message from the Co-Chairmen 

4 The Altadis Group 

4 Corporate governance 

8 Management 

10 Overview of fi ve successful years 

12 Share performance 

and investor relations 

14 Group Business in 2004 

16 Acquisitions 

20 Cigarettes 

42 Cigars 

54 Logistics 

64 Social and Environmental 

Responsibility 

80 Financial Information 

Group profi le 

The Altadis Group is a European leader in the tobacco and 

local-logistics sectors, with strategic positions in its three core 

businesses. 

The Group ranks third in the Western European CIGARETTE, 

market as well as fi rst in the world CIGAR market, and is also a 

major LOGISTICS provider to convenience stores, tobacconists 

and other local outlets in the Mediterranean Basin. 

As the result of a strong international expansion drive, 

Altadis now generates more than 40% of its revenues outside 

its domestic markets. The Group is also pursuing a dynamic 

external growth policy, as evidenced in 2004 by its acquisitions 

of Balkan Star in Russia and Etinera in Italy. 

Listed on the Paris and Madrid stock exchanges, Altadis is 

one of Europe’s largest tobacco groups in terms of market 

capitalization. 

Changes in the Group management structure 

At its meeting on June 6, 2005, the Altadis Board of Directors decided to submit changes in the Group 

management structure for approval by shareholders at the Annual Meeting on June 29. The changes are 

as follows: 

• The appointment of Jean-Dominique Comolli as Chairman of the Board of Directors and of Antonio 

Vázquez, who will be in charge of the Group’s operations, as Chairman of the Executive Commission 

and Chief Executive Offi cer of the Altadis Group. 

• The appointment of two Directors to serve as Vice Chairmen of the Board. 

• The creation of a new Strategy, Ethics and Corporate Governance commission, in addition to existing 

commissions. Board Chairman Jean-Dominique Comolli will also chair the new commission, which will 

be comprised of the two Vice Chairmen and Group CEO Antonio Vázquez, among others. 

These changes, which are in line with the best international corporate governance standards, will enable 

the Group to more effectively respond to the major challenges it will face in the near future. 

1

2 

Message from 

the Co-Chairmen 

“We owe our results and our stock market performance to implementation 

of the strategy that we have followed over the last fi ve years, and we intend 

to pursue it diligently in the future.” 

Altadis has an uninterrupted record of earnings 

growth since its creation. This trend continued in 

2004, our fi fth fi scal year, refl ecting the diligent 

pursuit of our strategy to generate solid organic growth, 

steadily optimize costs and synergies, and drive expansion 

through selective acquisitions. Today, the Group is 

well-armed to withstand any adverse changes in business 

conditions in certain markets and to continue growing our 

three core activities in Cigarettes, Cigars and Logistics. 

Our 2004 results testify to our ability to offset 

the diffi culties encountered in the French cigarette 

and logistics markets by delivering excellent performances 

in other countries. 

Overall, economic sales rose 3.9% to euro 3,518 million, 

while EBITDA was 3.3% higher at euro 1,115 million. 

This performance was notably due to the Cigarette 

Division’s solid performances in most of its markets, 

the Cigar Division’s excellent results, Régie des Tabacs du 

Maroc’s signifi cant contribution and the Logistic Division’s 

sustained level of activity underpinned by its selective 

diversifi cation. 

In light of these good results, we are recommending a 

12.5% increase in the dividend to euro 0.90 per share. 

We also plan to pursue our share buyback program. 

In the last fi ve years we will have distributed 

euro 2.1 billion to our shareholders. 

In 2004, we made two strategic acquisitions that, 

along with Régie des Tabacs du Maroc acquired in 2003, 

have extended our geographic footprint even further. 

Balkan Star, Russia’s leading independent cigarette-maker, 

gives us a foothold in the world’s fourth-largest cigarette 

market. Etinera, active in tobacco-product logistics 

in Italy, strengthens our Logistics Division’s position 

in the Mediterranean basin and consolidates its market 

leadership. In France, the acquisition of Geopost Logistics 

has extended our range of general logistics services, 

taking our successful diversifi cation strategy in this area 

to the next level. 

During the year, we began implementing the restructuring 

plan announced in July 2003. In France, fi ve sites were 

closed between September and December, while in Spain 

negotiations continued to advance. The plan will cost an 

estimated euro 245 million, most of which is covered by 

provisions booked in 2003. The fi rst savings were achieved 

in 2004 and the amounts will increase in 2005 and 2006, 

to reach an estimated euro 76 million per year. Within 

this restructuring plan, we have developed an ambitious 

program of measures to help employees whose jobs 

are being eliminated. In line with our principles, each 

employee will be offered a solution, be it early retirement, 

in-placement or out-placement, and we are also committed 

to helping revitalize local job markets in the areas concerned. 

For the fi fth year in a row, each of our three businesses 

contributed to our good results. With a growing 

international presence, they have considerable strengths 

to sustain their long-term development. 

Cigarettes: 

a resilient performance thanks to robust 

international growth 

Despite the diffi culties encountered in some of our markets, 

the Cigarette Division – which contributes 52% of total 

revenues – delivered another set of good results. 

Economic sales rose 6.8%, EBITDA was up 5.9% 

and EBITDA margin held fi rm at 35%. 

Strong international sales, particularly in Western Europe, 

Morocco and the Near and Middle East, more than offset 

gloomy conditions in the French market, which was badly 

hit by sharp price rises due to signifi cantly higher tobacco 

tax rates. Sales of blond cigarettes, which account for 68% 

of total cigarette sales, rose by 14% in value. In France, 

although volumes were considerably below the previous 

year’s level, market share gains limited the decline in 

revenue to 16.6%, in a market down 20.6%. In Spain, 

blond cigarette volumes contracted slightly but sales rose 

3.6% in value, with growth driven by our ability to increase 

prices. In Germany, Gauloises Blondes’ largest market, we 

consolidated our number-three position and signifi cantly 

increased our market share. In Morocco, which now 

accounts for nearly 10% of blond cigarette sales, our local 

brands performed well and the Gauloises Blondes and 

Fortuna brands were successfully launched in the market. 

Lastly, in the Near and Middle East we had an excellent 

year, with sales up by nearly 80%. As can be seen from 

these results, our Cigarette Division has many valuable 

assets, including solid positions in several countries of

ANTONIO VÁZQUEZ 

ROMERO 

Co-Chairman 

JEAN-DOMINIQUE 

COMOLLI 

Co-Chairman 

Western Europe, robust international growth momentum 

outside Europe, a balanced portfolio of brands covering 

all market segments, and two fl agship brands, Gauloises 

Blondes, on the international level, and Fortuna, which 

is now building positions outside Spain. Our price-rise 

capabilities in key markets such as Spain and Morocco, 

along with Régie des Tabacs’ good results in Morocco 

and new development opportunities in Russia, all augur 

well for the future. 

Cigars: 

excellent results in the United States 

and for Cuban cigars, and a strong 

recovery in Europe 

The Cigar Division, which represents 23% of consolidated 

revenues, posted very good results, particularly in the 

United States. Economic sales grew 14.9% in dollars 

and, taking into account the dollar’s depreciation, 7.2% in 

euros. EBITDA surged 32.2%, excluding the dollar effect, 

and EBITDA margin advanced 2.8 points to 26.1%. 2004 

saw a strong upturn in the Premium cigar market, leading 

to higher sales for our Group in our domestic markets – 

the United States, Spain and France – as well as for export. 

Sales in the United States grew 9.4%, with both Premium 

and machine-rolled cigars in strong demand. In Europe, 

the market continued to recover, fuelling a 7.3% increase 

in our revenues in this region. Sales by 50%-owned 

Corporación Habanos rose sharply, buoyed by excellent 

performances in the Middle East, the Asia-Pacifi c region 

and Europe. 

In all our markets, our innovation capabilities and new 

product launches continued to pay off well. With our 

leadership positions in the United States – the world’s 

largest market -, Spain and France, our unique brand 

portfolio and our ability to adapt to conditions in each of 

our markets, we are on course to further extend our lead 

as the world’s number-one cigar company. 

Logistics: 

successful diversifi cation and an 

extended international reach 

Our Logistics Division, which contributes 25% of total 

revenues, reported good results. Despite the sales-volume 

drop in the French cigarette market, which had a knock-on 

effect on tobacco-product logistics as well as on nontobacco 

activities, economic revenues were up by more 

than 8% overall, EBITDA rose 8.5% and EBITDA margin 

held fi rm at 29.2%. Logista reported gains in both of its 

sectors of activity, with non-tobacco logistics revenues up 

by nearly 14% thanks to strong organic growth in Spain and 

Portugal. 

The acquisition of Italy’s Etinera at the end of the year 

bolstered our weight in the logistics business. Following the 

acquisition of Régie des Tabacs in Morocco, this new move 

positions the Group as the leading player throughout the 

Mediterranean basin. Moreover, these two countries will 

act as springboards for the development of non-tobacco 

logistics, a diversifi cation initiative that is already starting 

to deliver good results in Morocco. 

As evidenced by our results, we have built each of 

our three businesses on strong foundations, while our 

internationalization and acquisition initiatives have paid 

handsome dividends. We owe our results and our stock 

market performance to disciplined implementation of the 

strategy that we have followed over the last fi ve years, 

and we intend to pursue diligently this strategy in the 

future. It has enabled us to build a solid group, capable of 

successfully integrating acquisitions and of taking up the 

challenges that we face in all countries and markets. This 

momentum, however, has not distracted us from pursuing 

our corporate social responsibility goals. We intend to 

continue along a path that balances the need for ongoing 

revenue and earnings growth with that of respecting the 

interests of all stakeholders. Our endeavors in this area, 

combined with our commitment to meeting the highest 

standards of corporate governance and social responsibility, 

will guarantee our Group’s continued prosperity over the 

long term. 

3

4 

Corporate 

Governance 

The Altadis Group has always strived to implement best practices in its corporate 

governance and has operated within the framework of rules on internal procedure 

since its creation. In line with the standards and regulations in force, Altadis 

publishes a corporate governance report that is highly detailed on this subject, 

thereby responding to lawmakers’ legitimate demands for transparency. In 2004, 

Altadis undertook a sweeping revision of its internal rules in order to update them 

for compliance with new rules and current requirements. 

New Rules of Procedure for the Annual General Meeting 

were therefore submitted to and approved by the Annual 

General Meeting of Shareholders on June 15, 2004, 

detailing the Meeting’s organization and operating principles 

in compliance with applicable business legislation. 

The Rules of Procedure of the Board of Directors and 

Executive Committee were also amended in 2004 to bring 

them in line with legal recommendations and principles 

of good governance. Accordingly, the directors’ obligations 

with respect to confi dentiality, non-competition, loyalty 

and diligence were reinforced. In addition, the information 

to be presented in public documents was expanded, and 

cases in which persons have ties to the directors must now 

be taken into account. 

At the same time, the internal rules of conduct concerning 

stock market transactions were improved and now include 

details on the defi nition, communication and resolution of 

confl icts of interest and the defi nition and use of privileged 

information. The Internal Audit Department was made 

responsible for ensuring fulfi llment of the obligations and 

adherence to the procedures incorporated in these rules. 

Board of Directors 

The Board of Directors exercises the powers of 

management, control and representation conferred by 

the Spanish Act concerning corporations and bylaws. 

The Board defends the interests of shareholders and is 

committed to continuously enhancing corporate value. 

The Board exercises the following responsibilities: 

• approval of the Group’s general strategy; 

• defi nition of the overall management-team 

compensation policy; 

• approval of the treasury stock policy; 

• identifi cation of the Group’s main risks and monitoring 

of the internal control and information systems designed 

to minimize them; 

• in general, the authorization of any disposals 

or acquisitions of major Group assets and major 

transactions concerning the Group’s share capital. 

The Board of Directors is primarily made up 

of independent directors.

At December 31, 2004, it was comprised 

of 18 members, as follows: 

Pablo Isla Álvarez De Tejera * 

Chairman of the Board of Directors 

Jean-Dominique Comolli * 

Chairman of the Executive Committee 

César Alierta Izuel 

Bruno Bich 

Carlos Colomer Casellas 

José Fernández Olano 

Charles-Henri Filippi 

Amado Franco Lahoz 

Marc Grosman 

(appointed on May 11, 2004) 

Gonzalo Hinojosa Fernández de Angulo 

José María Goya Laza ** 

Gregorio Marañón y Bertrán de Lis 


Jean-Pierre Marchand 

Patrick-Louis Ricard 

Berge Setrakian 


Édouard Stern ** 

Jean-Pierre Tiroufl et 

Wulf Von Schimmelmann 


Secretary - Non-member 

Miguel Ángel Sánchez-Terán Hernández 

The Board of Altadis met seven times in 2004. 

During the year, Jean-Antoine Chabannes, Carlos Gómez 

Anuarbe, Fernando Labad Sasían and Remy Tritschler 

resigned as directors. 

* On May the 14 th , 2005, the Board of Altadis has appointed, in 

substitution for Pablo Isla, Antonio Vázquez Romero chairman 

of the Board of Altadis and co-chairman of the Group, together 

with Jean-Dominique Comolli, co-chairman and chairman of the 

Executive Committee. On June the 6 th , 2005, the Board of Altadis 

has then resolved to submit to the next Shareholder’s Meeting a 

proposal modifying the Company’s executive structure and decided 

the appointment of Jean-Dominique Comolli as Chairman of 

the Board of Directors, and of Antonio Vázquez, who shall assume 

the Company’s executive functions, as new President of the 

Executive Committee and Chief Executive Offi cer of Altadis Group. 

** José Maria Goya Laza and Edouard Stern died after year-end. 

Their positions are currently vacant. 

Executive Committee 

Together with the Board of Directors, the Executive 

Committee represents, manages, runs and supervises 

the Group, with all such powers of the Board of Directors 

as may be legally delegated to it. 

The Committee operates according to the same principles 

as the Board of Directors, with these principles included 

in the corresponding Rules of Procedure. 

The Executive Committee is currently comprised 

of the following eight directors: 

Jean-Dominique Comolli * 

Chairman 

Pablo Isla Alvárez de Tejera * 

César Alierta Izuel 

Carlos Colomer Casellas 




Bruno Bich 

Secretary – Non-member 


The Executive Committee met six times in 2004. 

Audit and Control Committee 

The Audit and Control Committee was established at the 

request of the Board of Directors, which appointed its 

members, most of whom are independent directors. The 

Committee meets periodically, at least four times a year, 

whenever convened by its Chairman. One of the meetings 

is necessarily devoted to assessing compliance with the 

Company’s rules and procedures of governance and their 

effi ciency, and to preparing the information that the Board 

of Directors has to approve and include in its annual 

public documentation. 

In the exercise of its legal and statutory powers, the 

Audit and Control Committee in particular assumed 

the following responsibilities in 2004: proposing 

the appointment of Statutory Auditors; supervising 

the internal audit services; examining the fi nancial 

information process and internal control systems 

implemented by the Group; ensuring Statutory Auditor 

independence; reviewing the fi nancial statements; and 

verifying compliance with the internal rules of conduct 

and other recommendations applicable to corporate 

governance. 

At December 31, 2004, the Committee was 

comprised as follows: 

Jean-Pierre Tiroufl et 

Chairman 

Patrick Louis Ricard 

José Fernández Olano 

José María Goya Laza ** 


Miguel Angel Sánchez-Terán Hernández 

The Audit and Control Committee met fi ve times in 2004. 

5

6 

Compensation and 

Appointments Committee 

The four-member Compensation and Appointments 

Committee, comprised primarily of independent 

directors, informs the Board of Directors of all proposed 

appointments, re-election and removal of directors that 

the Board of Directors may submit to the Annual General 

Meeting, including in the cases of cooptation by the Board 

of Directors itself. 

The Compensation and Appointments Committee submits 

to the Board of Directors the amount of compensation 

to be paid to Board members and members of 

the Delegated Committees, and the overall compensation 

of the Chairman of the Board of Directors and the Chairman 

of the Executive Committee. The Committee also proposes 

the overall compensation policy for members of the 

Management Committee, while ensuring the proper 

application of rules on compensation transparency. 

The Committee’s principal responsibilities in 2004 

consisted in: proposing amendment of the bylaws to 

the Board of Directors for submission to the Annual 

General Meeting of Shareholders; providing information 

on the amendments to the Rules of Procedure of the Board 

of Directors and Executive Committee and on the proposal 

to adopt new Rules of Procedure of the Annual General 

Meeting; informing the Board of Directors of resignations 

and appointments of directors; and providing detailed 

information on the management compensation policy. 

At December 31, 2004, the Committee was comprised 

as follows: 

Amado Franco Lahoz 

Chairman 






The Compensation and Appointments Committee met 

three times in 2004. 

Rules of Procedure of 

the Annual General Meeting 

The Annual General Meeting of Shareholders is the 

Group’s supreme decision-making body. Its resolutions are 

binding on all shareholders, including those who abstained 

from voting, those who voted against or those who were 

absent, notwithstanding the legally established rights 

of objection and withdrawal. 

The Chairman of the Board of Directors chairs the 

meeting, determining who will speak and the allotted 

length of time therefor, and in general making use 

of all such powers as may be necessary for the proper 

organization and smooth conduct of the meeting. 

Up to seven days preceding the date of the Annual General 

Meeting, shareholders are entitled to request from 

the Board of Directors such information or clarifi cations 

as they deem necessary concerning the items on the 

agenda or to submit questions in writing concerning 

these items. Shareholders are also entitled to request 

information or clarifi cations or to submit questions 

in writing concerning information provided by the Group 

to the public through the stock-market authorities since 

the previous Annual General Meeting. 

During the Annual General Meeting, the Group’s 

shareholders are entitled to verbally request such 

information or clarifi cations as they deem necessary 

concerning the items on the agenda. If an answer 

cannot be provided during the Annual General Meeting, 

the directors are required to provide the requested 

information in writing within seven days of the Meeting’s 

adjournment. 

The Rules of Procedure of the Annual General Meeting, 

which defi ne the meeting’s organization and operation, 

are entered on the Madrid trade register and appear 

on the Group’s website. 

In recent years, the 25% quorum required by law for 

voting on qualifi ed resolutions has always been amply 

exceeded at Annual Meetings. Attendance percentages 

at the last fi ve Annual Meetings were: 

2000 2001 2002 2003 2004 

40.73% 44.02% 44.64% 46.84% 51.74%

At the last four Annual Meetings, the majorities obtained 

in the voting procedures on proposed resolutions 

formulated by the Board have consistently been very high, 

with an average in the region of 98% in favor. 

For maximum security and transparency, a notary 

prepares the formal minutes of the Annual General 

Meeting of Shareholders every year. At no time has a 

legal proceeding ever been fi led concerning a resolution 

approved by the shareholders. 

The Altadis Corporate Communications Department, 

through its Shareholder Relations services in Madrid 

and Paris, the Investor Relations Department and the 

Secretariat of the Board are permanently available to 

provide shareholders with any information they may 

require concerning the Annual General Meeting. 

French shareholders who cannot attend the Annual 

General Meeting in person may vote by mail and obtain 

the voting results at an information meeting attended 

by the Group’s Co-Chairmen the following day in Paris. 

Risk management 

The Altadis Group has estabished a corporate 

risk-management policy aimed at preserving the value 

of the company’s assets and, thereby, its shareholders’ 

investments. The policy is structured and designed 

to ensure attainment of the Group’s strategic and 

operational targets, as well as the reliability and legal 

compliance of its fi nancial information. The Group has 

developed a risks map, updated every year, that includes 

an inventory of principal structural and operational risks 

as well as an assessment of these risks and an evaluation 

of their possible repercussions based on the probability 

of their occurrence. 

In the course of its activities, Altadis faces fi nancial 

and operational risks, risks related to regulations, taxes, 

competition and the corporate image, and industrial risks. 

The Group has therefore established procedures 

for anticipating and minimizing these risks, as well 

as monitoring changes in its environment and adapting 

to these changes. This control system is monitored 

and validated at all levels: 

• The Board of Directors oversees the Management 

Committee’s decisions, ensures that they are consistent 

with the Group’s strategy and assesses the probability 

of the implied risks. Its Audit and Control Committee 

is informed by the Statutory Auditors of balance sheet 

risks, any weaknesses in internal controls and aspects 

that leave room for further improvement. 

• The Management Committee oversees the development 

and monitoring of the business plans, which identify 

and analyze risks and establish the principal actions 

designed to control them. 

• Each division’s senior management continuously 

monitors the risk-control systems in their fi elds, with 

an emphasis on identifying responsibilities, separating 

functions, establishing authorization limits for certain 

transactions and ensuring that internal and external 

standards are respected. 

• The Strategy and Planning Department regularly 

reviews the general market situation in order 

to determine risks that might require a change 

in the Group’s strategic orientation. 

• Financial-risk management is centralized in the Finance 

Department, which monitors risks based on the Group’s 

fi nancial position and structure, exposure to interest- 

and exchange-rate variation, and credit/liquidity risks. 

The department also oversees the Risks and Insurance 

Department, which is responsible for preserving 

the value of the Group’s assets in every business activity 

and country in which it operates. 

• The Internal Audit Department ensures that control 

systems are established, proposes corrective measures 

and recommends improvements that will align the Group 

more closely with the best existing practices. Finally, 

the External Auditors inform the Altadis Audit and Control 

Commitee of any risks to the balance sheet, weaknesses 

in internal control and possible improvements which, 

in the course of their work, may have arisen. 

No signifi cant risks were detected in 2004. The risks 

facing the Group were related to its normal activities 

and were properly managed. 

Details of the Group’s corporate-governance practices are 

provided in the corporate governance report published 

yearly in the complete version of the annual report 

and on the Altadis website, www.altadis.com. 

7

8 

Group Management Committee 

c 

a 

b 

JEAN-DOMINIQUE COMOLLI 

Co-Chairman 

Age: 57 

Education: Master’s Degree in Economic 

Sciences; Institut d’Etudes Politiques de 

Paris, Ecole Nationale d’Administration. 

Previous positions: Chairman and CEO, 

Seita Group, since 1993; General Director 

of the French Customs Department until 

December 1993. 

ANTONIO VÁZQUEZ ROMERO 

Co-Chairman 

Age: 53 

Education: Degree in economic sciences. 

Previous positions: Director of the Cigar 

Division, Altadis (2000-2005); Director of 

the Cigar Division, Tabacalera (1996-2000); 

Deputy Managing Director of Spanish Foreign 

Trade (1993-1996); Director of subsidiaries 

of Domecq Mexico and Managing Director 

of Domecq International (1983 to 1993); 

Director of subsidiaries and Managing 

Director, Osborne group in Mexico 

(1978-1983). 

e 

d f 

h 

a 

c 

d 

g 

FERNANDO DOMÍNGUEZ 

VALDÉS-HEVIA 

Vice President, COO, Cigar Division 

Age: 46 

Education: Degree in industrial engineering 

Previous positions: Finance Director, then 

Co-Chairman of Corporacion Habanos SA 

(2003-2005); various management positions 

at Tabacalera as of 1985, including Deputy 

Director of Management Control (1994-1998) 

and Cigar Division Operations Director (1998). 

ITALO DURAZZO 

Vice-President, Cigarette Marketing 

and Sales, Spain, Southern Europe 

and South America. 

Age: 45 

Education: Master’s Degree in Economic 

Sciences and Master’s in Business 

Administration, Bocconi University, Milan. 

Previous positions: Central Marketing 

Director Cigarettes, Altadis (1999-2000), 

International Marketing Director Cigarettes, 

Tabacalera (1994-1996); Marketing Manager 

at United Distillers from 1991 to 1994. 

e 

f 

g 

FRANÇOIS DUTREIL 

Vice-President, Logistics France 

Age: 63 

Education: Master’s Degree in Law; ESSEC. 

Previous positions: Executive VP, Logistics, 

Seita, as of 1998; CEO, SAF from 1993 

to 1998; Director of Banque de l’Union 

Maritime et Financière; Bally group: 

COO and various positions. 

LUIS EGIDO 

Vice-President, COO Logistics Division 

Age: 52 

Education: Industrial engineering, degree 

in Business Administration. 

Previous positions: COO Logista, 

Deputy Director, (1988-1997) 

then Logistics Division Director, 

Tabacalera (1997); Tobacconist Network 

Department Director (1986-1988). 

MICHEL FAVRE 

Vice-President, Corporate Finance 

Age: 47 

Education: HEC business school. 

Previous positions: Director, Lighting 

Systems and Signal Branch of the Valeo group 

(as of 1999); Financial Director of several 

Valeo group divisions and branches.

h BRUNO GERMAIN-THOMAS k ENRIQUE LLOVES 

m JOSÉ LUIS RELEA 

i 

j 

Vice-President, COO Cigarette Division 

Age: 57 

Education: Ecole Supérieure de Commerce 

de Paris. 

Previous positions: Senior Executive 

Vice-President, Cigarette Marketing and 

Sales of Seita as of 1997; Deputy Director, 

Larousse-Bordas (1996); Marketing Director, 

Danone group (1983-1996), Marketing 

Director, Managing Director, Société des Eaux 

Minérales d’Evian, and then Volvic. 

CHARLES LEBEAU 

Group General Secretary 

Age: 51 

Education: Institut d’Etudes Politiques 

de Paris. 

Previous positions: Executive VP, 

International Development and Cigars, Seita; 

Director of International Cigarette Marketing 

and various positions in Seita as of 1979. 

JEAN-PAUL LEBONDIDIER 

Vice-President, Cigarette Production 

Age: 60 

Education: Institut National Agronomique 

Paris-Grignon. 

Previous positions: Executive Vice-President, 

Production, Seita (as of 1998); Danone group, 

Industrial Director - France and Northern 

Europe; Nestle, various positions. 

l 

i 

j 

Vice-President, Strategy and Planning 

Age: 40 

Education: Law and Business 

Administration. 

Previous positions: Vice Chairman, 

Altadis USA; Chairman, Tabacalera Cigars 

International (1999). 

ISABELLE OCKRENT 

Vice-President, Corporate Communications 

Age: 55 

Education: Institut d’Etudes Politiques 

de Paris, graduate degree in international 

economics, undergraduate degree in classical 

literature. 

Previous Positions: Executive Vice President 

Corporate Communications & External 

Relations, Seita, as of 1990; Communications 

Director, Francaise de Brasserie - Heineken, 

International Metal Service; Technical Advisor 

for Communications, French Ministry of 

Defense; Director at OECD. 

k 

l 

n 

m 

Vice-President, Human Resources Spain 

and Cigar Division 

Age: 58 

Education: Degrees in Economic Sciences, 

Philosophy, Psychology and Art (Complutense 

University, Madrid). 

Previous Positions: Human Resources 

Director, Tabacalera, (1997); various human 

resources management functions in the Smith 

Kline & French, Reynolds Tobacco, Campsa 

and Repsol groups. 

JUAN RIZO 

Managing Director of Logista Spain-Portugal 

Age: 50 

Education: Degree in Agricultural 

Engineering, Madrid Polytechnic University, 

MBA from Instituto de Empresa de Madrid. 

Previous positions: Director, Logistics Spain; 

CEO of First Data Corporation group from 

1989 to 1998. 

n 

9

10 

Overview of fi ve 

successful years 

In the course of just a few years, Altadis has demonstrated its ability to strengthen its positions 

in international markets, maintain its growth momentum and increase its profi tability. 

Economic sales 


 

 

 

 

 

 

EBITDA 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income before goodwill amortization 

 

 

* 


 

 

 

 

* Normalized net income (excluding restructuring charges of EUR 315 million 

in 2000 and EUR 240 million in 2003). Including restructuring charges, 

2000 net income would have amounted to EUR 147 million and 2003 net income 

to EUR 293 million. 

1 Economic sales = sales of Group-produced products + the margin on logistics activities. 

2 EBITDA: Earnings before interest, taxes, depreciation and amortization. 

3 Net income rose 41% to EUR 413 million in 2004, but excluding the exceptional 

EUR 240 million restructuring provision booked in 2003, normalized net income increased 

by only 0.5%. 

Today, underpinned by ongoing development of its three core 

businesses, a wide international footprint reinforced by both 

organic growth and acquisitions, and intensifi ed cost reduction, 

Altadis is a major player in the tobacco sector. All of the Group’s 

indicators refl ect the successful strategy implemented since 

its creation: economic sales have risen by 38%, representing 

average weighted annual growth of 7%; earnings before interest, 

taxes, depreciation and amortization (EBITDA) have increased 

at a weighted annual growth rate of 10%; EBITDA margin has 

widened 4.5 points from 27.1% to 31.6%; and net income before 

goodwill amortization has increased by approximately 9% a year. 

During the last fi ve years, the Altadis share price has more 

than doubled and the Group has distributed a total of 

EUR 2,097 million to investors in the form of dividends 

and share buybacks. 

In 2004, Altadis pursued its development strategy, maintaining 

profi tability amid a sometimes diffi cult business climate. 

Economic sales advanced 3.9% to EUR 3.518 billion, and EBITDA 

gained 3.3% to EUR 1.113 billion, shoring up the profi t margin. 

Normalized net income before goodwill amortization expanded 

0.5%, with net earnings per share growing 3%. The Group’s 

fi nancial position also improved, with net debt receding 

to EUR 1.939 billion. These fi gures underscore our ability 

to achieve ongoing growth and offset diffi culties in the French 

market by excellent performances in other markets and 

business segments. 

These results enable Altadis to pursue its payout policy, with 

the Board of Directors deciding to propose to the General Meeting 

a dividend payment of EUR 0.90 per share, representing 

an increase of 12.5%. An interim dividend of EUR 0.40 was paid 

on March 22, with a second payment of EUR 0.50 scheduled 

on June 21, 2005.

Income statement 


Balance sheet 


2004 * 2004 

IFRS 

SALES NA 9,546 

(COST OF GOODS SOLD) + (CONSIGNMENT COSTS) 

+ DISCOUNTS NA (5,988) 

ECONOMIC SALES 3,518 3,557 

EBITDA 1,113 1,104 

(DEPRECIATION AND AMORTIZATION) (175) (168) 

INCOME FROM ORDINARY ACTIVITIES NA 936 

OTHER INCOME AND EXPENSES NA 0 

OPERATING INCOME 938 936 

FINANCIAL EXPENSE (101) (92) 

EXCEPTIONAL ITEMS 11 0 

COMPANIES CONSOLIDATED BY THE EQUITY METHOD 34 34 

GOODWILL AMORTIZATION (157) 0 

CORPORATE INCOME TAX (256) (282) 

MINORITY INTERESTS (56) (57) 

ATTRIBUTABLE NET INCOME 413 539 

NET EARNINGS PER SHARE (IN EUROCENTS) 146 190 

*Certain reclassifi cations have been made in order to facilitate comparison with IFRS fi gures. 

ASSETS 2004 * 2004 

IFRS 

FIXED ASSETS 2,085 2,096 

Intangible assets 560 718 

Tangible assets 853 914 

Investments 672 464 

GOODWILL 2,605 2,401 

DEFERRED TAXES - 442 

CURRENT ASSETS 4,802 4,677 

CASH AND CASH EQUIVALENTS 1,120 1,103 

TOTAL 10,612 10,720 

*Certain reclassifi cations have been made in order to facilitate comparison with IFRS fi gures. 

The switchover to International Financial Reporting Standards, 

a vast project begun in 2002, was completed in April 2005 with 

the publication of the IFRS-restated pro-forma 2004 accounts. 

This transition from local to international standards allows easier 

comparison of Altadis with its peers, thereby enhancing the ability 

of investors to assess its performance and future prospects. 

The switch to IFRS had an impact on certain data. Economic sales 

gained EUR 39 million, EBITDA shrank slightly by EUR 10 million, 

net income expanded EUR 126 million and the balance sheet total 

was revalued by EUR 108 million. However, the new standards 

have little to no effect on the following items: 

• our payout policy (the Group is committed to achieving double 

digit annual dividend growth and pursuing its share buyback 

policy), 

• our cash-generating ability, 

• our net debt and short-term cash/cash equivalents positions, 

• our shareholders’ equity at January 1, 2004, whose modifi cation 

only refl ects the integration of minority interests. 

Full details on the transition to IFRS are available on our 

corporate website: www.altadis.com. 

LIABILITIES 2004 * 2004 

IFRS 

SHAREHOLDERS’ EQUITY 1,044 1,426 

PROVISIONS 1,004 - 

Minority interests 291 - 

Provisions 670 - 

Badwill 42 - 

DEFERRED TAXES - 168 

OTHER LONG-TERM COMMITMENTS - 423 

LONG-TERM DEBT - 1,785 

SHORT-TERM DEBT - 1,263 

OTHER CURRENT LIABILITES 5,505 5,655 

FINANCIAL DEBT 3,059 - 

TOTAL 10,612 10,720 

11

12 

Share performance 

and investor 

relations 

Altadis is committed to building shareholder trust on a long-term basis through its strong 

business and fi nancial performance, high dividend payout and transparent and dynamic 

information policy. 

A stellar stock performance 

2004 share data 

(IN EUROS) MADRID PARIS 

PRICE AT DEC. 31 33.70 33.57 

ANNUAL HIGH 33.70 33.78 

ANNUAL LOW 22.24 22.14 

ALTADIS ANNUAL SHARE PERFORMANCE +49.78% +51.22% 

IBEX-35 INDEX ANNUAL PERFORMANCE +17.37% 

CAC 40 INDEX ANNUAL PERFORMANCE +7.40% 

EURO STOXX-50 INDEX ANNUAL PERFORMANCE +6.90% 

MARKET VALUE AT DEC. 31 9,544,562,056 

Altadis shares fi nished the year at EUR 33.70 in Madrid and 

EUR 33.57 in Paris, representing a 49.78% increase on the end- 

2003 Madrid stock exchange price. This excellent showing 

is underlined by the fi gures for the Ibex-35, CAC 40 and 

Euro Stoxx-50 indexes, which gained only 17.37%, 7.40% and 

6.90% in 2004 respectively. 

Since its founding, the Group has posted steady share-price 

growth. Over the last fi ve years, Altadis shares have risen a total 

of 137.3%, representing an average annual growth rate of 18.9%. 

During the same period, the Ibex-35, CAC 40 and Euro Stoxx-50 

indexes declined by 22.0%, 35.9% and 39.8% respectively. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRICE AT PRICE AT % CHANGE AVERAGE 

12/31/1999 12/31/2004 (5 YEARS) ANNUAL GROWTH 

(IN EUROS) (IN EUROS) (5 YEARS) 

ALTADIS (MADRID) 14.20 33.70 +137.3% +18.9% 

IBEX-35 (MADRID) 11,641.40 9,080.80 -22.0% -4.8% 

CAC 40 (PARIS) 5,958.32 3,821.16 -35.9% -8.5% 

EURO STOXX-50 4,904.46 2,951.24 -39.8% -9.7% 

Breakdown of share capital 

At December 31, 2004, the Group’s issued share capital comprised 

283,221,426 shares with a par value of 60 eurocents each, fully 

subscribed and paid up. All shares are continuously traded 

on the Spanish and Paris stock exchanges. 

UK * 

United States * 

Other (employees, etc.) 

Other countries * 

25% 

30% 

4% 

6% 

10% 

10% 

15% 

* titutional investors 

Altadis estimates – June 2004. 

An active shareholder 

remuneration policy 

Individual 

investors 

Other European 

countries * 

Spain and France * 

Since its creation, the Group has actively pursued a policy 

of remunerating investors via the regular payout of dividends and 

the buyback of shares. Each year, Altadis has distributed a dividend 

that was more than 10% higher than the previous year and, 

after securing the approval of the Annual General Meeting, 

implemented a program to repurchase 5% of its share capital. 

In keeping with this trend, the Board of Directors will propose

to the forthcoming General Meeting a 2004 dividend of 90 eurocents 

a share, representing an increase of 12.5%. Over a fi ve-year 

period, EUR 2.097 billion will have been distributed to Group 

shareholders under this program. 

An established information policy 

Altadis keeps shareholders regularly informed with optimum 

accuracy and transparency. The primary source of information 

is our Web site www.altadis.com, which provides a maximum 

amount of responsiveness and ensures that the same information 

is simultaneously available to all parties. In 2005, the site was 

overhauled to meet the needs of our different target audiences and 

to increase the number of documents available to users. In addition 

to press releases and presentations to the fi nancial community, 

shareholders can also view the answers of senior executives 

to questions raised during the presentation of fi nancial results 

and at annual meetings, annual reports and corporate governance 

reports, as well as the Group’s credit rating. The site’s interactive 

features have also been enhanced, with the introduction of new 

functions allowing users to download tables in Excel format and 

create their own historical graphs. Altadis also disseminates 

information regularly via print media, on the most frequently-visited 

fi nancial information Internet sites and on the sites of stock market 

authorities where the share is listed. 

At the same time, the Group’s main institutional investors and 

securities analysts who track our stock are kept regularly informed 

via briefi ngs or personalized appointments with senior managers. 

For the fi rst time, in 2004, Altadis organized a special investment 

event aimed at providing professionals with a better idea of our 

business activities and the potential of our latest acquisitions. 

Reaction to the event was very positive, and it will henceforth 

be held on a regular basis. 

Individual investors, in turn, are kept constantly informed about 

corporate business and fi nancial developments by our Investor 

Relations departments in France and Spain. A special program 

dedicated to strengthening links between Altadis and its shareholders 

features publications such as the Group’s magazine and newsletters, 

a permanent phone information service in both countries that allows 

Financial calendar 

Event Date 

2004 results February 23, 2005 

Interim dividend payment March 22, 2005 

Presentation of IFRS accounts April 11, 2005 

First-quarter 2005 results May 16, 2005 

General Meeting in Madrid June 29, 2005 

Information briefing in Paris June 30, 2005 

Second dividend payment June 21,2005 

First-half 2005 results August 31, 2005 * 

Third-quarter 2005 results November 8, 2005 * 

2005 results February 15, 2006 * 

*May be subject to change. 

Contacts 

Individual investor relations 

 

 

 

 

 

 

* Proposal to the Annual General Meeting. 

 

 

investors to establish personal contact, and get-togethers such 

as trade shows, information meetings and plant tours to broaden 

shareholder knowledge about our company. Created at the time 

of the Group’s founding, an energetic shareholders’ club offers 

members highly-appreciated activities and services, with variations 

depending on the country, including site visits, the possibility of 

participating in training sessions, the purchase of objects at special 

prices and invitations to cultural initiatives organized by Altadis. 

The level of dialogue cultivated through these measures ranks 

the Group among the companies that provide the best services 

to shareholders and a quality response to their expectations. 

In 2004, Altadis received several awards for its successful fi nancial 

communication, including best investor relations in the European 

tobacco segment and best investor relations improvement in 2004 

from the prestigious English-language magazine Institutional 

Investor, in recognition of the quality of our relations with analysts 

and institutional investors. In the fi eld of individual investor relations, 

Altadis received France’s Fil d’Or award for best services to 

shareholders among listed companies in its category, recognizing 

the effectiveness of its communication initiatives. 

Céline Audibert 

182-188, avenue de France 

75639 Paris cedex 13 

Phone: 0800 196 787 

Fax: 00 33 (0)1 44 97 6753 

E-mail: relations.actionnaires@altadis.com 

Marisol Díaz Pérez 

c/ Eloy Gonzalo, 10 

28010 Madrid 

Phone: 00 34 901 242 901 

Fax: 00 34 91 360 91 12 

E-mail: aaccionistas@altadis.com 

Continuous five-year dividend growth 

(in euros) 

Analyst and institutional 

investor relations 

Stanislas Vrla, Director 

182-188, avenue de France 

75639 Paris cedex 13 

Phone: 00 33 (0)1 44 97 62 21 

Fax: 00 33 (0)1 44 97 66 27 

E-mail: relations.investisseurs@altadis.com 

Pedro Alonso de Ozalla, Assistant Director 

c/ Eloy Gonzalo, 10 

28010 Madrid 

Phone: 00 34 91 360 92 47 

Fax: 00 34 91 360 92 91 

E-mail : investor.relations@altadis.com 

13

14 

Cigarettes 

ECONOMIC SALES 

+6.8% 

EUR 1.838 million 

+5.9% 

EUR 644 million 

EBITDA 

EBITDA MARGIN 

35% 

Cigars 


+7.2% 


EBITDA 

+20.6% 


EBITDA MARGIN 

26.1% 

Logistics 


+8.3% 


+8.5% 


EBITDA 

EBITDA MARGIN 

29.2%

Group business 

in 2004 

Altadis grew for the fi fth consecutive year in 2004, with contributions made 

by the organic expansion and/or acquisitions of all three divisions. 

The Cigarette Division’s strong international results, in Europe, the Middle East 

and Morocco, offset market diffi culties in France where steep tax increases severely 

affected sales volume. In almost every country, we succeeded in gaining market 

share, underlining the responsiveness of our teams and the strength of our brands, 

in particular Gauloises Blondes and Fortuna. 

Our Cigar Division posted excellent results. Sales in the United States, our leading 

market, rose 9.4% in dollar terms, growth was brisk in Spain, and France confi rmed 

its return to an upswing. Export sales continued their very promising development, 

and Corporación Habanos maintained its growth momentum. 

In logistics, where the geographic scope of our activities has been expanded 

to Morocco, overall business was down in France but Spain and Portugal rose 

in tandem and the Division as a whole ended 2004 with a more than 8% increase 

in sales. 

The year was also marked by ongoing external growth, with the acquisition of the 

Russian cigarette manufacturer Balkan Star, Italy-based Etinera and France-based 

Geopost Logistics. Following on the heels of our 2003 acquisition of Morocco’s 

Régie des Tabacs du Maroc, these moves confi rm Altadis’ capacity to take advantage 

of new growth opportunities that will underpin our future performance. 

15

16 

Acquisitions 

Three new steps in Group 

internationalization 

2004 was marked by three major acquisitions that tie in perfectly with the Group’s 

external growth strategy and reinforce its international dimension. 

In Russia, the acquisition of Balkan Star, the country’s leading independent cigarette 

manufacturer, enabled Altadis to move into the world’s fourth-largest cigarette 

market and provided it with a solid foundation for expansion in Central and Eastern 

Europe. In Italy, our Logista subsidiary’s acquisition of Etinera, the country’s 

top-ranking tobacco distributor, strengthened the Group’s position as a key Southern 

Europe logistics player. This position was reinforced even further by the acquisition 

of Geopost, France’s promotional logistics leader, 

On the heels of the purchase of Morocco-based Régie des Tabacs du Maroc, 

these acquisitions provide Altadis with promising new growth opportunities. 

Russia: 

Altadis gains a key position on 

the world’s fourth-largest market 

On November 4, 2004, the Group fi nalized its acquisition 

of Balkan Star, the leading independent cigarette 

manufacturer in Russia. With over 31 billion units 

sold in 2004 and a market share of about 10%, Balkan 

Star has unique growth potential. Its leading brand, 

Balkanskaya Zvezda, has a preponderant position 

in the Russian fi lter-cigarette segment, with close 

to 21.8 billion units sold in 2004. The company’s 

leading-edge plant, in addition – located in Yaroslavl, 

270 kilometers north of Moscow – is one of 

the country’s largest cigarette factories, with 

a newly-increased annual production capacity following 

recent infrastructure-upgrading investments. 

Balkan Star also has a highly-effective distribution 

network made up of distributors, joint ventures 

and retailers in Eastern Russia that enables it to serve 

the country’s 48 most heavily-populated regions. 

With its strong brands, effi cient manufacturing 

resources and vast logistics network, Balkan Star 

offers major expansion opportunities in a particularly 

attractive market that represents over 300 billion 

cigarettes a year. 

Dominated until recently by very inexpensive local 

brands, the Russian market offers considerable 

potential for a switch in consumption to higher-priced 

international cigarette brands.

Rounding out the brand portfolio 

and increasing profi tability 

Prior to the acquisition, Group activities in Russia were 

limited to the presence of Gauloises Blondes and Gitanes 

in Moscow and St. Petersburg. Altadis now intends 

to exploit the potential of its Gauloises Blondes and 

Fortuna fl agship brands and, given the considerable 

advantage offered by Balkan Star’s broad distribution 

network, the Group is targeting a signifi cant share 

of the premium market. 

The geographic complementarity between Balkan Star’s 

and Altadis Polska’s activities, in addition, should enable 

the Altadis Group to become a major player in the 

Central and Eastern European cigarette market. 

Moderate tax increases 

In Russia, cigarette taxes have undergone regular, 

but limited tax increases over the past few years. 

On January 1, 2004, the specific tax was increased 

by 10 rubles per 1,000 filter cigarettes and 4 rubles 

per 1,000 unfiltered cigarettes. In 2005, the proportional 

rate rose from 5% to 8% of the retail price, while 

the specific rate rose by 5 rubles in all segments. 

This change should mainly benefit the low-price 

and intermediate segments. 

Balkan Star key figures 

• 1,400 employees 

• EUR 106 million in economic sales 

and EUR 21 million in EBITDA 

• 31.3 billion cigarettes sold in 2004 

• A fl agship brand: Balkanskaya Zvezda 

• 1 modern plant, among the largest 

in Russia 

The transaction 

At year-end 2004, Altadis acquired Balkan 

Star at a cost of nearly EUR 200 million, 

which was fi nanced through the Group’s 

existing lines of credit. 

17

18 

Etinera key figures 

• 228 employees 

• EUR 191 million in economic sales 

and 56 million in EBITDA 

• 2 central warehouses, 13 regional 

warehouses and 491 local warehouses 

• 200,000 square meters of storage 

capacity 

• 102,000 metric tons distributed 

annually 

• 150 chartered trucks 

Italy: 

Altadis becomes the leading tobacco 

distributor 

Altadis’ acquisition of Etinera enabled the Group – which 

was already the leader in tobacco distribution in Spain, 

France, Portugal and Morocco – to extend its 

front-running position to Italy, Western Europe’s 

second-biggest tobacco market. 

Etinera, which was created following the spin-off of 

the distribution activities of ETI (Ente Tabacchi Italiani), 

a privatized company controlled by British American 

Tobacco (BAT), is the leading distributor of tobacco 

products to Italy’s 56,000 tobacconists. In recent 

years, Etinera has invested heavily in modernizing 

its IT equipment, improving inventory management 

and its order and billing systems, and connecting its 

warehouses in real-time. 

Quality service 

Etinera operates under service contracts with the main 

tobacco manufacturers doing business in Italy. Following 

its year end-2004 acquisition by Altadis, Philip Morris 

– Italy’s leading cigarette company, with a market share 

of over 50% – renewed its distribution contract with 

Etinera for fi ve years. Likewise, the contract between 

Etinera and BAT – the second-ranking Italian player, 

with a market share of 30% – was renewed for three 

years as soon as the acquisition agreement was signed. 

Other manufacturers are also expected to renew their 

confi dence in Etinera, with the good relations that the 

Group already has with these companies in France and 

Spain defi nitely working in its favor. 

Altadis’ acquisition of Etinera has reinforced its position 

with tobacco companies, for which the Group now offers 

an even wider international presence for the distribution 

of their products. 

Growth prospects 

The Group’s expertise will enable Etinera to reinforce 

the quality of its services. Between 2005 and 2007, 

EUR 35 million will be invested in order to enhance 

the company’s security, storage and operations, as 

well as order, customer and fl eet management. The 

Group will also concentrate on exploiting Etinera’s 

potential for diversifi cation into general logistics, 

where opportunities are all the more interesting

since, although Italy is Europe’s fourth-largest 

logistics market, the country has a very low rate 

of distribution outsourcing. Within this context, 

Altadis should be able to apply its general logistics 

development model, as it has done successfully in 

other markets. 

An acquisition by Logista 

Altadis’ subsidiary Logista, the Group’s publicly-traded 

logistics operator for Spain and Portugal, acquired 

96% of the share capital of Etinera from British American 

Tobacco. The EUR 566.4 million transaction was financed 

by available cash and existing lines of credit. 

Combining independence, transparency and neutrality in 

tobacco logistics, Logista has demonstrated its capacity 

as an efficient operator offering a full range of logistics 

services. In addition, the company has expanded its 

logistics business to include new, high-value-added 

services. It was therefore logical for Logista to be 

involved in an acquisition that was so closely related 

to its own field of activity. Today, taking the name of its 

principal shareholder, Etinera has become Logista Italia. 

France: 

diversifi cation into promotional logistics 

Logista also expanded in France, through its acquisition 

of the leading promotional logistics operator, Geopost 

Logistics Holding, for EUR 12.8 million. Geopost 

Logistics Holding, renamed Logista France, distributes 

Logista France key figures 

• 700 employees 

• EUR 66,6 million in economic sales 

• 5.7 million orders handled annually 

• 48,000 metric tons of products 

distributed 

• 115,000 square meters of storage 

capacity 

promotional and advertising materials as well as 

items for outlets in retailing networks. The company 

has a large customer base in a broad range of sectors, 

including the petroleum industry, airlines, automobile 

manufacturers and mobile phone operators. 

The acquisition has strengthened Logista in a fi eld 

in which it has been operating for 15 years in Spain, 

where it has registered average growth of 30% a year. 

The Etinera and Geopost acquisitions are seamlessly in 

line with Group strategy, enabling Altadis to reinforce its 

logistics leadership position in the Mediterranean region 

and to pursue the diversifi cation of its activities. The Group 

now supplies a total of 221,000 sales points, with a 

storage capacity of close to 1,000,000 square meters 

and a chartered fl eet of 4,000 trucks. 

19

BRUNO GERMAIN-THOMAS 

Chief Operating Offi cer, Cigarette Division 

Cigarettes 

“ 

Confi rmed international momentum 

International development of our business and brands has been the byword 

of our strategy for several years, a strategy that continued to deliver results 

in 2004 with our market share increasing in almost every country. Gauloises 

Blondes has clearly become one of the major international brands, and 

Fortuna has demonstrated its growth potential outside the Spanish market. 

Our acquisition of Balkan Star in Russia at the end of the year, following that 

of Morocco-based Régie des Tabacs du Maroc in 2003, also marked a new 

phase in our international development in large and promising markets… 


+6.8% 

EUR 1.838 

billion 

EBITDA 

+5.9% 

EUR 644 

million 

SALES VOLUME 

+13.2% 

112.6 billion 

cigarettes 

21

22 

… Despite the diffi culties encountered in France, where we managed to hold the decline 

in our sales volume to less than the drop in the market, our overall economic sales continued 

to increase in 2004. Their 6.8% gain refl ects both excellent growth in our international sales, 

which were driven by the dynamism of our strategic brands, and the full-year integration of 

Régie des Tabacs du Maroc sales, which had not been included in the Division’s 2003 results. 

The extremely competitive blond segment is our primary growth vector, while the dark 

segment – although maintaining its profi tability because of price increases and the absence 

of investments – continues to decline. In 2004, overall revenue from blond cigarette sales rose 

by 14%. Sales of Gauloises Blondes outside France represented 80% of the brand’s total sales, 

once again strengthening its position as a major international player. Gauloises Blondes’ market 

share increased in almost every European country, and the brand made a strong contribution to 

our excellent performance in the Middle East. Its 17% sales gain in international markets easily 

enabled us to offset the sluggishness of the French market. Our second fl agship brand, Fortuna, 

maintained its number-one ranking in the Spanish market and moved ahead in sales in France, 

Italy and Morocco, where it had been successfully launched in mid-2004. 

Our large portfolio of blond brands, in addition, which is designed to cover all market segments, 

continued to expand: the Marquise brand in Morocco and Balkan Star in Russia are now among 

our main tactical brands. 

As we demonstrated in 2004, today Altadis has all the resources necessary to face 

and offset challenges that may be encountered in certain markets and to continue its 

international expansion.”

Benchmarks 

World market 

trends 

The global cigarette market, estimated at 

approximately 5,300 to 5,500 billion units, 

has been slowly expanding over the past ten years 

due to population growth and a higher standard of 

living in certain countries, mainly in Asia. At the same 

time, demand is falling because of price hikes and 

regulations enacted to reduce tobacco advertising 

and tobacco consumption. Nevertheless, analysts 

and investors have expressed confi dence in the future 

of international tobacco manufacturers, given their 

solid fundamentals (sales, results and cash fl ow) 

and expansion opportunities that include the opening 

of previously-protected markets, the growing success 

of international brands, new product launchings and 

ongoing possibilities for acquiring national producers. 

Breakdown of worldwide cigarette sales, 

by region* 

2004 (estimated) 

Western Europe 

Eastern 

Europe 

13% 

11% 

Americas 

Africa - Middle East 

13% 

9% 

2004 

54% 

*Source: Euromonitor. 

Asia-Pacific 

Tax pressure in 2004, by country 

Tax legislation 

Excise VAT Total 

FRANCE 64.00% 16.39% 80.40% 

UK 63.41% 14.89% 78.00% 

ITALY 58.50% 16.67% 75.20% 

GERMANY 60.73% 13.79% 74.50% 

BELGIUM 57.00% 17.36% 74.40% 

SPAIN 57.72% 13.74% 71.50% 

POLAND 50.82% 18.03% 68.85% 

Tax levels and new tax rules impact heavily on tobacco 

manufacturers’ performance. In order to harmonize 

national tax laws, the European Union adopted new 

measures in 2002 that set a minimum excise tax rate 

of 57% of the retail price (calculated on the price 

of the best-selling cigarette category) and imposed 

a minimum tax of EUR 60 per 1,000 cigarettes. 

The effects of these measures on Altadis were not 

the same in all European Union countries. 

In France, for example, taxes were already higher 

than the imposed minimums, while in Spain excise 

duties were brought up to the minimum levels. 

New countries joining the European Union received 

extensions to the application deadlines during their 

membership negotiations. While the European 

regulations set minimum taxes, however, individual 

countries can also change their tobacco-tax 

regulations, as was the case in France in 2003 

and 2004, when tax hikes resulted in strong price 

increases that sharply reduced sales volumes. 

Outside the European Union, total tobacco taxes are 

far lower than in Altadis’s more traditional markets. 

In Morocco, they amount to 66%, and in Russia 30%. 

23

24 

France 

In 2004, tax pressure increased again under 

the combined effects of changes to the legislation 

and tax hikes. 

The 2004 law on social security fi nancing raised 

the consumption tax rates for each product category, 

which now include the former tax associated with the 

Supplementary Budget for Agricultural Social Benefi ts 

(BAPSA), accounting for 0.612% of the retail price 

of tobacco products. 

The increases were as follows: 

for cigarettes, from 62% to 64%; 

for rolling tobacco, from 51.69% to 58.57%; 

for pipe tobacco, from 47.43% to 52.42%. 

The law also raised the minimum consumption tax 

per 1,000 units: 

for cigarettes, from EUR 108 in October 2003 

to EUR 128; 

for rolling tobacco, from EUR 56 in 2003 to EUR 75; 

for pipe tobacco, from EUR 45 in 2003 to EUR 60. 

In addition, the Finance Act increased the specifi c-tax 

component to 7.5% of the total tax for the most 

popular price category, up from 5% in 2003. 

There were no changes to the tax rules for 2005. 

Spain 

Tax legislation applying to cigarettes remained 

unchanged in 2004. Total taxes, calculated on the 

best-selling cigarette category, amounted to 71.49% 

of the retail price. Following the price hike for 

Fortuna, the leading brand in the best-selling category, 

Spain aligned itself with the two European Union tax 

guidelines regarding the minimum excise rate and 

minimum tax per 1,000 cigarettes. In January 2005, 

the specifi c component of the excise tax rose by 2%, 

from EUR 3.91 to EUR 3.99 per 1,000 cigarettes. 

Poland 

Poland uses a combined system for taxing tobacco 

products, but the specifi c component is much 

higher than in France and Spain. In 2004, both 

the proportional and specifi c components of the excise 

tax were raised to the same extent. At year-end, 

the Finance Ministry introduced a minimum 

cigarette tax, but the country has until 2008 to reach 

the minimum tax of EUR 64 per 1,000 cigarettes set 

for European Union countries. 

Morocco 

The tax structure in Morocco, which was modifi ed 

in January 2003, comprises a value-added tax and 

an internal consumption tax. Taxes were unchanged 

in 2004 and represented about 66% of the price 


Public Health 

In 2004 and at the beginning of 2005, numerous 

countries ratifi ed the World Health Organization’s 

Framework Convention on Tobacco Control, which 

was adopted in May 2003 in Geneva. France signed 

on in October 2004, and Spain in February 2005. 

Since January 2004, the sale of cigarettes containing 

more than 10 mg of tar, 1 mg of nicotine and 10 mg of 

carbon monoxide has been prohibited in all European 

Union countries. 

In addition, new health warnings were required 

in all European Union countries. 

In France, conditions for implementing the prohibition 

on sales of tobacco products to minors under the age 

of 16 were defi ned by decree in September 2004.

Price increases 

In France, the average price hike for blond and dark 

cigarettes applied in January 2004 was 9.4%, with 

approximately the same increases in both segments. 

In Spain, prices rose by 5%, with a bigger increase 

in the dark segment (9.7%) than in the blond (3.8%). 

In Poland, prices rose several times in 2004. The 

country’s admission into the European Union will 

trigger major increases, with prices due to double 

by the end of 2008 in order to meet the deadline 

Average price increases in France 

2001 2002 2003 2004 

BLOND 4.7% 7.2% 12.3% 25.5% 

DARK 6.1% 13.3% 22.2% 26.7% 

TOTAL 5.1% 8.2% 13.6% 25.7% 

Litigation 

During the last few years, court rulings have 

reaffi rmed the importance of plaintiffs’ individual 

responsibility for lifestyle and consumption choices. 

This trend can be seen in the latest lawsuit decisions 

involving Altadis. In Spain, France and Poland, 

the Group has been exonerated in numerous cases. 

In 2004, Altadis won favorable court rulings in four 

individual lawsuits, some of which are currently being 

appealed: 

the Béziers Regional Court dismissed the lawsuit 

fi led by the Berger family in February 2004; 

under appeal; 

the Guardiola case, where the heirs of Josep 

Guardiola, who died from a lung cancer, were 

dismissed by the Olot Court of First Instance 

in Spain in March 2004; an appeal was dismissed 

in April 2005; 

the Degombert case was dismissed by the Paris 

Appeals Court in January 2004; 

the Arenas case, which had been dismissed 

in September 2003, was appealed, and the appeal 

was rejected by the Montpellier Appeals Court 

in December 2004. 

negotiated for application of the minimum 

tax of EUR 64 per 1,000 units. 

In Morocco, retail prices rose in August 2004 by 

8.3% for dark unfi ltered cigarettes, 6.7% for dark 

fi lter cigarettes, 3.4% for local blond cigarettes and 

6.5% for premium international cigarettes. The prices 

for Gauloises Blondes and Fortuna, which were 

in the launching phase, remained stable. 

Average price increases in Spain 

2001 2002 2003 2004 

BLOND 4.3% 7.3% 1.7% 3.8% 

DARK 8.1% 12.1% 17.2% 9.7% 

TOTAL 5.6% 8.7% 4.4% 5.0% 

In cases involving suits by third-party payers to recover 

health-care expenses for conditions they claimed were 

associated with tobacco, a judge ordered the Junta 

de Andalucía in February 2004 to request forced 

participation by the Spanish government in the case 

against the Altadis Group and other manufacturers. 

An appeal was dismissed in March 2004. 

Similarly, rulings requiring that the government must 

be a party in such cases were also handed down in 

class-action suits initiated in Spain by associations 

of laryngectomized people against several tobacco 

manufacturers, including Altadis. 

These rulings in favor of Altadis confi rm decisions 

handed down in other European countries in recent 

years, rejecting plaintiff allegations and refusing 

to assign responsibility to the tobacco companies 

in question. This has been the case in Finland, 

Italy, the United Kingdom and Germany. 

25

26 

FORTUNA 

No. 1 in the 

Spanish market 

Domestic 

markets 

GAULOISES 

BLONDES 

No. 2 

in the French 

market 

The French and Spanish markets accounted 

for 49% of the Cigarette Division’s sales volume 

and 57% of its revenues. 

The blond and dark segments continued 

to perform differently and with a wide spread 

between the two countries. Higher taxes in 

France brought sales down 20% in the blond 

segment and 28.1% in the dark segment, while 

in Spain the blond segment gained 1.4% and 

the dark segment shrank 9.5%. 

In France, the Group increased its market share 

in a diffi cult environment. In Spain, revenues 

from the combined sales of blond and dark 

cigarettes increased by 1.6% despite a slight 

loss of market share.

LIONEL HEUZÉ 

Cigarette Marketing and Sales 

Director, France 

“ Our teams demonstrated 

their tenacity in a diffi cult 

environment.” 

France 

A small increase in market 

share in a diffi cult market 

Blond cigarettes: 

Altadis maintains 

its positions 

With a new hike in tobacco taxes in January 2004 

– excise taxes were raised from 62% to 64% of 

the retail price – and the resulting price increase, 

the 2003 French market trend was considerably 

amplifi ed, with sales volume falling 20% to 48.7 billion 

units. Approximately two-thirds of the slide was due 

to reduced consumption and a small shift to cut tobacco, 

and one-third to higher cross-border sales. All cigarette 

brands on the market posted volume losses, which 

went hand-in-hand with a radical shift in consumption 

to the premium segment or to less expensive brands. 

Within this context, Altadis limited the decline in its 

sales to 19.4%, succeeded in increasing its market 

share by 0.2 point, bringing it to 18.8%, and reinforced 

its number-two market ranking. Benefi ting from their 

positioning in the most accessible segments, News, 

Fortuna and Bastos performed well. News continued 

to grow and ended the year with a 5.16% market share. 

Fortuna and Bastos, bolstered by their new 19-cigarette 

pack, also gained ground, advancing by 0.52 and 

0.26 point respectively. Royale managed to maintain 

its market share, but Gauloises Blondes, affected 

by the slump in the intermediate segment, posted 

a 0.8 point decline. 

Altadis’ sales and market share in the blond 

segment in France 

2003 2004 Change 

GAULOISES BLONDES 

Market share (%) 7.9 7.1 -0.8pt 

Volume (million units) 4,801 3,437 -28.4% 

NEWS 

Market share (%) 5.0 5.2 +0.2pt 


ROYALE 

Market share (%) 2.7 2.7 - 


FORTUNA 


Volume (million units) 1,009 1,060 +5.1% 

OTHER ALTADIS BRANDS 


Volume (million units) 846 818 -3.4% 

TOTAL 



ALTADIS 

18.8% 

Blond market 

share in France 

27

28 

Spain 

Higher revenues 

The Spanish market rose 1.4% overall in 2004, buoyed 

by increased cross-border sales and sales to tourists, 

which were up 11.8%. These markets represented 16.5% 

of total sales, and were primarily driven by international 

brands. Within this environment, and despite fl atness 

in purely national consumption, Altadis’ revenues rose 

by 1.8% but the Group’s market share slipped slightly, 

to 27.5%. 

Fortuna, the leader in the blond segment ever since 

its launch 30 years ago, held its ground against strong 

competition both from international brands and 

low-price brands, and maintained its number-one ranking 

in the segment with a market share of 21%. Sales totaled 

16,335 million units and revenues gained 0.2%. 

Nobel, after several years of brisk growth, maintained 

its good sales record of the preceding year. With a 5.3% 

market share and 4,514 million units sold, the brand 

reinforced its number-one position in the low-tar-andnicotine 

segment. 

Gauloises Blondes, although its market share (0.3%) 

was still quite small, continued to make very signifi cant 

gains: its sales volume rose by 38.5% and revenues 

increased by 47.4%. The Group’s leading international 

brand is enlarging the Altadis brand portfolio in 

the Spanish market. 

France 

In the dark cigarette market, which has been subject to 

the same taxes (and therefore the same price increases) as 

blond cigarettes for the past two years, the ongoing decline 

JAVIER MORENO GIL 

Cigarette Sales and Distribution 

Director, Spain 

“ Our dynamism enabled 

Fortuna to remain 

the leading brand in 

the Spanish market, 

outrunning the major 

international brands.” 

Altadis’ sales and market share in the blond 

segment in Spain 

2003 2004 Change 

FORTUNA 

Market share (%) 22.6 21 -1.6pt 

Sales volume (million units) 17,285 16,335 -5.5% 

NOBEL 


Sales volume (million units) 4,524 4,514 -0,2 % 



Sales volume (million units) 183 253 +38.5% 

TOTAL 


Sales volume (million units) 22,175 21,297 -4.0% 

Dark cigarettes: 

ongoing decline in sales 

In addition, several new products were launched in 2004: 

News and Diana, a cigarette with a Virginia-tobacco 

taste, in order to take advantage of rising cross-border 

sales and tourist demand; 

Ducados “Rubio”, a blond cigarette, was test-launched 

in four Spanish provinces. Altadis intends to take 

advantage of the well-established image of the dark 

market’s leading brand with this new product in the 

buoyant blond segment. 

23.1% 

Altadis market 

share in the blond 

segment in Spain 

picked up steam. Sales volume for dark cigarettes slipped 

28.1% compared with 23.7% in 2003. Gauloises now 

accounts for 67.9% of the market, and Gitanes 30.7%.

Spain 

The Spanish market also posted a decline, but not as 

sharp as in France because it was not subject to the same 

tax pressures. In 2004, Altadis held its drop to 10% in a 

segment that shed 9.5% in sales volume. Price increases, 

however, enabled the dark-cigarette segment to maintain 

its profi tability, with revenues rising by 1.1%. 

Pipe and rolling tobacco: 

a growing market 

France 

The French pipe and rolling tobacco market benefi ted 

from the switch of certain consumers from cigarettes to 

rolling tobacco because of price hikes. This trend was 

strong at the beginning of the year but moderated over 

time, resulting in higher overall sales volume of 1.1%, 

with rolling tobacco gaining 17.1% and pipe tobacco 

off 14.3%. Altadis, the market leader with a 28.6% 

share compared with 31.4% in 2003, increased its 

sales volume by 2.5%, including a 15.7% rise in rolling 

tobacco sales thanks to the development of its brands. 

Ducados, the third-ranking brand in Spain for combined 

blond and dark cigarette sales, is the leader in the dark 

segment with a 77.6% market share that was one point up 

on 2003. The brand’s revenues rose by 2.1%. 

Spain 

Although the Spanish market had been showing strong 

growth over the past few years, it is still relatively 

small. Volume rose by 24.4% in 2004 and represented 

close to 2,400 metric tons, 93% of which was for 

rolling tobacco and 7% for pipe tobacco. As in France, 

the market was driven by sales of rolling tobacco, 

which rose by 26%, while pipe tobacco sales shrank 

by 7%. Altadis’ sales moved in the opposite direction 

of the market, however, posting a gain of 21.8% in 

pipe tobacco, with a market share of 20.8%, and a 1% 

decline in sales of rolling tobacco, where its share fell 

more than a percentage point, to 5.2% 

29

30 

Other European 

markets 

In Western Europe, Altadis strengthened its positions 

despite general and sometimes sharp market declines. 

In all countries except Greece, the Group’s sales and 

market share increased thanks to the performance 

of Gauloises Blondes, as well as Fortuna in Italy and 

Luxembourg and News in Belgium. The European 

markets are confi rming their position as a key 

driver for Cigarette Division profi tability. 

In Poland, the country’s entry into the European Union 

brought profound changes to the market structure. 

Altadis therefore readjusted its portfolio and launched 

seven new products in the most promising segment, 

where its sales grew by 29%. In Finland, the Group’s 

sales, driven by Smart, rose by 21.4%. 


+3.6% 

rise in revenues

Germany 

Gauloises Blondes, 

our key growth driver 

As a result of two tax hikes in 2004, the slippage 

in the German market seen the previous year persisted 

and even accelerated. Cigarette sales fell by 16% 

in volume and 5% in revenue, to the benefi t of rolling 

tobacco and pre-cut tobacco rolls because of their lower 

price. This decline in the offi cial market also refl ected 

the impact of illegal imports from Central Europe. 

Within the diffi cult environment that weighed on its 

third-biggest market, just behind its two domestic 

markets, however, Altadis turned in a very positive 

performance. Despite an 8% fall in sales volume, with 

6.7 billion units sold in 2004 compared with 7.3 billion 

in 2003, revenues increased and market share rose 

almost half a percentage point, to 5.9%. 

Gauloises Blondes was the key driver of this growth, 

posting another excellent year. Buoyed by a positive 

image and wide appeal to German consumers, the brand 

consolidated the number-three position it had gained in 

2003. All three versions made strides throughout the 

country, giving the brand a record market share of 5.6%, 

up from 5.2% in 2003. In the vending-machine network, 

which is a strategic distribution channel in Germany, 

the brand even gained a full percentage point, raising its 

market share to 8.9%. 

Austria 

Gauloises Blondes moves 

to third place 

The 4% market downturn did not affect the ongoing 

advance of Gauloises Blondes. Its sales rose 1% 

and its market share, gaining 0.4 point, reached 8.2%, 

making it the country’s third-ranking brand. In terms 

of volume, the Austrian market is the third-largest in 

Europe for Gauloises Blondes and, in terms of market 

share, it is the fi rst. At the end of 2004, Altadis expanded 

its Austrian portfolio with the launch of Fortuna, 

its second international brand. 

MATTI RIHKO 

European Director and Altadis 

Finland CEO 

“Germany is now 

the foremost market 

for Gauloises Blondes, 

even before France.” 

Switzerland 

+12% for Gauloises Blondes 

Despite a 4% fall in the market, Altadis’ sales grew 

by 2%. The 12% gain by Gauloises Blondes was 

particularly signifi cant and gave the brand a 1% 

y ear-end market share. Overall, Altadis’ share 

of the Swiss market rose to over the 3% level. 

Benelux 

First successes for Altadis 

Belgium 

2004’s overall market fi gures marked a break with 

previous years in the region’s three areas: a sharp 18% 

fall in the Netherlands, a 3% decline in Belgium, where 

cross-border sales to France partially made up for lower 

consumption, and interrupted growth in Luxembourg. 

Throughout the region, the strong drop in consumption 

was due to price hikes and the impact of anti-smoking 

campaigns. Altadis continued to improve its positions 

in this particularly diffi cult environment. In Belgium and 

Luxembourg, Altadis Belgium, a logistics and marketing 

subsidiary created in 2003, substantially accelerated the 

penetration and expansion of its portfolio, launching a total 

of eight products including two new brands – Fortuna in 

Luxembourg, and News in packages of 25 and in both of its 

versions in Belgium. Gauloises Blondes continued to post 

gains, representing 2.3% of the market in the Netherlands, 

3.4% in Belgium and 7% in Luxembourg. Altogether, Altadis’ 

market share was over 2.5% in the Netherlands, 6% in 

Belgium and 9.5% in Luxembourg. 

This strategy of combining new launches with the 

consolidation of brands already on the market – in 

particular, Gauloises Blondes – is aimed at ongoing 

long-term development. 

31

32 

Italy 

A locomotive named Fortuna 

The Italian market, which ranks second in Europe 

in terms of sales volume, experienced a minor downturn 

in sales in 2004, declining by 2% and ending the year 

at 98.8 billion units. The most signifi cant event, however, 

was a radical change in the market’s structure 

as the result of new tax legislation. 

On March 1, 2004, the government introduced 

a minimum tax, which led to a tighter price tree, 

and in mid-July decided to recalculate taxes every six 

months in order to take price increases into account. 

In response to these measures, several market players 

repositioned their products, launches in the low-price 

segment increased and a new, very-low-price segment 

appeared. As a result, pressure on the most affordable 

brands, which had already been heightened in 2003, 

was intensifi ed even further. 

Fortuna, which had been launched in May 2002, 

benefi ted from this environment and drove Altadis’ 

overall sales, which grew by 18% and brought the 

Group’s total Italian market share to 2.4%. With 

considerable appeal because of its Latin image, 

the brand is expanding in all regions of the country. 

Its synergy with Gauloises Blondes, positioned 

on the intermediate, more urban segment, in addition, 

makes the pair a viable alternative to American 

brands. The Gauloises Blondes image also benefi ted 

from the brand’s association with the famous Italian 

racer Valentino Rossi who – considered as the greatest 

motorcycle champion of his generation – joined 

the Gauloises Fortuna Yamaha team in 2004 

and won the world championship title. 

Poland 

A diffi cult year 

In 2004, Poland, along with nine other countries, joined 

the European Union (E.U.). For the cigarette market, 

this meant: 

the disappearance of customs barriers with E.U. 

countries as of May 1, 2004; 

September 15 th implementation of the E.U. regulations, 

in other words, the Byrne Directive on health warnings 

and tar, nicotine and carbon monoxide content; 

a substantial increase in tobacco taxes, which are 

scheduled to rise by a factor of 2.5 by 2008. These” 

new tax rules profoundly modifi ed the structure 

of the Polish market, whose volume remained 

at its 2003 level. 

The year therefore presented many challenges for 

Altadis Polska, which had to contend with increasing 

sales of low-price products in the 70 mm segment, 

which is its primary market. Volume losses in this 

segment, in addition, could not be offset by the strong 

drive made in the king-size segment. (The short, 70 mm, 

cigarette segment slipped from 44% of the market’s

SMART 

+31.6% 

Sales increase in Finland 

total sales volume in 2003 to less than 30% in the fourth 

quarter of 2004, while local discount-priced king-size 

cigarettes, which were relatively uncommon in 2003, 

moved up to account for 30% of sales volume in the same 

end-year period.) 

Altadis brand trends followed those of the market. 

Sales of the Group’s top-selling brand in the 70 mm 

segment, Fox, fell by 26%, bringing its market share 

down from 6.5% in 2003 to 4.2% in 2004. In the king-size 

segment, however, which is now by far the biggest in 

Poland, Altadis reacted vigorously, launching seven 

new products. The Spike brand introduced a new 

24-cigarette version in an original format and maintained 

its 1.7% market share. Brilliant, which was launched at 

the end of 2003, achieved a 0.6% market share in its fi rst 

full year, while Iris withstood pressures very well and 

maintained its market share. 

Finland 

Sales rose by 21.5% 

The Finnish market was brisker than expected, posting 

overall growth of 1.4% in 2004. There had been fears 

of a downturn when Estonia, where prices are much 

lower than in Finland, joined the European Union. 

In fact, though, only the rolling tobacco segment 

was affected, sliding 5.5% from its 2003 level, while 

the cigarette segment gained 2.7%. Moreover, there 

were neither price increases nor tax changes to weigh 

on the environment. Altadis Finland continued to profi t 

from its growth momentum and ongoing emphasis on 

product innovation, confi rming its previous strong sales 

showings and sharply outperforming the market. Sales 

volume gained a total of 7.8%, increasing the company’s 

overall market share from 26.3% in 2003 to 27.9% in 

2004. In cigarettes alone, Altadis Finland’s share rose 

from 16% to 18.9%, underpinned by a 21.5% increase 

in sales. The Smart brand increased its sales by 31.6%, 

primarily due to the success of the 30-cigarette pack, 

a segment that the brand created two years ago, 

and Smart also benefi ted from the market withdrawal 

for almost a half-year of one of its main competitors. 

In contrast, sales of pipe and rolling tobacco fell by 

6.5%, which was slightly more than the market decline, 

bringing Altadis Finland’s share in this segment down 

from 79.6% to 78.7%. Overall revenues were 9.6% 

higher than in 2003 and operating income gained 8.2%. 

FORTUNA 

Moves up to a 2% 

Italian market share 

33

34 

International 

markets 

In Morocco, Régie des Tabacs’ sales maintained their upward trend. The strategy 

of introducing the Group’s international brands – Gauloises Blondes and Fortuna 

– was successfully implemented, along with ongoing reinforcement of Régie 

des Tabacs’ local brands. 

In the Near and Middle East, the Group posted outstanding gains for the fourth 

consecutive year. 

MARQUISE 

71% of the Moroccan 

blond market 

Morocco 

A successful development 

strategy 

Régie des Tabacs du Maroc (RTM), in which Altadis 

acquired an 80% interest in 2003, continued to improve 

its performance in 2004. The cigarette business 

development strategy, which is focused on increasing 

shares in the blond market, began to produce results with 

the successful introduction of Gauloises Blondes and 

Fortuna, the Group’s fl agship brands, as well as gains 

for Marquise, the Group’s top-ranking local brand. 

While the overall market lost 3.5% due to widespread 

smuggling, RTM gained two percentage points in 

market share. Volumes were up, to 86.3% of the market 

compared with an 84.6% share in 2003, while revenues 

rose from a 65.9% to a 68% market share. 

In general, the accelerated decline in the dark-cigarette 

segment, which fell from 41% of the total market in 2003 

to 34% in 2004, benefi ted the company’s local blond 

brands, while the launching of Altadis’ international 

brands provided a major new growth driver.

Marquise, number-one in the Moroccan blond 

market, with a 71% share 

The growth in the blond-cigarette segment registered 

in 2003 continued in 2004, with overall market share 

increasing from 59% to 66%. The market leader, 

Marquise, benefi ted from consumer switching from dark 

to blond cigarettes and generated 47% of total sales 

and 71% of blond cigarette sales. This very well-known 

brand is the most attractive product on the market given 

the purchasing power of the majority of consumers. 

In 2005, the brand will expand its range, and its design, 

which has not changed since its 1956 launch, will be 

completely overhauled. The other RTM brands will also 

be revamped under a three-year program that, by 

the end of 2005, will provide almost all packages with 

a new design. 

Régie des Tabacs du Maroc sales in 2004 

(Volume) 

BLOND MOROCCAN 6.9 billion 

DARK MOROCCAN 4.7 billion 

IMPORTS (OTHER THAN ALTADIS BRANDS) 1.8 billion 

GAULOISES BLONDES AND FORTUNA 244 billion 

TOTAL 13,7 billion cigarettes 

(Revenue) In euros 

BLOND MOROCCAN 131.5 million 

DARK MOROCCAN 38.8 million 

IMPORTS (OTHER THAN ALTADIS BRANDS) 72.8 million 

GAULOISES BLONDES AND FORTUNA 6.1 million 

TOTAL 249.2 million 

FORTUNA 

23% of the 

international 

brand segment 

in Morocco 

Successful launches of Gauloises Blondes 

and Fortuna 

Gauloises Blondes and, in particular, Fortuna, benefi ted 

from excellent consumer reaction when respectively 

launched in Morocco in April and June 2004. After 

a little more than six months, their share rose from 

0.1% of the blond market in 2003 to 3% at the end 

of 2004 and, over the same period, from 1% to 23% 

of international brands on the Moroccan market. This 

excellent performance bodes well for the Group’s and 

RTM’s objective to signifi cantly increase sales in 2005. 

RTM’s blond cigarette portfolio will, in addition, 

be gradually expanded to include other brands, 

notably Fine and News. 

35

36 

OLIVIER BUBBE 

Director for the Americas, 

Africa and Asia 

Near and 

Middle East 

Sales gain 86.5% 

For the third consecutive year, Altadis brands posted 

record growth. Group sales volume for the region as 

a whole rose 86.5%, representing a ten-fold increase 

in the space of four years. Two brands – Gauloises 

Blondes and Gitanes Blondes – accounted for almost 

all of the gains, registering sales up by 150% and 52%, 

respectively, with the typically French image of these 

brands creating a major advantage everywhere in the 

region. Their growth was particularly strong in Syria, 

where Altadis’ market share attained 15%, in Lebanon, 

where it is close to 12%, and in Iraq. Last year, once 

again, however, the full extent of these gains was not 

refl ected in revenues because of the disadvantageous 

euro/U.S. dollar exchange rate. 

GITANES BLONDES 

52% increase 

in Middle East sales 

“ Our Gauloises, Gitanes and Fine 

brands are increasingly strong in 

the Middle East – and in Asia and 

Africa as well.” 


150% increase 

in Middle East sales 

Sub-Saharan Africa 

Fine’s fi ne performance 

The Fine brand advanced 4% overall. It remained fi rm 

in Côte d’Ivoire, despite a destabilized environment, 

and posted a 35% market share. The brand continued 

to advance in Chad, Congo and Niger, where it accounted 

respectively for 74%, 51% and 45% of the market, 

and was introduced in two new countries, Mali and 

Burkina Faso.

The Caucasus 

A niche strategy for 

Gauloises Blondes 

Altadis’ sales rose sharply in Azerbaijan, with 

Brilliant and American Dream, as well as 

Gauloises Blondes, which received an encouraging 

reception at its launch in second-half 2004. Gauloises 

Blondes continued to be introduced in new markets 

and made signifi cant inroads in Georgia, although 

sales volumes were moderate. 

Asia 

Altadis’ brands performed well in Cambodia, with 

Fine KS and Alain Delon growing their sales 

by 30%. In Vietnam, Fine was launched at the end of 

the year, manufactured under license by Ben Than 

Tobacco Company. In Japan, the world’s third-largest 

market in volume terms, Gauloises Blondes continued 

its gradual advance. Japan serves as a showcase for 

the entire continent, and the major players invest heavily 

in this highly competitive market. 

FINE 

328 million units sold 

in Cambodia 

37

38 

Production 

Enhancing fl exibility for greater 

responsiveness 

Altadis’ industrial strategy is aimed at adapting its manufacturing base to changing 

market requirements and increasing its responsiveness while controlling costs. 

Production at the Altadis sites in France, Spain, Poland, 

Morocco and Russia totaled slightly more than 110 billion 

cigarettes in 2004, compared with 98.6 billion in 2003. 

This increase was due mainly to changes in the Cigarette 

Division’s scope of consolidation, which included the 

contribution of Régie des Tabacs du Maroc over the full 

12 months and Balkan Star’s results in the last two 

months of 2004. It also refl ects the Group’s capacity 

to offset the sharp decline in the French and German 

markets by increasing sales in its international markets. 

France 

The French restructuring plan defi ned and announced 

the previous year went into effect in 2004. Production 

at the Lille plant was transferred, with dark-cigarette 

operations going to the Alicante facilities, in Spain, 

and blond production taken over by Nantes in France. 

Inventory at the Tonneins site, which specialized in dark 

tobacco, was transferred to Alicante, and the plant was 

closed at the end of the year. 

Spain 

The Alicante site quickly and effi ciently took over 

the production transferred from Lille, including 

the four teams needed to produce the new volumes that 

represented an increase of nearly one-third of the site’s 

previous output. In addition, 2004 marked the fi nal year 

of the Logroño site’s production of Philip Morris products 

for sale on the Spanish market. To a large extent, 

however, higher output of products for export offset 

these lost volumes.

Poland 

The country’s entry into the European Union translated, 

in industrial terms, into product adaptation and package 

overhauling in order to meet Byrne Directive obligations, 

as well as major changes in import-export procedures. 

Modifi cations of the market structure and the growth in 

export business, in addition, generated a 50% increase 

in the number of products and the introduction of three 

new formats, including a world fi rst: the 24-cigarette 

pack. 

Total production increased by 12%, with export activity 

doubling and currently representing more than 50% 

of sales. Certain products are now exported to other 

countries in the European Union. 

Morocco 

Close cooperation between Régie des Tabacs 

and Altadis teams in raising product quality and 

manufacturing effi ciency produced its fi rst results. 

Improvements were made in the general preparation, 

cigarette production and packaging facilities. Plans 

to enhance competitiveness, both on a very-shortterm 

as well as long-term basis, were also launched 

during the year, and Régie des Tabacs du Maroc’s 

Development and Quality Control departments were 

integrated in their Group counterparts. In connection 

with the sharing of best practices, a Moroccan qualitycontrol 

manager spent six months working at the Riom 

plant in France. The Casablanca site, in addition, was 

closed – as had been decided prior to the acquisition 

– and its production was transferred to Aïn Harrouda, 

one of the most modern cigarette plants on the African 

continent. 

Russia 

The Balkan Star and Altadis teams began work 

on quality improvement. With just a few modifi cations, 

the industrial facilities of the Group’s Russian subsidiary 

are fully adapted for the production of Altadis products. 

Altadis’ production tools, which are now divided among 

Spain, France, Poland, Morocco and, since the end 

of 2004, Russia, as well as licensee-operated facilities 

when imposed by economic imperatives or regulatory 

requirements, have now gained considerably in terms of 

fl exibility. In 2001, Altadis’ leading international brand, 

Gauloises Blondes, was produced only in France. Since 

2004, it is also being produced in Spain, in Poland and 

by licensees, enabling the Group to manage volumes 

according to human resources and manufacturing 

capacities available, regulatory requirements and 

production costs. 

Ongoing progress for corporate projects 

The deployment of SAGA (SAP for Altadis Growth 

and Alignment), which began in 2003, continued at 

a rapid pace. By the end of 2004, the new IT operational-management 

system had been installed at all 

of the French and Spanish sites, and in July 2004 the 

migration to SAP took place in Poland. Deployment 

will continue in 2005, and the new system will eventually 

provide each Group business with all information 

required in real time, ranging from upstream tobacco 

purchasing to downstream exports of cartons 

to specifi c countries. This reliable and rapid shared 

information system will further optimize our production 

capacities. 

Another major industrial project involves the ongoing 

ISO 14001 certifi cation process. In the fi rst half 

of 2004, the two pilot sites for this project, Cadix 

and Riom, were certifi ed, with this certifi cation confi 

rmed six months later by a second audit, and all 

other sites in France and Spain have initiated the 

procedure. In Poland, Altadis Polska’s environmental 

management system received ISO 14001 certifi cation 

in January 2005. The purpose of ISO 14001 is 

to prevent and reduce the environmental impacts of 

waste, discharges and atmospheric emissions as 

well as to control energy consumption. 

39

40 

Research and 

Development 

Constant improvement 

in tobacco products 

The Research and Development 

studies carried out by Altadis’ teams 

are usually designed for the long and 

medium term. In 2004, their focus 

was primarily on three objectives: 

to reduce the risk factors of tobacco 

products, to improve responsiveness 

to consumer expectations even 

further and to increase the fl exibility 

of production facilities. 

The Group’s Research teams continued their work on 

several programs designed to analyze the properties 


Upstream, they played an active role in defi ning and 

disseminating the good farming practices endorsed 

by the Cooperation Center for Scientifi c Research 

Relative to Tobacco (CORESTA) in order to limit 

residual pesticides in tobacco plants. In 2004, an 

experimental platform was set up in Bergerac with 

planters, illustrating the very close cooperation 

between farming and production professionals 

on this question. 

The Tobacco Institute in Bergerac, in addition, 

continued its work on developing tobacco with 

a reduced risk factor using natural selection. 

The seeds they obtain are sold throughout the world.

In 2004, experiments began in Morocco on adapting 

certain Oriental tobacco varieties to local conditions 

and on growing them there. 

The Altadis Research teams also work with France’s 

National Institute for Agronomic Research and certain 

tobacco companies on identifying and decoding the 

most interesting sequences of the tobacco genome. 

Studies aimed at developing an innovative technique 

in near infrared spectrometry also advanced, with 

a paper presented at the October 2004 CORESTA 

Congress in Kyoto. The technique is used for detecting 

and measuring several tobacco constituents directly 

from the leaf or tobacco powder. This simple, fast and 

non-destructive method will be used to streamline 

inspection of the Group’s tobacco purchases. 

Downstream, on the cigarettes themselves, studies 

continued on identifying and measuring certain smoke 

constituents, within a program begun in 2003 to 

defi ne a process for measuring 44 compounds (1) 

that are present to varying extents in all cigarettes. 

(1) Besides nicotine, tar and carbon monoxide, which had 

already been measured. 

The program was expanded in 2004 to cover fi lters 

and cigarette paper in order to determine their effects 

on the 44 compounds, with this phase carried out 

in close liaison with Altadis’ suppliers. 

Advances emanating from the Research Department 

in the form of new knowledge and new techniques 

provide the foundation for work by the Development 

teams, which focused on three main avenues in 2004: 

continuous improvement in consumer-perceived 

quality, within the framework of existing 

manufacturing processes and with a view 

to controlling and reducing costs; 

the development of new products, primarily 

for European markets, in order to respond 

to consumer expectations or to adapt to structural 

market changes; 

increasing the fl exibility of production facilities. 

Here, the 2004 program focused on the transfer 

to Alicante of production previously handled at Lille, 

the introduction of Gauloises Blondes, followed 

by Fortuna, in Morocco, and the adaptations 

made necessary by Poland’s new membership 

in the European Union. 

An R&D platform with three complementary 

centers 

• The linchpin at Orléans-Les Aubrais, France, focuses 

totally on product improvement and innovation. The 

center designs and tests tobacco blends and products 

– in particular for their organoleptic properties. 

• The Tres Cantos center in Spain helps develop blends 

and manages Group quality policy together with the 

center in Les Aubrais. 

• The Tobacco Institute in Bergerac, France, specializes 

in tobacco plant research, including varietal 

selection, farming methods, pre-harvest treatment 

and processing. 

41

Chief Operating Offi cer, Cigar Division 

Cigars 

“ 

Growth consolidation 

The Cigar Division maintained its previous-years’ growth momentum in 2004, 

reinforcing its position as the undisputed world leader in its sector through 

continuous brand-portfolio upgrading, quality marketing initiatives and 

a signifi cant improvement in its margins. The recovery in the Premium cigar 

segment, and in particular renewed demand for Havanas, was coupled 

with considerable marketing success for our brands. In the United States, 

Dutch Masters made outstanding gains and is currently the country’s 

best-selling brand. In Spain, the Dux “puritos,” launched in 2003, registered 

sales of 70 million cigars, and in France Fleur de Savane posted one 

of the strongest growth performances on the market… 


+7.2% 

EUR 817 

million 

FERNANDO DOMÍNGUEZ 

VALDÉS-HEVIA 

EBITDA 

+20.6% 

EUR 214 

million 

SALES VOLUME 

+3.8% 

3,515 

billion units 

43

44 

… Altadis USA remained the benchmark company in the world’s biggest cigar market in 2004. 

Its sales grew by 9.4% in dollar terms, primarily due to increased sales of Dutch Masters and record 

gains by Premium cigars, underpinned by very dynamic marketing campaigns. In Spain, small-cigar 

sales continued to advance, and strong consumer demand revitalized the national market which posted 

a sharp upswing. Altadis outperformed the market both in volume (up 10.8%) and revenue (up 9.1%), 

and its market share reached 36.5%. In France, where the market returned to volume growth despite 

price rises associated with tax hikes, Altadis posted a 2% rise in sales volume and a 4.3% increase in 

revenue. In Cuban cigars, Corporación Habanos’ innovations produced results that exceeded forecasts. 

The new Edmundo de Montecristo model undoubtedly represented the world’s most successful launch 

in recent years, with the product generating very positive effects on the entire Cuban brand portfolio. 

In tandem with a solid position in its domestic markets (the United States, Spain and France) and 

the strong worldwide presence of its Premium Cuban brands, Altadis also continued to expand 

its export sales, focusing both on its mass-market brands from the United States and Europe and its 

mechanically-made cigars from Cuba. 

Overall, growth in our markets translated into a 7.2% increase in sales in euros and a 20.6% increase 

in EBITDA despite the approximately 10% depreciation of the dollar. Excluding the dollar impact, these 

percentages were even more impressive, with the Division’s economic sales gaining 14.9% and EBITDA 

on a 32.5% upswing. In order to consolidate its positions in markets where Altadis is already the leader 

as well as those where it targets expansion, the Group is implementing a multi-national marketing/sales 

policy that takes into account each country’s specifi c economic and cultural characteristics.”

Benchmarks 

A world market trending toward 

growth in value 

The global cigar market, estimated at roughly 

15 billion units, is highly concentrated in geographic 

terms. More than 96% of all sales are recorded 

in Western Europe (Germany, France, Spain, the 

United Kingdom) and the United States, which 

account respectively for 47% and 46% of the market. 

Since the middle of the 1990s, these markets have 

registered slow volume growth and higher revenue 

growth, except in the United Kingdom which is 

weighed on by very steep taxes and retail prices. 

In the cigar market – which ranges from machinemade, 

homogenized-wrapper units weighing less 

than one gram to hand-made, 100%-natural cigars 

weighing in at 18 grams – the number of units sold 

is not a very pertinent indicator, and overall market 

trends are therefore analyzed more cogently in terms 

of value. A comparison of the top-of-the-line premium, 

hand-rolled cigar segment and the machine-rolled, 

mass-market segment shows a large gap between 

sales volumes and corresponding revenues. 

Worldwide cigar sales by segment 

Volume Value 

Premium 3% 28% 

Mass Market 97% 72% 

In Europe, small cigars – the Minis and cigarillos 

– are driving growth in almost all markets. It should 

be noted that certain countries such as Italy, Greece 

and Portugal, which are strong in terms of cigarette 

sales but less so for cigar consumption, have been 

growing sharply for several years. 

While growth in mature markets – the United States 

and Western Europe – is tending to slow down, other 

countries where cigar consumption is currently low 

are gradually developing into full-fl edged markets. 

Worldwide cigar sales 

2004 (estimated) 

Western 

Europe 

47% 

Taxation 

7% 

Other countries 

46% 

North America 

United States 

The U.S. tax structure differs widely from that in 

France and Spain. First of all, the market is not 

regulated, and prices are therefore not offi cially 

established. Secondly, both the federal government and 

the individual states set taxes on cigars. The excise tax 

rate varies from state to state, while federal taxes vary 

according to the weight of the cigar: for large cigars 

(over three pounds for 1,000 units or over 1.36 grams 

per cigar), they represent 20.7% of the sales price 

to the distributor, with a maximum tax of $48.75 per 

thousand units. For small cigars, under 1.36 grams, 

taxes amount to $1.828 per thousand units. 

Spain 

Cigar taxes remained unchanged in 2004. The excise 

tax was kept at 12.5% of the retail price. 

France 

The 2004 law on social security fi nancing set new 

rates for consumer taxes on cigars, resulting in an 

increase from 20% to 27.57%. The minimum tax was 

also modifi ed, rising from 55 to 89 per 1,000 units. 

45

46 

United States 

Leader in the most profi table 

market 

In the world’s biggest market, where 7.8 billion cigars are sold a year, 

Altadis USA posted excellent 2004 results in terms of both sales and profi tability. 

Dollar-denominated sales rose by 9.4%, principally driven by the positive results 

of a policy concentrating on new product launchings and promotion. 

JOSÉ SEIJAS 

General Manager of Tabacalera de Garcia, 

Dominican Republic 

The best-selling 

natural-wrapper cigar 

in the USA 

“Every year, millions 

of hand-rolled cigars, 

mostly for the American 

market, are produced 

by our Romana plant – 

the world’s largest.” 

The comprehensive market coverage of Altadis USA, 

which is the only manufacturer with a signifi cant 

presence in all United States cigar-market segments, 

is the cornerstone of its current and future leadership 

position. In 2004, increased sales were essentially 

driven by the success of its Premium and naturalwrapper 

cigars. 

The Group’s American subsidiary continues to dominate 

the natural-wrapper cigar segment, underpinned by the 

excellent performance of its Puerto Rico-based Dutch 

Masters, Backwoods and Antonio y Cleopatra brands. 

Dutch Masters, particularly, was a key 2004 growth 

driver for Altadis USA in this market. This machinerolled, 

natural-wrapper cigar was the best-seller in 

its segment throughout the United States, with sales 

topping forecasts. 

The Premium cigar market, which had stabilized in 

2003 after several weak years that had followed the 

1993-1997 boom period, posted record growth in 2004. 

The Altadis USA premium portfolio includes some of the 

world’s most prestigious brands, such as Montecristo, 

Romeo y Julieta, H. Upmann, Por Larranaga and 

Trinidad, to name just a few. The upswing in Premium 

cigar consumption was further buoyed by major 

marketing efforts aimed at retailers that resulted in 

wider distribution of the Group’s brands.

9.4 % 

Increase of sales 

in dollars in the 

United-States 

In machine-rolled, homogenized-wrapper cigars, Altadis 

USA’s two fl agship brands, Phillies and Havatampa, 

built on their successes registered in 2003. Their sales 

continued to climb thanks to a vigorous innovation and 

marketing policy. 

The excellent results of 

Backwoods have reinforced 

Altadis USA’s leadership 

position 

47

48 

Spain 

and France 

Ongoing growth 

Altadis posted good results in these 

two markets, the Group’s biggest after 

the United States, including a sharp 

increase in sales. 

In Spain, where a 9.1% gain in 

revenue and 10.8% rise in volume 

outstripped growth in the market, 

Altadis benefi ted particularly from its 

strategy of refocusing on the two most 

promising segments, small cigars 

and Minis, and its policy of launching 

new products. 

In France, the Group’s revenues 

increased by 4.3% and its sales 

volume was on an upswing in a 

recovering market. A strategy 

of innovation and brand-portfolio 

upgrading enabled Altadis to confi rm 

its number-one position and to reap 

strong benefi ts in a more positive 

national environment. 

Spain 

For the second consecutive year, the Spanish cigar 

market expanded, primarily due to the dynamism of the 

Altadis brands. The Group maintained its leadership in 

the Puros and Minis segment while growing its share in 

the Puritos (small cigars) market. Sales of Cuban cigars 

were very strong, with revenue growth surpassing that 

of the Premium segment and of the market as a whole. 

In 2004, the Spanish cigar market gained 7% in volume, 

buoyed by the Minis segment, an Altadis stronghold, 

which grew by 23%. Revenues rose a total of 6%, with 

the largest segment (53% of the market) remaining that 

of the Puros, where Altadis also holds the number-one 

position. 

The Group grew more than the market, with volume rising 

10.8% and revenues up 9.1% due to the performance of 

its fl agship brands in the three market segments. Altadis 

ended 2004 with a 36.5% total market share, gaining 

1.3 percentage points on the previous year. 

70 million 

units sold 

in 12 months

“With DUX, we’ve created 

a quality cigar at a 

competitive price that 

corresponded to all 

market requirements.” 

JAVIER ESTADES 

Cigar Marketing Director, Spain 

In the homogenized-wrapper segment, which 

is the largest in terms of revenues, the Farias Superiores 

brand continued to advance, posting a 5% gain in 

revenues. Altadis remained the segment leader with 

a 61% market share. 

The Group’s innovation strategy was further reinforced 

in 2004 through a number of major initiatives, including 

the successful introduction of Farias Superiores in 

fi ve-cigar boxes and the new presentation of Caribes 

Reserva Celebración in the “prestigious” cigar 

segment. 

Results in the Premium category were also very positive. 

Revenues from Cuban cigars gained 7%, mainly due 

to solid performances of the strategic Montecristo 

and Cohiba brands and an expanded Cigar Gourmet 

program. In the hand-rolled Premium segment, the 

VegaFina brand grew its revenues by 8%. 

In the small-cigar segment, Altadis raised its market 

share to 31% and posted an 8% increase in volume. 

61% 

Altadis market share in 

the homogenized-wrapper 

segment 

The principal growth driver was Dux which, launched 

in 2003, turned in an excellent 2004 performance with 

70 million units sold. The launch of Dux Maior during the 

year was also successful, reinforcing Altadis’ position in 

the small-cigar segment, which represents 36.5% of the 

total market. 

Altadis brands also strengthened their leadership in 

the Minis segment, now the biggest in terms of volume. 

The Group dominates this segment with two fl agship 

brands, Farias Mini and VegaFina, along with its 

Cuban Minis, spearheaded by Mini Montecristo and 

Mini Cohiba, and certain international brands such as 

Fleur de Savane. In 2004, a new variety, VegaFina 

Minis Fresh Pack, was added to the Minis segment, 

driving overall growth in the VegaFina line to 41%. 

With its new products, the Minis segment already 

accounts for 25% of the brand’s business. 

49

50 

FRANCK COSTE 

Cigar Marketing and Sales 

Director, France 

France 

“Our strategy of 

upgrading the brand 

portfolio has produced 

results and enabled us 

to return to a growth 

pattern.” 

2004 was a particularly brisk year in the French cigar 

market, with total sales volume increasing nearly 10% 

despite an approximately 25% January hike in taxes 

and prices. 

Within this context, Altadis upped its volume by 2% 

but posted a stronger 4.3% rise in net revenues. 

Upgrading of the Group’s brand portfolio, which 

had begun several years earlier, resulted in a sharp 

turnaround in sales volumes in 2004 following an initial 

second-half 2003 period of stabilization. 

This successful product-line revitalization, combined 

with the Group’s capacity for innovation and new product 

launchings, lies at the heart of Altadis’ French cigar 

business strategy. It has created a growth momentum 

enabling Altadis to benefi t fully from the 2004 French 

market recovery and to confi rm its leadership position. 

+12% 

Strong growth 

in Premium 

cigar sales 

Growth in 2004 was primarily due to Fleur de Savane 

which, with a 16% volume gain, posted one of 

the best performances of the top fi ve brands in 

the French market, while the Group’s traditional Ninas 

and Havanitos brands also registered good results. 

The strategy of new product launchings also produced 

results. The Guantanamera Cuban brand, which was 

introduced in 2003, confi rmed its success with revenues 

more than doubling in 2004. 

Sales of Premium cigars surged, increasing revenues 

in this high-value segment by 12%. Several brands 

contributed to this performance: Partagas experienced 

solid gains in sales; Pléiades, which marked its 

20 th anniversary during the year, posted over 20% growth 

in sales volume due to the success of its two 

Nomades formats, launched in June, and its special 

“20 th anniversary” series; Flor de Copan, which 

introduced a unique French line of three 100% 

Honduran cigars; and the José L. Piedra brand, 

in the entry-level Cuban products category, which 

once again maintained its growth momentum.

Other countries 

Cigar sales outside the Group’s principal markets (the United States, Spain and 

France) registered an outstanding performance in 2004, posting a 22% increase. 

Exports from the United States rose by an exceptional 

27%, driven primarily by Backwoods, Altadis USA’s 

leading international brand, which is present in over 

30 countries. The other main export drivers were 

Phillies and Havatampa in Asia and the Middle East, 

as well as the American Premium cigars Don Diego, 

Flor de Copan and Santa Damiana. 

Altadis’ European brands, led by Fleur de Savane, 

continued to advance in 2004, ending the year with a 

9% increase. The markets linked to Spain and France, 

along with Portugal, the Middle East and Africa, were 

the principal growth drivers. The successful launchings 

of VegaFina Mini in Greece and Portugal also played 

a role in this performance. 

Mechanically-made Cuban cigars turned in an 

excellent showing as well, with the strategic Cohiba, 

Montecristo, Quintero, Romeo y Julieta and 

Guantanamera brands recording 23% overall growth. 

Production 

Our plants in Spain and France produced a total of 968 million cigars in 2004, 

representing an increase of 11% on the preceding year. 

In France, implementation of the restructuring plan 

led to fi nal closure of the Morlaix workshop, whose 

production was transferred to Strasbourg. The latter 

is now the only site in France producing cigars, and 

an action plan was initiated to improve its production 

processes. In mid 2004, the Group-wide SAP integrated 

management system, which has been in operation at 

the Cantabrian plant, in Spain, since the end of 2003, 

was rolled out, along with the set-up of a new logistics 

platform for Cuban cigar exports. (The site receives 

semi-fi nished cigars from Cuba for packaging according 

to the specifi cations of each of its European export 

markets.) 

In Spain, the ISO 14001 environmental certifi cation 

process was launched at the Cantabrian plant and 

should be completed by the end of 2005, when it will 

begin at the Strasbourg site. 

Sales were especially brisk in Germany (up 25%), which 

is the second-ranking European market after France 

in terms of volume, and in Greece (up 80%). 

These results were generated by an ongoing two-pronged 

strategy. On mature markets, as in Europe, the Group 

intends to widen the distribution of its products to 

additional outlets (service stations, convenience stores 

or supermarkets) while concentrating on reducing 

its costs. In developing markets, Altadis is gradually 

extending its activities, as illustrated in the marketing 

policy implemented in Morocco. There, recent initiatives 

focusing on a small sample from the brand portfolio 

have enabled Régie des Tabacs to win a 41% share 

of the homogenized-wrapper cigar market and post 

a ten-fold increase in sales volume for Premium-segment 

Havana brands. 

In both countries, application of the European directive 

concerning new health warnings to be placed on tobaccoproduct 

packaging as of September 1, 2004, required 

production equipment adaptation. 

In the United States, production was considerably 

stepped up to handle growing sales volume, while 

maintaining product quality. Altadis USA also invested 

in faster machines in order to increase productivity 

and implemented a reorganization of its industrial tools 

in response to strong market demand, particularly in 

the fl avored-cigar segment. The new shift-rotation 

systems introduced and the adaptation of production 

processes enabled a sharp reduction in deadlines 

as well as closer conformity of production to market 

requirements. 

51

52 

Corporación 

Habanos 

A particularly good year 

Sales of Cuban cigars gained 18.2% in constant dollar terms and 7.5% in euros, 

buoyed by both hand-rolled and machine-made cigars. Corporación Habanos, 

which is 50%-owned by Altadis, boasts a prestigious brand portfolio featuring 

cigars that are world-renowned for quality, as well as the market’s widest and 

most effi cient international distribution network. 

+18.2% 

Strong increase in 

dollar-denominated 

Cuban cigar sales 

2004 was a particularly good year for certain regions of 

the world that had experienced instability the previous 

year because of the general slump in sales of luxury 

products. While Corporación Habanos’ sales improved 

wherever its products are available, it performed 

exceptionally well in the Middle East (United Arab 

Emirates and Lebanon), the Asia-Pacifi c region (China) 

and Europe (Greece and Italy). Traditional Cuban cigar 

markets remained on course and were in some cases 

strengthened, and high- potential countries or regions 

– such as Australia, Eastern Europe and Morocco – were 

given top priority. 

In the Premium segment, Corporación Habanos holds a 

world market share of 30% in terms of volume and 40% 

in terms of revenue. During 2004, the Group’s volumes 

and revenues climbed steadily, with sales at year-end 

reaching nearly $300 million. These excellent results 

were underpinned by the close upstream/downstream 

coordination that has been established from 

the tobacco-farming phase through to cigar production 

and point-of-sale logistics, enabling seamless 

tie-ins with marketing initiatives. The successful 

revitalization of the Montecristo line, with the 2004 

creation of the new Edmundo model, is an illustration 

of this start-to-fi nish policy. 

Other cigars were also added to the portfolio, including 

the Reyes, Coloniales and Robusto Extra modules, which 

expanded the Trinidad brand, along with tubed Cohiba 

Siglo VI and the Hoyo de Monterrey Petit Robusto. 

A number of specialty products, in addition, were 

introduced in 2004: Humidor 160 Aniversario 

de H. Upmann, Humidor Hoyo de Monterrey Selección, 

Humidor V Aniversario de San Cristóbal de la Habana 

and the boxed Romeo y Julieta, Colección Habanos. 

There were also new limited-edition products, 

including Romeo y Julieta Hermosos No. 2, Partagás 

Serie D No. 1, Hoyo de Monterrey Epicure Especial 

and Cohiba Sublimes.

90 

Casa del Habanos 

worldwide 

These launchings had several objectives. Given its 

number-one position, Corporación Habanos was 

primarily seeking to create trends and promote the 

Premium culture. It also wanted to align itself with 

changes in the market by creating and then totally 

satisfying a demand. The third objective was to upgrade 

the portfolio through very high quality products with 

connoisseur appeal. 

The Casa del Habano international franchise network, 

underpinned by its image and impeccable quality, is 

making a major contribution to educating consumers 

about Corporación Habanos cigars at its approximately 

90 outlets worldwide. In 2004, Casa del Habano 

extended its network to the United Kingdom, Oman, 

Iran and China. 

In 2005, Corporación Habanos’ strategy will be based on 

relaunching the Partagás brand, ongoing innovation in 

order to maintain seamless correlation with consumer 

trends, consolidation of its market share in Europe and 

the development of sales in other strong-potential areas 

such as the Middle East and Asia-Pacifi c regions. 

JAVIER TERRÉS 

Director of Development, 

Corporación Habanos 

“Our innovation policy 

was illustrated this year 

by numerous launchings 

of limited editions and 

specifically-designed 

products.” 

The launch 

of Edmundo, 

a new Montecristo format, was 

defi nitely one of the most successful 

in recent years. The brand’s new 

impetus, which was a strategic 

objective in 2004, benefi ted 

the entire Corporación Habanos 

portfolio, helping to maintain major 

market shares. 

53

LUIS EGIDO 

Chief Operating Offi cer, Logistics Division 

Logistics 

“ 

Diversifi cation and international deployment 

Acquisitions over recent years have broadened the Logistics Division’s range 

of activities, reinforced its skills to serve an increasing number of customers 

and enabled penetration of new distribution networks. The Division’s 

diversifi cation and geographic extension to now include Morocco and Italy 

have created new growth opportunities, making it better equipped to deal 

with diffi culties that may arise in certain markets and to vigorously pursue 

expansion in the coming years… 


+8.3% 143,000 


NUMBER OF OUTLETS SERVED 

163,000 

tobacco 

other sectors 

55

56 

… The Division’s economic sales increased by 8.3% in 2004, with tobacco-product 

logistics accounting for 41% and general logistics 59%. 

Business trends were very different during the year from one country to another. 

In Spain, both sectors of activity registered approximately the same growth rate as in 

preceding years. In France, however, falling sales of cigarettes and a corresponding 

decline in patronage of tobacco outlets translated into decreased sales in both the 

tobacco and non-tobacco sectors. Overall, the Division continued to diversify its 

activities with, notably, dedicated infrastructure development for the pharmaceuticals 

sector and an expanded service offering in Spain, along with the extension of 

e-recharges to fi xed telephones in France. 

In Morocco, extension of the logistics business into non-tobacco products produced 

its fi rst results, particularly with the contracts signed in the telephony sector. 

Altadis’ logistics expertise and know-how continue to underpin its current success and 

to lay the foundations for its future growth. The Division’s capacity to move into new 

markets, such as the pharmaceuticals sector, is a clear demonstration of this asset.”

Benchmarks 

A high-value-added chain 

of services 

The logistics business, often referred to as “fi ne 

logistics,” requires wide expertise and competence in 

many fi elds, ranging from sophisticated information 

systems to ultra-modern storage platforms, as well 

as multiple, high-security transportation and delivery 

modes. Upstream of these operational resources, 

Altadis’ logistics activities, which act primarily 

as a service provider, also involve the design and 

marketing of increasingly sophisticated terminals 

for point-of-sale outlets that enable its customers 

– tobacconists in particular – to place orders and 

track them in real time. Altadis is a specialist in every 

aspect of this high-value-added chain of services. 

The Group’s acquisitions of logistics companies over 

the past few years have reinforced certain operational 

resources as well as, even more importantly, allowed 

Altadis to penetrate new niche markets, such as 

the distribution of pharmaceutical products and 

promotional materials. 

Overall, Altadis serves a total of more than 300,0000 

widely-different sales points: on the one hand, tobacco 

retailers and magazine and newspaper outlets, where 

the Group also distributes other products sold in these 

networks such as telephone cards and transportation 

tickets; and, on the other hand, a vast number of 

networks ranging from food stores, service stations 

and stationery stores to the pharmaceuticals sector, 

which is a new Logista specialization. 

The different models of 

tobacco-product logistics 

Tobacco logistics systems vary from one country to 

another in Europe. In France and Spain, distribution 

is primarily organized around the tobacconists, 

whose outlets are offi cially licensed by the customs 

authorities, as well as the café/hotel/restaurant 

channel. The latter, however, accounts for only 5% of 

distributed volumes in France compared with 95% for 

tobacconists, while it represents 44% compared with 

56% for tobacconists in Spain. 

In both countries, Altadis Distribution and Logista 

supply tobacconists directly with tobacco products 

under marketing agreements signed with major 

manufacturers for logistics management of their 

brands. 

The distribution system is different in Italy. Since 

the 2003 privatization of ETI and Altadis’ recent 

acquisition of Etinera from BAT, tobacco is still 

primarily sold by tobacconists and cafés/hotels/ 

restaurants, but these outlets are supplied by 

“magazini”, which are some 500 privately-owned 

regional wholesalers that are themselves exclusively 

supplied by 14 Etinera warehouses. As in France and 

Spain, Etinera, which is now known as Logista Italia, 

has marketing contracts with all major manufacturers 

for the exclusive distribution of their products. 

In Morocco, the distribution organization is similar 

to the one that previously existed in Spain and France: 

the network comprises 23,000 sales points that 

are licensed by Régie des Tabacs du Maroc under a 

delegated-responsibility accord with the government 

that will run until December 31, 2007. Altadis is 

currently reinforcing this activity by transferring 

to Régie des Tabacs du Maroc its experience and 

the business development model that it has applied 

in other countries in order to prepare for the 

liberalization of the sector at end-2007. 

Organization 

of the Logistics Division 

In 2004, the Logistics Division comprised the activities 

of the Logista subsidiary in Spain and Portugal, the 

Logistics Unit (Altadis Distribution France and 1’DIS) 

in France and the logistics activities of Morocco-based 

Régie des Tabacs du Maroc. Already established as 

the leading distributor of tobacco products in France, 

Spain and Morocco, the Division moved into the 

number-one position in Italy as well through its 

end-2004 acquisition of Etinera, Italy’s principal 

tobacco-products distributor, which has been 

transformed into the subsidiary Logista Italia. 

In France, Geopost Logistics, also acquired at 

end-2004, has become Logista France. The Group’s 

Logista subsidiary is listed on the stock exchange 

in Spain. 

57

58 

General logistics 

General logistics accounted for 59%, or EUR 513 million, of the Division’s economic 

sales, with an overall increase of 7.1% in 2004. Growth was, however, very uneven: 

• Logista registered a 13.9% sales rise, due primarily to the acquisition of Geopost 

Logistics in addition to solid gains in all segments of activity in Spain and Portugal; 

• In France, Altadis posted a 5.5% sales decline due to falling patronage of tobacco 

outlets and certain disappointing results, especially in the stationery sector; 

• In Morocco, a very promising beginning was made for the general logistics 

activities of Régie des Tabacs du Maroc. 

3 nd ranking 

courier-service 

company in Spain 

Spain and Portugal 

During 2004, Logista was primarily present in the general 

logistics sector in Spain and Portugal. At the end of 

the year, with the acquisition of Geopost Logistics, 

these activities were extended to France. 

Pharmaceuticals sector 

Investments made in pharmaceutical logistics development 

have begun to produce results. In its fi rst year of business, 

Logista Pharma posted EUR 9 million in sales and 

became the leader in the fi eld. As in other sectors, organic 

growth, technological improvements and ongoing 

extension of the services offered to customers ensured 

this activity’s expansion and profi tability. 

Logista Pharma’s main logistics facilities have begun 

to provide services to major Spanish pharmaceutical 

companies, with the Piera logistics center in Barcelona 

and the Leganes site in Madrid already managing 

and delivering products for over a dozen key fi rms 

in the sector. Logista Pharma is positioned as one 

of the principal pharmaceuticals logistics platforms 

in the country, based on its capacity to provide specifi c 

services ranging from product storage and order 

preparation to computerized delivery. 

Express delivery 

The industrial parcel activities of Integra2 and 

Transportes Alameda, companies acquired in 2003, 

are combined under the Integra2 banner. In 2004, close 

to 5 million were invested in reinforcing technological 

capabilities through the installation of automated 

systems (palette management, barcode readers for 

enhanced traceability, and control and monitoring of 

storage-area temperatures) and IT systems for unifi ed 

management of information fl ows between Integra2 

and its customers. These innovations will strengthen 

Integra2’s number-three position in the sector, backed 

by 5.4 million shipments already made in 2004.

JUAN RIZO 

Chief Operating Offi cer, Logista, 


“ In Portugal, Logista holds 

the front-ranking position 

in logistics services and is 

a leader in the newspaper 

and magazine distribution. 

sector.” 

New platforms were inaugurated in Pamplona, 

San Sebastián and Tarragona, and construction began 

on an ultra-modern facility near Madrid. All of these 

improvements will enable Integra2 to continue to 

optimize the quality of its industrial parcel delivery 

service and to satisfy growing demand. 

Courier service 

Nacex, which ranks among the leading Spanish courier 

companies, continued to expand and confi rm its solid 

growth record of the past few years, with new agencies 

opened in, among other cities, Madrid, Alicante, 

Tarragona and Lisbon. The new agency in Portugal 

was the fi rst step in a process that will continue in 

2005. With 9.7 million deliveries, 15 major platforms 

throughout the Iberian Peninsula and 264 franchisees, 

Nacex is the third-ranking company in its sector. 

Development of logistics resources was ongoing in 2004, 

with a new EUR 2 million platform inaugurated in July in 

Barcelona, and Nacex also started a franchisee training 

program that will be ongoing in 2005. 

Long-distance transportation 

Logista handles this activity through Logesta, 

a company specialized in long-distance transportation 

management. In 2004, Logesta’s customer base grew 

considerably with a 56% increase in the number of 

shipments managed, bringing the total to 105,000. 

Underpinned by these good results, Logesta is wellpositioned 

for its alliance with Basegar, one of the 

Arcelor Group’s principal road transportation companies 

in Spain. In 2004, Logesta initiated moves to merge its 

parcel-bulking activity with that of Integra2. In 2005, 

the company’s business outside Spain will expand 

through a contract with Philip Morris covering 

transportation services from the Netherlands and 

Germany to Italy and Spain. 

Publications and books 

Acquisition of the Cyberpoint software company in 

early-2004 provided Logista with a key position in 

Spain’s news-stand modernization and computerization 

sector. Its specialized management program, Kios 2001, 

has already been installed in close to 1,000 stands 

throughout the country. 

In the book logistics segment, Logista continued 

to upgrade its 40,000-square-meter platform in 

Guadalajara in 2004. A total of 25 million books were 

stocked at the facility during the year for distribution 

throughout Spain, and four new major publishing 

companies joined Logista’s customer portfolio, which 

now boasts 22 clients. 

Promotional logistics 

With its 2004 acquisition of Geopost Logistics, Logista 

reinforced its presence in the promotional- and 

marketing-materials sector. In Spain, Logista’s activities 

in this specialized area have averaged strong 30% 

annual growth over the past three years. 

59

60 

Other logistics services 

Logista’s ongoing expansion of consumer-product 

distribution to service stations generated good results in 

2004, with economic sales posting double-digit growth. 

The quality of all services provided for the Repsol-YPF 

group was further reinforced during the year, and 

Logista plans to use this leading-edge know-how to win 

new Spanish customers in this segment. 

Logi Rest, a company specialized in logistics services 

for restaurants, signed a contract with a fast-food chain 

in 2004. 

Stamps and documents 

An increasing number of e-recharge terminals is being 

installed, primarily for use in mobile-phone recharging 

but also with applications for other products. Logista 

has already installed 9,800 terminals for mobile phones 

and is pioneering their use for transportation tickets as 

well. Convinced of the sales potential for multi-product 

e-recharging, the company is now investing in the 

development of terminals for this market. 

France 

Non-tobacco logistics activities in France are 

concentrated in the 1’DIS Group, the leading central 

purchasing and services agency for convenience outlets. 

1’DIS is made up of three units, each of which focuses on 

one or several different distribution networks: 

SAF, for tobacco and newspaper/magazine outlets; 

Supergroup, for food retailers – bakeries, grocery stores, 

large and medium-sized outlets; 

Rouge Papier, for bookstores, stationers and 

offi ce-supply outlets. 

1’DIS is concentrating on the development of concepts 

applicable to all the networks in order to broaden the 

scope of products offered to its 70,000 customers. 

In 2004, 1’DIS intensifi ed its diversifi cation policy in 

order to at least partially offset the negative effects of 

trends in certain markets, notably tobacco products and 

newspapers/magazines. 

SAF, for example, which had to face an approximately 

10% loss in patronage of tobacco outlets linked to the 

sharp drop in consumption in 2004, pursued its policy of 

new product and service launchings in order to maintain 

its front-running position. In pre-paid telephone 

media, the success of e-recharges continued in 2004. 

Developed at the request of mobile phone operators, 

the e-recharge is a receipt issued directly from the 

tobacconist’s Strator terminal. During the year, this 

system was extended with a SAF innovation launched 

with the operator Télé2: the fi rst e-recharge for fi xed 

telephones. SAF also distributes SFR phonecards and 

prepaid fi xed-telephone cards.

This diversifi cation and innovation strategy, which in 

2004 enabled SAF to post a slight increase in sales 

and remain the French leader in its sector, will be 

maintained in 2005. 

Supergroup made signifi cant gains in certain logistics 

channels, particularly in vending machine and 

independent supermarket/hyperstore distribution. 

It thus managed to offset the loss of a customer 

accounting for about 10% of its sales and ended 2004 

as the second-ranking French wholesaler. 

Rouge Papier began launching stores under its own 

banner in 2003, and 280 were in operation at the 

end of 2004. The year was marked primarily by the 

reorganization of its logistics unit, Rouge Papier 

Diffusion, with fi ve warehouses closed, three new ones 

opened, and deployment begun on a new IT system. 

The new system will enable the second-ranking French 

operator in this niche to communicate better with its 

customers through electronic access to catalogues, 

inventory and orders. In addition, the fi nishing touches 

were made on a range of national catalogues. 

Retail outlet equipment 

Outlet modernization operations benefi ted from the 

integration of LPM Promodern in the scope of Altadis 

Distribution. The company, which the Group acquired in 

February 2004, specializes primarily in design concepts 

for newspaper/magazine outlets and tobacco retailers. 

Its quality offering enabled an increase in the number 

of modernized outlets of about 7%. On the other hand, 

several Espaces Tabac upgrading projects scheduled 

for 2004 were postponed due to the critical situation 

of outlets linked to lower tobacco consumption. 

In IT equipment, although the objectives set were not 

entirely attained, approximately 700 new Strator 

clients were won in 2004, bringing the total number 

of equipped sales points to over 10,000. New and even 

more-competitive software is being developed, along 

with a new generation of terminals scheduled 

for launching at year-end 2005. 

FRANÇOIS DUTREIL 

Vice President, Logistics France 

Morocco 

“ With 1’Dis, we have 

built the leading central 

purchasing and services 

agency for convenience 

outlets in France.” 

The logistics activity of Régie des Tabacs du Maroc 

(RTM), which had been previously focused solely on 

tobacco products, is now a separate business unit and 

has successfully begun to diversify. This strategy was 

launched in early-2004 with the sale of pre-paid phone 

cards for Maroc Telecom, and by year-end RTM had 

become the leading external distributor for the national 

operator, with over 14,000 sales points and a 15% 

market share. In November, RTM also succeeded in 

penetrating the stamp-distribution market through the 

fi rst outsourcing agreement ever signed by the Moroccan 

post offi ce for this activity. In December 2004, RTM 

signed its fi rst contract to distribute tobacco-related 

articles besides cigarette paper, which was already one 

of the company’s traditional logistics products. 

61

62 

Tobacco 

logistics 

Tobacco logistics accounted for 41% of the Division’s economic sales but a much 

greater percentage of its earnings. The trends in sales were marked by strong 

contrasts during the year. 

This activity is directly related to trends in tobacco markets, and was therefore 

severely affected by the sharp 18.1% fall in sales volume in France. As a result, 

French sales were down by 18.8%, while Spain and Portugal posted a gain of 

8.3% in fi rm markets. 

The integration of Régie des Tabacs du Maroc contributed EUR 50.8 million 

to results. 

Overall, sales in the tobacco logistics business rose by 9.8%, reaching 

EUR 359 million. 


In 2004, the overall Spanish tobacco logistics market 

remained stable. While consumption dipped slightly, 

impacting on the volumes distributed, this trend was 

offset by price rises. Increased cross-border purchases 

and sales to tourists also helped to grow sales, which 

ended the year up 8.3%, to EUR 170 million. 

Logista’s international expansion following its 

acquisition of Etinera, in Italy, and its expertise in 

managing long-distance transportation were key 

considerations in the renewal of its contract with 

Philip Morris for the next fi ve years. The contract 

covers product distribution throughout Spain, except 

for the Canary Islands, with an extension to cover 

transportation from Philip Morris plants 

in the Netherlands, Germany and Portugal. 

The contract with Imperial Tobacco for distribution 

in Portugal and Spain was also renewed, until 2006, 

enabling Logista to strengthen its presence in Portugal. 

CITA, in addition, renewed its tobacco distribution 

contract in Spain, excluding the Canary Islands, 

until 2007. 

France 

For the second consecutive year, declining tobaccoproduct 

sales impacted Altadis’ logistics business. 

With the 17.3% fall even more pronounced than 

in 2003 (-12.4%), most of the focus in 2004 was 

on restructuring in order to adapt the logistics base 

to smaller volumes. 

The Lille regional distribution center was closed, 

and the Lyon and Vitrolles centers together took 

over the management of the Cigarette Division’s 

French promotional materials and the administrative 

management of exports by the Group’s French 

plants, which were previously handled respectively 

by two units closed in Dijon. The Marne-la-Vallée 

regional center’s facilities were modernized, with 

the installation of new automated preparation lines. 

Designed to adapt to all formats and all types 

of products and packagin

Morocco 

Régie des Tabacs du Maroc’s tobacco logistics 

business decreased slightly in volume from 2003, 

partly because of the drop in dark cigarette sales. 

Its contribution to the Division’s tobacco-related 

sales was EUR 50.8 million. 

RTM has a national monopoly on the import 

and distribution of fi nished tobacco products 

until December 31, 2007. In preparation for 

market deregulation and in order to increase its 

competitiveness, RTM, backed by the Group’s 

expertise, began implementing a strategy in 2004 

designed to reinforce its competencies, strengthen 

its teams and modernize its resources. 

As a result, the focus during the year was primarily 

on strategy-related projects: 

Logistics reorganization: A new structure was 

developed by Moroccan, Spanish and French teams 

and is designed to improve delivery effi ciency and 

reduce delivery costs through the creation 

of regional warehouses, as in France and Spain, 

in the country’s four main regions. Implementation 

began in early 2005; 

IT system upgrading, an overhaul of the vehicle fl eet 

and computerization of delivery rounds for 

the 23,000 sales points served in Morocco. 

ALEXANDRE DE SUZZONI 

Logistics Director, Morocco 

“We are reinforcing 

the quality of our tobacco 

logistics services in order 

to reach an optimum 

performance level for 

the liberalization of 

the tobacco sector in 2008.” 

63

Social and 

environmental 

responsibility 

The Altadis Group is committed to reconciling corporate growth and 

profi tability objectives with a responsible approach to social, human 

and environmental issues. The Group’s actions and policies testify 

to this commitment, with is Code of Conduct, established in 2003, 

embodying the fundamental principles that guide Altadis’ way of 

working and defi ning its corporate culture. 

Altadis acts responsibly towards its employees, consumers and the 

general environment. The Group’s policies in these areas are presented 

in this section. The issues covered include respect for people, social 

dialogue, professional skills development for employees, safety, 

the importance of employee support measures during changes initiated 

to secure the company’s future and environmental certifi cation. 

These factors are all key to the Group’s vision of building a sustainable 

business. 

65

66 

Human 

Resources 

Values and practices shared 

within the Group 

From the outset, Altadis has implemented its human resources and labor policies 

on a group-wide basis, establishing basic overriding principles and leaving room for 

national policies in other areas. The rapid pace of international development in 2003 

and 2004 has heightened the importance of this general framework, which serves 

to align new entities’ practices with those of the Group. 

Restructuring plan: 

factoring in the needs of employees 

and the local economy 

In July 2003, the Group announced a large-scale 

reorganization of operations in France and Spain. 

In France, the consultation phases with employee 

representatives and trade unions concerning the 

implementation of the restructuring plan were 

completed in summer 2004. In Spain, where laws are 

different, talks are continuing in a constructive manner 

and the fi rst local agreements were signed in Andalusia 

at end-2004. 

In keeping with its policy of providing employee support 

in periods of restructuring, the Group has adopted a 

phased approach to the plan’s implementation, as well 

as numerous measures enabling optimum management 

of the related social, economic and human impact. 

In France, the implementation process is continuing. 

Five units have already been closed – the Morlaix cigar 

workshop, the Lille distribution center, the Tonneins 

threshing and treatment center and the two logistics 

facilities in Dijon. The closure of the Lille cigarette plant 

is scheduled for August 31, 2005. 

Solutions involving internal transfers, outplacements 

and early retirement are proposed to each employee 

concerned, as appropriate. In addition, the Group is 

contributing to the revitalization of the most affected 

regions. A number of job-creation projects are being 

considered and the resulting agreements should be 

signed by summer 2005. 

In Spain, an initial agreement was signed at end-2004 

with trade unions and the Province of Andalusia 

concerning regional restructuring measures. 

Discussions are in progress with respect to implementation. 

A draft proposal concerning employee support measures 

was also submitted to the Ministry of Employment 

in May 2005. 

Exchange and dialogue: 

the foundation of integration 

Fast-paced acquisition expansion over the last two years 

has changed the Group’s profi le. Acquisitions in Western 

Europe of Etinera in Italy, and in Eastern Europe of 

Russian cigarette manufacturer Balkan Star, following 

Morocco-based Régie des Tabacs du Maroc in 2003, 

have reinforced Altadis’ international presence. This 

growth has also brought both challenges and opportunities

Altadis Group employees 

at December 31, 2004 

SPAIN 7,962 

FRANCE 5,753 

POLAND/FINLAND 944 

RUSSIA 1,289 

REST OF EUROPE 819 

SUB-TOTAL EUROPE 16,767 

UNITED STATES AND CARIBBEAN 8,269 

MOROCCO 1,690 

REST OF THE WORLD 710 

TOTAL 27,436 

in terms of human resources management: the 

integration of acquired operations has taken the Group 

into another dimension while also opening up avenues 

for international mobility, increased cooperation and 

inter-team exchanges. 

Since its inception, Altadis has harmonized many 

aspects of human resources management in France and 

Spain, which represent the core of operations in Europe 

with the largest number of employees and production 

plants. The same fundamental principles are applied 

in Poland and, now, Morocco. 

The more-recently acquired companies are different in 

nature, however, and have employment policies that are 

sometimes markedly different from those of Altadis. 

As such, their integration poses a real challenge in terms 

of adapting local policies in line with those of the Group, 

while also factoring in national legislation and prevailing 

economic conditions. 

Altadis’ pragmatic approach to integrating acquisitions 

is underpinned by ongoing dialogue and feedback with 

respect to human resources management, safety in the 

workplace and general working conditions. In Morocco, 

2004 saw the introduction of managerial job descriptions 

and employee classifi cations, in line with practice in 

France, Spain and Poland. Working groups have also been 

formed to consider pro-safety measures for production 

facilities based on longstanding Group-developed 

methodologies. In Russia, a number of aspects of 

employee issues are under consideration by the Group’s 

human resources teams and those of Balkan Star. 

Core Group principles 

Human resources policies are founded on a number 

of guiding principles that are consistently applied 

throughout the Group: 

• providing responsible support during times of change, 

• encouraging motivation and career development for 

all employees, 

• fostering social dialogue, 

• ensuring safety and improving working conditions, 

• refusing discrimination, harassment and forced labor. 

67

68 

These principles are enshrined in the Group’s Code 

of Conduct, which may be consulted on the corporate 

Web site at www.altadis.com. Cross-functional policies 

have necessarily been established in certain key areas, 

including: 

• executive personnel management (compensation, 

performance assessment, allocation of stock options, 

skills and career enhancement, mobility, training), 

• employee support during periods of restructuring, 

• the application of methodologies that permit 

continuous improvements in safety and working 

conditions. 

It should be noted, however, that because of the 

application of differing regulations and assessment 

criteria across countries, it can sometimes be diffi cult to 

provide Group-level indicators in areas such as training 

and safety. 

Compensation: 

performance assessment 

Whereas employee compensation policies are managed 

autonomously by each country in accordance with 

national data, a standardized approach has been 

adopted throughout the Group in the case of executive 

remuneration. The variable component of this 

remuneration is determined on the basis of an annual 

performance assessment, with three parameters 

applied for this purpose: company results, fulfi llment 

of individual objectives and commitment to corporate 

values. The establishment of job descriptions has also 

provided a basis for objective comparisons of managers’ 

salaries relative to market trends. 

2004 saw the introduction of a job analysis system 

based on a common skills-defi nition model. This 

model, applicable throughout the Group, will permit 

a systematic approach to workforce planning founded 

on optimum career progression, performance 

enhancement, and skills and behavior development for 

the achievement of corporate objectives. 

Safety and working 

conditions: 

a long-term approach 

Safety has always been a priority for Altadis, beyond 

legal compliance. The Group remains committed to 

reducing the frequency and severity of accidents in 

the workplace through preventive action and training, 

and has introduced polices over the years to promote 

safety on an ongoing basis. These policies are rooted in 

continuous accident analysis, corrective and preventive 

action plans, involvement of the entire management 

chain and awareness/monitoring programs to ensure 

adherence to the decisions taken. Teams in the various 

countries share their results and best practices in 

order to deliver continuous improvements in safety 

performance. Safety-related training is key to the 

preventive process and is increasingly interlinked with 

environmental protection initiatives. 

The Group invested some EUR 4.2 million in safety 

measures in 2004, and Altadis now ranks among the 

companies that have obtained sustainable results in the 

prevention of accidents and their consequences. The 

efforts deployed testify to the Group’s commitment to 

supporting and developing occupational risk prevention

as a key aspect of its social policy. To achieve this, input 

is gathered from a variety of complementary sources 

– senior executives, company doctors, health and safety 

committees, nurses, engineers, and safety managers 

and coordinators at all levels. In compliance with recent 

amendments to risk-prevention legislation in both Spain 

and France, Altadis has introduced a prevention plan for 

all of its facilities. 

Training: 

an ambitious skills development policy 

The key objectives of Altadis’ training policy include 

continuously honing employee skills and management 

techniques, fostering mobility and internal promotion, 

career progression and the successful integration of new 

recruits. 

Number of Number of 

beneficiaries training hours 

France 4,950 69,700 

Spain 11,008 181,420 

Poland 1,926 23,132 

United States 2,990 491,000 

Morocco 800 6,100 

The Group’s training policy has two main strands. 

Operational training is managed by each country 

and by each entity concerned with a view to meeting 

requirements as effectively as possible. Cross-functional 

training programs are coordinated at the Group level. 

Operational training is broad-based, encompassing 

areas such as information technology, electronics, 

marketing, and safety and environmental imperatives. 

In 2004, the continued deployment of SAP enterprise 

resource planning software triggered a multitude of 

training programs covering functions from production 

management to purchasing in France, Spain and Poland. 

Preparations for the adoption of the new international 

accounting standards (IFRS) were conducted at the 

Group level and implemented by each country. Foreignlanguage 

instruction likewise remains a priority for 

Altadis as an increasingly international player. 

771,352 

TRAINING 

training hours 

provided 

The FIRST program (First Reality, Strategy and Team 

Building) for young managers joining the Group plays 

host to about 70 participants from all countries each 

year. The Altadis Management Development Program, 

introduced in 2003, is devoted to the development 

of managerial skills, aimed at enhancing individual 

performance, facilitating internal mobility and creating 

a shared Group-wide managerial culture. 

69

70 

Ensuring 

environmental 

protection from tobacco cultivation 

to the manufacturing process 

Altadis’ environmental policy is largely 

based on the ISO 14001 certifi cation 

process initiated in 2002, which is 

proceeding on schedule. Close attention 

is also paid to the reduction of pesticides 

used in tobacco cultivation, even though 

the Group is not directly involved in the 

cultivation process. 

In general, the production processes 

and raw materials used by the 

tobacco industry do not have a strong 

environmental impact. Altadis is 

nevertheless keenly aware of the need to 

make continuous improvements in some 

areas that have an environmental impact, 

such as water and energy consumption, 

and waste and effl uents treatment, 

which are all closely monitored by each 

Group site. To achieve sustainable 

improvements, Altadis plays a positive 

and involving role in the “environmental 

protection and production” task force 

formed by the CORESTA organization 

for international cooperation in 

tobacco-related scientifi c research. 

The Group’s production facilities all aim to achieve the 

following environmental protection objectives: 

• compliance with environmental laws and regulations; 

• identifi cation, analysis and assessment with a view to 

taking action to minimize environmental impacts; 

• optimum preparedness for incidents impacting the 

environment; 

• collaboration with authorities, trade organizations, 

suppliers and other stakeholders to implement 

environmental development initiatives; 

• raising employee awareness and training staff 

to implement best practices; 

• continuous improvements in environmental 

performance by constantly raising the bar. 

Care is also taken with regard to the impact on 

surrounding communities through diligent compliance 

with noise and odor pollution legislation. Each site has 

set up a system for dealing constructively with inquiries 

from the general public concerning environmental issues. 

Another key aspect of the Group’s policy is promoting 

environmental responsibility at every organizational 

level. Related employee-training courses have been 

undertaken in plants, and the corporate intranet has 

been used to inform a wider audience of progress made 

towards the achievement of comprehensive ISO 14001 

certifi cation. In addition, environmental requirements 

are being formulated for the Group’s suppliers.

ISO 14001: 

continuing the certifi cation process 

In 2004, all Cigarette Division facilities – plants, 

threshing centers and research centers – were involved 

in the environmental certifi cation process. Measures 

continued in France, Spain, Poland and Morocco, in line 

with the established timetable aiming for comprehensive 

certifi cation of all sites by 2005/2006. Three cigarette 

plants earned certifi cation in 2004 – the Riom plant in 

France, the Cádiz plant in Spain and the Radom plant 

in Poland. The certifi cation audits emphasized the high 

level of employee commitment and the maturity 

of the environmental management system installed. 

The two pilot plants in Cádiz and Riom have passed their 

fi rst audit six and eight months respectively following 

certifi cation. 

Certifi cation audits in 2005 will concern facilities 

in Nantes, Metz, Le Havre, Alicante, Logroño and 

Palazuelo, as well as the research centers in Les Aubrais 

and Tres Cantos. The Tobacco Institute in Bergerac, 

Macotab in Corsica and Régie des Tabacs in Morocco 

will draw up their respective certifi cation timetables 

in the second half of 2005. 

The Cigar Division is also seeking ISO 14001 

certifi cation, in this case for its Cantabrian plant 

in 2005, after which the process will be rolled out 

to the facility in Strasbourg. On the Logistics side, 

six distribution centers in Spain were certifi ed in 2004. 

All of the processes will be audited by BVQI, which 

has been selected to ensure certifi cation and regular 

monitoring of action plans, and by AENOR for Logista’s 

distribution centers. ISO 14001 certifi cation provides 

the guarantee of a continuous improvement program, 

as it involves an annual review and three-yearly audit. 

In order to comply with the related legal requirements, 

which are numerous and complex, Altadis has also 

developed a computerized regulatory monitoring system 

that has made all prevailing legislative and regulatory 

requirements available to every Group site. 

At end-2004, ISO 14001 was revised. The audit of 

the Radom cigarette plant in Poland was therefore 

conducted in accordance with the updated version 

of the standard. 

71

72 

Energy consumption, water 

consumption, waste and CO 2 

emissions: 

shared environmental performance 

indicators 

These environmental indicators, prescribed by CORESTA 

and culled from the recommendations of the GRI (Global 

Reporting Initiative), provide the Group with objective 

data for the identifi cation of any corrective measures 

required, on a site-by-site basis. 

Consolidation procedures have already been completed 

at the Cigarette Division and are being fi nalized at the 

Cigar Division. For ISO 14001 compliance purposes, 

Altadis has initiated action to maximize outcomes 

and to raise the awareness of employees at all sites 

as well as of subcontractors. 

Energy and water consumption: 

little room for maneuver 

Plant energy consumption is basically dependent 

on the production process, which is relatively stable, 

and output volume. These factors must be analyzed in 

light of changes in the Group’s production organization. 

Cigarette Division consolidated data 

ENERGY 

Total consumption Performance indicator 

(gigajoules) (total GJ/output) 

2003 1,288,398 12.6 

2004 1,246,024 13.8 


WATER 

Total consumption Performance indicator 

(m3 ) (m3 /output) 

2003 819,600 8.0 

2004 697,907 7.8 

Total water consumption at the Cigarette Division’s 

plants fell by 14.8% in 2004, thanks mainly to local 

measures like the reutilization of chilled water from 

the air conditioning system at the Logroño plant. 

Energy consumption dropped by 3.3%. 

Waste: unrelenting emphasis 

on recycling 

The primary objective in waste management is to avoid 

the use of landfi ll sites. The recovery and maximum 

recycling of waste are consequently a priority. Measures 

have been taken to raise employees’ and external 

providers’ awareness, with a view to sustaining each 

site’s internal waste management system. In all, 

nearly 60% of waste (paper, plastic, wood, burlap 

and tobacco) is recovered and recycled. Hazardous 

industrial waste (used oil, batteries, neon lamps, paint, 

etc.), representing 2% of total waste, is managed 

by authorized, specialized facilities. 


Total waste Performance indicator 

(metric tons) (metric tons/output) 

2003 16,663 0.163 

2004 14,977 0.166 

In 2004, the total amount of waste produced by cigarette 

plants was cut by 10% relative to 2003. In all, 98% of 

this waste is classifi ed as hazardous, in accordance 

with prevailing legislation. 


Total recovered waste Performance indicator 


2003 8,871 0.088 

2004 8,465 0.094 

Overall, 56.5% of all waste was recovered in 2004, 

either through recycling or incineration with energy 

recovery. 

The performance indicator concerning waste recycling 

or incineration with energy recovery rose by 7% in 

2004, mainly owing to enhanced selective sorting at 

the point of generation. Efforts also focused on the 

reduction of packaging waste. The use of fewer and 

lighter materials in packets, more effi cient palletization 

methods and the replacement of aluminum-coated 

papers by less polluting metallic papers have helped 

to reduce the waste burden. 

In 2004, the use of lighter packaging cut waste paper 

by 160 metric tons. Wood consumption fell by 210 metric 

tons as a result of improved palletization. The volume 

of plastic waste fell by 18 metric tons.

Prevention of accidental leakages 

This key aspect of environmental management has also 

given rise to targeted action. Water pollution is avoided 

by means of the strict designation of decanting areas, the 

installation of retention and absorption equipment, and 

the erection of hydrocarbon separators in areas exposed 

to rainwater intrusion. 

CO 2 emissions: maintain 

the reduction trend 

All of the Group’s plants monitor and measure 

the atmospheric impact of CO 2 emissions. To reduce CO 2 

air emissions, Altadis has already converted nearly all of 

its oil-fi red boilers to gas. On the Logistics side, the Group 

contributes to the reduction of atmospheric CO 2 levels 

by using computerized expert systems to optimize truck 

fl eet usage. 


Total CO 2 air emissions Performance indic 


2003 89,748 0.880 

2004 85,981 0.956 

CO 2 emissions, which mainly result from energy 

consumption, dropped by 4.2% overall in 2004 

in response to lower energy consumption at all 

of the Cigarette Division’s plants. 

At plants in France, technical studies are under way 

concerning the treatment of volatile organic compound 

(VOC) waste, in keeping with prevailing legislation. 

Tobacco research, cultivation 

and drying: taking action upstream 

The reduction of the use of pesticides in the cultivation 

of tobacco and other crops is a key environmental concern, 

to which Altadis lends its full and active support. 

The Group is a member of CORESTA’s Pesticides 

Committee and Agro-Chemical Advisory Committee 

(ACAC). Any deviations from prevailing standards are 

advised to the supplier concerned with a view to remedial 

action being taken. Altadis also regularly monitors 

pesticide residue levels in its tobacco supplies. 

The Group has undertaken not to use tobacco containing 

GMOs (genetically modifi ed organisms) for product 

manufacture and is implementing the necessary checks. 

In addition, wood is now used as fuel to dry tobacco leaves 

only in Brazil and Malawi. 

73

74 

Relations 

with consumers 

High-quality and transparent communication 

Although controversial, tobacco is still a widely-used consumer product. Aware 

of the risks associated with cigarette smoking, Altadis acts responsibly toward 

its customers and targets only adults in its marketing campaigns. The Group 

has included specifi c commitments on this subject in its Code of Conduct, 

with which its practices comply. 

Marketing 

quality products 

In line with the opinions of health authorities over 

the last few decades, Altadis has long recognized that 

cigarette smoking involves risks and has emphasized 

that there is no such thing as a risk-free cigarette. 

In light of this situation, the Group is committed 

to making high-quality products for adults who have 

chosen to smoke. Altadis is therefore painstaking in 

selecting its raw materials and applies strict quality 

procedures in the manufacture of its products. In 

compliance with the June 5, 2001, European Directive, 

the Group sends a detailed list of the ingredients used 

in its cigarettes to the health authorities of all Union 

European member states. This list is posted on 

the corporate Web site at www.altadis.com.

Supporting 

research and ensuring communication 

Considering the risks associated with tobacco abuse, 

Altadis has focused a substantial portion of its research 

on improving tobacco products, while also forging 

partnerships with a number of research institutes. 

The Group communicates transparently about its 

research fi ndings and refrains from making any 

misleading or unethical claims. Its position concerning 

cigarettes and health can be found on the corporate 

Web site. The Web site of the Bergerac research 

center is also available to the public at 

www.altadis-bergerac.com. 

Relations 

with partners 

The defi nition of ethical rules governing its relations with partners is a 

longstanding obligation of the Group and is reiterated in the Code of Conduct. 

Refusing all forms 

of corruption 

The Group does not tolerate corruption in the conduct 

of its business and does not tolerate an attempt by 

anyone to infl uence its activities or the management 

of the Group by giving money or any other kind of benefi t 

in return for a business favor. 

Promoting the fi ght 

against child labor 

Altadis buys most of its tobacco from independent 

international wholesale traders and purchases only 

a negligible portion directly from growers. Although 

Strictly supervising 

marketing campaigns 

The very nature of the Group’s products requires 

a responsible approach to their marketing. Altadis 

observes both the spirit and the letter of the regulations 

governing tobacco advertising and marketing that 

have been enacted by a number of countries to combat 

tobacco abuse. On the premise that smoking is a choice 

for adults, brand-marketing campaigns are targeted 

exclusively at the appropriate age group. 

the Group cannot control the working conditions on 

all tobacco farms, it believes that the tobacco industry 

can serve as a change agent in this area. Altadis has 

therefore joined the ECLT (Eliminate Child Labour in 

Tobacco Growing) Foundation, an organization that 

receives technical support from the ILO (International 

Labour Organization) and includes several tobacco 

manufacturers and wholesalers. ECLT is dedicated 

to funding projects to combat child labor in developing 

countries and cooperates, in particular, with several 

NGOs (non-governmental organizations). The campaign 

to raise child school attendance in Malawi is bearing 

fruit and future efforts will focus on consolidating 

the gains achieved, with local partners at the helm. 

75

76 

Relations 

with public authorities 

The Group is committed to transparent and fair relations in all circumstances with public 

authorities. Although tobacco consumption is an option for responsible individuals, 

the associated questions represent societal issues for public authorities that require special 

regulations. Altadis intends to participate in this debate through an honest presentation 

of its positions. 

Defending 

our interests fairly 

Altadis is committed to defending its views and rightful 

interests before elected offi cials, public authorities 

and international institutions in a spirit of openness 

and transparency. All of its initiatives are conducted 

with honesty, making sure that stakeholders are not 

faced with any confl ict of interest. 

Condemning 

illegal traffi cking 

Altadis condemns illegal tobacco traffi cking, a practice 

that hinders the development of its brands and reduces 

government tax revenues. The Group strictly complies with 

the laws of each country in which it operates and cooperates 

with public authorities. 

Remaining neutral with regard 

to political and religious activities 

Altadis aims to preserve its neutrality with regard to 

political, religious and philosophical issues. However, 

its employees are free to act as they choose, provided 

that their actions are not detrimental to the Group’s 

image or performance.

Relations 

with local communities 

As an economic and social force, Altadis is committed to making an optimum 

contribution to its host communities. The Group has closely honored this commitment 

for many years, in particular when it has had to implement restructuring measures 

that impact the economic and social balance of certain regions. 

Participating in local 

development, helping young people 

enter the workforce and collaborating 

with universities 

In addition to providing support for employees during 

the implementation of restructuring plans, Altadis is 

committed to establishing a constructive dialogue with local 

and regional economic actors, and provides funding for 

job-creation projects that will enable the revitalization of 

affected regions. The use of its production facilities for other 

operations is another tangible expression of the Group’s 

pro-employment ethos. 

Besides the initiatives associated with restructuring 

plans, Altadis actively pursues a policy of helping young 

people enter the workforce. Every year, the Group offers 

a multitude of student internships and skills qualifi cation 

contracts at its sites in France. 

In Spain, too, Altadis provides engineering, economics and 

information-technology students with practical training 

through long-term internships. This open-door policy 

ensures a permanent reserve of young graduates who are 

already familiar with the Group’s business. 

In both France and Spain, the Group also lends its support 

to associations helping disadvantaged or handicapped 

job-seekers to enter the workforce or fi nd new employment. 

Respecting national cultures 

and supporting social and humanitarian 

initiatives 

The Altadis Group respects the laws and culture of the 

countries in which it operates and listens attentively 

to the concerns of international and local institutions, 

companies and organizations concerned by its activities. 

The Group’s companies are involved in an array of 

social initiatives. These include support for charities, 

especially in Morocco, participation in risk-prevention 

gatherings and collaboration with universities for the 

benefi t of scholarship students. Financial support for 

the victims of the Asian tsunami is another example 

of the Group’s determination to make a difference 

through giving. This aid, provided under United Nationscoordinated 

programs, has been used primarily to fund 

logistical support for the various NGOs working in the 

fi eld. 

In Morocco, Régie des Tabacs is conducting an active 

support policy for numerous charities and assists with 

a number of environmental, anti-poverty and solidarity 

projects. 

77

78 

Cultural sponsorship: 

an expression of Altadis’ corporate 

citizenship 

The Group’s policy with respect to cultural patronage is rooted in international 

openness, diversity and exchanges, and the bringing together of cultures and ideas. 

Patronage activities are focused on contemporary art and debates, for the benefi t of 

artists, the public and Altadis employees. The Altadis Prize for the Plastic Arts and 

ongoing lecture series form the cornerstone of the Group’s cultural sponsorship. 

In addition, the Altadis Foundation supports prestigious cultural and artistic events 

in Spain in the fi elds of art, music and fi lms. 

Plastic arts: 

discovering and promoting discovery 

The Group is committed to supporting contemporary 

artistic creation and providing a cross-cultural 

perspective of contemporary artists in France and 

Spain, thereby fostering a closer relationship between 

two cultures. This objective has led to the creation of 

the Altadis Prize for the Plastic Arts, which annually 

recognizes six artists. Altadis works closely with 

contemporary art specialists (two artistic advisors, 

one French and one Spanish), who have free rein to 

propose around 20 candidates to a jury also comprising 

professionals, such as art critics, art center directors, 

collectors, and gallery owners, for the selection of 

the winners. Since the Prize was created, 30 artists 

have received backing from Altadis, including the 

purchase of a work by the company, a collective 

exhibition in well-known galleries in Paris and Madrid, 

and monographs published in partnership with Actes 

Sud and distributed in bookstores and museums. This 

support for contemporary artists has helped painters, 

photographers, video makers and sculptors gain 

recognition for their work beyond their national borders. 

The Group’s initiative has received a highly positive 

response, and its merits and originality are widely 

recognized by the artistic community in both France 

and Spain. 

All of the works purchased by the Group in the last fi ve 

years have been displayed in the company as part of the 

Altadis corporate art collection. Employees receive an 

invitation to the openings of the exhibitions every year. 

2004 marked the fi fth anniversary of the Altadis Prize. David Torres and 

François Piron were appointed as stewards and given free rein to propose 

to the jury 20 candidates, who were presented to the public at the Palais de Tokyo 

in Paris. The winners’ works were displayed at the Lelong gallery in Paris in 

March 2004 and subsequently at the Oliva Arauna gallery in Madrid in June 2004.

Debates: 

plural vision 

Through a series of lectures held every year in Spain 

and France, Altadis offers the public and its employees 

debates on topics that provide insight and expert 

opinions on many of today’s global issues. The media are 

increasingly involved in these debates, thus confi rming 

their quality and interest. Although the format of the 

lectures differs somewhat in France and Spain, the 

objective remains the same. 

In France, the lecture series revolves around 

two events: the Grand Angle series created by 

Altadis in collaboration with République des Idées 

(an international intellectual workshop presided over 

by Pierre Rosanvallon) and Esprit magazine (headed by 

Olivier Mongin), and the Cité de la Réussite program, 

in which Altadis has been a longstanding partner. Every 

year, more than 2,000 people attend lectures sponsored 

by Altadis. In Spain, the Group organizes the Regards 

Croisés lecture series in association with Diálogo, an 

organization dedicated to fostering friendship between 

Spanish and French people. These lectures, which deal 

with matters of topical and social interest, have won 

a large following. 

Cultural 

patronage 

initiated by Altadis or to support existing 

programs is a key component of the 

Group’s corporate citizenship policy. 

In accordance with the commitment 

expressed in its Code of Conduct, Altadis 

refrains from promoting any product 

within the framework of its patronage 

activities, which serve only to enhance its 

corporate image and identity. 

The Altadis Foundation 

Established in 1992, the Altadis Foundation is 

registered as a corporate foundation by the Spanish 

Culture Ministry. Its primary mission is to support 

various national and regional cultural events in Spain, 

in particular in cities where Altadis has a signifi cant 

presence. The Foundation’s initiatives are part of the 

Group’s overall patronage policy and provide additional 

backing in the fi elds of art, music, fi lms and history. 

In 2004, the Foundation continued its support of 

the ARCO International Contemporary Art Fair, 

the splendid “Madrid, an Open City” sculpture exhibition 

and the PhotoEspaña International Photography Festival. 

As part of the Dali year events, the Foundation also 

co-sponsored a major exhibition at the Miro Foundation 

in Barcelona with the Catalonia regional government. 

It also provided backing for many concerts, in particular 

jazz and classical music (Orfeo Català-Palau Foundation, 

the Albenitz Foundation of the Reina Sofi a Museum 

music school, etc.). In the world of cinematic art, the 

Altadis Foundation sponsored the Young Director’s 

Prize, awarded for the third year at the San Sebastian 

Film Festival, and subsequently organized a week-long 

public screening of the competing fi lms for the fi rst 

time in Madrid. It also continued its contribution to the 

publication of prestigious works like the New Grammar 

of Spain’s Royal Academy, currently in preparation, and 

published new books on the history of tobacco as part of 

its Les Livres d’Altadis collection. 

79

GROUP COMMUNICATIONS DEPARTMENT 

Design and production: terr terre e de sien sienne 

ne PARIS 

Photographs: 

Lawrence Perquis, Eduardo M. Conde, Getty Images, Jack Burlot, 

Steven P. Widoff, Photothèque Altadis, Photothèque Régie des Tabacs du Maroc 

This Annual Report is also available, in Spanish, French and English, at the Altadis web site: 

www.altadis.com 

For additional copies 

FRANCE SPAIN 

SHAREHOLDER SERVICES SHAREHOLDER SERVICES 

182-188, avenue de France Eloy Gonzalo, 10 

75639 Paris Cedex 13 – FRANCE 28010 Madrid – ESPAGNE 

Tel.: 33 1 44 97 69 07 Tel: 34 91 360 91 21 

Fax: 33 1 44 97 67 53 Fax: 34 91 360 91 12 

N° vert: 08 00 196 787 Tel: 901 242 901 

e-mail: relations.actionnaires@altadis.com e-mail: aaccionista@altadis.com

France: 182-188, avenue de France – 75639 Paris Cedex 13 

Spain: Eloy Gonzalo, 10 – 28010 Madrid 

www.altadis.com

Financial 

information 

2004 

83 Altadis, S.A. and Dependent Companies 

(Altadis Group) 

151 Altadis, S.A.

Altadis, S.A. 

and Dependent Companies 

(Altadis Group) 

Index 

84 Auditors’ report 

86 Consolidated balance sheets and 

consolidated statements of income 

90 Notes to 2004 consolidated 

financial statements 

136 Consolidated management report 

Translation of financial statements originally issued in Spanish and prepared in 

accordance with generally accepted accounting principles in Spain (see Note 25). 

In the event of a discrepancy, the Spanish-language version prevails. 

Altadis Group 2004 Financial Information 83

86 

Altadis Group 2004 Financial Information 

Consolidated Balance Sheets 

as of December 31, 2004 and 2003 (Thousands of Euros) 

Year Year 

ASSETS 2004 2003 

FIXED AND OTHER NONCURRENT ASSETS: 

Start-up expenses 1,360 2,541 

Intangible assets (Note 5) 558,463 592,375 

Tangible fixed assets (Note 6)– 852,619 803,509 

Land and structures 741,072 695,192 

Plant and machinery 1.251,653 1.243,658 

Other fixtures, tools and furniture 157,297 147,589 

Other tangible fixed assets 137,191 100,678 

Advances and construction in progress 74,307 60,418 

Accumulated depreciation and allowances (1.508,901) (1,444,026) 

Long-term investments (Note 7) 367,878 763,934 

Tax receivables for tax prepayments (Note 18) 288,872 294,155 

Parent company shares (Note 8) 16,188 11,907 

Total fixed and other noncurrent assets 2,085,380 2,468,421 

GOODWILL (Note 9) 2,604,613 1,999,200 

DEFERRED CHARGES 14,892 16,867 

CURRENT ASSETS: 

Inventories (Note 10) 1,792,787 1,485,728 

Accounts receivable (Note 11) 2,847,589 2,070,846 

Short-term investments (Note 12) 934,078 710,957 

Cash 294,672 353,405 

Accrual accounts 37,868 47,869 

Total current assets 5,906,994 4,668,805 

TOTAL ASSETS 10,611,879 9,153,293 

The accompanying Notes 1 to 26 and Exhibit I are an integral part of the 2004 consolidated balance sheet.

Altadis Group 2004 Financial Information 87 

Year Year 

SHAREHOLDERS' EQUITY AND LIABILITIES 2004 2003 

SHAREHOLDERS' EQUITY (Note 13): 

Capital stock 169,933 174,283 

Additional paid-in capital - 132,219 

Reserves at the Parent Company– 105,123 141,236 

Legal reserve 33,987 36,657 

Voluntary reserves 1,178 38,902 

Revaluation reserve 53,461 53,461 

Reserves for treasury stock 16,188 11,907 

Differences due to redenomination of capital stock in euros 309 309 

Reserves at consolidated companies 663,409 669,621 

Translation differences (307,961) (279,747) 

Income for the year attributable to the Parent Company 413,311 293,151 

Total shareholders' equity 1,043,815 1,130,763 

MINORITY INTERESTS (Note 14) 291,487 279,111 

NEGATIVE DIFFERENCES IN CONSOLIDATION (Note 9) 42,220 43,299 

DEFERRED REVENUES 6,025 4,017 

PROVISIONS FOR LONG-TERM CONTINGENCIES AND EXPENSES (Note 15) 360,944 507,117 

LONG-TERM DEBT: 

Debentures and other marketable debt securities (Note 16) 1,100,000 1,100,000 

Payable to credit institutions (Note 16) 693,167 943,111 

Other accounts payable (Note 17) 136,011 123,049 

Total long-term debt 1,929,178 2,166,160 

CURRENT LIABILITIES: 

Debentures and other marketable debt securities (Note 16) 587,195 265,182 


Payable to Associated companies (Note 20) 12,350 6,724 

Trade accounts payable 1,347,858 1,208,059 

Other nontrade payables– 3,976,397 2,740,130 

Payable to public authorities (Note 18) 3,680,172 2,574,703 

Other accounts payable 296,225 165,427 

Provisions for short-term contingencies and expenses (Note 15) 303,161 18,003 


Total current liabilities 6,938,210 5,022,826 

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 10,611,879 9,153,293

88 


Consolidated Statements of Income 

for 2004 and 2003 (Thousands of Euros) 

Year Year 

DEBIT 2004 2003 

EXPENSES: 

Reduction in finished product and 

product in-process inventories 9,544 6,369 

Procurements (Note 19-a) 6,868,351 6,736,214 

Personnel expenses (Note 19-b) 792,070 749,628 

Depreciation and amortization expense 175,058 162,664 

Variation in operating allowances (1,356) (10,503) 

Other operating expenses– 

Outside services 907,203 874,324 

Taxes other than income tax 66,558 72,429 

Total operating expenses 8,817,428 8,591,125 

Operating income 938,443 915,325 

Financial expenses 183,577 131,259 

Variation in provisions for financial investments (1,567) (1,895) 

Exchange losses 48,633 62,715 

Total financial expenses 230,643 192,079 

Amortization of goodwill (Note 9-a) 156,920 117,983 

Ordinary operating income 714,666 730,132 

Variation in provisions for and losses on tangible fixed 

and intangible assets 2,414 (7) 

Extraordinary expenses (Note 19-c) 89,161 312,920 

Total extraordinary losses 91,575 312,913 

Extraordinary income 10,493 – 

Consolidated income before taxes 725,159 479,404 

Corporate income tax (Note 18) 255,608 142,517 

Consolidated income for the year 469,551 336,887 

Income attributable to minority interests (Note 21) 56,240 43,736 

Income attributable to the Parent Company 413,311 293,151 

The accompanying Notes 1 to 26 and Exhibit I are an integral part of the 2004 consolidated statement of income.


Year Year 

CREDIT 2004 2003 

REVENUES: 

Net sales 9,707,087 9,473,160 

Capitalized expenses on fixed assets 231 276 

Other operating revenues 48,553 33,014 

Total operating revenues 9,755,871 9,506,450 

Revenues from loans to Associated companies 1,410 1,243 

Revenues from other marketable securities 1,900 3,038 

Revenues from short-term investments 88,863 71,969 

Exchange gains 37,875 32,905 

Total financial revenues 130,048 109,155 

Financial loss 100,595 82,924 

Share in income of companies accounted for 

by the equity method (Note 7-a) 33,738 15,714 

Gains on disposal of holdings 

in consolidated companies 1,545 15,582 

Gains on fixed assets (Note 6) 67,142 13,871 

Extraordinary revenues (Note 19-d) 33,381 32,732 

Total extraordinary income 102,068 62,185 

Extraordinary loss – 250,728

90 


Notes to 2004 

Consolidated Financial Statements 

1. Description of the 

Altadis Group 

Altadis, S.A. (“the Parent Company”) was 

incorporated on March 5, 1945, under the name of 

Tabacalera Sociedad Anónima, Compañía Gestora 

del Monopolio de Tabacos y Servicios Anejos, which 

was subsequently changed to Tabacalera, S.A. Its 

current name was approved by the Shareholders’ 

Meeting on November 13, 1999. 

The Group´s core business lines are the 

manufacture and marketing of cigars and cigarettes 

and the distribution of tobacco and other products. 

In 1999 a business association process was carried 

out between Tabacalera, S.A. and SEITA (Société 

Nationale d’Exploitation Industrielle des Tabacs et 

Allumettes, S.A.). This transaction took the form of 

a Public Echange offer by Tabacalera, S.A. for all 

the shares of SEITA, and 19 shares of Tabacalera, 

S.A. were delivered for every 6 shares owned by the 

SEITA shareholders who accepted the offer. 

83.07% of the capital stock of SEITA was acquired 

in this transaction, which was approved by 

Tabacalera, S.A.’s Shareholders’ Meeting on 

November 13, 1999, which also changed the 

Company’s corporate name to Altadis, S.A., as 

indicated above. After various subsequent 

acquisitions and a delisting tender offer for SEITA 

shares that Altadis, S.A. completed in January 

2003, the Parent Company acquired all the shares 

of SEITA owned by minority shareholders. 

A detail of the investees included in the scope of 

consolidation as of December 31, 2004, indicating, 

inter alia, the Parent Company’s ownership interest 

and the cost thereof, their respective lines of 

business, registered offices and corporate names, 

is included in Exhibit I. 

Altadis, S.A.’s registered office is located in Madrid. 

2. Basis of presentation of 

the consolidated financial 

statements and 

consolidation principles 

applied 

a) Basis of presentation 

The consolidated financial statements, which were 

prepared by the directors of Altadis, S.A. from the 

accounting records and financial statements of 

Altadis, S.A. and its subsidiaries, are presented in 

accordance with the Spanish National Chart of 

Accounts and the consolidation standards 

established by Spanish corporate legislation and, 

accordingly, give a true and fair view of the net 

worth, financial position and results of operations 

of the consolidated Group. 

The financial statements of Altadis, S.A., and those 

of its subsidiaries, which were prepared by the 

directors of each company, will be submitted for 

the approval of the related Shareholders’ Meetings. 

The directors of Altadis, S.A. will also submit these 

consolidated financial statements for approval by 

the Shareholders’ Meeting, and consider that they 

will be approved without any changes. 

b) Consolidation principles 

The investees included in consolidation which the 

Parent Company directly or indirectly manages by 

virtue of ownership of a majority of the voting 

rights in their representation and decision-making 

bodies were fully consolidated. 

Investees managed jointly by the Parent Company 

and by third parties, with neither owning a majority 

of the voting rights, were proportionally 

consolidated.

Lastly, when the Parent Company directly or 

indirectly has a significant influence in an 

investee’s representation and decision-making 

bodies but does not have control, the investee was 

accounted for by the equity method. In general it 

is assumed that there is significant influence when 

the Group’s percentage of ownership is over 20% in 

the case of unlisted investees, or over 3% in the 

case of listed investees, provided the percentage of 

ownership does not exceed 50%. 

All material balances and transactions between 

fully or proportionally consolidated companies were 

eliminated in consolidation. 

The value of other shareholders´ holdings in the net 

worth and results of the fully consolidated 

companies are presented under the “Minority 

Interests” and “Income Attributable to Minority 

Interests” captions, respectively, in the 

accompanying consolidated balance sheet and 

consolidated statement of income. 

In the consolidation process the accounting policies 

and methods used by the consolidated companies 

were unified with those used by the Group. 

The methods used for translating to euros the various 

captions in the balance sheets and income statements 

of the foreign companies that were included in the 

scope of consolidation were as follows: 

a. Assets and liabilities were translated at the 

official year-end exchange rates. 

b. Capital and reserves were translated at 

historical exchange rates. 

c. The income statements were translated at the 

average exchange rates for the year. 

The differences arising from the application of 

these methods were included under the 

“Shareholders’ Equity – Translation Differences” 

caption. 


The accompanying consolidated financial 

statements do not include the tax effect, if any, of 

transferring the reserves of the consolidated 

companies to the Parent Company’s equity. 

c) Comparative information 

The most significant variations in the scope of 

consolidation in 2003 and 2004 with an effect on 

the interyear comparison were as follows: 

a. Acquisitions in 2003 

In July 2003 the Parent Company acquired 80% of 

Régie des Tabacs, S.A. of Morocco (“RTM”) for 

€1,309 million. In addition, in October 2003 the 

Tabacalera Cigars International Subgroup acquired 

a 51% holding in JR Cigar Inc., which operates in 

the United States. 

For comparison purposes, the impact of these 

acquisitions on the “Net sales” and “Consolidated 

Income” captions is as follows: 

Thousand of euros 

2003 (*) 2004 

Net sales 199,082 558,480 

Consolidated income (5,408) (7,905) 

(*) Figures consolidated at the Altadis Group since the 

acquisition date. 

b. Acquisitions in 2004 

At the end of 2004, the Group acquired 99.69% of 

Balkanskaya Zvezda (“Balkan Star”), whose 

registered office is located in Russia, for €245 

million. In addition, in December 2004 the 

subsidiary Logista, S.A. acquired 96% of the Italian 

group Etinera for €567 million. 

For comparison purposes, the impact of these two 

acquisitions on the “Net sales”, “Consolidated 

Income” and “Total Assets” captions is as follows:

92 




Thousand of euros 

2004 (*) 

Net sales 20,977 

Consolidated income 1,709 

Total assets 1,656,806 

(*) Figures consolidated at the Altadis Group since the 

acquisition date. 

3. Distribution of the Parent 

Company’s income 

The proposed distribution of the Parent Company’s 

income that the directors will submit for approval 

by the Shareholders’ Meeting is to distribute: a 

dividend of € 0.9 per share, with a charge to 

income for the year of Altadis, S.A. and the 

remaing balance will be used to increase the 

balance of the Parent Company’s voluntary 

reserves. 

4. Valuation standards 

The main valuation methods applied in preparing 

the 2004 consolidated financial statements were as 

follows: 

a) Intangible assets 

Intangible assets are stated at cost, as follows: 

1. The balance of the “Intellectual Property and 

Trademarks” account includes the acquisition 

cost of the rights on certain brands of cigars, 

little cigars and cigarettes and/or the value 

assigned to them in the consolidation process. 

The Group amortizes these rights on a straightline 

basis over a period of 20 years. 

2. Computer software is recorded at acquisition 

cost and is amortized on a straight-line basis 

over five years. The related maintenance costs 

are expensed currently. 

3. The rights under financial lease contracts are 

recorded as intangible assets at the cash value 

of the related assets, and the total debt for lease 

payments plus the amount of the purchase 

option are recorded as a liability. The difference 

between the two amounts, which represents the 

interest expenses on the transaction, is recorded 

as a deferred expense and is allocated to income 

each year by the interest method. These rights 

are amortized by the straight-line method over 

the useful lives of the related assets. 

The Group records the related allowances to 

recognize possible losses of a reversible nature on 

its intangible assets, calculated as the differences 

between their net book value and their realizable 

or market value. 

When the circumstances giving rise to such 

differences are permanent and, accordingly, the 

losses are irreversible, the Group reduces the value 

of the related asset by recording extraordinary 

amortization. 

b) Tangible fixed assets 

Tangible fixed assets are carried at cost, revalued, 

in the case of certain consolidated companies, 

pursuant to applicable legislation in the various 

countries. The increase in the amounts of 

depreciation taken by consolidated companies in 

2004 due to the effect of these revaluations was 

not material. 

Upkeep and maintenance expenses are expensed 

currently. However, the costs of improvements 

leading to increased capacity or efficiency or to a 

lengthening of the useful lives of the assets are 

capitalized. 

The consolidated companies depreciate their 

tangible fixed assets by the straight-line method at 

annual rates based on the years of estimated useful 

life of the related assets. The rates used are as 

follows:

Depreciation 

Rate (%) 

Structures 2-4 

Plant and machinery 10-25 

Other fixtures, tools and furniture 6-25 

Other tangible fixed assets 10-33 

The Group records the appropriate allowances, 

which are generally calculated based on appraisals 

performed by independent third parties, to 

recognize possible losses arising from the 

differences between the net book value and the 

market value of assets, basically property, that are 

no longer in use or are in the process of being sold. 

c) Long- and short-term investments 

Holdings in the capital stock of non consolidated 

companies and ownership interests in Group and 

Associated companies not considered strategic and 

not included in consolidation are valued at the 

lower of cost or market. 

The “Long-Term Investment Securities” account 

includes the LOGISTA and SEITA shares assigned 

to the stock option compensation plans defined for 

management of each of these two Group companies 

(see Notes 4-o and 7-b). 

In the case of listed companies, market value was 

deemed to be the lower of market price at year-end 

or average market price in the last quarter of the 

year. 

In the case of unlisted companies, market value 

was calculated based on the underlying book value 

of the holding at year-end, adjusted by the amount 

of the unrealized gains disclosed at the time of the 

acquisition and still existing at the date of 

subsequent valuation. 

Allowances are recorded to recognize the 

unrealized losses (cost higher than market value) 

on the holdings. 


Marketable securities whose redemption value and 

yield are guaranteed by the issuer entities are 

recorded at cost and the unmatured accrued 

interest is capitalized. 

Loans granted to associated companies and other 

loans and credits are recorded at the amounts 

delivered and not yet repaid. The Group has 

recorded allowances to cover the risk of 

noncollectibility, calculated based on the 

probability of recovering each debt depending on 

its age and the solvency of the debtor. 

The guarantees and deposits, which have generally 

been provided to guarantee compliance with 

contractual obligations, are valued at the amounts 

disbursed. 

The Group generally places its cash surpluses in 

deposits and other financial assets which are 

recorded at the unmatured amounts actually 

disbursed. Interest revenues on these transactions 

are calculated by the interest method as they 

accrue. 

d) Financial derivatives 

Transactions whose purpose and effect are to 

eliminate or reduce exchange rate or interest rate 

risks in asset and liability positions or in other 

transactions are treated as hedging transactions. 

The gains or losses arising over the lives of these 

financial derivatives are credited or charged to 

consolidated income using the same timing of 

recognition method as that used for the main asset 

and liability items and transactions whose risks 

they hedge. 

e) Parent Company shares 

The shares of treasury stock of the Parent 

Company the use of which has not yet been decided 

upon are recorded under the “Parent Company 

Shares” caption on the asset side of the

94 




consolidated balance sheet at the lowest of cost, 

market value or underlying book value per the 

consolidated balance sheet of the Altadis Group as 

of December 31, 2004. Market value is deemed to 

be the lower of average market price in the last 

quarter of the year or year-end market price. The 

Group records the related allowance, with a charge 

to the consolidated statement of income, for the 

difference between cost and market value, if the 

latter is lower, and with a charge to unrestricted 

reserves or to additional paid-in capital for the 

remaining amount up to the underlying book value, 

in accordance with the Regulations thereon issued 

by the Spanish Accounting and Audit Institute 

(ICAC) (see Note 8). 

f) Goodwill and negative differences in 

consolidation 

The positive or negative differences between the 

acquisition cost of a holding in a consolidated 

company and its underlying book value on the date 

of purchase which cannot be allocated to specific 

assets, increasing or decreasing the value thereof, 

are recorded under the “Goodwill” or “Negative 

Differences in Consolidation” captions, respectively, 

in the consolidated balance sheet. 

Goodwill is amortized on a straight-line basis over 

the period during which the Parent Company’s 

directors consider that it will contribute to the 

generation of income for the Group, up to the 

legally-stipulated maximum of 20 years, the detail 

being as follows: 

Goodwill Years 

RTM 4.5-20 

Altadis Polska 15 

Supergroup Distribution 10 

Altadis Finland 10 

LPM Promodern 10 

Philippine Bobbin Corporation Cigars 10 

Aldeasa, S.A. 9-15 

Unión Ibérica de Radio, S.A. 5 

Other goodwill 20 

Of the total goodwill that arose in the acquisition of 

RTM, the portion relating to the monopoly on the 

import and wholesale distribution of tobacco 

products in Morocco, calculated on the basis of the 

projected future income attributable to the holding 

of the monopoly, will be amortized on a straightline 

basis before January 1, 2008, the projected 

date of expiration of the monopoly. The remaining 

goodwill relating to this company will be amortized 

in accordance with the Group’s general criteria 

over 20 years. 

Negative differences in consolidation are charged to 

income as and when the reasons which gave rise to 

the differences at the time of acquisition become 

known. 

g) Deferred charges 

The balance of this account includes basically the 

unaccrued financial expenses arising from the 

financing obtained for the purchase of the leased 

assets, which are being amortized by the interest 

method based on the payment deferral period and 

the interest rated agreed upon. 

The account also includes the loan arrangement 

expenses incurred by the Group in the acquisition 

of RTM, which are being charged to income by the 

interest method.

h) Inventories 

Inventories of raw materials and merchandise are 

valued at the lower of cost or market. Cost is 

determined using the weighted average cost 

method. 

Semifinished and finished goods are valued at the 

lower of production cost or market. Production cost 

consists of the cost of raw materials and other 

consumables plus the remaining manufacturing 

costs directly allocable to the product and any 

indirect costs allocable to it. 

The Altadis Group records allowances to recognize 

the decline in value of obsolete or slow-moving 

inventories and to adjust the value of inventories 

whose cost exceeds their market value or net 

realizable value. 

i) Classification of receivables and payables 

In the accompanying consolidated balance sheet, 

receivables and payables maturing in 12 months or 

less from year-end are classified as current assets 

and current liabilities, respectively, and those 

maturing at over 12 months as long-term items. 

j) Foreign currency transactions 

Transactions in foreign currencies are recorded at 

their equivalent value in euros calculated at the 

exchange rates ruling at the transaction date. 

Exchange gains or losses arising on the settlement 

of foreign currency transaction balances are 

recognized in consolidated income when they arise. 

Unhedged foreign currency balances receivable and 

payable at year-end are translated to euros at the 

exchange rates then prevailing. The unrealized net 

exchange losses in each group of foreign currencies 

of similar maturity and market performance are 

recognized as expenses and the unrealized net 

gains, similarly determined, are deferred to 


maturity. The balances hedged by forward exchange 

or futures transactions are translated to euros at 

the hedged exchange rate. 

The exchange differences resulting from the 

specific financing transactions for investments in 

foreign companies which hedge the exchange rate 

risk on these investments are included under the 

“Translation Differences” caption in the 

accompanying consolidated balance sheet. 

k) Severance costs 

Under current labor legislation and as stipulated in 

certain labor contracts, the Group companies are 

required to make severance payments to employees 

terminated under certain conditions. 

When a restructuring plan is approved by the 

directors, made public and notified to the 

employees, the Group records the appropriate 

provisions to meet future payments arising from 

implementation of the plan, based on the best 

estimates available of the projected costs per the 

related actuarial studies (see Note 15). 

l) Corporate income tax 

The expense for corporate income tax of the year is 

calculated on the basis of book income before 

taxes, increased or decreased, as appropriate, by 

the permanent differences from taxable income, net 

of tax relief and tax credits. The Parent Company 

files consolidated tax returns with all the 

companies in which it had a direct holding of over 

75% as of January 1, 2004, and which are 

domiciled in Spain for tax purposes. 

The tax assets arising from tax losses and the 

prepaid taxes arising from timing differences are 

only capitalized if there are no doubts as to their 

recovery and if they will be recovered within a 

maximum of ten years.

96 




m) Provisions for contingencies and expenses 

The Group records provisions for the estimated 

amounts required to meet possible or certain 

liabilities arising from litigation in progress or from 

indemnity payments or obligations of an 

undetermined amount, and collateral and other 

guarantees provided by the consolidated 

companies. These provisions are recorded when the 

circumstances giving rise to such liability become 

known. 

n) Pension and other commitments to 

employees 

The main Group companies have undertaken to 

supplement the social security benefits received by 

certain groups of employees, mainly in the event of 

retirement, disability or death. 

In general, the commitments relating to serving 

and retired employees in these groups are definedcontribution 

commitments and have been 

externalized through external pension plans and 

insurance policies. The contributions made by the 

Group are recorded under the “Personnel 

Expenses” caption in the consolidated statement of 

income for the year, and the amounts payable in 

this connection are recorded under the “Long-Term 

Debt – Other Payables” and “Current Liabilities – 

Other Payables” captions in the accompanying 

consolidated balance sheet. 

The French Group companies assign a percentage 

of their income for each year to compensation for 

their employees, in accordance with current 

legislation. This amount is externalized by each 

company, in the name of the employee, in certain 

marketable securities which the employees 

generally cannot sell for a period of five years. 

The expense recorded in this connection in 2004 

amounted to €22,378 thousand and is recorded 

under the “Personnel Expenses” caption in the 

accompanying consolidated statement of income. 

Additionally, there are defined commitments to 

certain groups of employees, which are generally 

externalized and are valued based on actuarial 

studies. The related provisions are recorded under 

the “Provisions for Contingencies and Expenses” 

caption in the accompanying consolidated balance 

sheet (see Note 15). In this connection, the 

collective labor agreements or current agreements 

between certain consolidated companies (mainly 

Altadis, S.A., SEITA and RTM) and certain groups of 

their employees stipulate the companies’ obligation 

to make a one-time set payment on retirement or 

termination, provided certain conditions, relating 

generally to the date the employee was hired and 

his/her years of service, are met. Also, Altadis USA, 

Inc. is obliged to make certain periodic pension 

payments to its employees from the date on which 

they retire. 

o) Compensation systems linked to the share 

price 

As indicated in Note 19-b, the Parent Company and 

the subsidiaries SEITA and LOGISTA have 

instrumented various stock option plans for 

directors holding executive office, executives and 

employees. 

In order to hedge the possible variations in the 

share price as compared with the exercise prices of 

the stock options granted by Altadis, S.A. and of 

those granted by LOGISTA in 2000, the two 

companies have entered into equity swap contracts 

with financial institutions. The costs of the 

contracts are accrued by the interest method. Also, 

provisions are recorded to meet the possible loss 

that might arise from settlement of these contracts, 

calculated as the difference between the contract 

value and the lower of the market value at year-end 

or the exercise price of the options. 

In the case of the SEITA stock option plans and of 

the stock option plan launched by LOGISTA in 

2002, the shares required for the options granted

and not yet exercised were acquired, and these 

shares are recorded under the “Long-Term 

investments – Long-Term Securities Portfolio” 

caption, valued at the lowest of acquisition cost, 

market value or the exercise price of the related 

options (see Note 7-b). 

p) Recognition of revenues and expenses 

Revenues and expenses are recognized on an 

accrual basis, i.e. when the actual flow of the 

related goods and services occurs, regardless of 

when the resulting monetary or financial flow 

arises. 

However, in accordance with the accounting 

principle of prudence, the consolidated companies 

only record realized income at year-end, whereas 

foreseeable contingencies and losses, including 

possible losses, are recorded as soon as they 

become known. 

In the case of the sales on consignment of certain 

products (revenue stamps and certain tobacco 


products), the related sale and purchase 

transactions are recorded simultaneously at the 

date of the sale. 

The Parent Company and LOGISTA deliver tobacco 

for promotional purposes to serving and retired 

employees. The expense in this connection, which 

in 2004 amounted to approximately €6,280 

thousand, is recorded when it is paid under the 

“Other Operating Expenses” caption in the 

accompanying consolidated statement of income. 

Pursuant to the regulations in the main countries 

in which it operates, the Group pays excise taxes 

on the tobacco products it sells, which are passed 

on to customers. The Group does not record as 

revenues or expenses the amounts relating to 

excise taxes, which amounted to approximately 

€16,245,356 thousand in 2004. 

5. Intangible assets 

The variations in 2004 in intangible asset accounts 

were as follows: 

Thousands of Euros 

Changes in 

Additions Consolidation Retirements 

Balance at or Scope or Translation Balance at 

12/31/03 Provisions (Note 2-c) Reductions Transfers Differences 12/31/04 

Cost: 

Intellectual property and 

trademarks 622,419 1,125 6,892 (3,868) (321) (27,556) 598,691 

Computer software 57,736 3,007 1,586 (3,137) 28,032 15 87,239 

Rights on leased assets 54,178 129 1 (569) (6,463) – 47,276 

Other intangible assets 13,291 6,571 627 (38) (17,685) 85 2,851 

747,624 10,832 9,106 (7,612) 3,563 (27,456) 736,057 

Accumulated amortization: 

Intellectual property and 

trademarks (114,858) (31,638) (4,308) 174 10,940 7,402 (132,288) 

Computer software (35,087) (11,065) (344) 3,101 4,843 (2) (38,554) 

Rights on leased assets (3,143) (1,644) (1) – (1,835) – (6,623) 

Other intangible assets (2,148) (830) (43) – 2,339 566 (116) 

(155,236) (45,177) (4,696) 3,275 16,287 7,966 (177,581) 

Allowances (13) – – – – – (13) 

Total 592,375 (34,345) 4,410 (4,337) 19,850 (19,490) 558,463

98 




The balance of the “Intellectual Property and 

Trademarks” account includes mainly the 

acquisition cost of and/or the value assigned in 

consolidation to several brands of cigars and little 

cigars. 

The “Rights on Leased Assets” account includes the 

value of the building housing the Group’s registered 

office in Madrid. 


Lease 

Lease 

Payments 

Contract Time Interest Original Accumulated Unaccrued Payments Paid in Purchase 

Term Elapsed Rate (%) Cost Amortization Interest Payable (*) the Year Option (*) 

121 months 24 months Euribor + 0.6 42,281 (1,774) 7,248 46,074 2,873 25,000 

(*) The amount of the purchase option is included in the lease payments payable. 

€23,876 thousand of the Group’s intangible assets 

had been fully amortized as of December 31, 2004.

6. Tangible fixed assets 

The variations in 2004 in tangible fixed asset 

accounts and in the related accumulated 

depreciation were as follows: 

The most significant additions in 2004 related to 

plant improvements and increases in capacity, 

which form part of the Company’s ordinary 

business activities. The variations in the scope of 

consolidation correspond basically to the inclusion 

of the tangible fixed assets relating to the 

companies acquired in the year, mainly, Balkan 

Star and Etinera. 



Changes in 

Consolidation 

Balance at Additions or Scope Retirements or Translation Balance at 

12/31/03 Provisions (Note 2-c) Reductions Transfers Differences 12/31/04 

Cost: 

Land and structures 695,192 4,131 46,377 (12,967) 11,164 (2,825) 741,072 

Plant and machinery 1,243,658 18,110 (25,148) (31,798) 50,894 (4,063) 1,251,653 

Other fixtures, tools and 

furniture 147,589 3,788 (501) (5,970) 12,440 (49) 157,297 

Other tangible fixed assets 100,678 2,638 28,966 (3,854) 8,957 (194) 137,191 

Construction in progress 60,418 110,125 1,434 (166) (97,340) (164) 74,307 

2,247,535 138,792 51,128 (54,755) (13,885) (7,295) 2,361,520 

Accumulated depreciation: 

Structures (332,688) (26,651) (3,810) 6,837 5,570 973 (349,769) 

Plant and machinery (928,929) (79,236) 25,063 29,527 (4,737) 2,291 (956,021) 

Other fixtures, tools and 

furniture (100,521) (13,535) 487 5,628 1,141 (64) (106,864) 

Other tangible fixed assets (73,459) (9,278) (2,796) 3,310 4,125 (242) (78,340) 

(1,435,597) (128,700) 18,944 45,302 6,099 2,958 (1,490,994) 

Allowances (8,429) (11,352) – 1,820 33 21 (17,907) 

Total 803,509 (1,260) 70,072 (7,633) (7,753) (4,316) 852,619 

The tangible fixed asset retirements related mainly 

to the sale of properties in Málaga and San 

Sebastián, which gave rise to a gain of €65,035 

thousand.

100 




The net book value of the assets not used in the 

Group’s operations as of December 31, 2004, 

amounted to €26,009 thousand and related mainly 

to properties. 

€770,885 thousand of the Group’s tangible fixed 

assets had been fully depreciated as of December 

31, 2004. 

7. Long-term investments 

The variations in 2004 in the “Long-Term 

Investments” caption and in the related allowances 



Additions Changes in Retirements 

Balance at or Consolidation or Balance at 

12/31/03 Provisions Scope Reductions 12/31/04 

Cost: 

Investments in associated companies– 

Companies accounted for by the 

equity method 223,276 33,738 14,189 (12,577) 258,626 

Other investments 123,788 36,607 (12,319) (98,328) 49,748 

Long-term investment securities 29,545 – – (11,925) 17,620 

Other loans 409,042 350 214 (348,491) 61,115 

Long-term deposits and guarantees 20,748 5,551 44 (6,175) 20,168 

806,399 76,246 2,128 (477,496) 407,277 

Allowances (42,465) (853) (201) 4,120 (39,399) 

Total 763,934 75,393 1,927 (473,376) 367,878

a) Holdings in associated companies 

Companies accounted for by the equity method 

The variations in 2004 in the investments in 

companies accounted for by the equity method 


Other investments 

The additions recorded under the “Other 

Investments” caption relate, mainly, to the 

investment of €35,940 thousand in Nicot. The 

return on this investment, which was made 

because it qualifies for certain tax incentives, is 

assured. The variations in the scope of 



Share in 

Balance Income Distribution Balance 

at Changes (Loss) for of at 

12/31/03 in scope Reductions the Year Dividends 12/31/04 

Direct ownership interests: 

Aldeasa, S.A. 59,568 – – 10,077 (6,478) 63,167 

CITA Tabacos de Canarias, S.L. 24,474 – – 4,193 – 28,667 

Tabaqueros Asociados, S.A. 772 – – 417 (311) 878 

Tabacos Elaborados, S.A. 1,107 – – 611 (456) 1,262 

Tacisa (*) – 11,364 – (3,415) – 7,949 

MTS (*) – 1,887 – 783 – 2,670 

Urex Inversiones Subgroup: 

Compañía Española de Tabaco 

en Rama, S.A. 10,779 – – 1,052 – 11,831 

Unión Ibérica de Radio, S.A. 1,901 – – 451 3 2,355 

Inversiones Tabaqueras 

Internacionales Cigars 

(ITI Cigars) Subgroup 251 17 (159) – – 109 

LOGISTA Subgroup: 

Iberia, L.A.E., S.A. 117,541 – (48) 14,740 (1,835) 130,398 

Distribuidora del Noroeste, S.L. 480 – – 80 – 560 

Other 336 – – 145 (180) 301 

SEITA Subgroup: 

Intertab (*) – 896 – 180 – 1,076 

LTR Industries 6,067 – – 4,016 (3,113) 6,970 

MITSA (*) – 25 – 408 – 433 

Total 223,276 14,189 (207) 33,738 (12,370) 258,626 

(*) Companies accounted for by the equity method from January 1, 2004. 

consolidation under the “Other Investments” 

caption relate to certain companies that due to 

their size had not been consolidated in prior years 

and which have been accounted for by the equity 

method since January 1, 2004.

102 




The main retirements relate to the sale of the 

investment in Saint Nicolas de Barry II for €94,091 

thousand. 

b) Long-term investment securities 

The breakdown of the balance of this account as of 

December 31, 2004, is as follows: 

Thousands 

of Euros 

Treasury stock of subsidiaries 14,515 

Other securities 3,105 

Total 17,620 

The Group records shares of SEITA and LOGISTA in 

the “Long-Term Investment Securities – Treasury 

Stock of Subsidiaries” account. These shares will 

be used to meet these companies’ stock option 

commitments to their employees (see Notes 4-o 

and 19-b) and, accordingly, were not included in 

consolidation. 

c) Other loans 

Pursuant to French legislation, SEITA is required to 

finance for its sales outlets a certain percentage of 

the value of the first order invoiced in their 

commercial relationship: This percentage is 

subsequently adjusted each year based on the 

value of the average order. In 2004 the Group 

changed its method for recording these assets and, 

considering them to be goods on consignment, 

recorded them as current assets. The impact of this 

change in accounting method on the statement of 

income was not material. 

8. Parent company shares 

The variations in 2004 in the “Parent Company 

Shares” caption in the accompanying consolidated 

balance sheet as of December 31, 2004, were as 

follows: 


Number Acquisition 

of Shares Cost Allowance Total 

Balance at December 31, 2003 3,059,013 66,106 (54,199) 11,907 

Additions 9,320,483 255,432 – 255,432 

Retirements (706,022) (14,692) – (14,692) 

Capital reduction (Note 13) (7,250,000) (175,680) – (175,680) 

Variation in the allowance for 

treasury stock – – (60,779) (60,779) 

Balance at December 31, 2004 4,423,474 131,166 (114,978) 16,188 

As of December 31, 2004, the Group held 

4,423,474 shares of the Parent Company, 

representing 1.56% of its capital stock, with a total 

acquisition cost of €131,166 thousand and an 

average acquisition price of €29.65 per share. 

Of this total, 4,229,731 shares were acquired by 

a Group company.

In order to adjust the acquisition cost of the 

treasury stock as of December 31, 2004, as 

described in Note 4-e, the Group has recorded the 

related allowance for both the shares of treasury 

stock held by the Parent Company and for those 

held through the aforementioned subsidiary. This 

allowance is recorded as a reduction of the “Parent 

Company Shares” caption in the consolidated 

balance sheet. 

As of December 31, 2004, the balance of the 

“Reserves for Treasury Stock” account covered the 

full amount of the net balance of this caption in the 

consolidated balance sheet. 

9. Goodwill and negative 

differences in consolidation 

a) Goodwill 

The variations in 2004 in this caption in the 

accompanying consolidated balance sheet were as 

follows: 

Thousands 

of Euros 

Balance at December 31, 2003, 

net of accumulated amortization 1,999,200 

Additions 832,122 

Reductions (36,028) 

Translation differences arising 

in the year (33,761) 

Period amortization (156,920) 

Balance at December 31, 2004, 

net of accumulated amortization 2,604,613 

The main additions in 2004 were as follows: 


a) RTM €17,026 thousand: the correction of the 

goodwill relating to this company arose from the 

adjustment of certain provisions that had originally 

been calculated on the basis of provisional 

information. 

b) Balkan Star €155,570 thousand: this relates to 

the goodwill that arose on the acquisition of a 

99.69% holding in this company. 

b) Etinera €628,675 thousand: this balance 

includes €530,413 relating to the goodwill that 

arose on the acquisition of the company and 

€98,262 thousand relating to intangible assets 

already recorded by Etinera and included under the 

“Consolidation Goodwill” caption in the 

consolidated financial statements. 

The main reduction relates to the decrease 

(€31,377 thousand) of the goodwill of Corporación 

Habanos, recorded as a result of an adjustment to 

the acquisition price, as agreed on when the 

related acquisition was made. 

This caption also includes certain rights and 

intangible assets arising on the acquisition of 

subsidiaries, which are amortized by the 

straight-line method over 20 years. 

The Parent Company’s directors consider that the 

various Group companies will generate sufficient 

income to offset the related amortization of 

goodwill within the envisaged periods (see Note 4f), 

thereby permitting its recovery. 

The breakdown, by company, of the balances of the 

goodwill, the gross value of which is recorded at 

the related historical exchange rates, and of the 

related accumulated amortization as of December 

31, 2004, is as follows:

104 





Accumulated Translation Net 

Goodwill Amortization Differences Goodwill 

Fully consolidated companies: 

SEITA 171,890 (27,498) – 144,392 

LOGISTA 37,956 (15,689) – 22,267 

RTM 1,047,607 (99,237) – 948,370 

TCI Subgroup– 

MC Management 2,343 (117) – 2,226 

Tabacalera de Garcia, S.A.S. 33,210 – (2,881) 30,329 

Urex Inversiones Subgroup– 

Servicio de Venta Automática, S.A. 3,752 (1,392) – 2,360 

Tabacmesa S.A. 2,701 (1,578) – 1,123 

Interprestige S.A. 559 (559) – – 

LOGISTA Subgroup– 

Etinera, S.P.A 628,675 (1,843) – 626,832 

Dronas 2002, S.L. 41,820 (5,517) – 36,303 

Comercial de Prensa SIGLO XXI, S.A. 3,482 (2,043) – 1,439 

Geopost Logistic Holdings 1,853 (15) – 1,838 

Cyberpoint 625 (30) – 595 

Other goodwill 2,067 (407) – 1,660 

SEITA Subgroup– 

Altadis USA Inc. 628,254 (235,180) (76,345) 316,729 

Balkan Star 155,570 (963) – 154,607 

Supergroup Distribution 36,947 (30,203) – 6,744 

Altadis Polska 39,939 (26,845) – 13,094 

Altadis Luxembourg 16,850 (5,055) – 11,795 

Nordipa 8,586 (1,616) – 6,970 

Altadis Finland 6,477 (3,887) – 2,590 

LPM Promodern 4,792 (442) – 4,350 

Société Allumettiere Française (SAF) 9,511 (9,117) – 394 

Philippine Bobbin Corporation Cigars 1,314 (856) – 458 

Metavideotex Distribution 2,402 (2,100) – 302 

Other goodwill 1,655 (1,562) – 93 

2,890,837 (473,751) (79,226) 2,337,860 

Proportionally consolidated companies: 

ITI Cigars Subgroup– 

Corporación Habanos Subgroup 333,327 (78,393) (86,771) 168,163 

Internacional Cubana de Tabaco, S.L. 1,191 (297) – 894 

334,518 (78,690) (86,771) 169,057 

Companies accounted for by the equity method: 

Aldeasa, S.A. 109,844 (73,083) – 36,761 

CITA Tabacos de Canarias, S.L. 126 (126) – – 

Urex Inversiones Subgroup– – – 

Unión Ibérica de Radio, S.A. 11,014 (11,014) – – 

LOGISTA Subgroup– 

Iberia, L.A.E., S.A. 79,778 (18,911) – 60,867 

Distribuidora del Noroeste, S.L. 178 (110) – 68 

Distrubuidora de Prensa por Rutas, S.A. 128 (128) – – 

201,068 (103,372) – 97,696 

Total 3,426,423 (655,813) (165,997) 2,604,613

) Negative consolidation differences 



follows: 

Thousands 

of Euros 

Balance at December 31, 2003 43,299 

Additions – 

Reductions (1,079) 

Balance at December 31, 2004 42,220 

Of the amount of the negative consolidation 

differences as of December 31, 2004, €35,225 

thousand relate to the Corporación Habanos 

Subgroup. 

10. Inventories 

The detail of the Group’s inventories as of 


Thousands of 

Euros 

Merchandise 880,011 

Finished goods 290,829 

Semifinished goods and work-in-process 80,757 

Raw materials and other supplies 549,912 

Advances to suppliers 37,049 

Less– Allowances for decline in value (45,771) 

Total 1,792,787 

The “Advances to Suppliers” account includes 

€18,080 thousand relating to the portion of the 

advances granted to proportionally consolidated 

companies that were not eliminated in 


The increase in the balance of the “Inventories” 

caption with respect to the previous year is due 

mainly to the change in accounting method 

described in Note 7-c. 

11. Accounts receivable 


The detail of the balance of the “Accounts 

Receivable” caption in the accompanying 

consolidated balance sheet as of December 31, 

2004, is as follows: 

Thousands 

of Euros 

Trade receivables for sales and services 2,432,748 

Sundry accounts receivable 105,686 

Receivable from public authorities 

(Note 18) 338,497 

Receivable from associated companies 

(Note 20) 17,071 

Employee receivables 1,778 

Less– Allowances for bad debts (48,191) 

Total 2,847,589 

a) Trade receivables for sales and services 

This account includes mainly the balances 

receivable from sales outlets for the sale of 

tobacco and revenue and postage stamps, relating 

basically to the last supply in the year for 

settlement at the beginning of the following year. It 

also includes excise taxes and VAT on the sale of 

tobacco, which are not included in net sales (see 

Note 4-p). 

The increase in the balance of this caption with 

respect to the previous year is due mainly to the 

effect (€592,000 thousand) of the inclusion of 

ETINERA in the consolidated Group (see Note 2-c). 

b) Sundry accounts receivable 

This account includes basically the amount of the 

excise taxes on tobacco products incurred at yearend 

and not yet passed on to customers.

106 




12. Short-term investments 

The detail of the Group’s short-term investments as 

of December 31, 2004, is as follows: 

Thousands 

of Euros 

Investment securities and other loans– 

Open-end investment companies and 

mutual funds 234,684 

Deposits 485,576 

Other short-term investments 126,447 

Listed shares of Group and Associated 

companies 16,902 

Short-term loans to Associated companies 

(Note 20) 25,558 

Short-term deposits and guarantees 57,275 

Less– Allowances (12,364) 

Total 934,078 

a) Investment securities and other loans 

As of December 31, 2004, these accounts included 

short-term investments in financial assets relating 

basically to fixed-interest securities and money 

market assets, which earn interest at market rates 

similar to Eonia. 

The detail, of these investments is as follows: 

Thousands 

Currency of Euros 

Capitalization bonds– 

Open-end investment 

Companies Euro 178,799 

Open-end investment 

Companies Dirham 55,885 

234,684 

Deposits– 

Eurodeposits Euro 485,346 

Others Euro 230 

485,576 

Other short-term 

investments– 

Insurance funds Euro 47,510 

Loans Euro 72,819 

Other Euro 6,118 

126,447 

b) Listed shares of Group and Associated 

companies 

This balance relates mainly to 443,556 shares of 

Aldeasa, S.A., valued at acquisition cost, amounting 

to €11,084 thousand, and to 172,935 shares of 

Logista, amounting to €5,818 thousand. 

c) Short-term deposits and guarantees 

This balance includes a non-drawable short-term 

deposit (“Escrow account”) of €40,000 thousand 

relating to the withholding made on the purchases 

price of Balkan Star. This deposit was made with a 

financial institution.

13. Shareholders’ equity 

The variations in equity accounts in 2004 were as 

follows: 

a) Capital stock and additional paid-in 

capital 

Pursuant to the resolution adopted by the 

Shareholders’ Meeting on June 15, 2004, the 

Parent Company reduced capital through the 

retirement of 7,250,000 shares of treasury stock 

with a par value of €4,350 thousand and a 

reduction of €171,330 thousand of additional paidin 

capital. 

As of December 31, 2004, the Parent Company’s 

capital stock amounted to €169,933 thousand and 

consisted of 283,221,426 fully subscribed and paid 

shares of €0.60 par value each, all of the same 

class. 



Reserves of the Parent Company 

Differences 

Due to Rede- 

Reser- nomination Reserves at Total 

Additional Revalua- ves for of Capital Conso- Translation Income Share- 

Capital Paid-in Legal Voluntary tion Treasury Stock in lidated Differences for the holders’ 

Stock Capital Reserve Reserves Reserve Stock Euros Companies (Note 2-b) the Year Equity 

Balance at December 31, 2003 

Distribution of 2003 income 

174,283 132,219 36,657 38,902 53,461 11,907 309 669,621 (279,747) 293,151 1,130,763 

– To reserves – – – 63,777 – – – 1,798 – (65,575) – 

– To Dividends 

Variation in the reserves and 

– – – – – – – – – (227,576) (227,576) 

allowance for treasury stock – 39,111 – (104,171) – 4,281 – – – – (60,779) 

Capital reduction (4,350) (171,330) (2,670) 2,670 – – – – – – (175,680) 

Translation differences – – – – – – – – (28,214) – (28,214) 

Other variations – – – – – – – (8,010) – – (8,010) 

2004 income – – – – – – – – – 413,311 413,311 

Balance at December 31, 2004 169,933 – 33,987 1,178 53,461 16,188 309 663,409 (307,961) 413,311 1,043,815 

As of December 31, 2004, none of the shareholders 

owned more than 10% of the capital stock of 

Altadis, S.A. 

The Parent Company’s shares, which are listed on 

the computerized trading system of the Spanish 

Stock Exchanges and on the Paris Stock Exchange, 

all have equal voting and dividend rights. 

The additional paid-in capital can be used for the 

same purposes as the Parent Company’s voluntary 

reserves, including conversion into capital stock.

108 




b) Legal reserve 

Under the revised Corporations Law, 10% of the 

Parent Company’s income for each year must be 

transferred to the legal reserve until the balance of 

this reserve reaches at least 20% of capital stock. 

The legal reserve can be used to increase capital 

provided that the remaining reserve balance does 

not fall below 10% of the increased capital stock 

amount. Otherwise, until the legal reserve exceeds 

20% of capital stock, it can only be used to offset 

losses, provided that sufficient other reserves are 

not available for this purpose. 

c) Revaluation reserve 

Altadis, S.A. revalued its tangible fixed assets by 

€55,113 thousand pursuant to Royal Decree-Law 

7/1996 and paid the single 3% tax on the net 

amount of the revaluation. 

The balance of the “Revaluation Reserve” account 

can be used, free of tax, to offset the recorded 

losses of Altadis, S.A. (both prior years’ 

accumulated losses and current year losses) or 

losses which might arise in the future, and to 

increase capital stock. From January 1, 2007, the 

balance of this account can be taken to 

unrestricted reserves, provided that the monetary 

surplus has been realized. The surplus will be 

deemed to have been realized in respect of the 

portion on which depreciation has been taken for 

accounting purposes or when the revalued assets 

have been transferred or retired from the 

accounting records. If this balance were used in a 

manner other than that provided for in Royal 

Decree-Law 7/1996, it would be subject to tax. 

d) Reserves for treasury stock 

The Group includes under the “Reserves for 

Treasury Stock” caption in the accompanying 

consolidated balance sheet the legally required 

restricted reserve of €16,188 thousand, equal to 

the acquisition cost, net of allowances, of the 

Parent Company treasury stock (see Note 8). 

e) Reserves at consolidated companies 

The detail of the “Reserves at Consolidated 

Companies” caption as of December 31, 2004, is 

as follows: 

Thousands 

of Euros 

SEITA Subgroup 474,507 

Altadis Holdings USA Subgroup 5,531 

LOGISTA Subgroup 83,618 

Tabacos Canary Islands, S.A. (TACISA) 10,612 

Urex Inversiones, S.A. 29,058 

CITA, Tabacos de Canarias, S.L. 12,135 

Corporación Habanos Subgroup (72,230) 

TCI Subgroup 38,226 

Other, net 81,952 

Total 663,409 

The reserves at consolidated companies include the 

undistributed earnings at the beginning of the year 

of the consolidated companies, net of amortization 

of goodwill and other consolidation adjustments. 

f) Translation differences 

The detail, by consolidated company, of this 

account under the “Shareholders’ Equity” caption 

as of December 31, 2004, is as follows: 

Thousands 

of Euros 

Corporación Habanos Subgroup (141,089) 

Altadis Holdings USA Subgroup (167,657) 

Other, net 785 

Total (307,961)

14. Minority interests 



follows: 

Thousands 

of Euros 

Balance at December 31, 2003 279,111 

Variations in scope of consolidation 

and other (24,458) 

Dividends (16,875) 

Income for the year (Note 21) 56,240 

Translation differences (2,531) 

Balance at December 31, 2004 291,487 


The breakdown of this caption, indicating the main 

consolidated companies as of December 31, 2004, 

is as follows: 


Income 

(Note 21) Total 

LOGISTA Subgroup 40,791 179,896 

RTM 8,715 76,226 

Other 6,734 35,365 

Total 56,240 291,487 

15. Provisions for 

contingencies and expenses 

The detail of the provisions for contingencies and 

expenses in the accompanying consolidated 

balance sheet as of December 31, 2004, and of the 

main variations in 2004 is as follows: 


Changes in Amounts 

Balance Consolidation Provisions Used and Balance at 

at 12/31/03 Scope (Note 19-c) Reductions Transfers 12/31/04 

Provisions for long-term contingencies 

and expenses: 

Restructuring plans 269,742 29,099 5,385 (32,114) (220,187) 51,925 

Provisions for pensions and similar 

obligations 90,084 897 4,301 (25,144) – 70,138 

Provisions for contingencies and 

other claims 147,291 23,945 43,388 (29,251) 53,508 238,881 

507,117 53,941 53,074 (86,509) (166,679) 360,944 

Provisions for short-term 

contingencies and expenses: 

Restructuring plans 8,930 – 2,000 (5,303) 288,576 294,203 

Provisions for contingencies and 

other claims 9,073 – 2,604 3,189 (5,908) 8,958 

18,003 – 4,604 (2,114) 282,668 303,161

110 




The additions due to variations in the scope of 

consolidation relate mainly to the provisions of 

Etinera (see Note 2-c). 

In July 2003 the Group resolved to carry out a new 

Industrial Plan in 2004 and 2005 and reported its 

intention to do so as a significant event to the 

Spanish National Securities Market Commission. 

The aim of the Plan is to rationalize the production 

structures in Spain and France, preserve the 

Group’s competitiveness and contribute toward 

maintaining and ensuring its viability. This 

Industrial Plan envisages basically the shutdown of 

nine locations in Spain and France and will entail 

the reduction of a certain number of jobs and the 

need to relocate part of the labor force. In this 

connection, and since this Industrial Plan is 

considered to be irreversible, the Group recorded in 

2003 a provision of €240,300 thousand in the 

“Provisions for Long-Term Contingencies and 

Expenses – Restructuring Plans” account, which 

represented management’s best estimate of the 

cost of this Plan. In 2004 the Company concluded 

the process of determining the conditions 

applicable to the employees based in France that 

will be affected by the Plan. With respect to Spain, 

this process is still under way. Group management 

considers that in the first few months of 2005 the 

negotiations currently in progress will be concluded 

and implementation of the Plan will commence. 

Management of the Group updated its projections 

of the cost of the Plan on the basis of the 

agreements reached and recorded €5,385 thousand 

as extraordinary expenses. Also, the estimated 

amount of the payments to be made in 2005 was 

reclassified to short term. 

Also, as of December 31, 2004, the outstanding 

non-externalized commitments to employees or to 

the related insurance companies, relating to the 

2000-2002 Labor Force Reduction Plan carried out 

at the Parent Company and LOGISTA, and the 

Industrial Plan described in the preceding 

paragraph, amounted to €315,529 thousand, of 

which, based on their projected maturity, €21,326 

thousand were recorded under the “Provisions for 

Long-Term Contingencies and Expenses – 

Restructuring Plans” caption and €294,203 

thousand were recorded under the “Provisions for 

Short-Term Contingencies and Expenses – 

Restructuring Plans” caption. 

The balance as of December 31, 2004, of the 

“Provisions for Pensions and Similar Obligations” 

account included mainly the provisions recorded in 

relation to retirement or termination bonuses 

envisaged in the collective labor and similar 

agreements of Altadis, S.A., SEITA and RTM 

amounting to €6,586 thousand, €6,333 thousand 

and €31,365 thousand, respectively. This account 

also includes the provision recorded by Altadis 

USA, Inc. to cover the pension plans agreed on with 

its employees, amounting to €22,128 thousand. 

The balances as of December 31, 2004, of the 

“Provisions for Contingencies and Other Claims” 

accounts included €128,324 thousand relating to 

commitments to personnel arising from the various 

collective labor agreements and other employee 

welfare commitments. These accounts also include 

provisions totaling €96,945 thousand recorded by 

the Group to cover the contingencies or liability 

that might arise from the consolidated companies’ 

ordinary activities.

16. Payable to credit 

institutions, debenture 

and other marketable debt 

security issues and interest 

rate and exchange rate 

hedges 

a) Payable to credit institutions 

The detail of the payables to credit institutions as 

of December 31, 2004, is as follows: 


Long Term Short Term 

Credit facilities 24,824 64,740 

Loans 625,075 52,025 

Collection rights assigned – 561,719 

Financial leases (Note 5) 43,268 2,806 

Accrued interest and other – 22,262 

Total 693,167 703,552 

All the credit facilities were arranged in euros and 

bear interest at market rates. 

The undrawn amount of the Group’s credit facilities 

as of December 31, 2004, was €1,308 million. This 

amount includes €1,200 million relating to the 

limit of a syndicated credit facility arranged by the 

Group against which no amounts had been drawn 

down as of December 31, 2004. 


The detail of the loan balances as of December 31, 


Last Thousands of Euros 

Currency Maturity Long Term Short Term 

Euro 2009 72,000 – 

Euro 2007 50,000 – 

Euro 2006 24,820 – 

Euro 2005 – 34,134 

USD 2006 1,102 3,670 

USD 2007 26,534 13,267 

USD 2008 2,739 954 

Dirhams 2010 447,880 – 

625,075 52,025 

The loans in U.S. dollars are tied to Libor, those in 

euros are tied to Euribor and those in dirhams are 

tied to Moroccan Treasury Bonds. All of the loans 

bear interest at market rates. 

As of December 31, 2004, the Group company 

SEITA had a financing system involving the 

assignment of collection rights for securitization. 

This financing system matures on December 15, 

2005. 

b) Debentures and other marketable debt 

security issues 

In October 2003 the Board of Directors partially 

exercised the authorization to issue bonds granted 

to it by the Shareholders’ Meeting. This issue, 

which was secured by the Parent Company for 

€1,100,000 thousand, was made through Altadis 

Finance, B.V. in order to finance the acquisition of 

RTM. The issue was launched in two tranches of 

€600,000 thousand and €500,000 thousand, 

maturing in 2008 and 2013 and bearing interest of 

4.25% and 5.125%, respectively.

112 




In 2003 Altadis Financial Services, S.N.C. issued 

commercial paper in the money market pursuant to 

the regulations of the Central Bank of France. The 

commercial paper is issued at terms ranging from 

one to three months, and bears interest of Eonia 

plus a spread at market rates. As of December 31, 

2004, the commercial paper issued amounted to 

€572,277 thousand, and this amount is recorded 

under the “Current Liabilities – Debenture and 

Other Marketable Debt Security Issues” caption on 

the liability side of the consolidated balance sheet. 

Interest rate hedges: 

c) Interest rate and exchange rate hedges 

With respect to interest-rate risk hedging 

transactions, the Group arranged various financial 

instruments, mainly in order to tie the debt 

maturing in the next few years to fixed interest 

rates, and the debt maturing in subsequent years 

to floating interest rates. Additionally, certain 

exchange rate hedging transactions were arranged 

in relation with operating transactions and certain 

capital transactions. 

The detail of the hedging transactions outstanding 

as of December 31, 2004, is as follows: 

Amount Hedged 

Rate (Thousands of Euros) Currency Maturity 

Caps – 250,000 Euro 2008 

Interest rate swaps Floating to fixed 450,000 Euro 2005 

Floating to fixed 200,000 Euro 2006 

Floating to fixed 129,373 USD 2007 

Floating to fixed 200,000 Euro 2005 

Fixed to floating 72,000 Euro 2008 




Exchange rate hedges: 

Currency swaps Purchase of USD 116,400 USD 2005 

Sale of RUB 28,500 RUB 2005 



Sale of USD 235,300 USD 2005 

Sale of PLN 36,000 PLN 2005 

Sale of USD 129,400 USD 2008 

Currency options Purchase of USD 59,260 USD 2005

17. Other accounts payables 

The detail of the balance of the “Long-Term Debt – 

Other Accounts Payables” caption on the liability 

side of the accompanying consolidated balance 

sheet as of December 31, 2004, is as follows: 

Thousands 

of Euros 

Payables for pension plans 21,485 

Long-term deferred taxes 

(Note 18) 101,249 

Guarantees and deposits received 13,277 

Total other payables 136,011 

The “Payables for Pensions Plans” account as of 

December 31, 2004, includes the long-term 

balance payable of €21,485 thousand relating to 

externalized pension plans (see Note 4-n). The 

“Current Liabilities – Other Accounts Payables” 

caption includes the related short-term account 

payable of €11,062 thousand. 


18. Receivable from and 

payable to public authorities 

and tax matters 

The breakdown of the balances receivable from 

public authorities as of December 31, 2004, is as 

follows: 

Thousands 

of Euros 

Long-term prepaid taxes– 

Restructuring plans 189,353 

Other employee-related prepaid taxes 52,983 

Other prepaid taxes 46,536 

Total 288,872 

Short-term receivables from public 

authorities– 

Short-term prepaid taxes 103,920 

Input VAT 118,442 

Corporate income tax prepayments 30,319 

Account receivable from the State 

for expenses incurred in the storage 

of seizures of tobacco 17,914 

Other 67,902 

Total (Note 11) 338,497 

The balances of prepaid taxes relate mainly to the 

period provisions for restructuring plans in prior 

years, which will be tax-deductible in coming years, 

and to consolidation adjustments.

114 




The breakdown of the balances payable to public 

authorities as of December 31, 2004, is as follows: 

Thousands 

of Euros 

Long-term deferred taxes 101,249 

Total (Note 17) 101,249 

Short-term payables to public 

authorities– 

Excise tax on tobacco products 2,711,089 

Output VAT 811,867 

Deferred taxes 21,534 

Corporate income tax 43,986 

Accrued social security taxes 28,853 

Personal income tax withholdings 12,619 

Other payables to public authorities 50,224 

Total 3,680,172 

The short-term balances include mainly the “Excise 

Tax on Tobacco Products” and “Output VAT” 

accrued at SEITA, ETINERA and LOGISTA and not 

yet paid to the tax authorities as of December 31, 

2004. 

Corporate income tax is calculated on the basis of 

income per books determined by the application of 

generally accepted accounting principles, which 

does not necessarily coincide with taxable income. 

The corporate income tax charge is obtained by 

aggregating the corporate tax expense of the 

Parent Company, calculated in accordance with 

Spanish regulations, and those of the various 

Group companies, calculated in accordance with 

the regulations in force in the countries in which 

they operate, in addition to consolidation 

adjustments. 

Under current legislation, taxes cannot be deemed 

to be finally settled until the returns filed have 

been reviewed by the tax authorities or the statuteof-limitations 

period has elapsed. 

As of December 31, 2004, the Group Companies 

had most of the taxes applicable to them open for 

review by the tax inspection authorities. The 

directors of the Group companies consider that 

these taxes were calculated correctly and, 

accordingly, that even if discrepancies arise in the 

interpretation of the current regulations applicable 

to the tax treatment of the transactions, the 

resulting liabilities, if any, would not have material 

effect on the accompanying consolidated financial 

statements. 

19. Revenues and expenses 

a) Procurements 

The detail of the “Procurements” caption in the 

accompanying 2004 consolidated statement of 

income is as follows: 

Thousands 

of Euros 

Purchases (*) 6,794,985 

Variation in merchandise 

and raw materials 

inventories and other supplies 73,366 

Total 6,868,351 

(*) Including the cost of transport, freight, applicable taxes 

and the related royalties. 

b) Headcount, personnel expenses and 

compensation systems linked to the share 

price 

The balance of the “Personnel Expenses” caption in 

the accompanying 2004 consolidated statement of 

income comprises €526,443 thousand of wages 

and salaries and similar expenses and €265,627 

thousand of other employee welfare expenses.

The average number of the Group’s employees in 

2004, by category, was as follows: 

Average 

Number of 

Employees (*) 

Management 343 

Other line personnel and clerical staff 6,164 

Auxiliary staff 3,339 

Manual workers 14,202 

Total 24,048 

(*) Excluding the 680 employees of proportionally 

consolidated companies. 

As of December 31, 2004, the Group companies 

had the following compensation systems linked to 

the share price: 

1. Stock options on Altadis, S.A. shares: 

On June 21, 2000, the Parent Company’s 

Shareholders’ Meeting approved a compensation 

plan for directors holding executive office, 

executives and employees of the Altadis Group 

based on the grant of options on the Company’s 

shares. Two tranches of compensation were 

approved in 2000 and 2002 for a total of 

3,925,500 and 5,980,500 stock options, 

respectively, at exercise prices of €16.20 and 

€23.44 per share, respectively. These rights can 

be exercised once four year have elapsed and 

before the sixth year from the grant date. 

As of December 31, 2004, 1,488,990 of the 

options granted in 2000 are pending to be 

exercised. 

In relation to this stock option plan, in order to 

hedge the possible fluctuations in the price of 

Altadis, S.A. shares, the Parent Company 

arranged two equity swap contracts, one 

relating to the 2000 plan at €16.26 per share 

and another at €22.74 per share for the 2002 

plan. 

2. Stock options on SEITA shares: 


In 1996, 1997 and 1998 three compensation 

plans for certain SEITA employees were 

approved, based on the grant of options on the 

company’s shares. These plans included a total 

of 270,740, 278,633 and 354,815 stock 

options which could not be exercised for a 

period of five years from the grant date, at the 

end of which they may be exercised at any time 

in a period of three years, at exercise prices of 

€28.86, €28.58 and €45.53 per share, 

respectively. Of these plans, 61,239 stock 

options had not been exercised as of December 

31, 2004. Also, when the Parent Company 

acquired its holding in SEITA, the latter’s 

employees were guaranteed the possibility of 

exchanging the shares relating to these stock 

option plans for shares of Altadis, S.A., after the 

option is exercised, and maintained the ratio of 

the exchange of SEITA shares for shares of 

Altadis, S.A. which was approved in the 

acquisition of SEITA by Altadis, S.A. (6 shares of 

SEITA for 19 shares of Altadis, S.A.). As of 

December 31, 2004, the Group had recorded all 

the SEITA shares required to meet its 

commitments for unexercised stock options in 

the “Long-Term Investments – Long-Term 

Investment Securities” account. These shares 

are valued at €2,566 thousand. 

3. Stock options on LOGISTA shares: 

In 2000 and 2002 two compensation plans for 

certain LOGISTA employees were approved, 

based on the grant of options on the company’s 

shares. These plans included a total of 506,300 

and 722,400 stock options, and it was 

established that the options could be exercised 

after the third year and before the sixth year of 

the plan at exercise prices of €21 and €18.73 

per share, respectively. On December 30, 2003, 

LOGISTA hedged the possible difference between 

the exercise price envisaged in the first option

116 




plan and the future market price of the shares 

through an equity swap contract at €24.25 per 

share. This contract expires in October 2006. As 

of December 31, 2004, 190,400 of the options 

granted in this plan are pending to be 

excercised. On the other hand, as of December, 

2004 the second stock option plan was covered 

by treasury stock of LOGISTA, recorded at 

€11,949 thousand in the “Long-Term 

Investments – Long-Term Investment Securities” 

account. 

c) Extraordinary expenses 

The breakdown of the balance of the “Extraordinary 

Expenses” caption in the accompanying 2004 

consolidated statement of income is as follows: 

Thousands 

of Euros 

Provisions for long-term 

contingencies and expenses (Note 15) 53,074 

Provisions for short-term contingencies 

and expenses (Note 15) 4,604 

Prior years’ expenses and losses 8,279 

Other extraordinary expenses 23,204 

Total 89,161 

d) Extraordinary revenues 


Revenues” caption in the accompanying 2004 

consolidated statement of income is as follows: 

Thousands 

of Euros 

Reversal of provisions 31,881 

Prior years’ income 1,010 

Other extraordinary revenues 490 

Total 33,381 

The gains on fixed asset disposals arose mainly 

from the sale of properties described in Note 6. 

e) Foreign currency transactions 

The detail of the Altadis Group’s foreign currency 

transactions in the year ended December 31, 2004, 

translated to euros at the average exchange rates 

for the year, is as follows: 


Other 

Spanish Companies 

Altadis, S.A. Companies Abroad 

Sales 2,157 22 1,259,403 

Purchases 82,273 11,238 630,164 

Services provided 716 – 9,517 

Services received 10,932 2,519 152,454 

The transactions of the companies abroad relate 

mainly to transactions performed by Group 

companies in their functional currencies, i.e. U.S. 

dollars in the case of Altadis, U.S.A., JR Cigar and 

Corporación Habanos, Moroccan dirhams in the 

case of RTM and Polish zloties in the case of 

Altadis Polska.

20. Balances and 

transactions with associated 

companies 

The balances as of December 31, 2004, with 

associated companies and proportionally 

consolidated companies were as follows: 

The short-term loans earn interest at rates tied to 

Euribor plus a market spread. 



Accounts Receivable Accounts Payable 

Accounts Receivable Short-Term Loans 

(Note 11) (Note 12) 

Proportionally Proportionally Proportionally 

Associated Consolidated Associated Consolidated Associated Consolidated 

Companies Companies Companies Companies Companies Companies 

Corporación Habanos Subgroup – 23 – 24,955 – 1,854 

Internacional Cubana del Tabaco, S.L. – – – 414 – – 

Tabacos Elaborados, S.A. 1,608 – – – 226 – 

Compañía Española de Tabaco 

en Rama, S.A. – – – – 3,460 – 

LTR 28 – – – 1,183 – 

MTS 59 – – – 227 – 

MITSA 585 – – – – – 

Tabaco Canary Islands, S.A. (TACISA) 10,864 – – – 325 – 

CITA Subgroup 1,712 – – – 4,993 – 

Unión Ibérica de Radio, S.A. – – 189 – – – 

Aldeasa Subgroup 2,192 – – – 82 – 

Total 17,048 23 189 25,369 10,496 1,854

118 




The transactions with Associated and 

proportionally consolidated companies in 2004 



Purchases and Sales and 

Services Received Services Provided 

Proportionally Proportionally 

Associated Consolidated Associated Consolidated 

Companies Companies Companies Companies 

Corporación Habanos Subgroup – 31,340 – 663 

Internacional Cubana del Tabaco, S.L. – – – 312 

Tabacos Elaborados, S.A. 1,195 – 5,929 – 

Compañía Española de Tabaco en Rama, S.A. 10,388 – – – 

CITA Subgroup 63,839 – 4,782 – 

Aldeasa Subgroup 223 – 14,457 – 

Tabaco Canary Islands, S.A. (TACISA) 1,647 – 10,420 – 

LTR Industries 14,795 – – – 

MTS 42 – – – 

Iberia, L.A.E. Subgroup – – 102 – 

Total 92,129 31,340 35,690 975

21. Contribution of Group 

companies to consolidated 

income for the year 

The contribution of the Group and Associated 

companies to consolidated income for 2004 was 

as follows: 



Consolidated Income Income for 

Income Corporate Attributable the Year of 

Operating before Income Consolidated to Minority the Parent 

Income Taxes Tax Income (a) Interests Company 

Altadis, S.A. 238,996 167,092 (52,771) 114,321 – 114,321 

Consolidated income from fully 

consolidated companies: 

SEITA Subgroup 307,537 275,996 (98,134) 177,862 (605) 177,257 

Altadis Holdings USA Subgroup 147,639 112,376 (47,879) 64,497 – 64,497 

LOGISTA Subgroup 114,926 118,753 (35,929) 82,824 (40,791) 42,033 

RTM 82,419 10,363 (15,135) (4,772) (8,715) (13,487) 

Urex Inversiones Subgroup 5,211 2,873 (371) 2,502 70 2,572 

Other 20,580 15,893 (3,042) 12,851 (5,363) 7,488 

678,312 536,254 (200,490) 335,764 (55,404) 280,360 

Consolidated income from 

proportionally consolidated 

companies: 

Corporación Habanos Subgroup 21,135 2,167 (2,347) (180) (836) (1,016) 

21,135 2,167 (2,347) (180) (836) (1,016) 

Consolidated income from 

companies accounted for 

by the equity method (b): 

Iberia, L.A.E. Subgroup – 10,756 – 10,756 – 10,756 

Aldeasa Subgroup – 2,200 – 2,200 – 2,200 

LTR Industries – 4,016 – 4,016 – 4,016 

Other – 2,674 – 2,674 – 2,674 

– 19,646 – 19,646 – 19,646 

Consolidated income attributable 

to the Parent Company 938,443 725,159 (255,608) 469,551 (56,240) 413,311 

(a) The consolidated income of each company is presented after deducting the period amortization of goodwill, and the tax effect if 

any, resulting from its deductibility. 

(b) In accordance with Spanish accounting regulations, the income of the companies accounted for by the equity method is included 

in consolidation net of the related corporate income tax.

120 




22. Commitments and 

contingent liabilities 

The Group has been provided with guarantees from 

financial institutions totaling €91,819 thousand 

which, in general, secure compliance with certain 

obligations assumed by the consolidated companies 

in the course of their business. As of December 31, 

2004, the Parent Company had provided 

guarantees for loans granted to proportionally 

consolidated companies amounting to 

approximately €126,668 thousand, one-half of 

which is recorded on the liability side of the 

accompanying consolidated balance sheet. 

As of December 31, 2004, the Group had taken out 

insurance policies covering the risks arising from 

transportation and storage at plants and 

representative premises, fire and third-party 

liability at all the plants and warehouses, and 

occupational accidents. The sum insured 

sufficiently covers the aforementioned assets and 

risks. 

In June 2003 the Parent Company submitted the 

successful bid in the privatization tender for 80% 

of RTM. The Moroccan State will keep its remaining 

20% holding for a period of two years, after which 

it will have a further two-year period in which to 

launch a public offering. In the event that the 

aforementioned public offering is not fully 

subscribed, Altadis, S.A. is guaranteed a purchase 

option and the Moroccan State is guaranteed a sale 

option for the aforementioned 20% holding at the 

same price per share as that paid in 2003. These 

options can be exercised in the fifth year after the 

acquisition. 

On the acquisition of JR Cigar Inc., a purchase 

option for the purchaser and a sale option for the 

seller were agreed upon relating to the remaining 

ownership interest (49%); the price of these 

options, which can be exercised after five years 

have elapsed, will be determined on the basis of 

the company’s results in the last eight quarters 

prior to the exercise of the purchase or sale option. 

Lastly, in relation to the acquisition of the Etinera 

Group in 2004, an agreement was entered into with 

Axiter Investments, which owns the remaining 4% 

of the capital stock, granting a purchase option for 

the Altadis Group and a sale option for Axiter 

Investments on this ownership interest. The price 

of these options, which can be exercised in the 

period from January 1 to December 31, 2007, will 

be €37.6 million.

23. Other disclosures 

Directors’ compensation 

The detail of the compensation received in 2004 by 

the members of the Board of Directors of Altadis, 

S.A., for attendance fees and membership of 

certain delegate committees of the Board of 

Directors, is as follows: 



Attendance Standing 

Fees Committees Total 

Pablo Isla Álvarez de Tejera 55.5 15 70.5 

Jean-Dominique Comolli 55.5 15 70.5 

César Alierta Izuel 54 15 69 

Bruno Bich 54 15 69 

Carlos Colomer Casellas 55.5 15 70.5 

José Fernández Olano 55.5 10 65.5 

Charles-Henri Filippi 54 25 79 

Amado Franco Lahoz 55.5 10 65.5 

Gonzalo Hinojosa Fernández de Angulo 55.5 21.3 76.8 

Jean-Pierre Marchand 55.5 24.4 79.9 

Patrick Louis Ricard 54 10 64 

Jean-Pierre Tirouflet 55.5 6.3 61.8 

José María Goya Laza 54 10 64 

Edouard Stern 51 – 51 

Jean-Antoine Chabannes (*) 24 7.5 31.5 

Carlos Gómez Anuarbe (*) 25.5 5 30.5 

Fernando Labad Sasiaín (*) 25.5 – 25.5 

Rémy Tritschler (*) 25.5 – 25.5 

Marc Grosman (**) 34.1 – 34.1 

Gregorio Marañón y Bertrán de Lis (**) 34.1 – 34.1 

Berge Setrakian (**) 35.6 – 35.6 

Wulf Von Schimmelmann (**) 30.8 – 30.8 

Total 1,000.1 204.5 1,204.6 

(*) Directors who resigned from the Board in 2004. 

(**) Directors who replaced the directors who resigned from the Board in 2004.

122 




In 2004 there were 7 Board Meetings and 14 

Delegate Committee Meetings (6 Executive 

Committee Meetings, 5 Audit and Control 

Committee Meetings and 3 Appointment and 

Compensation Committee Meetings). 

Also, in 2004 the members of the Board of 

Directors received total attendance fees of €233 

thousand for attending meetings of the Boards of 

Directors of the Group companies. 

The total salary compensation received in 2004 by 

the two Co-Chairmen amounted to fixed pay of 

€1,417 thousand and variable compensation of 

€965 thousand. 

As regards the stock option plan approved by the 

Parent Company’s Shareholders’ Meeting, the two 

Co-Chairmen were jointly assigned 700,000 options 

on Altadis, S.A. shares (300,000 options in 2000 

and 400,000 options in 2002, see Note 19-b). In 

2004 the exercise period of the options granted in 

2000 began. Before 2004 year-end, the two Co- 

Chairmen exercised jointly 175,000 options. 

Also, at the beginning of the year, one of the two 

Co-Chairmen held 26,118 SEITA stock options 

relating to the plan approved in 1998 (see Note 19b), 

which were exercised in full in 2004. 

One of the directors, who ceased to discharge 

executive duties in 2001, was beneficiary as of 

December 31, 2004, of 43,000 options on Altadis, 

S.A. shares (see Note 19-b). 

As of December 31, 2004, no loans had been 

granted to the directors of Altadis, S.A. There are 

certain life insurance and pension benefits for the 

two Co-Chairmen, which totaled €330 thousand in 

2004.

Detail of directors’ equity interests in 

companies engaging in similar activities and 

performance by them of similar activities for 

their own account or for the account of others 

The members of the Board of Directors have not 

owned any holdings in the capital stock of any 

companies engaging in an activity that is identical, 

similar or complementary to the activity that 

constitutes the corporate purpose of the Parent 

Company. Also, they have not performed, and are 

not currently performing, any activity, for their own 

account or for the account of others, that is 

identical, similar or complementary to the activity 

that constitutes the corporate purpose of the 

Parent Company, except for the positions held in 

Group and associated companies. 

Fees paid to auditors 

The fees for 2004 financial statement audit 

services provided to the companies composing the 

Altadis Group by the various auditors amounted to 

€2,416 thousand, of which €1,481 thousand 

correspond to the firms in the Deloitte & Touche 

worldwide organization, to which Deloitte, S.L. 

belongs. 


Additionally, the fees for other professional 

services provided to the Group companies by the 

various auditors, and by other entities related to 

them as of December 31, 2004, amounted to 

€1,887 thousand in 2004, of which €579 thousand 

correspond to the firms in the Deloitte & Touche 

worldwide organization. 

Environmental information 

Current environmental regulations do not 

significantly affect the Group’s business activities 

and, accordingly, it does not have any 

environmental liability, expenses, revenues, 

subsidies, assets, provisions or contingencies that 

might be material with respect to its net worth, 

financial position and results. Therefore, no 

specific disclosures relating to environmental 

issues are included in these consolidated financial 

statements.

124 




Application of International Financial Reporting 

Standards (IFRSs) 

Under Regulation (EC) no. 1606/2002 of the 

European Parliament and of the Council dated July 

19, 2002, all companies governed by the laws of an 

EU Member State and whose shares are listed on a 

regulated market of any EU Member State must 

present their consolidated financial statements for 

the years beginning on or after January 1, 2005, in 

accordance with the International Financial 

Reporting Standards (IFRSs) ratified by the 

European Union. Pursuant to this Regulation, the 

Group will be required to present its consolidated 

financial statements for 2005 in accordance with 

the IFRSs ratified by the European Union. In Spain, 

the obligation to present consolidated financial 

statements under IFRSs approved in Europe was 

regulated in Final Provision Eleven of Law 62/2003 

on Tax, Administrative, Labor and Social Security 

Measures (Official State Gazette (BOE) dated 

December 31). 

In order to meet the obligation imposed by the 

aforementioned Regulation, the Altadis Group has 

established a plan for the transition to IFRSs that 

includes, inter alia, the following steps: 

– Analysis of the main differences between the 

methods provided for in the National Chart of 

Accounts in force in Spain and IFRSs, and of the 

effects that such differences might have on the 

calculation of the estimates required to prepare 

the financial statements. 

– Selection of the methods to be used in cases or 

areas in which alternative accounting treatments 

are permitted, in particular in relation to the 

stipulations of the First-Time Application 

standard. 

– Assessment and determination of the appropriate 

changes to or adaptations of the operating 

procedures and systems used for compiling and 

providing the information required in order to 

prepare the financial statements. 

– Assessment and determination of the changes 

that have to be made in the planning and 

organization of the process involved in the 

compilation of information and the conversion 

and consolidation of the information of Group and 

Associated companies. 

– Preparation of the opening consolidated financial 

statements, as of the transition date, in 

accordance with IFRSs.

The aforementioned plan is currently at the 

execution phase, and the recording of intangible 

assets and the related amortization and the 

recording and valuation of financial instruments 

were identified as the possible areas of greatest 

impact. In the course of 2005 the plan will be 

definitively completed, although it is not possible to 

estimate on an integral and reliable basis, and with 

all the relevant information, the potential effects of 

the transition, since: 

– The impact that the application of IFRSs might 

have is subject to the definitive wording that the 

European Union ratifies for IFRSs. 

– Certain decisions relating to the selection of the 

methods to be applied in situations in which 

possible alternative treatments are permitted 

under IFRSs have not yet been definitively 

adopted by the Group. 

24. Subsequent events 


In January 2005 Altadis, S.A. entered into an 

agreement with Autogrill whereby it undertook to 

contribute, under certain circumstances, its 

holding in Aldeasa to Retail Airport Finance, S.L.U. 

This company launched a tender offer for all the 

shares of Aldeasa, S.A., which as of the date of 

preparation of these consolidated financial 

statements had not yet been approved by the 

Spanish National Securities Market Commission 

(CNMV). Once the related agreements have been 

executed, Altadis, S.A. and Autogrill will each have 

an ownership interest of 50% in the capital stock 

of Retail Airport Finance, S.L.U.

126 




25. Consolidated statements of changes in financial position 

(Thousands of Euros) 

APPLICATION OF FUNDS 2004 2003 

Start-up and debt arrangement expenses – 607 

Fixed asset additions– 

Intangible assets 10,832 11,540 

Tangible fixed assets 138,792 119,576 

Long-term investments 42,508 70,433 

Acquisition of Parent Company shares 255,432 152,148 

Dividends– 

From the Parent Company 227,576 204,007 

From Group Companies attributable to minority interests 16,875 15,435 

Funds applied for acquisition of holdings in consolidated companies 856,619 1,359,945 

Increase in deferred charges – 14,012 

Repayment or transfer to short-term of long-term debt 236,982 – 

Transfer to short-term and amounts used of provisions for 

contingencies and expenses 253,188 37,316 

TOTAL FUNDS APPLIED 2,038,804 1,985,019 

FUNDS OBTAINED IN EXCESS OF FUNDS APPLIED 

(INCREASE IN WORKING CAPITAL) – 666,580 

TOTAL 2,038,804 2,651,599


SOURCE OF FUNDS 2004 2003 

Funds obtained from operations– 768,316 647,769 

Fixed asset disposals– 

Intangible and tangible fixed assets 78,518 23,155 

Long-term financial investments 129,005 287,747 

Disposals of Parent Company shares 14,692 5,103 

Funds arising from disposal of consolidated companies 1,545 25,776 

Transfer to short-term of long term accounts receivable 348,491 – 

Increase in long term debt – 1,649,484 

Deferred revenues 2,008 – 

Translation differences and other (year-on-year increase) 19,034 12,565 

TOTAL FUNDS OBTAINED 1,361,609 2,651,599 

FUNDS APPLIED IN EXCESS OF FUNDS OBTAINED 

(DECREASE IN WORKING CAPITAL) 677,195 – 

TOTAL 2,038,804 2,651,599 

2004 2003 

VARIATION IN WORKING CAPITAL Increase Decrease Increase Decrease 

Inventories 307,059 – 75,731 – 

Accounts receivable 776,743 – – 140,445 

Current liabilities – 1,915,384 967,821 – 

Short-term financial investments 223,121 – – 299,822 

Cash – 58,733 54,203 – 

Accrual accounts – 10,001 9,092 – 

TOTAL 1,306,923 1,984,118 1,106,847 440,267 

VARIATION IN WORKING CAPITAL – 677,195 666,580 –

128 




The reconciliation of income per books to the funds 

obtained from operations attributed to the Parent 

Company is as follows: 



Funds obtained from operations– 

Income for the year attributable to the Parent Company 413,311 293,151 

Income for the year attributable to minority interests 

Depreciation and amortization expense and tangible fixed asset 

56,240 43,736 

and intangible asset provisions 175,058 162,664 

Variation in fixed asset allowances 6,466 (7,513) 

Period amortization of consolidation goodwill 156,920 117,983 

Deferred interest expenses (revenues) 1,975 (3,363) 

Loss (Income) of companies accounted for by the equity method (33,738) (15,714) 

Period provisions for contingencies and expenses 53,074 268,253 

Losses (Gains) on fixed asset disposals (64,728) (13,878) 

Losses (Gains) on disposals of holdings in consolidated companies (1,545) (15,582) 

Reduction (Increase) in long-term prepaid taxes 5,283 (181,968) 

Funds obtained from operations attributed to the Parent Company 768,316 647,769 

26. Explanation added for 

translation to English 

These consolidated financial statements are 

presented on the basis of accounting principles 

generally accepted in Spain. Certain accounting 

practices applied by the Group that conform with 

generally accepted accounting principles in Spain 

may not conform with generally accepted 

accounting principles in other countries.

130 


Exhibit I 

Altadis, S.A. and Dependent Companies (Altadis Group) 


Underlying 

Book Registered Core Line Total % of 

Company and/or Group (a) Auditor (b) Cost Value Office of Business Ownership 

Fully consolidated companies– 

SEITA Subgroup (1) Deloitte / 910,253 792,109 Paris Tobacco 99.99 

Barbier manufacture 

Frinault 

& Autres (E&Y) 

and distribution 

RTM Deloitte 1,308,990 119,341 Morocco Tobacco 

manufacture 

and distribution 

80.00 

Tabacalera Cigars International, S.A. – 167,471 248,166 Madrid Holding 

company 

100.00 

LOGISTA Subgroup (2) Deloitte 141,664 240,579 Madrid Distribution 

and services 

57.73 

ITI Cigars – 490,277 331,613 Madrid Holding 

company 

100.00 

Urex Inversiones Subgroup Deloitte 43,287 47,667 Madrid Holding 

company 

100.00 

Altadis Finance, B.V. (4) Deloitte 1,028 2,461 Netherlands Financial 

services 

100.00 


equity method– 

Aldeasa, S.A. (5) Deloitte 150,151 63,167 Madrid Sales in duty 

free zones 

32.47 

Tabaco Canary Islands, S.A. Ernst & Young 751 7,949 Sta. Cruz Tobacco 50.00 

(TACISA) (3) de Tenerife manufacture 

CITA Tabacos de Canarias Ernst & Young 12,333 28,667 Sta. Cruz Tobacco 50.00 

Subgroup de Tenerife manufacture 

Tabacos Elaborados, S.A. (6) Gaudit 192 2,136 Andorra Tobacco 

manufacture 

55.11 

Tabaqueros Asociados, S.A. Gaudit 138 878 Andorra Tobacco 

manufacture 

33.33 

MTS Tobacco, S.A. Ernst & Young 391 2,670 Navarra Machinery and 

spare parts 

40.00


% of 

Registered Ownership of 

Company and/or Group (a) Auditor (b) Office Core Line of Business the Subgroup 

SEITA Subgroup: 


Meccarillos International Ernst & Young Luxembourg Holding company 99.99 

Société de Commercialisation Segec Audit France Marketing of 99.99 

de Bobines en Europe cigar bobbins 

Philippine Bobbin Corporation Cigars C.L. Manabat Philippines Cigarette bobbin 99.99 

(Deloitte) manufacture 

Meccarillos France Ernst & Young Luxembourg Trademark ownership 89.99 

Meccarillos Switzerland Ernst & Young Luxembourg Trademark ownership 59.99 

SAF Barbier Frinault 


France Distribution 100.00 

Supergroup Distribution Mazars & Guerard France Distribution 99.83 

Nordipa Ernst & Young France Distribution 100.00 

Seita Participations Barbier Frinault 


France Holding company 100.00 

Altadis Belgium Ernst & Young Belgium Distribution and promotion 

of cigarettes 

100.00 

Altadis Océan Indien Mazars & Guerard / France– Trademark ownership 100.00 

Exa (E&Y) Reunion Island 

Altadis Finland Ernst & Young Finland Distribution 100.00 

Seitamat Barbier Frinault & France Materials trading 99.29 

Autres (E&Y) and rental 

Metavideotex Distribution Barbier Frinault & France Marketing of vending 84.64 

Autres (E&Y) machines 

Sitar Holdings, S.A. HDM/Exa (E&Y) France– 

Reunion Island 

Holding company 74.58 

Coretab Exa (E&Y)/HDM France Manufacture of cigarettes 74.58 

Sodisco Exa (E&Y)/HDM France Distribution 74.55 

Altadis Holdings USA, Inc. (7) Deloitte U.S. Holding company 55.16 

Consolidated Cigar Holdings Inc. (7) – U.S. Holding company 55.16 

Altadis USA Inc. (7) – U.S. Manufacture and sale 

of cigars 

55.16 

Tabacalera Brands Inc. (7) – U.S. Trademark ownership 55.16 

La Flor de Copán (7) – Honduras Manufacture and sale 

of cigars 

55.16 

Tabacalera de Garcia Ltd. (7) – Bermuda Manufacture and sale 

of cigars 

55.16 

Congar International, Inc. (7) Deloitte U.S. Manufacture and sale 

of cigars 

55.16 

Cuban Cigar Brands, N.V. (7) – Netherlands Trademark ownership 55.16 

Max Rohr, Inc. (7) – U.S. Trademark ownership 55.16 

Macotab Deloitte France Manufacture and sale 

of cigarettes 

99.96 

Altadis Polska Deloitte Poland Manufacture and sale 

of cigarettes 

96.38

132 


Exhibit I (continuation) 


% of 



Altadis Financial Services, S.N.C. (8) Barbier Frinault 


France Financial services 60.00 

LPM Promodem Barbier Frinault & 

Autres (E&Y) 

France Shops, Fitting – out 100.00 

Nicot Participations Barbier Frinault & 

Autres (E&Y) 

France Financial services 100.00 

Altadis Italia Ernst & Young Italy Promotion 100.00 

Sodim Deloitte France Measurement instruments 100.00 

Balkan Star Pricewaterhouse– Russia Manufacture and sale 99.69 

Coopers of cigarettes 

Tahiti Tabacs Roth Johnny French 

Polynesia 

Distribution of tobacco 100.00 

Cartonnerie Reunionnaise Exa (E&Y) France Elaboración de cartonajes 74.58 

Altadis Hungary Deloitte Hungary Promotion 100.00 

Altadis Deutschland Ernst & Young Deutschland Promotion 100.00 

Sugro Fagot France Distribution 99.70 

Altadis Ceska Deloitte Republic 

Czech 

Promotion 100.00 

Altadis Hellas Ernst & Young Grece Promotion 100.00 

Altadis Austria Deloitte Austria Promotion 100.00 

Altadis Luxenbourg Ernst & Young Luxembourg Distribution and promotion 

of tobacco 

100.00 

Companies accounted for by 

the equity method– 

LTR Industries Deloitte France Reconstituted tobacco 28.00 

Intertab Pricewaterhouse– 

Coopers 

France Financial Services 50.00 

Mitsa – Switzerland Manufacture 24.00 

Nonconsolidated companies– 

Colfisa – Paraguay Finance company 100.00 

M31 – France Finance company 5.40 

Sta– Comercio de fumo do Brasil – Brazil Raw tobacco 99.99 

Danneman AG – Switzerland Trademark ownership 14.51 

Altadis UK Redfords U.K. Promotion 99.99 

LOGISTA Subgroup: 


Distribérica, S.A. – Madrid Distribution of publications 

and other products 

100.00 

Distrimadrid, S.A. BDO Madrid ‘’ 100.00 

Distribarna, S.A. BDO Barcelona ‘’ 100.00 

Distribuidora del Este, S.A. BDO Alicante ‘’ 50.00


% of 



Distribuidora de las Rías, S.A. – La Coruña ‘’ 100.00 

Asturesa de Publicaciones, S.A. – Oviedo ‘’ 100.00 

Promotora Vascongada de 

Distribuciones, S.A. 

– Bilbao ‘’ 100.00 

Distribuidora de Navarra y del Valle 

del Ebro, S.A. 

– Zaragoza ‘’ 100.00 

Distribuidora de Publicaciones 

del Sur, S.A. 

BDO Seville ‘’ 100.00 

Comercial de Prensa SIGLO XXI, S.A. BDO Madrid ‘’ 80.00 

Publicaciones y Libros, S.A. BDO Madrid ‘’ 100.00 

Distribuidora Valenciana de 

Ediciones, S.A. 

BDO Valencia ‘’ 50.00 

Distriburgos, S.A. – Burgos ‘’ 50.00 

Midesa Portugal, S.A. Deloitte Portugal ‘’ 100.00 

Jornal Matinal, Lda. Deloitte Portugal ‘’ 76.00 

Librodis Promotora y 

Comercializadora del Libro, S.A. 

– Madrid ‘’ 60.00 

Logilivro, Logística do Livro, Lda. Deloitte Portugal ‘’ 70.00 

Midsid Sociedade Portuguesa de Deloitte Portugal Distribution of tobacco 100.00 

Distribuiçao, SGPS, S.A. and other products 

Logirest, S.L. – Madrid Distribution in the 

catering channel 

60.00 

Logista-Dis, S.A. BDO Madrid Distributor 100.00 

La Mancha 2000, S.A. BDO Toledo ‘’ 100.00 

Dronas 2002, S.L. Deloitte Barcelona Industrial and express 

parcel distribution and 

pharmaceutical logistics 

100.00 

Logesta Gestión de Transporte, S.A. BDO Madrid Goods transport 51.00 

Geopost Logistics Holding Barbier Frinault & 

Autres (E&Y) 

France Distribution 100.00 

Etinera SPA Deloitte Italy Distribution of Tobacco 96.00 

Terzia SPA Deloitte Italy Distribution 68.00 

Daci SPA – Italy Distribution of Tobacco 68.00 



Iberia, Líneas Aéreas de España, S.A. Deloitte Madrid Air transport 6.70 

Distribuidora del Noroeste, S.L. BDO Vigo Distribution of publications 

and other products 

49.02 

Distibuidora de Prensa por 

Rutas, S.A. 

– Madrid ‘’ 32.00 

Prensa Serviodiel, S.L. BDO Huelva ‘’ 32.00 

Johnsons International, Lda. – Portugal ‘’ 20.00

134 


Exhibit I (continuation) 


% of 



Urex Inversiones Subgroup: 


Servicio de Venta Automática, S.A. Deloitte Madrid Vending machine distribution 100.00 

Logivend, S.A. Deloitte Madrid Vending machine distribution 100.00 

Hebra Promoción e Inversiones, S.A. – Madrid Investment promotion 100.00 

Tabacmesa, S.A. Deloitte Madrid Sales in duty-free zones 100.00 

Interprestige, S.A. – Madrid Operation of sports facilities 100.00 

Comercializadora de Productos de 

Uso y Consumo, S.A. 

– Madrid Distributor 100.00 

Glopro International Ltd. 



– Bahamas Trademark acquisition 

and ownership 

100.00 

Compañía Española de Tabaco KPMG Madrid Production and sale of 20.82 

en Rama, S.A. raw tobacco 

Unión Ibérica de Radio, S.A. Audycuenta Madrid Radio stations 27.78 

ITI Cigars Subgroup: 


Tabacalera Brands, S.L. 

Proportionally consolidated 

companies– 

– Madrid Holding company 100.00 

Internacional Cubana de Tabaco, S.L. Ernst & Young Cuba Manufacture and marketing 

of cigarettes 

50.00 

Corporación Habanos Subgroup Pricewaterhouse- Cuba Marketing and distribution 50.00 

Coopers/ Interaudit of cigars


% of 



Tabacalera Cigars International 

Subgroup: 


JR Cigar, Inc. Deloitte U.S. Distribution of cigars 51.00 

MC Management Deloitte U.S. Management services 51.00 

Tabacalera de Garcia SAS – France Manufacture and marketing 

of cigarettes 

100.00 

(1) This percentage does not include the shares assigned to the stock option plans (see Notes 4-o and 7-b). 

(2) The percentage of ownership does not include the shares assigned to the stock option plans (see Notes 4-o and 7-b) or the 

short-term holdings (see Note 4-c). 

(3) Altadis, S.A. has adidicionally an indirect holding of 25% through CITA Tabacos de Canarias, S.L., so the total ownership interest 

amounts to 75%. 

(4) SEITA holds 50.00% of this ownership interest. 

(5) The percentage of ownership does not include the short-term holdings (see Notes 4-c and 12-b). 

(6) Altadis, S.A. has an indirect holding of 21.78% through Tabaqueros Asociados, S.A. 

(7) Altadis, S.A. owns the other 44.84% through Tabacalera Cigars International, S.A. 

(8) Altadis, S.A. owns the other 40.00% through Urex Inversiones, S.A. 

(a) Not including inactive companies or companies in liquidation. 

(b) Where no information is given, the individual company does not reach the minimum limit above which it would be subject to statutory 

audit.

136 


2004 Consolidated 

Management Report 

1. Business performance and 

situation of the group 

1.1. Earnings and sales 

Once again in 2004 Altadis maintained its position 

among the major European corporate groups in 

cigarette production and sales (especially 

noteworthy in this connection are its two main 

brands, Gauloises Blondes and Fortuna) and as world 

leader in cigar production and marketing. Also, the 

Group leads the markets in Spain, France, 

Portugal, Morocco and Italy as regards the 

distribution of tobacco and many other products 

and documents, providing logistics services to more 

than 200,000 points of sale. 

In 2004 the Altadis Group’s activities and results 

should be analyzed in the context of certain 

noteworthy events: 

• In France, one of Altadis’s fundamental markets, 

the substantial rises in the retail selling prices of 

tobacco products in October 2003 and January 

2004, due to increased taxation, triggered a 

major reaction on the official cigarette market, 

where volumes declined by 21% in 2004. 

• The consolidation of Régie des Tabacs, S.A. 

(RTM), which commenced on July 1, 2003, had a 

first-time consolidation effect on results in the 

first six months of 2004. 

• From September to December Altadis executed 

the first part of the industrial restructuring plan, 

with the shutdown of five centers. 

• The Altadis Group acquired 99.7% of the Russian 

cigarette company Balkan Star in November 

(80.75%) and December (18.94%); this company 

has been included in the scope of consolidation 

since November 1, 2004. 

• On December 29, 2004, the Group acquired 96% 

of the Italian tobacco distribution company 

Etinera, and this company’s results will be consolidated 

from January 1, 2005. 

Earnings and variation in net worth 

Against this backdrop, the Group’s earnings 

performance in the year was very positive thanks 

to the favorable contribution by its three lines of 

business: cigarettes, cigars and logistics. In 2004 

the Group’s economic sales (*) increased by 3.9% 

to €3,518 million, as compared with €3,385 

million in 2003. Also, EBITDA rose by 3.3% to 

€1,113 million and, accordingly, the EBITDA 

margin on economic sales was 31.6%, in line with 

2003. The effect of the depreciation of the dollar 

(on average 8.5% below the exchange rate in the 

previous year) was to decrease economic sales and 

EBITDA by €67 million and €15 million, 

respectively, while that of acquisitions was to 

increase economic sales and EBITDA by €185 

million and €79 million, respectively. 

Noteworthy in the geographical distribution of the 

Group’s economic sales in 2004 was, on the one 

hand, the decrease in the French cigarette market 

and, on the other hand, the success of the Group’s 

internationalization strategy, due mainly to the 

increased contribution by Morocco and the Middle 

East. Accordingly, with respect to 2003, there was 

a notable increase in activity in the “rest of the 

(*) “Economic sales” are the most appropriate aggregate, used by the Group, to provide a proportional valuation of the business 

volume of all its activities. Economic sales are defined as the revenues, net of taxes and commissions to sales outlets, from the sale 

of Group-manufactured products – mainly proprietary tobacco brands – plus the distribution margin on all the products distributed 

by the Group, plus the revenues from logistics services other than product distribution.

world” area (up 5 percentage points) and a decline 

in the relative importance of the French market 

(down 5 percentage points); therefore, economic 

sales in the Spanish and French domestic markets 

accounted for 35% and 23%, respectively, of the 

total, while sales in the rest of Europe, the United 

States (only cigars) and the rest of the world each 

represented 14% of the total. 

The financial loss of €101 million, compared with 

the loss of €83 million in 2003, reflects the 

increase in interest expenses due to the Group’s 

higher level of indebtedness. In this respect, 

average net debt amounted to €1,750 million 

(compared with €1,500 million in 2003). This 

variation is a direct result of the higher level of 

borrowing required for the acquisition of RTM, 

offset in part by the Group’s sizeable free cash flow. 

As of December 31, 2004, net debt amounted to 

€1,939 million, as compared with the €2,036 

million recorded at 2003 year-end. Accordingly, the 

balance sheet continues to be very sound, with a 

net debt-to-EBITDA ratio of 1.74. 

Amortization of goodwill stood at €157 million, as 

compared with €118 million in 2003; this increase 

is due basically to the latest acquisitions, 

especially that of RTM. 

The contribution of the associated companies, 

which are accounted for by the equity method, 

improved notably from €16 million in 2003 to €34 

million, due mainly to the higher contribution by 

CITA Tabacos de Canarias, S.L. in 2004. 

Extraordinary income, which amounted to €11 

million (compared with the extraordinary loss of 

€251 million in 2003, which included a €240 

million provision for the restructuring plan), 

reflects basically the sale of a land lot in Malaga 

and a provision for an adjustment to excise taxes 

on tobacco products relating to 1997 and 1998. 

The corporate income tax expense was €256 

million, as compared with €143 million in 2003. 


The effective tax rate, before the amortization of 

goodwill and the contribution of associated 

companies, was 30.1%. 

Income attributed to minority interests, basically at 

Logista, RTM and JR Cigar, totaled €56 million, as 

compared with €44 million in 2003, due to the 

improvement in results at these companies. 

Net income for 2004 amounted to €413 million, 

which represents a considerable improvement with 

respect to the €293 million reported in 2003 (up 

41%), when the extraordinary provision of €240 

million was recorded for the reorganization plan. 

The increase in the amortization of goodwill in 

2004 (€39 million) was one of the main reasons 

underlying this net income performance. 

As regards the variations of the main aggregates in 

the consolidated balance sheet as of December 31, 

2004, total assets and liabilities increased, due 

mainly to the inclusion of Etinera and Balkan Star 

in the scope of consolidation. Thus, the Group’s 

assets and liabilities amounted to €10,612 million, 

up 15.9% on the €9,153 million as of December 

31, 2003. 

The balance-sheet aggregates that were most 

affected by this growth were, on the asset side, 

accounts receivable and goodwill, which rose by 

€777 million and €605 million, respectively, with 

respect to 2003 and, on the liability side, shortterm 

payables to public authorities, which 

increased by €1,105 million in 2004 due to the 

excise taxes on tobacco products and the output 

VAT accrued mainly at Etinera and payable to 

public authorities as of December 31, 2004. 

Fixed and other noncurrent assets decreased by 

€383 million, whereas current assets increased by 

€1,238 million. The reduction in fixed and other 

noncurrent assets was due mainly to the 

reclassification in 2004 as goods on consignment 

of the long-term financing granted to French sales

138 




outlets on a percentage of their first order. The 

higher current assets figure stemmed basically 

from the increases in inventories due to this 

reclassification and in accounts receivable as a 

result of the inclusion of Etinera in the scope of 


The most noteworthy development on the liability 

side, in addition to the logical moderate decrease 

in shareholders’ equity for three basic reasons (the 

payment of the dividend, the share repurchase and 

cancellation policy, and fluctuations in the 

dollar/euro exchange rate), was the sharp increase 

in current liabilities, particularly in the short-term 

payables to public authorities referred to above. 

At 2004 year-end, net financial debt (defined as 

short- and long-term payables to credit institutions, 

plus debenture and other marketable debt security 

issues, less cash and realizable short-term 

investments) had fallen by €97 million (4.8%) to 

€1,939 million and, accordingly, the Group’s 

financial position remains sound. Operating free 

cash flow was extraordinarily strong, reaching 

€1,156 million, up €456 million on 2003. 

Information by business line 

On analyizing the figures of the business units set 

forth below, it should be noted that the results 

relating to RTM were recorded under the “Other” 

caption in 2003 and under the “Cigarettes” and 

“Logistics” captions as from January 1, 2004, thus 

increasing the percentage of growth in these two 

business units.

a) Cigarettes 

The Group sold 112,600 million cigarettes in 2004 

(compared with 99,500 million in 2003). 

The Cigarette business’s economic sales, which 

represent 52% of the Group’s total sales, increased 

by 6.8% to €1,838 million (compared with €1,721 

million in 2003). The very good performance in 

international sales and the contribution by RTM 

more than offset the downturn in the French 

market and the slowdown in the contribution by 

Germany. 

Cigarette sales by RTM contributed €170 million, 

bearing in mind that they were not recorded in this 

business unit until January 1, 2004. 

Segments 

The blond cigarette segment, which represents 

68% of the total sales of this business line, was 

the most significant factor in the growth of 

cigarette sales, with a solid 14% increase to 

€1,255 million. This increase is explained by the 

consolidation of RTM (with €119 million), the 

ongoing increase in market share and sales in 

Germany (although volumes in this market declined 

by 15.5%) and in other European countries, and 

excellent results in the Middle East. 

As regards the dark cigarette segment, the 

consolidation of RTM and the improvement in unit 


Economic Sales EBITDA 

(Millions of Variation Variation 

Euros) 2004 2003 2004/2003 2004 2003 2004/2003 

Cigarettes 1,837.6 1,720.7 +6.8% 643.8 607.8 +5.9% 

Cigars 817.2 762.3 +7.2% 213.7 177.2 +20.6% 

Logistics 861.4 795.2 +8.3% 251.9 232.2 +8.5% 

Other 2.1 107.2 –98.0% 3.8 60.8 –93.8% 

Total 3,518.3 3,385.4 +3.9% 1,113.2 1,078.0 +3.3% 

value were offset by the decline in sales in value 

terms in France (down 29.1%) and Spain (down 

8.2%); total dark cigarette sales fell by 12.4%. 

Markets 

In Spain, Altadis’s blond cigarette sales increased 

by 3.6% to €412 million. The total cigarette 

market in Spain fell by 0.5% in volume terms, with 

an increase of 1.4% in the blond cigarette segment. 

In this segment, Altadis obtained a market share of 

27.5%, 1.5 percentage points less than in 2003. 

The rise in prices triggered the increase in sales. 

In France, the volume of blond cigarette sales fell 

by 20%, which reflected the cumulative price rise 

of 30% from October 2003 to January 2004. The 

last quarter in 2004 witnessed the much-awaited 

change in trend, since volumes declined by 5.1%. 

As a result of the moderate increase in Altadis’s 

market share (to 18.8%) and the improvement in 

unit prices, the Group’s blond cigarette sales 

outperformed the market, falling 16.6% to €222 

million. 

In Germany, the retail selling price was increased 

by €0.40 per packet on two occasions in 2004, the 

first in March and the second in December. The 

total cigarette market fell by 15.5%. As a result of 

the prolonged upswing in the market share in 

Germany, Altadis’s blond cigarette sales grew 2.1% 

in year-on-year terms to €153 million. In Poland, 

the Group continued to carry on its business

140 




activities in a climate of very tough competition. In 

Italy, Altadis’s volumes rose very sharply by 20.4% 

and its market share reached 2.4%. 

In the Middle East, Altadis’s sales increased by 

close to 80% to €97 million, especially in Syria 

and the Lebanon, where the Group’s market shares, 

estimated at over 15% and 10%, respectively, 

continue to rise. Sales in Africa also grew sharply, 

and the Fine Virginia-blend cigarette brand 

obtained very high market shares in countries such 

as the Ivory Coast, the Congo, Niger and Chad. 

In Morocco, Marquise confirmed the significant 

improvement in its market share, reaching 49%, 

with sales amounting to €104 million, favoring the 

sales mix in this market. As expected, the 

Gauloises Blondes and Fortuna brands were 

launched in April and June, respectively. The 

launch of Fortuna was a huge success and the 

brand had already obtained a 3% market share in 

the second half of 2004. Sales also benefited from 

the price rise on August 2, 2004, with an average 

increase of 5.5%. 

Russia became a new important market for the 

Group in November, with the acquisition of an 

estimated market share of 10%. The results of 

activities in 2004, especially in November and 

December, were in line with expectations. Altadis 

is preparing to expand the distribution of Gauloises 

Blondes and to launch other international brands in 

Russia. 

Brands 

Total sales of Gauloises Blondes grew by 4% to €405 

million. The performance of international sales of 

this brand was excellent, increasing by 16.6% in 

volume and by 17.8% in value to €322 million. 

Gauloises Blondes consolidated its third-place 

position in both Germany and Austria, where its 

market share continued to increase, reaching 5.6% 

in Germany (with 6,400 million cigarettes sold) and 

8.3% in Austria. Sales and market shares in 

Belgium, Luxembourg, Poland and the Czech 

Republic also increased. Gauloises Blondes is also 

one of the brands driving growth in the Middle 

East. 

Fortuna obtained sales of €374 million, up 4.6%. 

The market share in Italy increased to 2%. In 

France, where the brand has grown significantly in 

recent years, the market share now stands at 

2.2%, as compared with 1.7% in 2003. In Spain, 

which continues to be by far the most significant 

market for the brand, the market share was 21.1%. 

In addition to Morocco, Fortuna was also launched 

in Luxembourg, Austria, Finland and Poland. 

Noteworthy in the performance of local market 

proprietary brands was the Moroccan Marquise, 

which became a significant brand in 2004. Nobel 

remained virtually stable in Spain, with a 5.8% 

share of the blond cigarette market, while News is 

consolidating its 5.1% share of the blond cigarette 

market in France. Gitanes Blondes also contributed 

to our good results in the Middle East. Smart, the 

second-largest brand in Finland, consolidated a 

14.5% market share.

EBITDA in the cigarette business grew by 5.9% to 

€644 million and, despite the tough circumstances, 

an EBITDA margin on economic sales of 35% was 

maintained. 

b) Cigars 

The cigar business’s economic sales grew by 

14.9%, excluding the effect of the U.S. dollar 

exchange rate, and by 7.2% in euros, to €817 

million, which represents 23% of the Group’s total 

sales. This excellent performance was boosted by 

the positive trend in practically all the key factors 

of the business and in all markets. 

In the United States, which represents 

approximately 60% of the cigar business’s 

economic sales, Altadis focused on promoting the 

sale of top-of-the-range cigars –the natural 

(natural wrapper) and premium (handmade) 

segments–, which were very well received. Altadis 

USA’s total dollar sales in the United States 

increased by 9.4% to US$ 538 million, while sales 

translated to euros amounted to €433 million 

(down 0.5%). In addition to Altadis USA, the scope 

of consolidation in the cigar business now includes 

JR Cigar, the leading premium cigar distributor in 

the U.S., which was acquired in October 2003 and 

contributed €51 million to economic sales. 

Altadis’s cigar sales in Europe increased by 7.1% 

to €151 million. In Spain, sales rose by 9.1% to 

€93 million. A key contribution to these results 

was made by Dux, with the sale of 70 million 

cigars, and other brands such as Farias and 

Vegafina, which also performed very positively. In 

France, sales grew by 4.3%, boosted mainly by the 

2.1% rise in volume, thus reflecting the increase in 

total sales volume for the first time in the French 

market. 


Cuban cigar sales recorded by Altadis increased by 

18.2% at constant exchange rates and by 7.5% in 

euros to €111 million, boosted by handmade cigars 

(Torcidos) and Minis Cubanos. The recovery of 

premium cigars in the international markets was 

clearly confirmed and Altadis’s strategy, which is 

based on both the exclusive luxury segment 

(limited editions, special reserves) and the more 

affordable luxury segment (Mini Cubanos), has 

proved to be a success. 

EBITDA in the cigar business grew by 32.2%, 

disregarding the impact of the dollar exchange 

rate, and by 20.6% in euros, to €214 million. 

There was a notable improvement in the EBITDA 

margin on economic sales, which widened by 2.8 

percentage points to 26.1%. 

c) Logistics 

Economic sales in the logistics business, which 

account for 25% of the Altadis Group’s total sales, 

amounted to €861 million, as compared with €795 

million in 2003 (up 8.3%). These results reflect the 

significant decline in volumes in the French 

tobacco market (down 17.3%). However, 

noteworthy on the positive side was the 

contribution of the consolidation of RTM, with €51 

million. 

General (non-tobacco) logistics activities 

represented 59% of total economic sales of the 

logistics business and increased by 7.1% to €513 

million. This growth was achieved in all areas of 

activity in Spain and Portugal. In France, certain 

product lines, especially stationery, obtained lowerthan-expected 

results.

142 




The Pharma Project, which was launched in the 

first quarter of 2004 following refurbishment of the 

specialized storage premises in Madrid, produced 

promising initial results, with economic sales 

totaling €9 million. 

In Morocco, progress is being made in general 

logistics. Accordingly, RTM has already attained a 

15% spot market share in Maroc Telecom telephone 

cards, which are sold at over 15,000 retail sales 

outlets, and the launch of e-telephone cards is 

nearing completion. The product range now also 

includes stamps and is being expanded to 

encompass other products. 

EBITDA in the logistics business rose by 8.5% to 

€252 million, and the EBITDA margin on economic 

sales remained at 2003 levels: 29.2%. 

d) Other 

As indicated above, the Altadis Group recorded its 

activities in Morocco under the “Other” caption 

through December 31, 2003. It also eliminated 

sales between business units. The amount recorded 

under the “Other” caption totaled €2 million in 

2004, as compared with €107 million in 2003 

(which included €104 million relating to Morocco). 

Restructuring 

The current restructuring plan is now at the 

implementation phase. 

Five locations were shut down in France between 

September and December 2004: the Morlaix cigar 

workshop, the Tonneins tobacco processing plant, 

the distribution center in Lille and two centers in 

Dijon (which formerly engaged in machinery 

repairs and exports to international markets). In 

Spain, progress continues to be made in 

negotiations with trade unions. 

The related costs, amounting to €245 million, were 

mainly recorded in 2003. Recurring annual savings 

of €76 million are forecast, to be obtained 

progressively from 2004, although mainly in 2005 

and 2006. 

In Morocco, more than 800 of the 2,300-strong 

labor force have left the Group, giving rise to a 

significant improvement in productivity. Recurring 

annual savings in excess of €10 million are 

expected to be made.

Shareholder compensation policy 

The Group’s shareholder compensation policy 

combines an increase in dividends (with annual 

double-digit growth) and the repurchase of shares 

at a rate of 5% per year. Accordingly, the Board of 

Directors of Altadis, S.A. resolved to propose to the 

Shareholders’ Meeting of 2005, the payment of a 

gross dividend of €0.90 per share, which 

represents a 12.5% increase with respect to 2003. 

Five years of major achievements 

On December 31, 2004, the Altadis Group 

completed its first five years of operations. During 

this period the Group has implemented the strategy 

that it defined upon its creation: it has developed 

its three core business lines, expanding and 

internationalizing them through acquisitions, and it 

constantly strives to enhance their performance. As 

a result, there has been a very positive, farreaching 

transformation, as evidenced by a series 

of key data. 

The Group has multiplied sales by 1.38, 

representing compound annual growth (CAGR) of 

7% from €2,551 million to €3,518 million. 


EBITDA has multiplied by 1.61, with CAGR of 10% 

from €692 million to €1,113 million. 

The EBITDA margin has widened by 4.5 percentage 

points, from 27.1% to 31.6%. 

Net income before goodwill has multiplied by 1.53, 

with 9% CAGR from €372 million to €570 million. 

Net earnings per share before goodwill have 

multiplied by 1.74, representing 12% CAGR from 

€1.16 to €2.01. 

In this five-year period the Group has compensated 

its shareholders with a total of €2,097 million 

through dividend payments and the repurchase of 

shares. 

These results and the creation of value have 

obtained market recognition. Market capitalization 

has increased from €4,560 million to €9,545 

million and the share price has risen from €14.2 

as of December 31, 1999, to €33.7 as of 

December 31, 2004.

144 




STATEMENTS OF INCOME LAST FIVE YEARS 

(Millions of Euros) 2004 2003 2002 2001 2000 

Variation 

2004/2003 

Net sales (*) 9,707 9,473 8,997 8,314 7,606 +2.5% 

Economic sales (*) 3,518 3,385 3,182 3,077 2,798 +3.9% 

EBITDA 1,113 1,078 971 887 756 +3.3% 

Operating income 938 915 811 730 598 +2.5% 

Financial loss (101) (83) (37) (46) (24) +21.4% 

Amortization of goodwill 

Share in income of companies 

(157) (118) (95) (91) (80) +33.0% 

accounted for by the equity method 34 16 27 17 30 +114.6% 

Extraordinary income (loss) 11 (251) (32) 6 (230) n.s. 

Consolidated income before taxes 725 479 674 616 295 +51.3% 

Corporate income tax (256) (142) (197) (206) (116) +79.4% 

Income attributable to minority interests 

Net income attributable to the 

(56) (44) (42) (30) (31) +28.6% 

Parent Company 413 293 435 380 147 +41.0% 

Earnings per share (euro cents) 145.6 100.8 146.2 125.5 48.0 +44.4% 

Average number of shares (millions) (**) 283.9 290.9 297.8 303.1 307.0 –2.4% 

(*) “Economic sales” are the most appropriate aggregate, used by the Group, to provide a proportional valuation of the business 

volume of all its activities. Economic sales are defined as the revenues, net of taxes and commissions to sales outlets, from the sale 

of Group-manufactured products – mainly proprietary tobacco brands - plus the distribution margin on all the products distributed 

by the Group, plus the revenues from logistics services other than product distribution. The economic sales figure does not coincide 

with the sales per books included in the Group’s statement of income under the “Net sales” caption, since the latter includes, in the 

case of products distributed but not manufactured by the Group, the total value of the products, net of taxes and commissions to 

sales outlets, and not only its distribution margin. 

(**) The “Average number of shares” is the daily average number of shares outstanding, less the shares of the Parent Company held 

as treasury stock.

1.2. Share performance 

2004: Altadis share performance compared with Ibex-35, CAC-40 and Euro Stoxx-50 


Altadis shares are listed on the computerized trading system (continuous market) of the Spanish stock 

exchanges (Madrid, Barcelona, Bilbao and Valencia) and on the Paris stock exchange. At 2004 year-end the 

market price of Altadis shares was €33.70 and €33.57 per share on the Madrid and Paris stock exchanges, 

respectively. This represented an increase of 49.78% over the market price at 2003 year-end. The Madrid 

(Ibex-35), Paris (CAC-40) and Euro Stoxx-50 indexes rose by 17.37%, 7.40% and 6.90%, respectively, 

evidencing the excellent performance of Altadis shares in 2004. 

The liquidity of Altadis shares increased slightly in 2004: a total of 804,844,524 shares were traded (as 

compared with 798,058,098 in 2003), which represents an annual rotation of 2.82 times on the 283,221,426 

shares outstanding at 2004 year-end. 

160 

140 

120 

100 

80 

60 

CAC-40 (París) +7.40% 

Jan feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 

Altadis (Madrid) Ibex-35 CAC-40 Euro Stoxx-50 

Base January 1, 2004 = 100 

Euro Stoxx-50 +6.90% 

Altadis (Madrid) + 49.78% 

Ibex-35 (Madrid) +17.37% 

160 

140 

120 

100 

80 

60

146 




Last five years: Altadis share performance compared with Ibex-35, CAC-40 and Euro Stoxx-50 

(Figures in euros for Altadis and in points for the Ibex-35, CAC-40 and Euro Stoxx-50 indexes) 

Market price Market price Total variation Compound Annual 

12/31/1999 12/31/2004 (5 years) Growth (5 years) 

Altadis (Madrid) 14.20 33.70 +137.3% +18.9% 

Ibex-35 (Madrid) 11,641.40 9,080.80 –22.0% –4.8% 

CAC-40 (Paris) 5,958.32 3,821.16 –35.9% –8.5% 

Euro Stoxx-50 4,904.46 2,951.24 –39.8% –9.7% 

In the last five years Altadis shares have appreciated by 137.3%, which represents an average annual increase 

of 18.9%, whereas the Ibex-35, CAC-40 and Euro Stoxx-50 indexes have fallen by 22.0%, 35.9% and 39.8%, 

respectively. 

240 

220 

200 

180 

160 

140 

120 

100 

80 

60 

40 

Base January 1, 2000 = 100 

20 

1-1-00 1-1-01 1-1-02 1-1-03 1-1-04 

Altadis (Madrid) Ibex-35 CAC-40 Euro Stoxx-50


Monthly performance of Altadis shares on the Madrid and Paris Stock Exchanges (prices and volumes) 

(Figures in euros) 

Last High Low Average Volume (1) 

2004 Madrid Paris Madrid Paris Madrid Paris Madrid Paris Madrid Paris 

January 23.45 23.50 23.85 23.88 22.24 22.14 23.01 22.94 43,854,510 724,579 

February 25.90 25.82 26.10 26.10 23.79 23.81 25.09 25.06 59,578,191 734,279 

March 24.65 24.48 26.74 26.74 24.22 24.15 25.42 25.36 171,137,313 446,459 

April 23.58 23.57 25.51 25.33 23.58 23.57 24.51 24.49 73,568,611 219,685 

May 25.24 25.23 25.61 25.59 23.40 23.36 24.44 24.41 63,308,503 199,509 

June 25.40 25.33 25.94 25.89 24.80 24.50 25.41 25.35 168,167,869 225,389 

July 25.96 26.00 26.20 26.20 25.37 25.26 25.75 25.72 49,436,842 610,839 

August 25.60 25.46 26.02 26.01 25.49 25.13 25.66 25.61 40,652,797 313,322 

September 27.40 27.45 27.40 27.45 25.83 25.65 26.62 26.64 33,943,516 676,120 

October 28.77 28.70 29.06 28.95 27.34 27.29 28.07 28.04 28,367,507 386,561 

November 30.72 30.82 30.72 30.82 28.23 28.16 29.43 29.37 31,310,240 567,422 

December 33.70 33.57 33.70 33.78 30.36 30.25 32.12 32.09 35,948,231 466,230 

(1) Total effective trading in shares. Source: Bloomberg 

Last five years’ performance of Altadis shares on the Madrid and Paris Stock Exchanges 

(prices and volumes) / (Figures in euros) 

Year Last High Low Average Volume (1) 

Madrid: 

1999 14.20 

2000 16.50 17.90 10.80 14.99 489,485,995 

2001 19.10 19.20 13.65 16.27 399,344,000 

2002 21.74 24.48 17.65 21.54 563,599,342 

2003 22.50 24.65 20.18 21.98 790,898,060 

2004 33.70 33.70 22.24 26.27 799,274,130 

Paris: 

1999 14.12 

2000 16.30 17.90 10.83 14.93 35,275,968 

2001 19.08 19.10 13.70 16.25 16,522,796 

2002 21.66 24.43 17.68 21.53 11,524,200 

2003 22.20 24.64 20.17 21.96 7,160,038 

2004 33.57 33.78 22.14 26.32 5,570,394 

(1) Total effective trading in shares. Source: Bloomberg

148 




2. Events subsequent 

to year-end 

In January 2005 Altadis, S.A. entered into an 

agreement with Autogrill whereby it undertook, 

under certain circumstances, to contribute its 

ownership interest in Aldeasa to Retail Airport 

Finance, S.L.U. The latter launched a tender offer 

on all the shares of Aldeasa, S.A., which was 

pending approval by the Spanish National 

Securities Market Commission (CNMV) at the date 

of preparation of this consolidated management 

report. When the agreements are executed, Altadis, 

S.A. and Autogrill will each own a 50% holding in 

Retail Airport Finance, S.L.U. 

3. Outlook for the Group 

in 2005 

Certain key data with respect to the performance 

expected in 2005 are already identifiable. The 

Group will focus its attention on integrating the 

two companies it has recently acquired: Etinera 

and Balkan Star. The restructuring plan will be 

implemented, giving rise to improved earnings. No 

significant changes are currently expected in tax 

matters. Accordingly, the climate in which the 

Group carries on its activities will foreseeably be 

much more positive than in 2004 and will lead to a 

performance, from top line to bottom line, which 

will compare very positively with that of the 

previous year. 

4. Research and development 

and the environment 

The Research and Development activities are 

generally intended to meet medium- to long-term 

objectives and represent a fundamental tool in the 

Altadis Group’s ongoing efforts to seek and obtain 

the competitive advantages on which growth will be 

based. 

In 2004 the Altadis Group’s Research teams 

continued to work on several programs, the 

principal objective of which was to improve 

products with a view to anticipating consumer 

expectations and changes in product preferences. 

All the advances obtained through Research -in 

both techniques and innovative knowledge- form 

the basis of the work performed by the 

Development teams. The principal lines of action 

in the Development projects in 2004 were as 

follows: 

• Steady improvement of the quality of existing 

industrial processes (materials, processes and 

finished goods) and the development of new technologies. 

• Development and fine-tuning of new products for 

the various markets in which the Group is present, 

with the objective of meeting consumer 

expectations and adapting to structural change in 

the markets. 

• Greater flexibility of the production platform, 

increased efficiency, and cost control and reduction. 

As regards the Environment, the Group complies 

with the various EU, national and local regulations 

applicable to it. In fact, for several years Altadis 

has been adopting measures that contribute to the 

preservation of the environment: the control of 

energy and raw material consumption and the 

prevention of pollution hazards through the strict 

control of liquid and solid waste. 

In this connection, the ISO 14001 certification 

process initiated in 2002 equips the Altadis Group 

with a permanent environmental risk management 

and supervision system compliant with the highest 

international standards and guarantees the 

protection of the environment in production 

processes. 

ISO 14001 certification progressed according to 

schedule in 2004 and the raw material processing

plant in Cadiz and the cigarette plant in Riom have 

already obtained the certification issued by BVQI 

(Bureau Veritas Quality International), an 

independent accredited body. 

The Group’s other cigarette plants in Europe and its 

research centers will continue with the certification 

process through 2005. Thereafter, the certification 

drive will focus on the Group’s facilities in Morocco, 

starting with the Ain Harrouda plant. 

Accordingly, in addition to honoring its commitment 

to protect the environment, Altadis is in a position 

to reduce the costs incurred by it in its 

consumption of water, electricity and supplies. 

The Annual Report explains in greater detail both 

the current position of the Altadis Group and the 

most significant work performed by the Research 

and Development and Environmental areas in its 

main lines of business. 

5. Treasury stock 


Shareholders’ Meeting of Altadis, S.A. on June 15, 

2004, 7,250,000 shares of treasury stock 

(representing 2.50% of the Parent Company’s 

capital stock) were cancelled in September 2004. 

As a result, the Parent Company’s capital stock, 

which had previously consisted of 290,471,426 

shares, comprised 283,221,426 shares as of 

December 31, 2004. The aforementioned 

Shareholders’ Meeting once again authorized the 

Board of Directors, as permitted by Article 75 of 

the revised Corporations Law and for a period of 

18 months, to acquire shares of Altadis, S.A. under 

certain conditions. 


At the beginning of 2004 the Altadis Group held 

3,059,013 Parent Company shares (representing 

1.05% of its capital stock) with an average cost of 

€21.61 per share, a total cost of €66,106 

thousand and a total par value of €1,835 thousand. 

In 2004 the Group acquired for consideration a 

total of 9,320,483 Parent Company shares 

(representing 3.29% of the capital stock of Altadis, 

S.A. and with a par value of €5,592 thousand) at 

an average price of €27.41 per share. Also, it 

disposed of 706,022 shares (representing 0.25% of 

the capital stock of the Parent Company and with a 

par value of €424 thousand): 400 shares were sold 

at cost for €8 thousand, and the remaining 

705,622 shares were exchanged for 222,828 

shares of SEITA, in connection with the right to 

exchange shares which, upon the acquisition by the 

Parent Company of its initial holding in SEITA and 

maintaining the initial exchange ratio of 19 Altadis, 

S.A. shares for 6 SEITA shares, was granted to the 

employees of the latter with respect to the SEITA 

shares acquired by exercising their stock options. 

None of these share disposals generated any 

income or loss for the Altadis Group. 

As a result of these transactions, the Group held 

4,423,474 shares of Altadis, S.A. at 2004 year-end 

(representing 1.56% of its capital stock and with a 

par value of €2,654 thousand), at an average cost 

of €29.65 per share and a total cost of €131,166 

thousand. These shares are recorded under the 

“Parent Company Shares” caption on the asset side 

of the consolidated balance sheet as of December 

31, 2004, at an amount, net of allowances, of 

€16,188 thousand.

Altadis, S.A. 

Index 

152 Auditors’ report 

154 Balance sheets and 

statements of income 

158 Notes to 2004 financial statements 

186 Management report 

Altadis, S.A. 2004 Financial Information 151

154 

Altadis, S.A. 2004 Financial Information 

Balance Sheets 

as of December 31, 2004 and 2003 (Thousands of Euros) 

Year Year 

ASSETS 2004 2003 

FIXED AND OTHER NONCURRENT ASSETS: 

Start-up expenses 371 668 

Intangible assets (Note 5) 50,601 49,966 

Tangible fixed assets (Note 6)– 174,759 171,760 

Land and structures 180,013 196,775 

Plant and machinery 359,157 350,477 

Other fixtures, tools and machinery 55,818 56,699 

Other tangible fixed assets 23,488 22,715 

Advances and construction in progress 27,185 8,524 

Accumulated depreciation and allowance (470,902) (463,430) 

Long-term investments (Note 7)– 2,986,996 3,034,868 

Investments in Group companies 3,089,792 3,065,669 

Investments in Associated companies 163,956 163,205 

Long-term loans to Group and Associated companies – 16,996 

Long-term investment securities 3 3 

Other loans 6,867 11,610 

Long-term deposits and guarantees 637 1,191 

Allowances (274,259) (223,806) 

Tax receivables for tax prepayments (Note 15) 179,524 185,584 

Treasury stock (Note 8) 709 4,008 

Total fixed and other noncurrent assets 3,392,960 3,446,854 

DEFERRED CHARGES 16,577 19,995 

CURRENT ASSETS: 

Inventories (Note 9) 381,377 406,064 

Accounts receivable (Note 10) 176,585 263,403 

Short-term investments– 73,705 26,941 

Investments in Group and Associated companies (Note 7) 11,084 14,679 

Loans to Group and Associated companies – 10,296 

Other loans 30,202 9,687 

Short-term deposits and guarantees given 40,519 582 

Allowances (8,100) (8,303) 

Cash 989 1,923 


Total current assets 638,770 704,637 

TOTAL ASSETS 4,048,307 4,171,486 

The accompanying Notes 1 to 21 are an integral part of the balance sheet as of December 31, 2004.

Altadis, S.A. 2004 Financial Information 155 

Year Year 

SHAREHOLDERS' EQUITY AND LIABILITIES 2004 2003 

SHAREHOLDERS' EQUITY (Note 11): 

Capital stock 169,933 174,283 

Additional paid-in capital – 132,219 

Reserves– 105,123 141,236 

Legal reserve 33,987 36,657 

Voluntary reserves 1,178 38,902 

Revaluation reserve 53,461 53,461 

Reserves for treasury stock 16,188 11,907 

Differences arising due to the redenomination of capital stock in euros 309 309 

Income for the year 670,222 291,353 

Total shareholders’ equity 945,278 739,091 

DEFERRED REVENUES 15,730 9,343 

PROVISIONS FOR LONG-TERM CONTINGENCIES AND EXPENSES (Note 12) 188,621 254,789 

LONG-TERM DEBT: 


Payable to Group companies (Note 17) 1,100,000 1,100,000 

Payable to public authorities (Note 15) 490 97 

Other accounts payable (Note 13) 24,366 33,094 

Total long-term debt 1,738,004 1,955,019 

CURRENT LIABILITIES: 


Payable to Group companies (Note 17) 854,438 1,061,569 

Payable to Associated companies (Note 17) 5,822 4,183 

Trade accounts payable 77,639 86,529 

Other nontrade payables– 41,974 29,101 

Payable to public authorities (Note 15) 12,369 9,864 

Other accounts payable 29,605 19,237 

Provisions for short-term contingencies and expenses (Note 12) 159,224 12,615 

Accrual accounts – 500 

Total current liabilities 1,160,674 1,213,244 

TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 4,048,307 4,171,486

156 


Statements of Income 

for 2004 and 2003 (Thousands of Euros) 

Year Year 

DEBIT 2004 2003 

EXPENSES: 

Reduction in finished product and product in-process inventories 7,104 531 

Procurements (Note 16-b) 315,931 406,262 

Personnel expenses (Note 16-c) 188,614 181,403 

Period depreciation and amortization expense 32,316 34,013 

Variation in operating allowances– 

Variation in inventory allowances (2,015) (814) 

Variation in other operating allowances and losses 702 (590) 

for uncollectible receivables 

Other operating expenses– 

Outside services 200,251 209,799 

Taxes other than income tax 6,612 6,996 

Total operating expenses 749,515 837,600 

Operating income 243,601 230,983 

Financial and similar expenses on accounts payable to Group companies 68,713 42,142 

Financial and similar expenses on accounts payable to third parties 39,144 36,368 

Exchange losses 3,074 4,419 

Variation in financial investment provisions (732) (139) 

Total financial expenses 110,199 82,790 

Financial income 475,853 279,575 

Ordinary operating income 719,454 510,558 

Variation in tangible fixed asset allowances – 910 

Variation in long-term financial investment allowances (Note 7) 50,453 86,199 

Losses on tangible fixed assets 17 1,549 

Extraordinary expenses (Note 16-d) 43,531 204,925 

Prior years' expenses and losses 3,239 1,277 

Total extraordinary losses 97,240 294,860 

Income before taxes 692,438 233,661 

Corporate income tax (Note 15) 22,216 (57,692) 


The accompanying Notes 1 to 21 are an integral part of the statement of income for the year ended December 31, 2004.


Year Year 

CREDIT 2004 2003 

REVENUES (Note 16-a): 

Net Sales 965,873 1,040,456 

Other operating revenues 27,243 28,127 

Total operating revenues 993,116 1,068,583 

Revenues from shareholdings in Group and Associated companies (Note 7) 574,360 353,175 

Revenues from loans to Group and Associated companies 2,164 5,597 

Other interest and similar revenues 1,648 3,593 

Exchange income 955 – 

Revenues from financial investments 6,925 – 

Total financial revenues 586,052 362,365 

Gains on disposal of intangible assets, tangible fixed assets and 

Shareholdings in Consolidated Companies (Note 6) 65,706 6,455 

Capital subsidies transferred to income for the year 168 157 

Extraordinary revenues 3,187 10,455 

Prior years’ revenues and income 1,163 896 

Total extraordinary revenues 70,224 17,963 

Extraordinary loss 27,016 276,897

158 



Financial Statements 

1. Company description 

Altadis, S.A. (“the Company”) was incorporated on 

March 5, 1945, under the name of Tabacalera 

Sociedad Anónima, Compañía Gestora del 

Monopolio de Tabacos y Servicios Anejos, which 

was subsequently changed to Tabacalera, S.A. Its 

current name was approved by the Shareholders’ 

Meeting on November 13, 1999. 

The Company and its subsidiaries engage mainly in 

the manufacture and marketing of cigars and 

cigarettes and the distribution of tobacco and other 

products. 

In 1999 a business association process was carried 

out between Tabacalera, S.A. and SEITA (Société 

Nationale d’Exploitation Industrielle des Tabacs et 

Allumettes, S.A.). This transaction took the form of 

a Public Exchange offer by Tabacalera, S.A. for all 

the shares of SEITA, and 19 shares of Tabacalera, 

S.A. were delivered for every 6 shares owned by the 

SEITA shareholders who accepted the offer. 

83.07% of the capital stock of SEITA was acquired 

in this transaction, which was approved by 

Tabacalera, S.A.’s Shareholders’ Meeting on 

November 13, 1999, which also changed the 

Company’s corporate name to Altadis, S.A., as 

indicated above. After various subsequent 

acquisitions and a delisting tender offer that 

Altadis, S.A. completed in January 2003, the 

Company acquired all of the shares of SEITA owned 

by minority shareholders. 

Altadis, S.A.’s registered office is located in Madrid. 

2. Basis of presentation 

a) True and fair view 

The 2004 financial statements, which were 

prepared from the Company’s accounting records, 

are presented in accordance with the Spanish 

National Chart of Accounts and, accordingly, give a 

true and fair view of the Company's net worth, 

financial position and results of operations. 

The 2003 financial statements, which were 

prepared by the Company’s directors, were 

approved by the Shareholders’ Meeting on June 15, 

2004. The 2004 financial statements, which were 

prepared by the Company’s directors, will be 

submitted for approval by the Shareholders' 

Meeting, and it is considered that they will be 

approved without any changes. 

b) Accounting policies 

The financial statements were prepared by applying 

the generally accepted accounting principles and 

valuation methods described in Note 4. All 

obligatory accounting principles with a significant 

effect on the financial statements were applied in 

their preparation. 

3. Distribution of income 

The proposed distribution of the Company’s income 

that the directors will submit for approval by the 

Shareholders’ Meeting is as follows: a dividend of 

€0.9 per share, with a charge to income for the 

year, and the remainder to voluntary reserves.

4. Valuation standards 

The main valuation methods applied by the 

Company in preparing its 2004 financial 

statements, in accordance with the Spanish 

National Chart of Accounts, were as follows: 

a) Intangible assets 

This caption in the balance sheet includes basically 

computer software and rights on leased assets. 

Computer software is recorded at acquisition cost 

and is amortized on a straight-line basis over five 

years. 

The rights under financial lease contracts are 

recorded at the cost of the related assets, and the 

total debt for lease payments plus the amount of 

the purchase option are recorded as a liability. The 

difference between the two amounts, which 

represents the interest expenses on the 

transaction, is recorded as a deferred expense and 

is allocated to income each year by the interest 

method. These rights are amortized by the 

straight-line method over the useful lives of the 

related assets. 

b) Tangible fixed assets 

Tangible fixed assets are carried at cost, revalued 

pursuant to Royal Decree-Law 7/1996 and to other 

previous enabling legislation (see Notes 6 and 11-c). 

Upkeep and maintenance expenses are expensed 

currently. However, the costs of improvements 

leading to increased capacity or efficiency or to a 

lengthening of the useful lives of the assets are 

capitalized. 


The Company depreciates its tangible fixed assets 

by the straight-line method at annual rates based 

on the years of estimated useful life of the related 

assets. The rates used are as follows: 

Depreciation 

Rate (%) 

Structures 2 - 4 

Plant and machinery 10 - 16 

Other fixtures, tools and furniture 10 - 20 

Other tangible fixed assets 10 - 33 

The Company records the appropriate allowances, 

which are generally calculated based on appraisals 

performed by independent third parties, to 

recognize possible losses of a reversible nature 

arising from the differences between the net book 

value and the market value of assets, basically 

property, that are no longer in use or are in the 

process of being sold. 

c) Long- and short-term investments 

The Company classifies under the “Long-Term 

Investments” caption the cost relating to the 

holdings owned by it in the capital stock of Group 

and Associated companies which it intends to 

retain due to their strategic nature. The cost of the 

equity interests temporarily held by it basically for 

the purpose of placing cash surpluses is classified 

at short term and is valued in accordance with the 

general criteria applicable to short-term 

investments.

160 




Long-term investments in the capital stock of 

Group and Associated companies are valued at the 

lower of acquisition cost or market value. Market 

value is calculated based on the underlying book 

value of the holding per the investee’s latest 

available balance sheet, adjusted by the amount of 

the unrealized gains disclosed at the time of 

acquisition and still existing at the date of 

subsequent valuation. These unrealized gains 

disclosed at the time of acquisition are amortized 

on a straight-line basis over the period during 

which the directors estimate that they will 

contribute to the generation of income, up to a 

maximum of 20 years. 

The underlying book value of holdings in foreign 

companies is calculated by applying the exchange 

rates ruling at year-end. 

The accompanying balance sheet and statement of 

income for 2004 do not reflect the increases or 

decreases arising from applying consolidation 

methods to these ownership interests. The 

Company prepares separate consolidated financial 

statements which include increases in net sales, 

reserves and assets of €8,741,214 thousand, 

€355,448 thousand and €6,523,572 thousand, 

respectively, and a decrease in 2004 income of 

€256,911 thousand, with respect to the balances 

presented in these financial statements. 

The equity securities classified under the “Short- 

Term Investments” caption in the accompanying 

balance sheet as of December 31, 2004, are valued 

at the lower of cost or market. Market value is 

deemed to be the lower of average market price in 

the last quarter or market price at year-end. 

Allowances are recorded to recognize the 

unrealized losses (cost higher than market value) 

on the holdings. 

Loans granted to Group and Associated companies 

and other loans and credits are recorded at the 

amounts delivered and not yet repaid. 

The Company has recorded allowances to cover the 

risk of noncollectibility, calculated based on the 

probability of recovering each debt in view of its 

age and the solvency of the debtor. 

The guarantees and deposits, which have generally 

been provided to guarantee compliance with 

contractual obligations, are valued at the amounts 

disbursed. 

d) Treasury stock 

The shares of treasury stock held by the Company 

the use of which has not yet been decided upon are 

recorded under the “Treasury Stock” caption on the 

asset side of the balance sheet at the lowest of 

cost, market or underlying book value per the 

consolidated balance sheet of the Altadis Group as 

of December 31, 2004. Market value is deemed to 

be the lower of average market price in the last 

quarter of the year or year-end market price. The 

Company records the related allowance, with a 

charge to the statement of income, for the 

difference between cost and market value, if the 

latter is lower, and with a charge to unrestricted 

reserves or to additional paid-in capital for the 

remaining amount up to the underlying book value, 

in accordance with the regulations thereon issued 

by the Spanish Accounting and Audit Institute 

(ICAC) (see Note 8).

e) Deferred charges 

The balance of this account includes basically the 

unaccrued financial expenses arising from the 

financing obtained for the purchase of the leased 

assets, which are being amortized by the interest 

method based on the payment deferral period and 

the interest rate agreed upon. 

This account also includes the loan arrangement 

expenses incurred by the Company in the 

acquisition of Règie des Tabacs, S.A. of Morocco 

(“RTM”) (see Notes 7, 14 and 18), which are being 

charged to income by the interest method. 

f) Inventories 

Inventories of raw materials and merchandise are 

valued at the lower of cost or market. Cost is 

determined using the weighted average cost 

method. 

Semifinished and finished goods are valued at the 

lower of production cost or market. Production cost 

consists of the cost of raw materials and other 

consumables plus the remaining manufacturing 

costs directly allocable to the product and any 

indirect costs allocable thereto. 

The Company records allowances to recognize the 

decline in value of obsolete or slow-moving 

inventories and to adjust the value of inventories 

whose cost exceeds their net realizable value. 

g) Deferred revenues 

Capital subsidies awarded to the Company are 

recorded under this caption in the balance sheet at 

the amount granted and are allocated to income in 

proportion to the period depreciation on the 

subsidized assets. 


h) Classification of receivables and payables 

In the accompanying balance sheet, receivables 

and payables maturing in 12 months or less from 

year-end are classified as current assets and 

current liabilities, respectively, and those maturing 

at over 12 months as long-term items. 

i) Foreign currency transactions 

Transactions in foreign currencies are recorded at 

their equivalent value in euros calculated at the 

exchange rates ruling at the transaction date. 

Exchange gains or losses arising on the settlement 

of foreign currency transaction balances are 

recognized in income when they arise. 

Unhedged foreign currency balances receivable and 

payable at year-end are translated to euros at the 

exchange rates then prevailing. The unrealized net 

exchange losses in each group of foreign currencies 

of similar maturity and market performance are 

recognized as expenses and the unrealized net 

gains, similarly determined, are deferred to 

maturity. The balances hedged by forward exchange 

or futures transactions are translated to euros at 

the hedged exchange rate. 

j) Severance costs 

Under current labor legislation and as stipulated in 

certain employment contracts, the Company is 

required to make severance payments to employees 

terminated under certain conditions. 

When a restructuring plan is approved by the 

directors, made public and notified to the 

employees, the Company records the appropriate 

provisions to meet future payments arising from 

implementation of the plan, based on the best 

estimates available of the projected costs per the 

related actuarial studies (see Note 12).

162 




k) Corporate income tax 

The expense or revenue for corporate income tax is 

calculated on the basis of book income before 

taxes, increased or decreased, as appropriate, by 

the permanent differences from taxable income, net 

of tax relief and tax credits. The Company files 

consolidated tax returns with all the companies in 

which it had a direct holding of over 75% as of 

January 1, 2004, and which are domiciled in Spain 

for tax purposes. 

The tax assets arising from tax losses and the 

prepaid taxes arising from timing differences are 

only capitalized if there are no doubts as to their 

recovery and if they will be recovered within a 

maximum period of ten years. 

l) Provisions for contingencies and expenses 

The Company records provisions for the estimated 

amounts required to meet possible or certain third 

party liability arising from litigation in progress or 

from indemnity payments or obligations of an 

undetermined amount, and collateral and other 

guarantees provided by it. These provisions are 

recorded when the circumstances giving rise to 

such liability become known. 

m) Pension and other commitments to 

employees 

The Company has undertaken to supplement the 

social security benefits received by certain groups 

of employees, mainly in the event of retirement, 

disability or death. 

In general, the commitments relating to serving 

and retired employees in these groups are definedcontribution 

commitments and have been 

externalized through external pension plans and 

insurance policies. The contributions made by the 

Company are recorded under the “Personnel 

Expenses” caption in the statement of income for 

each year, and the amounts payable in this 

connection are recorded under the “Long-Term 

Debt - Other Payables” and “Current Liabilities - 

Other Payables” captions in the accompanying 

balance sheet. The contributions recorded in 2004 

amounted to €7,751 thousand. 

Additionally, the collective labor agreement of 

Altadis, S.A. stipulates the Company’s obligation to 

make a one-time payment on retirement or 

termination to employees who meet certain 

conditions on the basis of the employee’s salary on 

that date. The Company recognizes the costs 

relating to these obligations throughout the 

employee’s period of service in accordance with the 

related actuarial studies and records these costs as 

an addition to its personnel expenses. 

n) Compensation systems linked to the share 

price 

As indicated in Note 16-c, the Company has 

instrumented a stock option plan for its executive 

directors, executives and employees. 

In order to cover the cost of this stock option plan, 

the Company has entered into two equity swap 

contracts with a financial institution. The costs of 

the contracts are accrued by the interest method.

Also, the Company records the appropriate 

provisions to meet the possible loss that might 

arise from settlement of these contracts, which is 

calculated as the difference between the contract 

value and the market value at year-end. 

o) Recognition of revenues and expenses 

Revenues and expenses are recognized on an 

accrual basis, i.e. when the actual flow of the 

related goods and services occurs, regardless of 

when the resulting monetary or financial flow 

arises. 

However, in accordance with the accounting 

principle of prudence, the Company only records 

realized income at year-end, whereas foreseeable 

contingencies and losses, including possible losses, 

are recorded as soon as they become known. 


In the case of the sales on consignment of certain 

products (certain official forms and some tobacco 

products), the related sale and purchase 

transactions are recorded simultaneously at the 

date of the sale. 

The Company delivers tobacco for promotional 

purposes to serving and retired employees. The 

expense in this connection, which in 2004 

amounted to approximately €5,053 thousand, is 

recorded when it is paid under the “Other 

Operating Expenses” caption in the accompanying 

statement of income. 

5. Intangible assets 

The variations in 2004 in intangible asset accounts 



Balance at Additions or Retirements or Balance at 

12/31/03 Provisions Reductions Transfers 12/31/04 

Cost: 

Intellectual property and trademarks 1,347 – – – 1,347 

Computer software 14,994 – (2,736) 3,854 16,112 

Rights on leased assets 42,281 – – – 42,281 

58,622 – (2,736) 3,854 59,740 

Accumulated amortization: 

Intellectual property and trademarks (1,041) (76) – – (1,117) 

Computer software (6,767) (2,217) 2,736 – (6,248) 

Rights on leased assets (848) (926) – – (1,774) 

(8,656) (3,219) 2,736 – (9,139) 

Total 49,966 50,601

164 




The Company acquired the building housing its 

registered office in Madrid under a financial lease 

contract, with a view to exercising the prospective 

and retrospective right of first refusal option 

envisaged in the lease contract entered into by it 

and the former owner of the property. The main 

characteristics of the financial lease contract are 

as follows: 


Lease Lease 

Contract Time Interest Original Accumulated Unaccrued Payments Payments Paid Purchase 

Term Elapsed Rate Cost Amortization Interest Payable (*) in the Year Option (*) 

121 months 24 months Euribor + 0.6 42,281 (1,774) 7,248 46,074 2,873 25,000 

(*) The amount of the purchase option is included in the lease payments payable. 

€3,918 thousand of the Company’s intangible 

assets had been fully amortized as of December 

31, 2004. 

6. Tangible fixed assets 

The variations in 2004 in tangible fixed asset 

accounts and in the related accumulated 

depreciation were as follows: 




Cost: 

Land and structures 196,775 – (9,691) (7,071) 180,013 

Plant and machinery 350,477 – (6,609) 15,289 359,157 

Other fixtures, tools and machinery 56,699 – (2,253) 1,372 55,818 

Other tangible fixed assets 22,715 – (515) 1,288 23,488 

Construction in progress 8,524 40,655 – (21,994) 27,185 

635,190 40,655 (19,068) (11,116) 645,661 


Structures (101,129) (4,732) 4,891 7,262 (93,708) 

Plant and machinery (299,015) (18,696) 6,367 – (311,344) 

Other fixtures, tools and machinery (41,268) (3,403) 2,251 – (42,420) 

Other tangible fixed assets (17,556) (1,969) 433 – (19,092) 

(458,968) (28,800) 13,942 7,262 (466,564) 

Allowances (4,462) – 124 – (4,338) 

Total 171,760 11,855 (5,002) (3,854) 174,759

The most significant additions in 2004 related to 

plant improvements and increases in capacity, 

which form part of the Company’s ordinary 

business activities. Specifically, the most 

noteworthy of these additions were the 

improvements amounting to €27,554 thousand 

carried out at the Logroño and Cantabria plants. 

The tangible fixed asset retirements related 

basically to the sale of properties in Málaga and 

San Sebastián, which gave rise to a net gain of 

€65,035 thousand. 


On December 31, 1996, the Company revalued its 

tangible fixed assets by €55,113 thousand 

pursuant to Royal Decree-Law 7/1996, with 

payment of the single 3% tax on the net amount of 

the revaluation (see Note 11-c). The Company had 

previously availed itself of other revaluation laws. 

The net increase in value resulting from the 

revaluations is being depreciated over the tax 

periods in the remaining useful lives of the 

revalued assets. 

The variations in 2004 in the accounts revalued 

pursuant to Royal Decree-Law 7/1996 were as 

follows: 


Balance at Balance at 

12/31/03 Additions Retirements 12/31/04 

Revaluation: 

Land and structures 27,965 – (3,113) 24,852 

Plant and machinery 4,100 – – 4,100 

Other fixtures, tools and machinery 876 – (1) 875 

Other tangible fixed assets 428 – – 428 

33,369 – (3,114) 30,255 


Structures (13,895) (982) 2,100 (12,777) 

Plant and machinery (4,100) – – (4,100) 

Other fixtures, tools and machinery (709) (1) – (710) 

Other tangible fixed assets (428) – – (428) 

(19,132) (983) 2,100 (18,015) 

The net book value of the assets not used in the 

Company’s operations as of December 31, 2004, 

amounted to €17,217 thousand and related 

basically to properties. 

€320,032 thousand of the Company's tangible fixed 

assets had been fully depreciated as of December 

31, 2004.

166 




7. Long-term and short-term 

investments 

The variations in 2004 in the “Long-Term 

Investments” caption and in the related allowances 


The main additions to the “Investments in Group 

Companies” account arose as a result of the 

following: 

In 2004 the Company acquired 222,828 SEITA 

shares, representing a holding of 0.58%, for 

€14,685 thousand. 

In 2004 the Company acquired a 99.69% 

ownership interest in the Russian company 

Balkanskaya Zvezda (“Balkan Star”) for €244,530 




Cost: 

Investments in Group companies 3,065,669 269,404 (244,530) (751) 3,089,792 

Investments in Associated companies 163,205 – – 751 163,956 

Long-term loans to Group and 

Associated companies 16,996 1,853 (18,849) – – 

Long-term investment securities 3 – – – 3 

Other loans 11,610 6,384 – (11,127) 6,867 

Long-term deposits and guarantees 1,191 21 (575) – 637 

3,258,674 277,662 (263,954) (11,127) 3,261,255 

Allowances: 

Investments in Group and Associated companies (223,806) (52,441) 1,988 – (274,259) 

Total 3,034,868 225,221 (261,966) (11,127) 2,986,996 

thousand. Also, on November 2, 2004, the 

Company entered into an agreement with Seita, 

S.A. (a Group company) under which title to the 

Balkan Star shares was transferred to Seita, S.A. 

The information relating to the Group and 

associated companies and their net worth position 

as of December 31, 2004, is as follows:


% of Ownership Thousands of Euros 

Corporate Name Income Interim Total Book Value 

Location / Line of Business Capital (Loss) for dividend paid Shareholders’ Dividends 

Statutory Auditor (a) Direct Indirect Stock Reserves the Year during the year Equity Received Cost Allowance 

Group companies: 

SEITA Subgroup 99.99 – 362,535 294,825 230,014 (95,265) 792,109 543,476 910,253 – 

Paris / Tobacco and distribution 

Deloitte / Barbier Frinault & Autres (E&Y) 

RTM 80.00 – 63,778 31,480 53,918 – 149,176 – 1,308,990 (45,126) 

Casablanca / Tobacco and distribution 

Deloitte 

LOGISTA Subgroup 57.73 – 27,420 323,639 85,905 (20,233) 416,731 19,718 141,664 – 

Madrid / Distribution and services 

Deloitte 

Tabacalera Cigars International 100.00 – 101,267 20,256 126,643 – 248,166 – 167,471 – 

Madrid / Holding company 

ITI Cigars 100.00 – 100,000 245,215 (13,602) – 331,613 – 490,277 (157,372) 


Urex Inversiones Subgroup 100.00 – 10,532 38,622 2,013 (3,500) 47,667 3,500 43,287 – 


Deloitte 

Viaplus Networks, S.A. 75.00 – 7,018 (27) (1) – 6,990 – 26,808 (21,533) 

Madrid / Inactive 

Altadis Finance, B.V. 50.00 50.00 2,018 86 357 – 2,461 – 1,028 – 

Netherlands / Financial Services 

Deloitte 

Other – – – – – – – – 14 – 

Inactive 

Total Group companies 566,694 3,089,792 (224,031) 

Associated companies: 

Aldeasa, S.A. (b) 32.47 – 25,200 138,304 31,034 – 194,538 6,899 150,151 (50,228) 

Madrid / Sales in duty-free zones 

Deloitte 

CITA, Tabacos de Canarias Subgroup 50.00 – 6,010 42,938 8,386 – 57,334 – 12,333 – 

Santa Cruz de Tenerife / Tobacco 

Ernst & Young 

Tabacos Canary Islands, S.A. (TACISA) 50.00 25.00 2,705 20,023 (6,830) – 15,898 – 751 – 

Santa Cruz de Tenerife / Tobacco 

Ernst & Young 

MTS Tobacco, S.A. 40.00 – 962 3,756 1,958 – 6,676 – 391 – 

Navarra / Tobacco machinery and 

replacement parts 

Ernst & Young 

Tabacos Elaborados, S.A. 33.33 21.78 601 1,397 1,877 – 3,875 456 192 – 

Andorra / Tobacco 

Gaudit 

Tabaqueros Asociados, S.A. 33.33 – 400 1,915 1,251 (932) 2,634 311 138 – 

Andorra / Tobacco 

Gaudit 

Total Associated companies 7,666 163,956 (50,228) 

Total Group and Associated companies 574,360 3,253,748 (274,259) 

(a) Where no information is given, the individual company does not reach the threshold above which it would be subject to statutory audit. 

(b) The percentage of ownership does not include the short-term holdings in these companies (see Note 4-c).

168 




The balance of the “Short-Term Investments – 

Investments in Group and Associated Companies” 

caption in the accompanying balance sheet as of 

December 31, 2004, includes 443,556 shares of 

Aldeasa, S.A. valued at their acquisition cost of 

€11,084 thousand (see Note 4-c). 

This caption also includes a short-term deposit 

amounting to €40,000 thousand placed at a 

financial institution to secure payment of a retained 

portion of the acquisition price of Balkan Star. This 

deposit earns interest at market rates. 


The variations in 2004 in the “Treasury Stock” 

caption in the accompanying balance sheet were as 

follows: 

As of December 31, 2004, the Company held 

193,743 shares of treasury stock, which 

represented 0.07% of its capital stock, with a total 

acquisition cost of €4,178 thousand and an 

average acquisition price of €21.56 per share. 

Also, by virtue of a trust agreement, the subsidiary 

Urex Inversiones, S.A. holds 4,229,731 shares of 

Altadis, S.A., representing 1.49% of its capital 

stock, with a market value of €126,988 thousand 

and an average price of €30.02 per share. 


Number of Acquisition 

Shares Cost Allowance Total 

Balance at December 31, 2003 1,029,598 21,438 (17,430) 4,008 

Additions 7,120,167 173,113 – 173,113 

Retirements (706,022) (14,693) – (14,693) 

Capital reduction (Note 11) (7,250,000) (175,680) – (175,680) 

Variation in the allowance for 

treasury stock – – 13,961 13,961 

Balance at December 31, 2004 193,743 4,178 (3,469) 709 

In order to adjust the acquisition cost of the 

treasury stock as of December 13, 2004, as 

described in Note 4-d, the Company has recorded 

the related allowances for the shares of treasury 

stock held by the Company and for those held 

through the aforementioned subsidiary. These 

allowances are recorded as a reduction of the 

“Treasury Stock” caption and under the “Provisions 

for Long-Term Contingencies and Expenses” 

caption, respectively, in the accompanying balance 

sheet as of December 31, 2004.

As of December 31, 2004, the balance of the 

“Reserves for Treasury Stock” account covered the 

full amount of the balance of this caption in the 

balance sheet and the underlying book value of the 

shares of the Company’s treasury stock acquired by 

its subsidiary Urex Inversiones, S.A. (see Note 11). 

9. Inventories 

The detail of the Company’s inventories as of 


Thousands 

of Euros 

Raw materials 165,939 

Semi-finished goods 33,547 

Finished goods 24,589 

Merchandise 105,480 

Other supplies 24,965 

Advances to suppliers 40,944 

Less– 

Allowances (14,087) 

Total 381,377 

The “Advances to Suppliers” account includes 

advances of €36,147 thousand to Associated 

companies (see Note 17). 

10. Accounts receivable 

The detail of the balance of this caption as of 



Thousands 

of Euros 

Trade receivables for sales and services 12,051 

Receivable from Group companies (Note 17) 97,383 

Receivable from Associated 

companies (Note 17) 14,270 

Sundry accounts receivable 13,167 

Receivable from public authorities (Note 15) 43,541 

Less– 

Allowances (3,827) 

Total 176,585 

11. Shareholders’ equity 

The variations in equity accounts in 2004 were as 

follows: 


Additional Reserves for 

Differences 

Due to 

Adjustment 

of Income 

Capital Paid-in Legal Voluntary Revaluation Treasury Capital Stock for 

Stock Capital Reserve Reserves Reserve Stock to Euros the Year Total 

Balance at December 31, 2003 

Distribution of 2003 income: 

174,283 132,219 36,657 38,902 53,461 11,907 309 291,353 739,091 

- To reserves – – – 63,777 – – – (63,777) – 

- Dividends 

Variation in the allowances and 

– – – – – – – (227,576) (227,576) 

reserves for treasury stock – 39,111 – (104,171) – 4,281 – – (60,779) 

Capital reduction (4,350) (171,330) (2,670) 2,670 – – – – (175,680) 

2004 income – – – – – – – 670,222 670,222 

Balance at December 31, 2004 169,933 – 33,987 1,178 53,461 16,188 309 670,222 945,278

170 




a) Capital stock and additional paid-in 

capital 


Shareholders’ Meeting on June 15, 2004, the 

Company reduced capital through the retirement of 

7,250,000 shares of treasury stock with a par value 

of €4,350 thousand and a reduction of €171,330 

thousand of additional paid-in capital. 

As of December 31, 2004, the Company’s capital 

stock amounted to €169,933 thousand and 

consisted of 283,221,426 fully subscribed and paid 

shares of €0.60 par value each, all of the same 

class. 

As of December 31, 2004, none of the shareholders 

owned more than 10% of the Company’s capital 

stock. 

The Company’s shares, which are listed on the 

computerized trading system of the Spanish stock 

exchange and on the Paris Stock Exchange, all 

have equal voting and dividend rights. 

The additional paid-in capital can be used for the 

same purposes as the Company’s voluntary 

reserves, including conversion into capital stock. 

b) Legal reserve 

Under the revised Corporations Law, 10% of 

income for each year must be transferred to the 

legal reserve until the balance of this reserve 

reaches at least 20% of capital stock. The legal 

reserve can be used to increase capital provided 

that the remaining reserve balance does not fall 

below 10% of the increased capital stock amount. 

Otherwise, until the legal reserve exceeds 20% of 

capital stock, it can only be used to offset losses, 

provided that sufficient other reserves are not 

available for this purpose. 

c) Revaluation reserve 

As indicated in Note 6, the Company revalued its 

tangible fixed assets pursuant to Royal Decree-Law 

7/1996. 

The balance of the “Revaluation Reserve” account 

can be used, free of tax, to offset recorded losses 

(both prior years’ accumulated losses and current 

year losses) or losses which might arise in the 

future, and to increase capital stock. From January 

1, 2007, the balance of this account can be taken 

to unrestricted reserves, provided that the 

monetary surplus has been realized. The surplus 

will be deemed to have been realized in respect of 

the portion on which depreciation has been taken 

for accounting purposes or when the revalued 

assets have been transferred or retired from the 

accounting records. If this balance were used in a 

manner other than that provided for in Royal 

Decree-Law 7/1996, it would be subject to tax. 

d) Reserves for treasury stock 

The Company recorded under the “Reserves for 

Treasury Stock” caption in the accompanying 

balance sheet the legally required restricted 

reserve of €16,188 thousand, equal to the 

acquisition cost, net of allowances, of the shares of 

treasury stock recorded in its balance sheet and in 

the balance sheet of a Group company 

(see Note 8).

12.Provisions for 

contingencies and expenses 

The variations in 2004 in the “Provisions for Long- 

Term Contingencies and Expenses” caption on the 

liability side of the accompanying balance sheet 


In July 2003 the Company resolved to carry out a 

new Industrial Plan and reported its intention to do 

so as a significant event to the Spanish National 

Securities Market Commission. The aim of the Plan 

is to rationalize the production structures in Spain 

and France, preserve the Group’s competitiveness 

and contribute toward maintaining and ensuring its 

viability. This Industrial Plan envisages basically 

the shutdown of nine locations in Spain and France 

and will entail the reduction of a certain number of 

jobs and the need to relocate part of the labor 

force. In this connection, and since this Industrial 

Plan is considered to be irreversible, the Company 

recorded in 2003 a provision of €163,157 thousand 

in the “Provisions for Contingencies and Expenses - 

Restructuring Plans” account, which represented 

management's best estimate of the cost relating to 

the employee terminations at Altadis, S.A. 

envisaged in this Plan. In 2004 the Company 

concluded the process of determining the 

conditions applicable to the employees based in 

France that will be affected by the Plan. With 



Balance at Amounts Used Balance at 

12/31/03 Provisions and Reductions Transfers 12/31/04 

Restructuring Plan 163,157 – – (151,500) 11,657 

Allowance for treasury stock (Notes 8 and 11) 36,769 74,740 – – 111,509 

2000-2002 Labor Force Reduction Plan 9,398 – – – 9,398 

Labor Force Reduction Plans prior to 2000 271 – – – 271 

Extra payroll for employee terminations, per 

collective labor agreement 6,382 206 – – 6,588 

Other provisions 38,812 22,987 (12,601) – 49,198 

Total 254,789 97,933 (12,601) (151,500) 188,621 

respect to Spain, this process is still under way. 

Company management considers that in the first 

few months of 2005 this process will be concluded 

and implementation of the Plan will commence. At 

2004 year-end the estimated amount of the 

payments to be made in 2005 was reclassified to 

short term. 

As of December 31, 2004, the outstanding nonexternalized 

commitments to employees or to the 

related insurance companies, relating to the 2000- 

2002 Labor Force Reduction Plan and the abovementioned 

Industrial Plan, amounted to €175,908 

thousand, of which, based on their projected 

maturity, €21,055 thousand were recorded under 

the “Provisions for Long-Term Contingencies and 

Expenses” caption and €154,853 thousand were 

recorded under the “Provisions for Short-Term 

Contingencies and Expenses” caption.

172 




13. Other payables 

The detail of the balance of the “Long-Term Debt - 

Other Payables” caption on the liability side of the 

accompanying balance sheet as of December 31, 


Thousands 

of Euros 

Payables for pension plans (Note 4-m) 21,485 

Other Payables 2,772 

Guarantees and deposits received 109 

Total other payables 24,366 

The “Payables for Pensions Plans” account 

includes the long-term balance payable of €21,485 

thousand relating to externalized pension plans. 

The “Current Liabilities - Other Payables” caption 

includes the related short-term liability of €11,062 

thousand. 

14. Payable to credit 

institutions 

The detail of the balance of this caption in the 

accompanying balance sheet as of December 31, 



Long Short 

Term Term 

Loans 569,880 – 

Lease payments 

payable (Note 5) 43,268 2,806 

Credit facilities – 1,860 

Interest and other amounts payable – 16,911 

Total 613,148 21,577 

Loans 

The main characteristics of the long-term loans 

granted to the Company are as follows: 

Thousands 

of Euros Currency Maturity 

447,880 Dirham 2010 

72,000 Euro 2009 

50,000 Euro 2007 

569,880 

The loan repayment schedule established is as 

follows: 

2007 2008 2009 2010 Total 

161,970 111,970 183,970 111,970 569,880 

All the loans bear interest at market rates, which 

in the case of loans arranged in euros are tied to 

Euribor, and in the case of loans arranged in 

dirhams are tied to Moroccan treasury bonds, 

whose interest rate at 2004 year-end was 

approximately 5.5%. 

In order to minimize the risk arising from future 

interest rate fluctuations, the Company has 

arranged certain interest rate hedging derivatives 

with financial institutions through a Group 

company. The notional amount of these instruments 

totaled €72,000 thousand as of December 31, 

2004. Based on the dates on which they were 

arranged, these transactions will mature between 

2005 and 2009. 

Also, in order to cover its U.S. dollar purchase 

requirements for its normal operating transactions 

in 2005, the Company, though a Group subsidiary, 

entered into an agreement with financial 

institutions to purchase US$ 65,800 thousand.

Credits 

As of December 31, 2004, the Company had been 

granted the following credit facilities: 

Thousands 

of Euros 

Balance 

Limit Drawn Down Maturity 

Short-term 

credit facilities 1,308,000 1,860 2005 

Total 1,308,000 1,860 

The interest rates at which the credit facilities are 

arranged are tied to Euribor. 

Some of the financial transactions referred to in 

this Note include conditions relating to the 

fulfillment of certain economic and net worth ratios 

associated with the Group’s consolidated financial 

statements. All these conditions were being met as 

of December 31, 2004. 


15. Receivable from and 

payable to public authorities 

The breakdown of the balances receivable from 

public authorities is as follows: 

Thousands 

of Euros 

Long-term prepaid taxes– 

2004-2005 Industrial Plan 57,105 

2000-2002 Labor Force Reduction Plan 50,875 

1998-1999 Labor Force Reduction Plan 19,256 

Long-term investment-related 

prepaid taxes 32,249 

Other prepaid taxes 20,039 

Total long-term 179,524 

Short-term receivables from 

public authorities– 

Short-term prepaid taxes 1,527 

Account receivable from the State 

for expenses incurred in the storage 

of seizures of tobacco 17,914 

Corporate income tax receivable 23,530 

Other 570 

Total short-term (Note 10) 43,541 

The balance of prepaid taxes relates mainly to the 

period provisions for labor force reduction plans in 

2004 and prior years, which will be deductible 

based on the payments to be made. The Company's 

directors consider that they will be recovered in a 

period of less than ten years.

174 




The breakdown of the balances payable to public 

authorities is as follows: 

Thousands 

of Euros 

Long-term taxes payable– 

Deferred corporate income tax 490 

Total long-term 490 

Short-term taxes payable– 

Personal income tax withholdings 3,286 

Tax on income from movable capital 3,673 

Output VAT 193 

Excise tax on tobacco products 528 

7,680 

Other short-term payables to 

public authorities– 

Accrued social security taxes payable 3,537 

Other payables to public authorities 1,152 

4,689 

Total short-term 12,369 

Corporate income tax is calculated on the basis of 

income per books determined by the application of 

generally accepted accounting principles, which 

does not necessarily coincide with taxable income. 

Pursuant to Chapter VII, Title VII of the revised 

Corporate Income Tax Law, approved by Legislative 

Royal Decree 4/2004, Altadis, S.A. files 

consolidated tax returns with all the companies in 

which it has a direct or indirect holding of at least 

75% during the tax year and which are resident in 

Spain for tax purposes. 

The reconciliation of the 2004 income per books to 

the taxable income for corporate income tax 

purposes is as follows: 


Increases Decreases Total 

Income for the year per books, before taxes 692,438 

Permanent differences– 

Foreign companies’ dividends – (543,476) (543,476) 

Other 33,196 (55,849) (22,653) 

126,309 

Timing differences– 

Labor force reduction plans 2,000 (21,956) (19,956) 

Other differences 12,904 (13,642) (738) 

Differences due to eliminations from and inclusions in 

the consolidated tax Group 16,566 (1,986) 14,580 

Taxable income 120,195 

Tax at 35% 42,068 

Tax credits (29,755) 

Net tax payable 12,313 

Tax withholdings and prepayments (35,187) 

Corporate income tax payable (refundable) (22,874)

The 2004 corporate income tax charge was 

calculated as follows: 

Thousands 

of Euros 

Taxable income at 35% 44,208 

Negative adjustment to tax charge 7,141 

Tax credits (a) (29,755) 

Foreign corporate income tax 622 

Total 22,216 

(a) The balance of the “Tax Credits” account relates mainly to 

the double taxation tax credit (€10,541 thousand) relating to 

dividends paid by Spanish companies and to the tax credit for 

the reinvestment of extraordinary income (€12,832 

thousand). 

The tax benefit relating to the reinvestment tax 

credit was applied to certain amounts of 

extraordinary income obtained in 2004: 

– Gain of €6,143 thousand, net of the amount of 

the index-linked adjustment, arising from the 

disposal of a property in San Sebastián. The 

reinvestment obligation is deemed to have been 

met as a result of the acquisition by the 

Company, on July 16, 2003, of an 80% holding in 

the Moroccan company RTM. 

– Gain for tax purposes, net of the related indexlinked 

adjustment, of €57,343 thousand obtained 

from the transfer of properties located in Málaga. 

The investment by Tabacalera Cigars 

International, S.A., which is in the Company’s tax 

group, in the French company Tabacalera de 

García, S.A., made between December 10 and 22, 

2004, amounting to €61,707 thousand, and the 

purchase of various tangible fixed assets in 2004 

by Altadis, S.A. amounting to €40,655 thousand 

constitute valid reinvestments for the purposes of 

the tax credit. 

– Various gains totaling €671 thousand arising 

from transfers of tangible fixed assets during the 

year. In this case, the reinvestment was made by 

the Company itself through the acquisition in 

2004 of various tangible fixed assets (see 

preceding section). 


Also, the aforementioned investment in RTM also 

served as the basis for considering the amounts 

obtained in prior years from transactions that gave 

rise to the extraordinary income shown below to 

have been reinvested: 

– €6,422 thousand from the transfer in 2000 of a 

50% holding in Japan Tobacco Internacional 

España, S.L. This amount includes the additional 

revenues received in 2002 and 2003 as a result 

of adjustments to the initial selling price. 

– €19,030 thousand from the sale in 2001 of a 

property located in Alicante. 

– €978 thousand from the sale in 2001 of a 

property located in Castellón. 

– €1,140 thousand from the transfer in 2001 of 

various tangible fixed asset items. 


property in Valencia. 

– €256 thousand from the sale of various items of 

machinery in 2002. 

– €3,171 thousand from the transfer in 2002 and 

2003 of various properties in Porceyo (Gijón). 


property in Sánchez Pacheco (Madrid). 

– €1,363 thousand from the transfer in 2003 of 

various tangible fixed asset items.

176 




The detail of other extraordinary income qualifying 

in prior years for the tax credit for reinvestment 

provided for in Article 42 of the Corporate Income 

Tax Law is as follows: 

– €18,675 thousand, equal to the gain obtained on 

the sale in 1999 of the Company’s head offices. 

The proceeds from this sale were reinvested in 

2002 through the acquisition of shares of the 

French company SEITA, the purchase of various 

tangible fixed assets and the subscription by Urex 

Inversiones, S.A., a company included in the 

Altadis, S.A. tax group, of shares of Unión Ibérica 

de Radio, S.A. 

– €155,440 thousand relating to the extraordinary 

gain obtained on the disposal in 2000 of a 

holding of approximately 21% in LOGISTA. The 

commitment to reinvest the sale proceeds was 

fulfilled through the acquisition, also in 2000, of 

50% of the shares of the Cuban company 

Corporación Habanos, S.A. 

The Company has the commitment to retain the 

assets in which the reinvestments were made for 

five years, except when the reinvestment was made 

in movable property, which must be kept for three 

years. 

Under current legislation, taxes cannot be deemed 

to be finally settled until the returns filed have 

been reviewed by the tax authorities or the fouryear 

statute-of-limitations period has elapsed. As 

of December 31, 2004, the Company has the last 

four years open for review by the tax inspection 

authorities for the taxes applicable to it. The 

Company’s directors consider that these taxes were 

calculated correctly and, accordingly, that even if 

discrepancies arise in the interpretation of the 

current regulations applicable to the tax treatment 

of the transactions, the resulting tax liabilities, if 

any, would not have a material effect on the 

accompanying financial statements. 

16. Revenues and expenses 

a) Revenues 

The Company obtains most of its revenues from 

sales in Spain. 

b) Procurements 

The detail of the “Procurements” caption in the 

accompanying 2004 statement of income is as 

follows: 

Thousands 

of Euros 

Raw materials and other 

consumables: 

Net purchases (*) 261,730 

Inventory variation 4,041 

265,771 

Merchandise: 

Net purchases (*) 50,602 

Inventory variation (442) 

50,160 

Total 315,931 

(*) Including the cost of transport, freight, applicable taxes 

and the related royalties. 

c) Headcount, personnel expenses and 

compensation systems linked to the share 

price 

The balance of the “Personnel Expenses” caption in 

the accompanying 2004 statement of income 

comprises €139,694 thousand of wages, salaries 

and similar expenses and €48,920 thousand of 

other employee welfare expenses.

The average number of permanent employees in 

2004, by category, was as follows: 

Average 

Number of 

Employees 

Management 178 

Other line personnel and 

administrative staff 1,015 

Auxiliary staff 24 

Manual workers 2,262 

Total 3,479 

As of December 31, 2004, the Company had 3,469 

employees. 

On June 21, 2000, the Company’s Shareholders’ 

Meeting approved a compensation plan for 

directors holding executive office, executives and 

employees of the Altadis Group based on the grant 

of options on the Company’s shares. Two tranches 

of compensation for certain employees were 

approved in 2000 and 2002 for a total of 3,925,500 

and 5,980,500 stock options, respectively, at 

exercise prices of €16.20 and €23.44 per share, 

respectively. These rights can be exercised once 

four years have elapsed and prior to the sixth year 

after the grant thereof. As of December 31, 2004, 

1,488,990 of the stock options granted in 2000 are 

pending to be exercised. 

In relation to this stock option plan, in order to 

hedge the possible fluctuations in the price of its 

shares, Altadis, S.A. arranged two equity swap 

contracts, one at €16.26 per share for the 2000 

plan and another at €22.74 per share for the 2002 

plan. 

d) Extraordinary expenses 


Expenses” caption in the accompanying 2004 

statement of income is as follows: 


Thousands 

of Euros 

Extraordinary expenses- 

Period provision for long-term 

contingencies and expenses (Note 12) 23,193 

Period provision for short-term 

contingencies and expenses 7,431 

Other 12,907 

Total 43,531 

In 2004, Altadis, S.A. recorded a provision to cover 

any contingencies that might arise from a dispute 

in relation to certain excise taxes. The provision 

recorded by the Company, including the related 

interest, amounted to €19,748 thousand 

e) Foreign currency transactions 

The detail of the foreign currency transactions in 

2004, translated to euros at the average exchange 

rates for the year, is as follows: 

Thousands 

of Euros 

Sales 2,157 

Purchases 82,273 

Services provided 716 

Services received 10,932 

17. Balances and 

transactions with Group and 

Associated companies 

The detail of the balances receivable and payable 

as of December 31, 2004, and of the transactions 

performed with Group and associated companies in 

2004 is as follows:

178 





Balances Receivable Balances Payable 

Advances Short– 

Sales and Purchases (Note 9) Term Long– 

Revenues and and Short– Receivables Term Current 

(*) Expenses Term Loans (Note 10) Debt Liabilities 

Group companies: 

Altadis Finance, B.V. – 43,072 – 976 1,100,000 10,737 

LOGISTA 847,830 29,841 – 83,728 – 305,664 

SEITA 45,308 41,664 – 9,020 – 22,040 

RTM 4,136 – – 2,564 – – 

Urex Inversiones, S.A. 86 1,141 – 28 – 225 

Logivend, S.A. 9 4,370 – 1 – – 

Altadis USA, Inc. 8 4,337 – – – 348 

Altadis Financial Services, S.N.C. – 13,994 – – – 462,193 

Hebra Promoción e Inversiones, S.A. 56 2,321 – 16 – 795 

Viaplus Networks, S.A. – 13 – – – 5,921 

Coproco, S.A. – 1,268 – 59 – 36 

Tabacalera Cigars International, S.A. 870 2 – – – 16,863 

Serventa, S.A. 39 9 – 18 – 2 

Altadis Polska 6,640 990 – 423 – 1,253 

ITI Cigars, S.L. – 11 – – – 23,372 

Inversiones Tabaqueras Internacionales, S.A. 8 – – – – – 

Interprestige, S.A. – 76 – 14 – 42 

Tabacmesa, S.A. – 13 – 10 – – 

Tabacalera Brands, S.A. – 3 – – – 1,125 

I.T. Brands Corporation – – – – – 1,932 

Glopro International Ltd. – – – 302 – – 

Altadis Luxemburgo – 1 – 109 – 1 

Altadis Promo International – 2,282 – – – 1,761 

Altadis Finland 667 17 – 115 – – 

Other Group companies 30 1,550 – – – 128 

Total Group companies 905,687 146,975 – 97,383 1,100,000 854,438 

Associated companies: 

Subgrupo Corporación Habanos 1,176 57,928 36,147 46 – 3,010 

Compañía Española de Tabaco en Rama, S.A. – 10,388 – – – 1,610 

Aldeasa, S.A. 2,169 189 – – – 58 

Altadis Italia – 1,828 – – – 260 

Tabacos Elaborados, S.A. 4,893 1,195 – 1,519 – 217 

CITA Tabacos de Canarias, S.L. 4,745 – – 1,740 – – 

MTS Tobacco, S.A. – 33 – 59 – 467 

TACISA 10,420 370 – 10,820 – 66 

Internacional Cubana de Tabaco 625 – – 28 – – 

Other Associated companies – – – 58 – 134 

Total Associated companies 24,028 71,931 36,147 14,270 – 5,822 

(*) Dividends received are not included (see Note 7)

The main purchase and expense transactions with 

Group and associated companies relate to the 

basically commercial transactions, performed most 

notably with LOGISTA, which arose in connection 

with the following services: 

1. Distribution, storage and delivery of advertising 

materials and transportation of tobacco from the 

plants to the various logistics centers; 

2. Transportation of leaf tobacco from ports and 

warehouses to plants and between plants, 

transportation of cigarettes and cigars from plants 

to warehouses and the export of these products; 

3. Receiving, storage, preservation and 

transportation of contraband tobacco products 

seized prior to December 2001 and destruction, 

return or disposal thereof as legally appropriate. 

Also, the sales to other Group companies relate 

mainly to the distribution of products in Spain, 

excluding the Canary Islands, and in France. They 

also include the provision of certain management, 

counseling and storage services. 

The long-term balance payable to Altadis Finance 

B.V. relates to a loan obtained by the Company to 

finance the acquisition of RTM. This loan consists 

of two tranches: the first tranche, amounting to 

€600,000 thousand, matures at five years and 

bears a fixed interest rate of 4.5%; the second 

tranche, amounting to €500,000 thousand, 

matures at ten years and bears a floating market 

interest rate tied to Euribor. 

The short-term balance payable to Altadis 

Financial Services, S.N.C. relates to a current 

account of the Company, which bears market 

interest tied to Eonia. 

Additionally, the Company carries out financial and 

cash transactions with Urex Inversiones, S.A., 

SEITA and LOGISTA, which are settled at market 

interest rates. 

18. Commitments and 

contingent liabilities 


As of December 31, 2004, financial institutions had 

granted the Company guarantees for a total of € 

53,056 thousand which, in general, secure 

compliance with certain obligations assumed by 

the Company in the course of its business. 

In order to obtain preferential terms on loans and 

credit facilities for certain Group and Associated 

companies, the Company has provided guarantees 

to banks which, as of December 31, 2004, 

amounted to approximately €126,668 thousand. 

Also, the Company has guaranteed the bonds 

issued by Altadis Finance B.V. for € 1,100,000 

thousand (see Note 17). 

As of December 31, 2004, the Company had 

commitments for purchases of raw materials 

amounting to €5,898 thousand and tangible fixed 

asset purchase commitments amounting to €9,525 

thousand. 

As of December 31, 2004, stocks of confiscated 

goods amounted to 98 million packets of cigarettes 

and 2.5 million cigars. 

In June 2003 the Company tendered the successful 

bid in the privatization tender for 80% of the 

Moroccan state tobacco company (“RTM”). The 

Moroccan State will keep its remaining 20% 

holding for a period of two years, after which it will 

have a further two-year period in which to launch a 

public offering. In the event that this public offering 

is not fully subscribed, Altadis, S.A. is guaranteed a 

purchase option and the Moroccan State is 

guaranteed a sale option for the aforementioned 

20% holding at the same price per share as that 

paid in 2003. These options can be exercised in the 

fifth year after the acquisition.

180 




As of December 31, 2004, the Company had taken 

out insurance policies covering the risks arising 

from transportation and storage at plants, fire and 

third-party liability at all the plants, and 

occupational accidents. The sum insured 

sufficiently covers the aforementioned assets and 

risks. 

19. Other disclosures 

Directors’ compensation 

The detail of the compensation received in 2004 by 

the members of the Board of Directors of Altadis, 

S.A., for attendance fees and membership of 

certain standing committees of the Board of 

Directors, is as follows: 


Attendance Delegate 

Fees Committees Total 

Pablo Isla Álvarez de Tejera 55.5 15.0 70.5 

Jean-Dominique Comolli 55.5 15.0 70.5 

César Alierta Izuel 54.0 15.0 69.0 

Bruno Bich 54.0 15.0 69.0 

Carlos Colomer Casellas 55.5 15.0 70.5 

José Fernández Olano 55.5 10.0 65.5 

Charles-Henri Filippi 54.0 25.0 79.0 

Amado Franco Lahoz 55.5 10.0 65.5 

Gonzalo Hinojosa 

Fernández de Angulo 55.5 21.3 76.8 

Jean-Pierre Marchand 55.5 24.4 79.9 

Patrick Louis Ricard 54.0 10.0 64.0 

Jean-Pierre Tirouflet 55.5 6.3 61.8 

José María Goya Laza 54.0 10.0 64.0 

Edouard Stern 51.0 – 51.0 

Jean-Antoine Chabannes (*) 24.0 7.5 31.5 

Carlos Gómez Anuarbe (*) 25.5 5.0 30.5 

Fernando Labad Sasiaín (*) 25.5 – 25.5 

Rémy Tritschler (*) 25.5 – 25.5 

Marc Grosman (**) 34.1 – 34.1 

Gregorio Marañón y 

Bertrán de Lis (**) 34.1 – 34.1 

Berge Setrakian (**) 35.6 – 35.6 

Wulf Von Schimmelmann (**) 30.8 – 30.8 

Total 1,000.1 204.5 1,204.6 

(*) These directors resigned from the Board in 2004. 

(**) These directors replaced the directors who resigned from 

the Board in 2004. 

In 2004 there were 7 Board Meetings and 14 

Delegate Committee Meetings (6 Executive 

Committee Meetings, 5 Audit and Control 

Committee Meetings and 3 Appointment and 

Remuneration Committee Meetings). 

Also, in 2004 the members of the Board of 

Directors received total attendance fees of €233 

thousand for attending meetings of the Boards of 

Directors of the Group companies.

The total salary compensation received in 2004 by 

the two Co-Chairmen consisted of fixed pay of 

€1,417 thousand and variable compensation of 

€965 thousand. 

As regards the stock option plan approved by the 

Company’s Shareholders’ Meeting, the two Co- 

Chairmen were jointly assigned 700,000 options on 

Altadis, S.A. shares (300,000 options in 2000 and 

400,000 options in 2002, see Note 16-c). In 2004 

the exercise period commenced for the options 

granted in 2000, and the two Co-Chairmen together 

exercised a total of 175,000 options before 

year-end. 

Also, at the beginning of the year, one of the two 

Co-Chairmen held 26,118 SEITA stock options 

relating to the plan approved in 1998, which were 

exercised in full in 2004. 

One of the directors, who ceased to discharge 

executive duties in 2001, was beneficiary as of 

December 31, 2004, of 43,000 options on Altadis, 

S.A. shares (see Note 16-c). 

As of December 31, 2004, no loans had been 

granted to the directors of Altadis, S.A. There are 

certain life insurance and pension benefits for the 

two Co-Chairmen, which totaled €330 thousand in 

2004. 

Detail of directors’ equity interests in 

companies engaging in similar activities and 

performance by them of similar activities for 

their own account or for the account of others 

The members of the Board of Directors have not 

owned any holdings in the capital stock of any 

companies engaging in an activity that is identical, 

similar or complementary to the activity that 

constitutes the Company’s corporate purpose. Also, 

they have not performed, and are not currently 

performing, any activity, for their own account or 

for the account of others, that is identical, similar 


or complementary to the activity that constitutes 

the Company’s corporate purpose, except for the 

positions held in Group and Associated companies. 

Fees paid to auditors 

The fees for financial audit services provided to the 

Company amounted to €245 thousand. 

Additionally, the fees for other professional 

services provided to the Company by its auditor, 

and by other entities related to the auditor as of 

December 31, 2004, amounted to €127 thousand. 

Environmental information 

Current environmental regulations do not 

significantly affect the Company’s business 

activities and, accordingly, it does not have any 

environmental liability, expenses, revenues, 

subsidies, assets, provisions or contingencies that 

might be material with respect to its net worth, 

financial position and results. Therefore, no 

specific disclosures relating to environmental 

issues are included in these financial statements. 

Subsequent events 

In January 2005 the Company entered into an 

agreement with Autogrill whereby it undertook to 

contribute, on certain circumstances, its holding in 

Aldeasa, S.A. (see Note 7) to Retail Airport 

Finance, S.L.U. This company has launched a 

tender offer on all the shares of Aldeasa, S.A. 

which, as of the date of preparation of these 

financial statements, had not yet been approved by 

the Spanish National Securities Market 

Commission. Once the related agreements have 

been executed, Altadis, S.A. and Autogrill will each 

have a 50% holding in the capital stock of Retail 

Airport Finance, S.L.U.

182 




20. Statement of changes in financial position 

(Thousands of Euros) 

APPLICATION OF FUNDS 2004 2003 

Fixed asset additions– 

Intangible assets – – 


Long-term investments 277,662 1,384,924 

318,317 1,411,021 

Acquisition of treasury stock 173,113 207,485 

Dividends 227,576 204,007 

Increase in deferred charges – 17,109 

Amount used of provisions for contingencies and expenses – 3,622 

Transfer to short-term of provisions 151,500 – 

Decrease Long-Term debt 217,015 – 

TOTAL FUNDS APPLIED 1,087,521 1,843,244 

FUNDS OBTAINED IN EXCESS OF FUNDS APPLIED 

(INCREASE IN WORKING CAPITAL) – 310,023 

TOTAL 1,087,521 2,153,267


SOURCE OF FUNDS 2004 2003 

Funds obtained from operations 707,080 529,010 

Deferred revenues 6,555 6,610 

Increase in long-term debt – 1,568,171 

Disposal and retirement of– 


Long-term financial investments 263,954 36,494 

334,769 44,373 

Disposals of treasury stock 14,693 5,103 

Transfer to short-term of Long-term investments 11,127 – 

TOTAL FUNDS OBTAINED 1,074,224 2,153,267 

FUNDS APPLIED IN EXCESS OF FUNDS OBTAINED 

(DECREASE IN WORKING CAPITAL) 13,297 – 

TOTAL 1,087,521 2,153,267 


VARIATION IN WORKING CAPITAL Increase Decrease Increase Decrease 

Inventories – 24,687 – 54,557 

Accounts receivable – 86,818 – 106,055 

Accounts payable 52,570 – 462,789 – 

Short-term investments 46,764 – 10,913 – 

Cash – 934 – 4,810 

Accrual accounts – 192 1,743 – 

TOTAL 99,334 112,631 475,445 165,422 

VARIATION IN WORKING CAPITAL – 13,297 310,023 –

184 




The reconciliation of the income per books to the 

funds obtained from operations is as follows: 



Funds obtained from operations– 


Variation in provisions for contingencies and expenses 10,592 193,028 

Depreciation and amortization expense 32,316 34,013 

Variation in tangible fixed asset allowances (124) 697 

Variation in long-term investment allowances 50,453 86,126 

Losses (Gains) on fixed asset disposals (65,689) (4,853) 

Losses (Gains) on long-term investment disposals – (53) 

Expenses (Revenues) arising from deferred interest and capital subsidies (168) (157) 

Reduction in deferred charges 3,418 2,253 

Reduction (Increase) in prepaid taxes 6,060 (73,397) 

Funds obtained from operations 707,080 529,010 

21. Explanation added for 

translation to English 

These financial statements are presented on the 

basis of accounting principles generally accepted 

in Spain. Certain accounting practices applied by 

the Company that conform with generally accepted 

accounting principles in Spain may not conform 

with generally accepted accounting principles in 

other countries.

186 


2004 Management 

Report 

1. Business performance and 

situation of the Company 

1.1. Earnings and sales 

The Annual Report includes the main aggregates 

reflecting the performance of Altadis’s cigarette 

and cigar business in Spain, the geographical area 

to which the operating results of Altadis, S.A. 

mainly relate. 

From the commercial standpoint, in 2004 Altadis’s 

blond and dark cigarette sales in Spain amounted 

to 21,300 million units and 12,400 million units, 

respectively, representing market shares of 27% 

and 88%. 

The Company’s cigar sales stood at 410 million 

units, which represents 36% of total cigar sales in 

Spain. 

Noteworthy in the 2004 statement of income was 

that operating revenues amounted to €993 million, 

net of taxes and distribution commissions. 

Operating expenses totaled €749 million, giving 

rise to operating income of €244 million (up 5.5% 

on 2003). In terms of revenues, this increase was 

due mainly to the positive effect of the rise in 

cigarette and cigar prices and to the increase in 

the volume of cigar sales, and, in terms of costs, to 

the reduction in the use of raw materials due to a 

more efficient management of procurements. 

Financial income amounted to €476 million, a 

sharp increase with respect to the €280 million 

recorded in 2003, due to the dividends received 

from subsidiaries, especially SEITA. As a result, 

income from ordinary activities totaled €719 

million in 2004. 

Extraordinary losses amounted to €27 million, as 

compared with €277 million in 2003. The main 

reasons underlying this year-on-year variation were 

the €163 million provision recorded in 2003 for the 

labor force reduction as part of the Company’s 

2004-2005 restructuring plan, the lower 

provisioning requirements at subsidiaries in 2004, 

and the gains amounting to €65 million on the sale 

of properties in Málaga and San Sebastián in 2004. 

Accordingly, 2004 income before taxes amounted to 

€692 million. After deducting the corporate income 

tax charge of €22 million, income for the year 

stood at €670 million, which represents a 130% 

increase on 2003. This variation stemmed basically 

from the aforementioned performance in financial 

income and extraordinary loss. 

The most noteworthy developments in the main 

aggregates in the balance sheet of Altadis, S.A. as 

of December 31, 2004, were as follows: 

• Total assets amounted to slightly more than 

€4,000 million, which represents a moderate 3% 

decline with respect to 2003. The main variation 

in this connection was the reduction in current 

assets due to a slight decrease in accounts receivable. 

• On the liability side, shareholders’ equity increased 

by €206 million as a result of the substantial 

income figure obtained in 2004, which more than 

offset the decreases caused by the payment of 

dividends, the capital reduction and the period 

provisions to the allowance for treasury stock. 

Also noteworthy were the increase in overall provisions 

for contingencies and expenses (both 

long- and short-term), due basically to the share 

repurchase policy, and the €209 million decrease 

in long-term payables to credit entities. 

Shareholder compensation policy 

The Company’s shareholder compensation policy 

combines an increase in dividends (with annual 

double-digit growth) and the repurchase of shares 

at a rate of 5% per year. Accordingly, the Board of

Directors of Altadis, S.A. resolved to propose to the 

Shareholders’ Meeting of 2005, the payment of a 

gross dividend of €0.90 per share, which 

represents a 12.5% increase with respect to 2003. 

1.2. Share performance 

(See the information included under this heading in 

the 2004 Consolidated Management Report). 

2. Events subsequent to 

year-end 

In January 2005 the Company entered into an 

agreement with Autogrill whereby it undertook, 

under certain circumstances, to contribute its 

ownership interest in Aldeasa to Retail Airport 

Finance, S.L.U. The latter launched a tender offer 

on all the shares of Aldeasa, S.A., which was 

pending approval by the Spanish National 

Securities Market Commission (CNMV) at the date 

of preparation of this management report. When 

the agreements are executed, Altadis, S.A. and 

Autogrill will each own a 50% holding in Retail 

Airport Finance, S.L.U. 

3. Outlook for the Company 

in 2005 

(See also the information included under this 

heading in the 2004 Consolidated Management 

Report). 

From a commercial standpoint, in 2005 the 

Company should reap the rewards of the cigarette 

pricing policy and the policies to strengthen the 

Fortuna brand image and to focus primarily on the 

most dynamic and high-margin cigar segments, 

which will enable it to maintain its leadership 

position in these two lines of business and achieve 

improved earnings. 

4. Research and 

development and the 

environment 

(See also the information included under this 

heading in the 2004 Consolidated Management 

Report). 


The Annual Report details both Altadis’s current 

position and the most significant work performed 

by the Research and Development and 

Environmental areas in the Company’s principal 

lines of business.

188 


2004 Management Report 



Shareholders’ Meeting of Altadis, S.A. on June 15, 

2004, 7,250,000 shares (representing 2.50% of the 

Company’s capital stock) were cancelled in 

September 2004. As a result, the Company’s capital 

stock, which had previously consisted of 

290,471,426 shares, comprised 283,221,426 

shares as of December 31, 2004. The 

aforementioned Shareholders’ Meeting once again 

authorized the Board of Directors, as permitted by 

Article 75 of the revised Corporations Law and for 

a period of 18 months, to acquire shares of Altadis, 

S.A. under certain conditions. 

At the beginning of 2004, either directly or through 

a subsidiary, Altadis, S.A. held 3,059,013 shares of 

treasury stock (representing 1.05% of its capital 

stock) with an average cost of €21.61 per share, a 

total cost of €66,106 thousand and a total par 

value of €1,835 thousand. 

In 2004 the Company acquired for consideration, 

either directly or through a subsidiary, a total of 

9,320,483 shares of treasury stock (representing 

3.29% of its capital stock and with a par value of 

€5,592 thousand) at an average price of €27.41 

per share. Also, it disposed of a total of 706,022 

shares (representing 0.25% of its capital stock and 

with a par value of €424 thousand): 400 shares 

were sold at cost for €8 thousand, and the 

remaining 705,622 shares were exchanged for 

222,828 shares of SEITA, in connection with the 

right to exchange shares which, upon the 

acquisition by the Company of its initial holding in 

SEITA and maintaining the initial exchange ratio of 

19 Altadis, S.A. shares for 6 SEITA shares, was 

granted to the employees of the latter with respect 

to the SEITA shares acquired by exercising their 

stock options. None of these share disposals 

generated any income or loss for the Company. 

As a result of these transactions, either directly or 

through a subsidiary, the Company held 4,423,474 

shares of treasury stock at 2004 year-end 

(representing 1.56% of its capital stock and with a 

par value of €2,654 thousand), at an average cost 

of €29.65 per share and a total cost of €131,166 

thousand.

Altadis, S.A. 

Annual corporate governance report 

Exercice 2004 

Index 

192 A Ownership structure 

196 B Management structure of the Company 

213 C Associated transactions 

215 D Risk control systems 

218 E General shareholders meeting 

222 F Degree of compliance with Corporate 

Governance recommendations 

228 G Other information of interest 

Altadis 2004 Annual Report Corporate Governance 191

192 

Altadis, S.A. 2004 Corporate Governance Report 

ANNUAL CORPORATE GOVERNANCE REPORT 

FOR LISTED JOINT STOCK COMPANIES 

A OWNERSHIP STRUCTURE 

A.1. Fill in the following table showing company share capital: 

Date of last modification Share capital (€) Number of shares 

26-07-2004 169,932,855.60 283,221,426 

Should various classes of shares exist, indicate in the table below: 

Class Number of shares Par value per share 

A.2. Detail the direct and indirect owners of significant shareholdings in the company at 

the end of the financial year in question, excluding members of the board of 

directors: 

Name or corporate name Number of direct Number of indirect Total % of 

of shareholder shares shares (*) share capital 

CHASE NOMINEES, LTD. 0 42,893,203 15.145 

EC NOMINEES, LTD. 0 29,012,276 10.244 

FRANKLIN RESOURCES, INC. 0 15,284,001 5.396 

FIDELIITY INTERNATIONAL, LTD. 0 11,273,169 3.980 

(*) Through: 

Name or corporate name Number of direct % of share 

of direct owner of the shareholding shares capital 

THE AGENT REPRESENTING HIS/HER CLIENTS 

(NONE OF WHOM ARE REQUIRED TO REPORT A 

SIGNIFICANT SHAREHOLDING) 42,893.203 15.145 

THE AGENT REPRESENTING HIS/HER CLIENTS 

(NONE OF WHOM HOLD A STAKE OF OVER 2%) 29,012.276 10.244 

THROUGH VARIOUS INVESTMENT FUNDS 

(OVER 5% OF THE SHARE CAPITAL IS 

CONCENTRATED IN 6 FUNDS) 15,284.001 5.396 

THROUGH 85 INVESTMENT FUNDS 11,273.169 3.980 

Total: 98,462.649 

Indicate any changes in the structure of the significant shareholdings occurring 

during the financial year: 

Name or corporate name Date of 

of shareholder transaction Description of transaction 

CHASE NOMINEES, LTD. 27-04-2004 Reduced from 15% of share capital 

FIDELITY INTERNATIONAL, LTD. 03-05-2004 Reduced from 5% of share capital 

CHASE NOMINEES, LTD. 30-06-2004 Over 15% of share capital 

CHASE NOMINEES, LTD. 19-07-2004 Reduced from 15% of share capital 

EC NOMINEES, LTD. 20-10-2004 Over 10% of share capital

Altadis, S.A. 2004 Corporate Governance Report 193 

A.3. Complete the following tables with the relevant information regarding members of the 

company board of directors who have shareholdings in the company: 

Total % 

Number of Number of of 

Name or corporate name Date of first Date of last direct indirect share 

of Director appointment appointment shares shares (*) capital 

PABLO ISLA ÁLVAREZ DE TEJERA 31-07-2000 31-07-2000 100 0 0.000 

JEAN-DOMINIQUE COMOLLI 13-11-1999 13-11-1999 10,564 0 0.004 

CÉSAR ALIERTA IZUEL 10-06-1996 13-11-1999 135,166 35,500 0.060 

JOSÉ MARÍA GOYA LAZA 29-04-2003 29-04-2003 1,000 0 0.000 

MARC GROSMAN 11-05-2004 11-05-2004 100 0 0.000 

GONZALO HINOJOSA 

FERNÁNDEZ DE ANGULO 31-03-1998 13-11-1999 13,000 7,000 0.007 

GREGORIO MARAÑÓN 

BERTRÁN DE LIS 11-05-2004 11-05-2004 100 0 0.000 

JEAN-PIERRE MARCHAND 13-11-1999 13-11-1999 10 0 0.000 

WULF VON SCHIMMELMANN 26-05-2004 26-05-2004 100 0 0.000 

BERGE SETRAKIAN 11-05-2004 11-05-2004 100 0 0.000 

JEAN-PIERRE TIROUFLET 24-07-2001 24-07-2001 50 0 0.000 

(*) Through: 

Name or corporate name of direct owner 

of the shareholding Number of direct shares 

GRUPO ARCE DE INVERSIONES, SICAV, S.A. 35,500 

ELETRES, S.L. 7,000 

Total: 42,500 

% Total share capital held by the Board of Directors 0.071 

Complete the following tables with information regarding the Directors who hold stock 

options: 

Number Number Total % 

of direct of indirect Number of 

Name or corporate name stock option stock option of equivalent share 

of Director rights rights shares capital 

PABLO ISLA ÁLVAREZ DE TEJERA 275,000 0 275,000 0.097 

JEAN-DOMINIQUE COMOLLI 250,000 0 250,000 0.088 

A.4. Indicate, if applicable, family, commercial, contractual or corporate obligations 

existing among the significant shareholders, to the degree that the company is aware, 

except for those which are irrelevant or arise from the normal course of business: 

Associated names or corporate names Type of relationship Brief description 

A.5. Indicate, if applicable, any commercial, contractual or corporate obligations existing 

between significant shareholders and the company, except those which are irrelevant 

or arise from the normal course of business: 

Associated names or corporate names Type of relationship Brief description

194 


A.6. Indicate any pacts between shareholders of which the company is aware: 

Participants in pacts % of share capital affected Brief description of the pact 

Indicate, as the case may be, concerted shares among the shareholders of which the 

company is aware: 

Participants in pacts % of share capital affected Brief description of the pact 

Should any changes or break-offs occurred in the above pacts or agreements or concerted 

shares during the financial year under review, include an express description of the same. 

A.7. Indicate the existence of any individual or legal entity exercising or able to exercise 

control over the company pursuant to article 4 of the Spanish Securities Market Act: 

Name or corporate name 

Comments 

A.8. Complete the following tables with data regarding the company treasury stock: 

At the end of the financial year: 

Number of direct shares Number of indirect shares (*) % of total share capital 

193,743 4,229,731 1.562 

(*) Through: 

Name or corporate name of the 

direct shareholder Number of direct shares 

UREX INVERSIONES, S.A. 4,229,731 

Total: 4,229,731 

Describe any significant variations, as set out in Royal Decree 377/1991, occurring during 

the financial year: 

Date Number of direct Number of indirect % of total 

shares shares share capital 

11-03-04 442,916 3,099,823 1.251 

31-05-04 411,375 6,050,209 2.281 

16-11-04 197,695 1,840,955 0.720 

Profits obtained during the financial year in treasury stock transactions 0 

(in thousands of euros)


A.9. Describe the conditions and the term(s) of the authorisation(s) granted by the general 

shareholders meeting to the board of directors to execute the acquisitions or 

transfers of treasury stock described in section A.8. 

Authorisation for the treasury stock transactions carried out in the 2004 financial year was 

granted by virtue of the resolutions adopted at the General Shareholders Meetings held on June 

10, 2003 and June 15, 2004. In both cases, the Board of Directors was authorised to execute the 

derivative acquisition of treasury stock, either directly or through entities within the Group, 

within the lawful restrictions and complying with all legal requirements, during a period of 18 

months, as well as its sale and/or application to the retribution systems contemplated in article 

75 of the Joint Stock Companies Act. The authorisations granted by the General Shareholders 

Meetings of June 4, 2002 and June 10, 2003 respectively, were therefore invalidated. 

A.10. Indicate, if applicable, any legal and statutory restrictions on the exercise of voting 

rights and the acquisition and transfer of company shares: 

In reference to the restrictions established by law and in the Company By-laws on the exercise of 

voting rights, all shareholders who attend the General Shareholders Meeting have the right to 

one vote for each share held. However, shareholders are not entitled to a number of votes 

greater than 10% of those shares which, when taking into account the number of shares with 

voting rights present or represented at the General Shareholders Meeting, are entitled to vote at 

the same, regardless of a larger shareholding. 

There are no legal or statutory restrictions on the acquisition or transfer of stakes in the 

Company share capital.

196 


B MANAGEMENT STRUCTURE OF THE COMPANY 

B.1 Board of Directors 

B.1.1. Indicate the maximum and minimum number of Board members established in the 

Company By-laws: 

Maximum number of Board members 18 

Minimum number of Board members 12 

B.1.2. Complete the table below with data regarding the members of the board of 

directors: 

Name or corporate Represen- Position Date of first Date of last Election 

name of Director tative on the Board appointment appointment Procedure 

PABLO ISLA ÁLVAREZ CHAIRMAN 31-07-2000 31-07-2000 CO-OPTATION (RATIFIED 

DE TEJERA BY THE GENERAL 

SHAREHOLDERS’ MEETING) 

JEAN-DOMINIQUE COMOLLI CO-CHAIRMAN 13-11-1999 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

CÉSAR ALIERTA IZUEL MEMBER 10-06-1996 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

BRUNO BICH MEMBER 13-11-1999 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

CARLOS COLOMER MEMBER 27-04-1998 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

JOSÉ FERNÁNDEZ OLANO CONSEJERO 27-04-1998 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

CHARLES-HENRI FILIPPI MEMBER 13-11-1999 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

AMADO FRANCO LAHOZ MEMBER 31-03-1998 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

JOSÉ MARÍA GOYA LAZA MEMBER 29-04-2003 29-04-2003 GENERAL SHAREHOLDERS’ 

MEETING 

MARC GROSMAN MEMBER 11-05-2004 11-05-2004 CO-OPTATION (RATIFIED 

BY THE GENERAL 


GONZALO HINOJOSA MEMBER 31-03-1998 13-11-1999 GENERAL SHAREHOLDERS’ 

FERNÁNDEZ DE ANGULO MEETING 

GREGORIO MARAÑÓN Y MEMBER 11-05-2004 11-05-2004 CO-OPTATION (RATIFIED 

BERTRÁN DE LIS BY THE GENERAL 


JEAN-PIERRE MARCHAND MEMBER 13-11-1999 13-11-1999 GENERAL SHAREHOLDERS’ 

MEETING 

PATRICK LOUIS RICARD MEMBER 28-03-2001 28-03-2001 CO-OPTATION (RATIFIED 



WULF VON SCHIMMELMANN MEMBER 26-05-2004 26-05-2004 CO-OPTATION (RATIFIED 



BERGE SETRAKIAN MEMBER 11-05-2004 11-05-2004 CO-OPTATION (RATIFIED 



EDOUARD STERN MEMBER 22-03-2000 22-03-2000 CO-OPTATION (RATIFIED 



JEAN-PIERRE TIROUFLET MEMBER 24-07-2001 24-07-2001 CO-OPTATION (RATIFIED 


SHAREHOLDERS’ MEETING)

Total Number of Board Members 18 


Indicate any resignations from the board of directors that occurred during this 

period: 

Name or corporate name of Director Date of discharge 

JEAN-ANTOINE CHABANNES 11-05-2004 

CARLOS GÓMEZ ANUARBE 11-05-2004 

FERNANDO LABAD SASIAÍN 11-05-2004 

RÉMY TRITSCHLER 11-05-2004 

B.1.3. Complete the tables below with the relevant data regarding the types of directors: 

EXECUTIVE DIRECTORS 

Name or corporate Committee proposing Position in the company 

name of Director appointment organisation 

PABLO ISLA ÁLVAREZ APPOINTMENT OR RATIFICATION CO-CHAIRMAN 

DE TEJERA PROPOSED TO THE GENERAL 

SHAREHOLDERS’ MEETING BY THE 

BOARD OF DIRECTORS. 

JEAN-DOMINIQUE APPOINTMENT OR RATIFICATION CO-CHAIRMAN 

COMOLLI PROPOSED TO THE GENERAL 



JOSÉ FERNÁNDEZ APPOINTMENT OR RATIFICATION BOARD MEMBER 

OLANO PROPOSED TO THE GENERAL 



EXTERNAL DIRECTORS REPRESENTING SIGNIFICANT SHAREHOLDERS 


of significant shareholder 

Name or corporate Committee proposing who proposed his/her 

name of Director appointment appointment 

EXTERNAL INDEPENDENT DIRECTORS 

Name or corporate Committee proposing 

name of Director appointment Profile 

CÉSAR ALIERTA IZUEL APPOINTMENT OR HOLDER OF A DEGREE IN LAW 

RATIFICATION FROM THE UNIVERSITY OF 

PROPOSED TO THE ZARAGOZA AND MASTER’S DEGREE 

GENERAL SHAREHOLDERS’ IN BUSINESS ADMINISTRATION 

MEETING BY THE BOARD FROM COLUMBIA UNIVERSITY. 

OF DIRECTORS. EXECUTIVE CHAIRMAN OF 

TELEFÓNICA, S.A. 

BRUNO BICH APPOINTMENT OR HOLDER OF DEGREE IN 

RATIFICATION PROPOSED MARKETING FROM NEW YORK 

TO THE GENERAL UNIVERSITY. CHAIRMAN AND CEO 

SHAREHOLDERS’ OF BIC CORPORATION (USA). 

MEETING BY THE BOARD 

OF DIRECTORS. 

CARLOS COLOMER APPOINTMENT OR HOLDER OF A DEGREE IN 

CASELLAS RATIFICATION PROPOSED ECONOMICS FROM THE UNIVERSITY 

TO THE GENERAL OF BARCELONA AND MASTER’S

198 




SHAREHOLDERS’ DEGREE IN BUSINESS 

MEETING BY BOARD OF ADMINISTRATION FROM THE IESE. 

DIRECTORS. EXECUTIVE CHAIRMAN OF THE 

COLOMER GROUP, VICE CHAIRMAN 

AND CEO OF INDO, S.A., BOARD 

MEMBER OF TELEFÓNICA, S.A. AND 

BOARD MEMBER OF SANTANDER 

CENTRAL HISPANO, S.A. 

CHARLES-HENRI APPOINTMENT OR 

FILIPPI RATIFICATION GRADUATE OF THE INSTITUTE OF 

PROPOSED TO THE POLITICAL STUDIES IN PARIS, 

GENERAL SHAREHOLDERS’ MASTER’S DEGREE IN ECONOMICS 

MEETING BY THE AND GRADUATE OF THE NATIONAL 

BOARD OF DIRECTORS. SCHOOL OF ADMINISTRATION. 

EXECUTIVE CHAIRMAN OF CRÉDIT 

COMMERCIAL DE FRANCE (CCF), 

BOARD MEMBER OF HSBC BANK, 

PLC AND GENERAL DIRECTOR OF 

THE HSBC GROUP. 

AMADO FRANCO APPOINTMENT OR HOLDER OF A DEGREE IN 

LAHOZ RATIFICATION ECONOMICS FROM THE UNIVERSITY 

PROPOSED TO THE OF DEUSTO. CHAIRMAN OF 

GENERAL SHAREHOLDERS’ IBERCAJA AND CHAIRMAN OF THE 

MEETING BY THE BOARD OF DIRECTORS OF 

BOARD OF DIRECTORS. CASER, S.A. 

JOSÉ MARÍA GOYA APPOINTMENTS AND AERONAUTICAL ENGINEER AND 

LAZA REMUNERATION MASTER’S MANAGEMENT 

COMMITTEE PROGRAMME AT THE IESE. SOLE 

ADMINISTRATOR OF VIAJES 

DUBLÍN, CHAIRMAN OF RUMBO 

AND BOARD MEMBER OF GAS 

NATURAL, S.A. 

MARC GROSMAN APPOINTMENTS AND MBA FROM HARVARD BUSINESS 

REMUNERATION SCHOOL. MEMBER OF THE BOARDS 

COMMITTEE OF BATA SHOES, PHILLIPS-VAN 

HEUSEN AND CALVIN KLEIN 

INDUSTRIES NY. CHAIRMAN OF 

THE SUPERVISORY BOARD OF 

CELIO 

GONZALO HINOJOSA APPOINTMENT OR DOCTORATE IN INDUSTRIAL 

FERNÁNDEZ RATIFICATION ENGINEERING. CHAIRMAN AND CEO 

DE ANGULO PROPOSED TO THE OF CORTEFIEL, S.A. AND BOARD 

GENERAL MEMBER OF TELEFÓNICA S.A. 

SHAREHOLDERS’ 


OF DIRECTORS. 

GREGORIO MARAÑÓN Y APPOINTMENTS AND HOLDER OF A LAW DEGREE FROM 

BERTRÁN DE LIS REMUNERATION COMMITTEE THE UNIVERSIDAD COMPLUTENSE 

OF MADRID. SENIOR MANAGEMENT 

PROGRAM AT IESE. CHAIRMAN OF 

ROCHE FARMA S.A., BOARD 

MEMBER OF SOGECABLE, PRISA, 

VISCOFÁN, S.A. AND LAFARGE 

ASLAND, S.A. 

JEAN-PIERRE APPOINTMENT OR HOLDER OF A DEGREE IN 

MARCHAND RATIFICATION BUSINESS STUDIES. HONORARY 

PROPOSED TO THE GENERAL DIRECTOR AND BOARD 

GENERAL SHAREHOLDERS’ MEMBER OF SOCIÉTÉ GÉNÉRALE. 


OF DIRECTORS.




PATRICK LOUIS RICARD APPOINTMENT OR CHAIRMAN AND CEO OF THE 

RATIFICATION PERNOD RICARD GROUP, BOARD 

PROPOSED TO THE MEMBER OF SOCIÉTÉ GÉNÉRALE 

GENERAL SHAREHOLDERS’ AND PROVIMI. 


OF DIRECTORS. 

WULF VON APPOINTMENTS AND DOCTORATE IN BUSINESS 

SCHIMMELMANN REMUNERATION ADMINISTRATION AND ECONOMICS 

COMMITTEE FROM THE UNIVERSITY OF ZURICH 

AND GENERAL DIRECTOR, 

CHAIRMAN OF THE BOARD OF 

DEUTSCHE POSTBANK AG. 

MEMBER OF THE BOARD OF 

DEUTSCHE POST AG. MEMBER OF 

THE BOARD OF ACCENTURE. 

BERGE SETRAKIAN APPOINTMENTS AND HOLDER OF A LAW DEGREE FROM 

REMUNERATION THE UNIVERSITY OF LYON AND THE 

COMMITTEE UNIVERSITY OF ST. JOSEPH IN 

BEIRUT. PARTNER IN THE NEW 

YORK LAW FIRM, WINSTON & 

STRAWN 

EDOUARD STERN APPOINTMENT OR GRADUATE FROM THE ESSEC 

RATIFICATION PROPOSED SCHOOL OF BUSINESS STUDIES. 

TO THE GENERAL CEO OF IRR CAPITAL LIMITED AND 

SHAREHOLDERS’ MEETING BOARD MEMBER OF DELTA, PLC. 

BY THE BOARD OF 

DIRECTORS. 

JEAN-PIERRE APPOINTMENT OR GRADUATE OF THE INSTITUTE OF 

TIROUFLET RATIFICATION PROPOSED POLITICAL STUDIES IN PARIS, 

TO THE GENERAL HOLDER OF A DEGREE IN 

SHAREHOLDERS’ ECONOMICS AND GRADUATE OF 

MEETING BY THE BOARD THE NATIONAL SCHOOL OF 

OF DIRECTORS. ADMINISTRATION. CHAIRMAN OF 

THE ENERGY BOARD OF MEDEF. 

OTHER EXTERNAL DIRECTORS 



Describe the reasons for which the following directors cannot be considered as 

representing significant shareholders or independent: 

Mr. José Fernández Olano is considered to be an Executive Director as he is the Executive 

Chairman of Aldeasa, S.A., a company in which Altadis, S.A. held a stake of 34.58% at 

December 31, 2004. 

Indicate any variations, if applicable, in the types of directors during this period: 

Name or corporate Date of 

name of Director change Previous type Current type

200 


B.1.4. Indicate whether the types of directors in the above section correspond to the 

distribution established in the regulations of the board of directors. 

The types of Directors described in the section above corresponds to the distribution set 

out in the Regulations of the Board of Directors, which establish that the presence of 

external Directors must be assured. 

B.1.5. Describe, if applicable, the faculties delegated to the executive director(s): 


of Director Brief description 

PABLO ISLA ÁLVAREZ DE TEJERA AND THE CO-CHAIRMEN HAVE BEEN DELEGATED ALL 

JEAN-DOMINIQUE COMOLLI THE FACULTIES OF THE BOARD OF DIRECTORS, 

EXCEPT THOSE THAT MAY NOT BE DELEGATED 

IN ACCORDANCE WITH THE LAW AND THE 

COMPANY BY-LAWS. 

B.1.6. Identify, if applicable, directors who are administrators or directors in other 

companies within the group of the listed company: 

Name or corporate name Corporate name of the 

of Director Group entity Position 

PABLO ISLA ÁLVAREZ DE TEJERA LOGISTA CHAIRMAN 

PABLO ISLA ÁLVAREZ DE TEJERA SEITA MEMBER OF THE BOARD 

PABLO ISLA ÁLVAREZ DE TEJERA RÉGIE DES TABACS, S.A. CHAIRMAN OF THE 

SUPERVISORY BOARD 

JEAN-DOMINIQUE COMOLLI SEITA CHAIRMAN 

JEAN-DOMINIQUE COMOLLI LOGISTA MEMBER OF THE BOARD 

JEAN-DOMINIQUE COMOLLI RÉGIE DES TABACS, S.A. VICE CHAIRMAN OF THE 

SUPERVISORY BOARD 

JOSÉ MARÍA GOYA LAZA LOGISTA MEMBER OF THE BOARD 

CHARLES-HENRI FILIPPI SEITA MEMBER OF THE BOARD 

JEAN-PIERRE MARCHAND SEITA MEMBER OF THE BOARD 

EDOUARD STERN SEITA MEMBER OF THE BOARD 

BERGE SETRAKIAN ALTADIS USA MEMBER OF THE BOARD 

B.1.7. Describe, if applicable, the company directors who are members of the board of 

directors in other companies other than those of the company group listed on official 

Spanish securities markets, of which the company is aware: 


of Director Listed company Position 

PABLO ISLA ÁLVAREZ DE TEJERA TELEFÓNICA, S.A. MEMBER OF THE BOARD 

PABLO ISLA ÁLVAREZ DE TEJERA IBERIA L.A.E., S.A. MEMBER OF THE BOARD 

CÉSAR ALIERTA IZUEL TELEFÓNICA, S.A. CHAIRMAN 

CARLOS COLOMER CASELLAS TELEFÓNICA, S.A. MEMBER OF THE BOARD 

CARLOS COLOMER CASELLAS INDO INTERNACIONAL, S.A. MEMBER OF THE BOARD 

CARLOS COLOMER CASELLAS SANTANDER CENTRAL MEMBER OF THE BOARD 

HISPANO, S.A. 

GONZALO HINOJOSA TELEFÓNICA, S.A. MEMBER OF THE BOARD 

FERNÁNDEZ DE ANGULO 

GONZALO HINOJOSA CORTEFIEL, S.A. CHAIRMAN 

FERNÁNDEZ DE ANGULO 

JOSÉ FERNÁNDEZ OLANO ALDEASA, S.A. CHAIRMAN 

JOSÉ MARÍA GOYA LAZA GAS NATURAL, S.A. MEMBER OF THE BOARD 

GREGORIO MARAÑÓN Y PROMOTORA DE MEMBER OF THE BOARD 

BERTRAN DE LIS INFORMACIONES, S.A.



of Director Listed company Position 

GREGORIO MARAÑÓN Y SOGECABLE, S.A. MEMBER OF THE BOARD 

BERTRAN DE LIS 

GREGORIO MARAÑÓN Y VISCOFÁN, S.A. MEMBER OF THE BOARD 

BERTRAN DE LIS 

B.1.8. Complete the following tables with data regarding the aggregate remuneration to 

directors accrued during the financial year. 

a) In the company object of the present report: 

Concept Thousands of euros 

Fixed remuneration 886 

Variable remuneration 603 

Attendance fees 1,205 

Statutory remuneration 0 

Stock options and/or other financial instruments 2,342 

Other 0 

Total: 5,036 

Other Benefits Thousands of euros 

Advances 0 

Loans granted 0 

Pension Funds and Plans: Contributions 123 

Pension Funds and Plans: Obligations undertaken 0 

Life insurance premiums 41 

Guarantees constituted by the Company in favour of Directors 0 

b) For belonging to the boards of directors and/or senior management in other 

group companies: 

Concept Thousands of euros 

Fixed remuneration 531 

Variable remuneration 362 

Attendance fees 233 

Statutory remuneration 0 

Stock options and/or other financial instruments 882 

Other 0 

Total: 2,008 

Other Benefits Thousands of euros 

Advances 0 

Loans granted 0 

Pension Funds and Plans: Contributions 106 

Pension Funds and Plans: Obligations undertaken 0 

Life insurance premiums 61 

Guarantees constituted by the Company in favour of Directors 0 

c) Total remuneration according to type of director: 

Types of Directors By company By group 

Executive 3,573 1,883 

External representing significant shareholders 0 0 

External independent 1,064 125 

Other externals 399 0 

Total: 5,036 2,008

202 


d) In relation to the profits attributed to the parent company: 

Total remuneration to Directors (in thousands of euros) 7,044 

Total remuneration to Directors / profits attributed 

to the parent company (in %) 1.704 

B.1.9. Identify the members of senior management who are not executive directors and 

indicate the total remuneration accrued in their favour during the financial year: 

Name or corporate name Position 

ITALO DURAZZO VICE PRESIDENT OF CIGARETTE MARKETING AND SALES, 

SPAIN, SOUTHERN EUROPE AND SOUTH AMERICA 

FRANÇOIS DUTREIL VICE PRESIDENT, LOGISTICS FRANCE 

LUIS EGIDO VICE PRESIDENT, COO LOGISTICS DIVISION 

MICHEL FAVRE VICE PRESIDENT, GROUP CORPORATE FINANCE 

BRUNO GERMAIN-THOMAS VICE PRESIDENT, COO CIGARETTE DIVISION 

CHARLES LEBEAU GROUP GENERAL SECRETARY 

JEAN-PAUL LEBONDIDIER VICE PRESIDENT, CIGARETTE PRODUCTION 

ENRIQUE LLOVES VICE PRESIDENT, GROUP STRATEGY AND PLANNING 

ISABELLE OCKRENT VICE PRESIDENT, CORPORATE COMMUNICATIONS 

JOSÉ LUIS RELEA VICE PRESIDENT, HUMAN RESOURCES SPAIN AND CIGAR 

DIVISION. 

JUAN RIZO VICE PRESIDENT, LOGISTICS SPAIN 

ANTONIO VÁZQUEZ VICE PRESIDENT, COO CIGAR DIVISION 

Total remuneration to senior management (in thousands of euros) 9,627 

B.1.10. Indicate the existence of guarantee clauses for senior management in cases of 

dismissal or change of control, including executive directors of the company and 

group. Indicate whether the company or group management bodies have been 

notified of such clauses: 

Number of beneficiaries 14 

General 

Shareholders’ 

Board of Directors Meeting 

Body authorising the clause x 

YES NO 

Is the General Shareholders’ 

Meeting informed of the clauses? x 

B.1.11. Indicate the process followed in establishing remuneration for the members of the 

Board of Directors and relevant related clauses in the Company By-laws. 

This process is governed by the Regulations of the Board of Directors and the Company 

By-laws. Article 34.2 of the By-laws establishes that the remuneration for the Board of 

Directors will consist in a fixed monthly assignation and attendance fees at Board 

meetings, such remuneration will be determined by the General Shareholders Meeting 

and will remain in effect until this body resolves on their modification. The exact amount 

paid within this limit and its distribution among the various Directors is determined by 

the Board of Directors, after prior proposal from the Appointments and Remuneration 

Committee.


B.1.12. Indicate, if applicable, the identity of the members of the board who are also 

members of the board of directors or senior management in companies with 

significant shareholdings in the listed company and/or in companies within its 

group: 

Name or corporate name Corporate name of 

of Director significant shareholder Position 

Describe, if applicable, the relevant relationships other than those contemplated 

in the section above, of members of the board of directors with significant 

shareholders and/or entities within their group: 

Name or corporate name Corporate name of 

of Director significant shareholder Position 

B.1.13. Indicate, if applicable, the amendments made to the regulations of the board of 

directors during the financial year. 

In 2004 the Regulations governing the Board of Directors and the Executive Committee 

were amended in line with the requirements and recommendations of legal precepts and 

principles of good governance. Therefore, Directors’ duties with regards to confidentiality 

and non-competition were reinforced and the obligations of fidelity, loyalty and information 

of the Company Directors were strengthened; the content of the information to be 

included in the Annual Report was made more complete and the cases of persons linked 

to Directors were extended. 

B.1.14. Indicate the procedures for the appointment, re-election, evaluation and 

resignation of directors. Include details on the competent bodies, the procedures 

to be followed and the criteria applied in each of the procedures. 

The Appointments and Remuneration Committee informs the Board of Directors with 

regard to appointments, re-elections and resignations of Directors from their offices. In 

particular, it gives prior information in reference to all the proposals submitted to the 

General Shareholders Meeting by the Board of Directors with respect to the appointment 

or resignation of Directors, including the cases of co-optation by the Board itself. 

Directors are appointed by the General Shareholders Meeting or by co-optation within the 

Board in accordance with the provisions established in the Joint Stock Companies Act, 

exercise their offices for a period of five years, and may be indefinitely renewed in the 

same. 

Directors cease to hold their offices at the end of the term for which they were appointed, 

and when the General Shareholders Meeting so decides. 

Directors affected by proposals for appointment, re-election or resignation are not 

entitled to vote on these issues. 

B.1.15. Indicate the cases which require directors’ resignation. 

Directors shall place their offices at the disposal of the Board of Directors and formalise, 

should this be considered appropriate, their resignation: when they reach the age of 70, 

when they incur in cases of incompatibility or legal prohibition, when they have been 

seriously reprimanded by the Audit and Control Committee for infringement of their

204 


obligations as Directors, when their presence on the Board could affect or put the 

Company’s interests at risk, and in the event they leave their positions as Company 

executives. 

B.1.16. Explain whether the chairman of the board of directors assume the function of 

chief executive officer of the company. If so, indicate the measures taken to limit 

the risks of accumulation of power in a single individual: 

Yes x 

No 

Measures limiting risks 

The Altadis Group has established a regime of Co-Chairmanship, corresponding to 

Chairmen of the Board of Directors and the Executive Committee. 

The Co-Chairmanship is joint and several and encompasses all the faculties related to 

the management and administration of the Company which are not recognised by Law 

as corresponding exclusively to the Board of Directors. In addition, the Regulations of 

the Board of Directors and the Executive Committee include an exhaustive list of the 

responsibilities that each of these bodies is obliged to exercise in a direct manner. 

Likewise, the Board of Directors has set up Audit and Control, and Appointments and 

Remuneration Committees, comprised mostly of independent Directors, each with 

specific competencies assigned by the Company By-laws and the Regulations of the 

Board of Directors. 

B.1.17. Are qualified majorities, other than those legally established, required to adopt 

certain types of resolutions? 

Yes x 

No 

Indicate the procedure for adoption of resolutions by the board of directors, 

including the minimum quorum and type of majorities required to adopt such 

resolutions: 

Adoption of resolutions 

Description of the resolution Quorum Type of majority 

Appointment of the Chairman One half plus one of the Three-fourths of all the members 

of the Board of Directors and members of the Board of the Board for the appointment 

the Chairman of the Executive of Directors of the Chairman of the Board of 

Committee, and appointment Directors and the Chairman of 

of members of the Executive the Executive Committee and 

Committee. two-thirds for the appointment 

of members of the Executive 

Committee. 

B.1.18. Explain whether specifics requirements exit to be appointed as chairman, other 

than those applicable to directors: 

Yes No 

Description of the requirements 

B.1.19. Indicate whether the chairman holds the casting vote: 

Yes x 

No 

x


Matters regarding the casting vote 

In the event of a tie vote, the Chairman of the Board of Directors holds the casting vote, 

except in the case of voting on the appointment or dismissal of the Chairman of the 

Executive Committee or any of the members of the same. 

Notwithstanding the foregoing, the Regulations of the Board of Directors establish that 

should the Chairman of the Board use his/her casting vote without the consent of the 

Chairman of the Executive Committee, both Co-Chairmen shall immediately place their post 

at the disposal of the Board of Directors, without prejudice to the validity of the resolution 

adopted. 

B.1.20. Indicate whether the By-laws or the board regulations establish an age limit for 

directors: 

Yes x 

No 

Age limit for the Chairman 65 

Age limit for the Executive Director 

Age limit for Directors 70 

B.1.21. Indicate whether the By-laws or board regulations establish a limited term for 

independent directors: 

Yes No 

Maximum term 0 

B.1.22. Indicate whether formal procedures exist for the delegation of votes in the board 

of directors. If applicable, include a brief description. 

The Company has established proxy vote forms through which a Director may delegate 

his/her vote to another Director, with the express faculty to exercise the rights and 

faculties conferred by virtue of such office. The said delegation is only valid for the 

specific session for which it is issued and extends not only to the matters on the agenda 

but also any other issues that may arise with respect to the Company’s interests. With the 

exception of the Chairman of the Board and the Chairman of the Executive Committee, 

Directors may not hold more than one representation. 

B.1.23. Indicate the number of sessions held by the board of directors during the financial 

year. Likewise, indicate the number of times the board has met without the 

attendance of its chairman: 

Number of Board meetings held 7 

Number of Board meetings held without the attendance of the Chairman 0 

Indicate the number of meetings held by committees other than the board of 

directors during the financial year: 

Number of Executive Committee meetings 6 

Number of Audit and Control Committee meetings 5 

Number of Appointments and Remuneration Committee meetings 3 

Number of Strategy and Investments Committee meetings 0 

Number of Commission meetings 0 

x

206 


B.1.24. -Indicate whether the individual and consolidated accounts are certified prior to 

presentation for the approval of the board of directors: 

Yes x 

No 

Identify, if applicable, the person(s) certifying the individual and consolidated company 

accounts for their presentation to the board: 

Name Office 

PABLO ISLA ÁLVAREZ DE TEJERA CO-CHAIRMAN 

JEAN-DOMINIQUE COMOLLI CO-CHAIRMAN 

MICHEL FAVRE GROUP FINANCIAL DIRECTOR 

B.1.25. Describe, if applicable, the mechanisms established by the Board of Directors to 

avoid qualifications in the auditors’ report on the individual and consolidated 

accounts presented by the board to the general shareholders meeting. 

The Regulations of the Board of Directors establish that the Board shall endeavour to 

formulate the annual accounts in such a manner as to avoid qualifications from the 

auditors. However, when the Board considers that its criteria must be maintained, it must 

publicly explain the contents and scope of the discrepancy. The auditors’ reports for the 

Company and the consolidated Group in 2004 financial year do not contain any 

qualifications. 

B.1.26. Describe the measures adopted to ensure that the information is reported to the 

securities markets fairly and equally. 

Supplementing the provisions of the Regulations of the Board of Directors in reference to 

relations with shareholders and the securities markets, articles 41 and 42 of the Internal 

Code of Conduct for Matters related to the Stock Markets reinforces the controls on 

confidential information. This Code, which is applicable to the members of the Board of 

Directors, management and persons involved in securities markets services, among 

others, establishes the obligation to provide the market immediately with the relevant 

information, by report to the Spanish Securities Market Commission (CNMV) prior to its 

publication in any other media, and its diffusion on the Company website. 

B.1.27. Is the Secretary of the Board also a Director? 

Yes No 

B.1.28. Indicate, if applicable, the mechanisms established by the company to preserve 

the independence of the auditor, financial analysts, investment banks and rating 

agencies. 

The relations between the Board and the Executive Committee and the External Auditors 

are channelled through the Audit and Control Committee. This Committee is entrusted 

with handling relations with the External Auditors and receiving information that may put 

the independence of such auditors at risk. 

As established in the Regulations of the Board, the Board of Directors must abstain from 

engaging any audit firms to which the projected fees to be paid exceed 5% of the 

business turnover for the financial year under review. 

x


In addition to the above, the Company has internal regulations that establish the controls 

and limits necessary to preserve the independence of the Group External Auditors. These 

regulations provide for a system to control and monitor the contracted services, the fees 

paid and to ensure the rotation of audit teams. 

B.1.29. Indicate whether the auditors undertake work for the company and/or group other 

than auditing functions. If so, include the amount of the fees paid out for such 

work and the percentage that the same represent in the total fees charged to the 

company and/or group. 

Yes x 

No 

Company Group Total 

Fees paid for services other than auditing 

(thousands of euros) 

Fees paid for services other than auditing / 

127 452 579 

Total amount invoiced by the audit firm (in %) 34.00 27.00 28.00 

B.1.30. Indicate the number of consecutive years the current audit firm has been auditing 

the company and/or group accounts. Likewise, indicate the percentage 

represented by the number of years audited by the current audit firm in the total 

number of years the company annual accounts have been audited: 

Company Group 

Number of consecutive years 3 3 

Company Group 

No. of years audited by the current audit firm / 

No. of years for which the Company has been audited (in %) 18.000 18.000 

B.1.31. Indicate the stakeholdings of members of the company board of directors in the 

share capital of entities engaged in the same, similar or complementary activities 

as the corporate purpose of the company and group, of which the company is 

aware. Likewise, include the offices or functions held in such companies: 

Name or corporate name Corporate name of Office or 

of Director company % Stakeholding functions 

B.1.32. Indicate and, if applicable describe, whether a procedure for external consultants 

by the board member exists: 

Yes x 

No 

Description of procedure 

For assistance in the exercise of their functions, members of the Board may request the 

engagement of legal, accounting, financial or other experts, the cost of which is borne by 

the Company. Such engagement must necessarily be based on specific problems of certain 

significance and complexity that appear in the performance of their offices. The decision to 

engage such experts may only be vetoed by the Board of Directors by expressly accrediting 

that: such engagement is not necessary for the proper performance of the functions 

entrusted to the Directors; the cost of the same is unreasonable in view of the importance of 

the problem and the Company’s assets and income; or the technical assistance requested 

may be suitably provided by Company experts.

208 


B.1.33. Indicate whether a procedure exists that provides directors with the necessary 

information to duly prepare the meetings of the management bodies in a timely 

manner. If so, describe: 

Yes x 

No 

Description of procedure 

The Directors are invested with the broadest faculties to be informed of all aspects of the 

Company, to examine its books, registers, documents and other evidence of Company 

transactions and to inspect all of the Company facilities. This right to information extends to 

all subsidiary companies, whether domestic or international. In the interests of not 

disturbing the ordinary management of the Company, the exercise of such information rights 

is channelled through the Chairman of the Board of Directors, the Chairman of the Executive 

Committee or the Secretary of such bodies, who either respond to the Directors’ requests 

and provide the information directly or facilitate the same through the appropriate 

representatives in the department in question, or arrange the necessary measures to allow 

the requested examination in situ. Directors may issue a certificate of any insufficiencies 

found in the compliance with his/her request of information. 

B.1.34. Indicate whether the company holds civil liability insurance covering company 

directors: 

B.2. Board of directors committees 

Yes x 

No 

B.2.1. List the company management bodies: 

Name of body No. of members Functions 

EXECUTIVE COMMITTEE 8 SEE SECTION B.2.3. 

AUDIT AND CONTROL COMMITTEE 4 SEE SECTIONS B.2.3. AND G 

APPOINTMENTS AND REMUNERATION 

COMMITTEE 4 SEE SECTIONS B.2.3. AND G 

B.2.2. Describe all the Board of Directors committees and their members: 

EXECUTIVE OR DELEGATE COMMITTEE 

Name Position 

JEAN-DOMINIQUE COMOLLI CHAIRMAN 

PABLO ISLA ÁLVAREZ DE TEJERA MEMBER 

CÉSAR ALIERTA IZUEL MEMBER 

BRUNO BICH MEMBER 

CARLOS COLOMER CASELLAS MEMBER 

JEAN PIERRE MARCHAND MEMBER 

CHARLES-HENRI FILIPPI MEMBER 

GONZALO HINOJOSA FERNÁNDEZ DE ANGULO MEMBER 

AUDIT AND CONTROL COMMITTEE 

Name Position 

JEAN PIERRE TIROUFLET CHAIRMAN 

PATRICK LOUIS RICARD MEMBER 

JOSÉ FERNÁNDEZ OLANO MEMBER 

JOSÉ MARÍA GOYA LAZA MEMBER

APPOINTMENTS AND REMUNERATION COMMITTEE 

Name Position 

AMADO FRANCO LAHOZ CHAIRMAN 

CHARLES-HENRI FILIPPI MEMBER 

JEAN-PIERRE MARCHAND MEMBER 

GONZALO HINOJOSA FERNÁNDEZ DE ANGULO MEMBER 

STRATEGY AND INVESTMENTS COMMITTEE 

Name Position 


B.2.3. Describe the rules or organisation and procedure, as well as the responsibilities 

attributed to each of the Board committees. 

The rules of organisation and procedure for the Board Committees and the responsibilities 

attributed to each are set out in the Regulations of the Board of Directors and the 

Executive Committee of Altadis, S.A. 

The Executive Committee is comprised of 8 Directors elected by the Board of Directors; a 

two-thirds majority of the members of the Board of Directors is required for the appointment 

or revocation of members of the Executive Committee. The Secretary of the Board of 

Directors also acts as Secretary of the Executive Committee; the permanent delegation of 

faculties by the Board of Directors in favour of the Executive Committee encompasses all 

the faculties of the Board that may be legally delegated. The Executive Committee must 

report to the Board of Directors on the matters deliberated upon and resolutions adopted 

at its meetings, which are held as deemed necessary by its Chairman or when requested by 

at least one half plus one of its members. 

The Audit and Control Committee is composed of 4 Directors, the majority of whom must 

be non-executive Directors appointed by the Board of Directors. The members of the Audit 

and Control Committee elect their Chairman, who is replaced each 4 years and may be reelected 

after one year has elapsed from the end of his/her last term. The Audit and Control 

Committee must meet at least four times per year and one of its sessions must be dedicated 

to evaluating the efficiency and compliance with the rules and procedures of the 

Company’s Corporate Governance and to prepare the information that the Board of 

Directors must approve and include in its annual report. 

The Appointments and Remuneration Committee is likewise comprised of 4 Directors 

appointed by the Board, the majority of whom are non-executive Directors. The members of 

the Committee elect their Chairman and the Committee meets each time the Board, the 

Chairman of the Board, the Executive Committee or the Chairman of the same requests the 

issuance of a report or the adoption of a proposal and whenever deemed appropriate for 

the proper performance of its duties. It also meets once a year to prepare the information 

regarding remuneration to the members of the Board of Directors to be included in the 

annual report and to comply with all other tasks it has been assigned. 

The following section describes the competencies of each of the delegate Committees.

210 


B.2.4. - Indicate, if applicable, the advice, consulting and, as the case may be, delegation 

faculties of each of the committees: 

Committee name Brief description 

EXECUTIVE COMMITTEE THE EXECUTIVE COMMITTEE IS DIRECTLY 

RESPONSIBLE, TOGETHER WITH THE BOARD OF 

DIRECTORS, FOR APPROVAL OF THE GENERAL 

COMPANY STRATEGIES, THE GLOBAL 

REMUNERATION POLICY FOR THE COMPANY 

MANAGEMENT TEAM, THE APPROVAL OF TREASURY 

STOCK POLICIES, THE IDENTIFICATION OF THE KEY 

RISKS TO THE COMPANY AND MONITORING OF THE 

APPROPRIATE INTERNAL CONTROL AND 

INFORMATION SYSTEMS, ANALYSIS OF THE 

BUDGET, THE PROGRESS OF THE STRATEGIC PLAN 

AND DEGREE OF COMPLIANCE WITH THE SAME, 

AS WELL AS THE QUARTERLY FINANCIAL 

STATEMENTS THAT THE COMPANY IS REQUIRED TO 

REPORT TO REGULATORY BODIES AND, IN 

GENERAL, AUTHORISATION FOR TRANSACTIONS 

THAT INVOLVE THE DISPOSAL OR ACQUISITION OF 

SUBSTANTIAL COMPANY ASSETS. 

AUDIT AND CONTROL COMMITTEE THE AUDIT AND CONTROL COMMITTEE, IN 

ADDITION TO ANY OTHER TASKS IT MAY BE 

ASSIGNED, HAS THE FOLLOWING BASIC 

COMPETENCIES: TO REPORT TO THE GENERAL 

SHAREHOLDERS MEETING WITH RESPECT OF ALL 

MATTERS RAISED BY THE SHAREHOLDERS WITHIN 

THE SCOPE OF ITS COMPETENCIES, TO PROPOSE 

THE APPOINTMENT OF THE EXTERNAL AUDITORS 

TO THE BOARD OF DIRECTORS FOR APPROVAL BY 

THE GENERAL SHAREHOLDERS MEETING, TO 

SUPERVISE THE INTERNAL AUDIT SERVICES, 

TO BE AWARE OF THE FINANCIAL INFORMATION 

PROCESSES AND INTERNAL CONTROL SYSTEMS, 

TO HANDLE THE RELATIONS WITH THE EXTERNAL 

AUDITORS, TO INFORM ABOUT THE ANNUAL 

ACCOUNTS AND THE HALF-YEARLY AND 

QUARTERLY FINANCIAL STATEMENTS THAT MUST 

BE SENT TO REGULATORY OR MARKET 

SUPERVISORY BODIES, MAKING DUE MENTION OF 

THE INTERNAL CONTROL SYSTEMS, THE 

MONITORING THEREOF AND THEIR COMPLIANCE 

THROUGH INTERNAL AUDIT SERVICES AND, WHERE 

APPLICABLE, THE ACCOUNTING CRITERIA 

APPLIED. THIS COMMITTEE MUST ALSO INFORM 

THE BOARD OF DIRECTORS OF ANY CHANGE IN 

ACCOUNTING CRITERIA AND ANY BALANCE SHEET 

AND OFF-BALANCE SHEET RISKS. IN ADDITION, 

IT WRITES AN ANNUAL REPORT FOR THE BOARD 

OF DIRECTORS REGARDING THE ACTIVITIES IT HAS 

UNDERTAKEN, ANALYSES COMPLIANCE WITH THE 

INTERNAL CODE OF CONDUCT FOR MATTERS 

RELATED TO THE STOCK MARKETS, AND, IN 

GENERAL, THE COMPANY RULES OF GOVERNANCE, 

MAKING THE PROPOSALS NECESSARY TO IMPROVE 

THE SAME.


APPOINTMENTS AND REMUNERATION THE APPOINTMENTS AND REMUNERATION 

COMMITTEE COMMITTEE REPORTS TO THE BOARD OF 

DIRECTORS IN REFERENCE TO APPOINTMENTS, 

RE-ELECTIONS AND RESIGNATIONS OF -DIRECTORS 

FROM THEIR OFFICES AND SPECIFICALLY 

PROVIDES PRIOR INFORMATION REGARDING ALL 

THE PROPOSALS THE BOARD OF DIRECTORS 

SUBMITS TO THE GENERAL SHAREHOLDERS 

MEETING FOR APPROVAL OF THE APPOINTMENT 

OR DISMISSAL OF DIRECTORS, INCLUDING THOSE 

CASES OF CO-OPTATION BY THE BOARD ITSELF. 

THIS COMMITTEE ALSO PROPOSES TO THE BOARD 

THE AMOUNTS OF REMUNERATION FOR ITS 

MEMBERS AND TO THE DELEGATE BODIES OF THE 

SAME, AS WELL AS THE OVERALL REMUNERATION 

FOR THE CHAIRMAN OF THE BOARD OF 

DIRECTORS, THE CHAIRMAN OF THE EXECUTIVE 

COMMITTEE AND OF THOSE DIRECTORS WHO 

EXERCISE EXECUTIVE FUNCTIONS IN COMPANIES 

OF THE GROUP. LIKEWISE, IT PROPOSES THE 

GLOBAL REMUNERATION POLICY FOR MEMBERS 

OF THE COMPANY MANAGEMENT TEAM AND 

OVERSEES THE PROPER APPLICATION OF THE 

RULES REFERRING TO TRANSPARENCY IN 

REMUNERATION, AS WELL AS PRESENTING 

PROPOSALS RELATED TO THE CRITERIA OR FORMS 

OF ATTRIBUTING STOCK OPTION PLANS AND 

OFFERING ITS OPINION TO THE BOARD REGARDING 

TRANSACTIONS THAT INVOLVE OR THAT MAY 

INVOLVE CONFLICTS OF INTEREST. 

B.2.5. Indicate, if applicable, the existence of regulations governing the board 

committees, where such regulations are available for consultation, any amendments 

to the same during the financial year, and whether each committee voluntarily 

prepares an annual report on its activities. 

The Company has the Regulations of the Board of Directors and the Executive Committee, 

which set out the functions, composition, structure and all other matters related to the 

operation of these bodies. Likewise, the Regulations contemplate all of the above in 

relation to the Audit and Control Committee and the Appointments and Remuneration 

Committee, and specifically outline their competencies and rules of procedure. These 

Regulations may be consulted on the Company website and because of their inscription 

in the Mercantile Register. Both the Audit and Control Committee and the Appointments 

and Remuneration Committee draft an annual report on the activities of each Committee, 

which are included in section G of this Report. 

The Regulations were amended during the 2004 financial year in line with the requirements 

and guidelines set out by legal regulations and principles of good corporate governance. 

Thus, duties with regards to confidentiality and non-competition were reinforced and the 

obligations of fidelity, loyalty and information of the Company Directors were strengthened; 

the content of the information to be included in the Annual Report was made more 

complete and the cases of persons linked to Directors were extended.

212 


B.2.6. In the event the company has an Executive Committee, describe the degree of 

delegation and autonomy of the same in the exercise of its functions in the 

adoption of resolutions affecting the management and administration of the 

company. 

The Board of Directors delegates all the faculties legally permitted to the Executive 

Committee, whilst obliged to report to the Board on all the matters handled and the 

resolutions adopted at its meetings, which are valid and binding. 

B.2.7. Indicate whether the composition of the executive committee reflects the same 

participation of the various types of directors as in the board of directors: 

Yes x 

No 

If not, describe the composition of the executive committee 

B.2.8. In case the company has an appointments committee, indicate whether all its 

members are external directors: 

Yes x 

No

C ASSOCIATED TRANSACTIONS 


C.1. Describe the relevant transactions involving a transfer of resources or obligations 

between the company or companies within its group and significant shareholders: 

Name or corporate 

Name or corporate name of the Amount 

name of significant company or entity Nature of the Type of (thousands of 

shareholder within its group transaction relationship euros) 

C.2. Describe the relevant transactions involving a transfer of resources or obligations 

between the company or companies within its group and the company administrators 

or executives: 

Name or corporate 

Name or corporate name of the Amount 

name of significant company or entity Nature of the Type of (thousands of 

shareholder within its group transaction relationship euros) 

C.3. Describe the relevant transactions undertaken by the company with other companies 

of the same group, provided they were not eliminated during the process of drafting 

the consolidated financial statements and are not a habitual part of the company’s 

purpose and activities: 

Corporate name of the Brief description of Amount 

group entity the transaction (thousands of euros) 

C.4. Identify, if applicable, any situation of conflict of interest of company directors as 

established in article 127 ter of the Joint Stock Companies Act. 

No situation has been detected that could represent a conflict of interest for the Company 

Directors in the performance of their duties, in accordance with that established in the 

Regulations of the Board of Directors and the Executive Committee of Altadis, S.A. 

C.5. Describe the mechanisms established to detect, determine and resolve the possible 

conflicts of interest between the company and/or its group, and its Directors, 

executives or significant shareholders. 

• Conflicts of interest between the Company and significant shareholders 

This issue is set out in article 39 of the Regulations of the Board of Directors, which establish 

the following: 

– The Board of Directors formally reserves the right to be informed of any transactions between the Company 

and significant stakeholders. 

– Under no circumstances shall the Board authorise any transaction without a prior report from the 

Appointments and Remuneration Committee evaluating the transaction from the perspective of equal 

treatment of all shareholders and market conditions.

214 


• Conflicts of interest between the Company and its Directors or executives 

In reference to possible conflicts of interest between the Company and/or its Group and its 

Directors or executives, the Regulations of the Board of Directors, in the articles 34 and 35, 

establish the following: 

– Administrators shall not use the name of the Company nor shall they involve their position as 

Administrators of the same to enter into transactions on their own or with others linked to them. 

– Administrators shall not execute, either for their own benefit, or for the benefit of persons close to them, 

investments or whatsoever type of transaction linked to the Company assets, of which they may have become 

aware in the exercise of their position, when the investment or transaction has been offered to the Company or 

is of interest to the Company, provided that the Company has not rejected the said investment or transaction 

without influence from the Administrator. 

– Administrators shall notify the Board of any situation of conflict with the Company’s interest, whether direct 

or indirect, in which they may be involved. In the event of conflict, the Administrator in question shall abstain 

from intervening in the transaction to which the conflict refers. 

– All situations of Administrators’ conflict of interest shall be reported in the Annual Corporate Governance 

Report. 

– Administrators shall communicate the stakeholding they may have in companies with identical, analogous or 

complementary type of activities that constitute the corporate purpose of the same, as well as the positions or 

functions they exercise in such companies, and their performance, on their own or for others, of the identical, 

analogous or complementary type of activities that constitute the corporate purpose of the Company. Such 

information shall be included in the abovementioned report. 

Article 35 of the Regulations of the Board of Directors, in turn, established the following in 

relation with situations of conflict of interests: 

– Administrators shall likewise inform the Company of all the positions they hold and the activities they 

perform in other companies or entities and, in general, of whatsoever fact or situation that may be of relevance 

to their performance as Company Directors. 

– Directors shall also inform the Company of any significant changes in their professional status, those which 

affect the nature or conditions by virtue of which they received their appointments as Directors, those which 

may involve a conflict of interest and all other questions of importance that may seriously affect the reputation 

of the Company. 

In addition to the above, the article 40 of the Regulations of the Board of Directors establishes 

that the loyalty obligations provided for in the Regulations shall be required not only of the 

Company Directors, but also of all others who represent legal entity Administrators, the top 

Company managers, including non-Directors and the controlling shareholders, as the case may be. 

Finally, the Company has also implemented an Internal Code of Conduct applicable to Directors 

and management personnel of the Altadis Group. The aforementioned Code devotes its entire 

Section VI to the regulation of situations of conflict of interest, establishing the basic principles 

of independence, abstention and confidentiality that must govern the conduct of Directors and 

senior management in the Group; likewise, it establishes the procedures for reporting situations 

of conflict of interest and describes the conditions that underlie situations of “potential conflicts 

of interest”. The Secretary to the Board of Directors is responsible for promoting general 

awareness of the Code of Conduct and resolving any doubts or queries that may arise regarding 

its application and contents.

D RISK CONTROL SYSTEMS 


D.1. General description of the company and/or group risk policy, detailing and evaluating 

the risks covered by the systems and proof of suitability of such systems for the 

profile of each type of risk. 

The management of the risks to which the Altadis Group is exposed in the course of its activities 

constitutes one of the basic aspects of its actions to preserve the value of the Group’s assets 

and, consequently, the value of its shareholders’ investments. Within the framework of global risk 

management, the system is structured and defined to fulfil the Group’s strategic and operational 

targets, to ensure the reliability of its financial information and its compliance with the 

regulations currently in effect. 

The Group has developed and systematically updated a risk map that includes an inventory of the 

primary structural and operational risks, both at the Group level and for each business unit, 

together with an evaluation of such risks according to the probability that they will occur and 

their impact on the Group’s equity. 

The basic activities of the Group consist of the manufacture, marketing and distribution of 

tobacco and other products in a wide range of countries. Therefore it faces the risks inherent to 

the activities, sectors and countries in which it operates, including financial, operational, 

regulatory, tax, corporate image, competition and industry structure issues. The Group has 

established systems not only to mitigate these risks, but also to anticipate them, enabling it to 

continually adapt to changes in the environment and market. 

Taking into consideration that the existing systems encompass the continuous monitoring of 

current controls and the results of internal evaluations carried out within the risk control system 

by the business units as well as the reviews undertaken by the Internal Audit Department, these 

systems have proven capable of efficiently identifying and managing the risks that may affect the 

Group’s capacity to reach its strategic and operational targets. 

D.2. Describe the control systems established to evaluate, mitigate or reduce the primary 

risks to the company and its group. 

The members of the Board of Directors are invested with the necessary faculties and support to 

be aware of the existing risks and to oversee the progress of the Group strategy, as well as being 

duly informed of all executive management decisions. The composition, faculties and functions of 

the Board of Directors and its delegate committees are described in other sections of the present 

Report. 

The Group Management Committee oversees Company’s operations and ensures their consistency 

with the objectives and directives issued by the Board of Directors. Specifically, the Management 

Committee participates actively in the development and continuous monitoring of strategic and 

business plans, thereby identifying and analysing the risks which may arise and determining the 

primary actions and controls to mitigate the same. As a part of this process, the Group has 

financial statement simulation tools that reproduce the performance of the main Group operating 

and financial magnitudes according to the variations in the risks associated to the various 

business units. All proposed new investments or significant business projects undertaken are 

subjected to a specific risk analysis, carried out through the preparation of business plans that 

contemplate the various possible scenarios related to the associated risks. 

The managers and directors of each business unit, as well as those at corporate level, are 

responsible for the development and continuous monitoring of the risk control systems according

216 


to the existing organisational structure, in line with the culture of sensitivity to risk and internal 

control promoted by the Company management. This culture is based on the clear assignment of 

responsibilities, suitable division of functions, implementation of restrictions on authorisations to 

undertake transactions and respect for both internal and external regulations. To this effect, the 

Group has established rules regarding financial information and critical processes, as well as 

internal operating procedures, specific controls for relevant risks and integrated information 

systems that allow the early identification of deviations from the objectives established by the 

organisation as well as guaranteeing the reliability of economic-financial information. 

Within this framework, the Strategy and Planning Department periodically reviews the general 

market situation and the Group’s strategic position so that it is constantly aware of the existing 

business and market risks, therefore enabling the Group to adapt its strategic orientation as 

deemed necessary. 

The management of the Group’s financial risks is centralised in the Corporate Finance 

Department. This Department has taken the necessary measures to monitor the Group’s 

exposure to variations in interest and exchange rates, as well as to credit and liquidity risks, 

including specific hedging operations when necessary, according to the structure and financial 

position of the Group and the economic variables of the environment. 

Working under the Group Financial Management, the basic goals of the Insurance and Risks 

Department are to preserve the value of the Group’s assets in all the business units and 

countries in which it operates through the analysis and prevention of risks, the establishment of 

the necessary coverage and the optimal management of the most significant claims. 

With a view to ensuring the proper implementation of the control systems, the Group 

continuously monitors the degree of such implementation and the effectiveness of the existing 

controls, including evaluations and reviews by the Group’s Internal Audit Department, which is 

responsible for proposing corrective measures and recommendations to assist in improving the 

existing practices. 

Likewise, the Group is undertaking certain tasks addressed at optimising control activities in its 

main processes. 

The External Auditors, in turn, inform the Audit and Control Committee of any risks to the 

balance sheet, weaknesses in internal control and possible improvements which, in the course of 

their work, may have arisen. 

D.3. In the event any of the risks affecting the company and/or the group arose, describe 

the circumstances causing the same and if the established control systems were 

effective. 

During the 2004 financial year, no significant risks were detected; those which materialised 

arose from the ordinary business of the Group companies, and the established control systems 

proved to fully operative. 

D.4. Indicate whether a committee or other management body exist being responsible for 

establishing and supervising these control systems. If so, describe its functions. 

The efficiency and operability of the control systems implemented in the various business units 

and companies within the Group are subject to periodical review that encompasses the foremost 

financial and operational controls, as well as the suitability and effectiveness of the same in 

mitigating the risks at hand.


The Regulations governing the Board of Directors establish that the identification of the primary 

risks to the Company and the monitoring of the internal control and information systems is the 

responsibility of the Board of Directors and is necessary for the performance of its general 

supervisory duties. 

The Audit and Control Committee, as a Board Delegated Committee, is responsible for 

understanding the financial information process and the internal control systems of the 

Company. 

To this effect, the Audit Committee is assisted by the Group’s Internal Audit Department, which 

establishes, develops and prioritises the projects included in the annual audit plan as part of the 

Group risk map, oversees the operation of the internal control systems, evaluates the suitability 

and efficiency of the same and analyses compliance with the Group internal regulations and 

policies as well as with the applicable legislation. 

D.5. Identify and describe the processes for compliance with the regulations affecting the 

company and/or its group. 

The Group carries out its activities within the framework of a broad range of legislation (sector, 

advertising, securities markets, taxation, labour, environmental, etc.), both in Spain and in the 

countries in which it operates, as well as the standards of good corporate governance and 

internal regulations, for which procedures and controls have been established to avoid 

irregularities and, should any arise, facilitate their early detection. 

The Secretary of the Company Board of Directors assists the Board in ensuring the Company’s 

compliance with all formal and material legal requirements in its activities and its By-laws, as 

well as those arising from orders issued by regulatory bodies, and oversees the Company’s 

observance of the principles and criteria of Corporate Governance. 

The Group’s Legal Department, together with the legal departments of its various companies and 

external consultants, are entrusted with promoting the measures to ensure that Altadis, S.A. and 

the companies within the Group comply with the legislation in effect, in all its applicable 

aspects. Internal procedures include special measures to guarantee the participation of the 

aforementioned departments and consultants in all business actions that may have significant 

legal impact.

218 


E GENERAL SHAREHOLDERS’ MEETING 

E.1. Describe the quorum for constitution of the general shareholders meeting 

established in the company By-laws. Indicate any differences from the minimums set 

out in the Joint Stock Companies Act. 

Both the Ordinary and Extraordinary General Shareholders Meetings are considered to be legally 

constituted at first or second call when the minimum share capital established to this effect in 

current legislation for each case is present. 

E.2. Describe the regime for the adoption of resolutions. Describe any differences from 

the regime established in the Joint Stock Companies Act. 

The valid adoption of resolutions requires the favourable vote of one half plus one of the votes 

present or represented, save in those cases where the Law requires a larger majority. 

E.3. List the shareholders’ rights in connection with the general shareholders meeting, 

other than those established in the Joint Stock Companies Act. 

The scope of shareholders’ rights with respect to the General Shareholders’ Meeting are those 

established in the Joint Stock Companies Act. 

E.4. Indicate, if applicable, the measures adopted to promote shareholder participation in 

the general shareholders meeting. 

Up to seven days prior to the date scheduled for the Meeting, shareholders may request 

information regarding the matters on the Agenda and the clarifications or additional data they 

deem necessary, or may present the relevant queries in writing. Likewise, shareholders may 

request the information available to the public that has been furnished by the Company to the 

National Securities Market Commission since the date of the last General Shareholders’ Meeting. 

Directors shall be obliged to furnish, in writing, the information or clarifications requested and 

respond to the queries raised, also in writing, prior to the date of the General Shareholders 

Meeting. 

During the Meeting, shareholders may request the information and clarifications they deem 

necessary with respect to the matters included on the Agenda. In the event the shareholders’ 

right to information cannot be duly attended to at that time, the Directors are obliged to furnish 

the requested information in writing within the seven days following the date of adjournment of 

the Meeting. 

The Directors are obliged to furnish such information, except in those cases in which the 

Chairman judges that public knowledge of the same could be detrimental to the Company’s 

interests, pursuant to the provisions of the Regulations of the General Shareholders’ Meeting. 

The request for information shall not be denied when such request is formulated by shareholders 

who represent at least one fourth of the Company share capital.


E.5. Indicate whether the chairman of the board of directors act as chairman of the 

general shareholders meeting. If so, describe the measures adopted to guarantee the 

independence and proper operation of the general shareholders meeting: 

Yes x 

No 

Description of the measures 

The smooth operation and independence of the General Shareholders’ Meeting are ensured through 

the provisions contained in its Regulations, particularly in those matters related to announcement 

and publicity of the same, shareholders’ rights to information and attendance, the presence of a 

Notary Public, public announcement of the resolutions adopted, etc. The following information is 

particularly relevant: 

The General Shareholders Meeting is called by public notice published in the Official Gazette of the 

Madrid Companies Registry and in at least one of the newspapers with the largest circulation in the 

province where the Company’s registered offices are located. The National Securities Market 

Commission and the other applicable Market Supervisory bodies are also be notified of the call for 

the General Shareholders Meeting. Likewise, the call for the General Shareholders Meeting is 

announced on the Company website. From that moment on, all proposed resolutions and reports to 

be submitted for consideration at the General Shareholders’ Meeting are made public. 

Thus, from the publication of the announcement of the call, shareholders may request the information 

or clarifications they deem necessary or may submit the relevant queries regarding the matters on 

the Agenda. During the Meeting itself, company shareholders may verbally request the information 

they deem necessary regarding the matters contained in the call, after duly accrediting their 

shareholding. Likewise, and without prejudice to the shareholders’ right to include certain matters on 

the Agenda of the Meeting they request complying with the requirements established to this effect by 

Law, shareholders may make the suggestions they consider appropriate in relation to the 

organisation, operation and competencies of the General Shareholders’ Meeting. 

All shareholders in the Company may attend the General Shareholders’ Meeting, regardless of the 

number of shares they hold. 

With a view to promoting the greatest possible diffusion of the General Shareholders’ Meeting and the 

resolutions adopted by the same, Altadis, S.A. facilitates access to such Meetings to representatives 

of the media, financial analysts and other experts. For this same purpose, the General Shareholders’ 

Meeting is recorded audiovisually. 

Voting on the proposed resolutions on the Agenda is conducted as established in the call and in 

accordance with the Company By-laws this right may be delegated or exercised by the shareholder by 

post, e-mail or any other means of remote communication, provided the technical systems required 

for such purpose are fully operational to this effect. 

In addition to the legally required announcement requirements, shareholders may view the resolutions 

adopted by the General Shareholders’ Meeting on the Company website, through the relevant 

supervisory and regulatory bodies and, if applicable, at the Mercantile Register. 

Altadis, S.A. has been requesting the presence of a Notary Public to certify the Minutes of the 

General Shareholders’ Meeting, as an additional guarantee that reinforces the independence of its 

operation. 

E.6. Indicate, if applicable, any amendments made to the regulations of the general shareholders 

meeting during the financial year. 

The full text of the Regulations of the General Shareholders’ Meeting was approved by the General 

Shareholders’ Meeting held in June 2004. The aforementioned text has been duly registered with 

the Mercantile Register and may be viewed on the Company website.

220 


E.7. Indicate data regarding attendance at the general shareholders meetings held in the 

year under review: 

Attendance 

Date of General % attendees % attendees % remote 

Shareholders’ Meeting present represented vote Total 

15-06-2004 2.44 49.30 0.000 51.74 

E.8. Provide a brief description of the resolutions adopted at the general shareholders 

meetings held in the year under review and the percentage of votes with which each 

was adopted. 

At the General Shareholders Meeting held to review the 2004 financial year referred to above, the 

following resolutions, described briefly below, were adopted: 

– Study and approval of the annual accounts and the management report as well as the 

management of the Board of Directors of Altadis and its consolidated Group, and of the proposed 

application of profits and distribution of dividends. This resolution was adopted with the 

favourable vote of 97.20% of the share capital present and represented. 

– Ratification of Company Directors. This resolution was approved with the favourable vote of 

92.38% of the share capital present and represented. 

– Re-election of the Group External Auditors for Altadis and the consolidated Group. This 

resolution was approved with the favourable vote of 96.49% of the share capital present and 

represented. 

– Reduction of share capital through the redemption of 7,250,000 own shares. This resolution was 

approved with the favourable vote of 97.69% of the share capital present and represented. 

– Authorisation to the Board of Directors for the derivative acquisition of own shares. This 


represented. 

– Authorisation to the Board of Directors to issue non-convertible debentures, bonds or other 

securities, titles or effects which serve to create or recognise debts. This resolution was 

approved with the favourable vote of 97.32% of the share capital present and represented. 

– Modification of Article 22 of the Company By-laws (to eliminate the requirement to hold 50 

shares to attend the General Shareholders’ Meeting), Article 23 (to add the option of proxy 

granted by remote means of communication), Article 25 (to eliminate the need for special 

quorums for the adoption of certain resolutions and to incorporate personal or proxy voting by 

electronic mail or any other means of remote communication) and Article 28 (to broaden the 

shareholders’ information rights). This resolution was approved with the favourable vote of 

96.33% of the share capital present and represented. 

– Study and approval of the Regulations of the General Shareholders’ Meeting of Altadis, S.A. This 


represented. 

– Delegations of the faculties to formalise, interpret, correct, register and execute the resolutions 

adopted by the General Shareholders Meeting. This resolution was approved with the favourable 

vote of 96.33% of the share capital present and represented.


E.9. Indicate, if applicable, the number of shares required to attend the general shareholders 

meeting and if limitations in this respect are set out in the By-laws. 

There is currently no minimum number of shares required to attend the General Shareholders’ 

Meeting. 

All shareholders entitled to attend the General Shareholders Meeting may be represented by 

another shareholder who is also entitled to so attend. 

E.10. Indicate and explain the company policy regarding delegation of votes at the General 

Shareholders Meeting. 

The forms for voting by proxy expressly include all the matters on the agenda, and request an 

indication of the nature of the vote to be issued for each of them, as well as the name of the 

shareholder to whom the vote has been delegated. 

With a view to ensuring the proper exercise of voting rights, in the event the proxy forms do not 

specify delegation to a particular individual, they are understood to delegate the vote to the 

Chairman of the Board. In the event that voting instructions are not included, it is understood 

that the vote is issued in favour of the proposal submitted by the Board of Directors. 

E.11. Indicate whether the company is aware of institutional investors’ policy with regard 

to participation in corporate decisions: 

Yes No 

Description of policy 

E.12. Indicate the address and means of access to the corporate governance section of 

the company website. 

The address of the Company website is www.altadis.com. It provides direct access to the 

contents of the Annual Corporate Governance Report, as well as all the documents related to 

Corporate Governance (Company By-laws, Regulations of the Board of Directors and the 

Executive Committee, Regulations of the General Shareholders’ Meeting, Annual Reports…). 

x

222 


F DEGREE OF COMPLIANCE WITH CORPORATE 

GOVERNANCE RECOMMENDATIONS 

Indicate the degree of company compliance with existing corporate governance recommendations or, 

as the case may be, non-adherence to the same. 

In the event of non-compliance with particular recommendations, explain the recommendation, rule, 

practice or criteria applied by the company. 

Until the specific document referred to in ORDER ECO/3722/2003, of December 26 comes into use, 

the recommendations of the Olivencia and Aldama Reports should be used as a reference to 

complete this section. 

In order to report on the degree of compliance with the recommendations for Good Corporate Governance 

within the Altadis Group and in accordance with the provisions set out in CNMV (Spanish Securities Market 

Commission) Circular of March 17, 2004, in the absence of a specific document to this effect, this section 

analyses the degree of compliance with the Report issued by the “Special Commission for the Study of a Code 

of Ethics for Companies’ Boards of Directors: Governance of Listed Companies” (Olivencia Report) and the 

“Report by the Special Commission to Foster Transparency and Security in Markets and in Listed Companies” 

(Aldama Report). 

Degree of compliance with the recommendations in the Olivencia Report (updated with the Aldama 

Report recommendations)– 

The Altadis Group complies with all 23 recommendations contained in the Olivencia Report, and wherever 

applicable, those encompassed in the Aldama Report. The following is a description of each and the most 

significant aspects of its fulfilment. 

Recommendation 1: “The Board of Directors shall expressly undertake to exercise those responsibilities which may not 

be delegated and establish a formal list of matters reserved exclusively for its knowledge as an essential part of its 

supervisory duties”. 

The Regulations of the Board of Directors and the Executive Committee of Altadis, S.A. encompass the 

functions assigned to both Management Bodies. The Board of Directors undertakes its supervisory duties as 

the focus of its purpose, delegating the day-to-day management to executive bodies and the management 

team. Likewise, the responsibilities exercised by the Board that may not be delegated are also established, 

including the approval of the general Company strategies, the identification of primary risks, approval of the 

treasury stock policy and, in general, the authorisation of transactions that involve the disposition or 

acquisition of substantial Company assets and major Company transactions. 

Recommendation 2: “The Board of Directors shall include a reasonable number of independent Directors, encompassing 

persons of professional prestige who are neither linked to the management team nor significant shareholders”. 

The total number of members of the Board of Directors (eighteen) includes a wide majority of independent 

Directors (fifteen). 

Recommendation 3: “In the composition of the Board of Directors, the external (representing significant shareholders and 

independent) Directors should constitute a majority over the executive Directors and the proportion of members representing 

significant shareholders and independent members is established taking into account the relationship between the share 

capital represented by such significant shareholdings and the rest”.


This recommendation was updated in the Aldama Report, which also establishes: “That the Board of Directors, 

through its members, should represent the greatest possible percentage of Company share capital”. 

There is an ample majority of external Directors in the total composition of the Board of Directors. This 

composition is considered suitable for the shareholder structure of the Company. 

Recommendation 4: “The Board of Directors should adjust its size to be more efficient and participatory in operation. In 

principle, its size should range from between five to fifteen members”. 

The Aldama Report revised this point and no longer recommends a maximum and minimum number of 

Directors, establishing the following: “The Board of Directors should be comprised of a reasonable number of members 

to ensure its operability and the work of each Director, as well as to have the means necessary for the optimum and most 

efficient exercise of its functions”. 

The Board of Directors of Altadis, S.A. is currently comprised of eighteen Directors, this size being considered 

as suitable for the efficient and participatory operations of the body. 

Recommendation 5: “In the event the Board chooses to appoint its Chairman to the position of Chief Executive Officer, it 

should adopt the cautionary measures to reduce the risks arising from the concentration of power in a single individual”. 

The Altadis Group has established a regime of Co-Chairmanship, corresponding to Chairmen of the Board of 

Directors and the Executive Committee. The Co-Chairmanship is joint and several and encompasses all the 

powers related to the management and administration of the Company which are not recognised by Law as 

corresponding exclusively to the Board of Directors. In addition, the Regulations of the Board of Directors and 

the Executive Committee include an exhaustive list of the responsibilities that each of these bodies is obliged 

to exercise in a direct manner. Likewise, the Board of Directors has set up Audit and Control, and 

Appointments and Remuneration Committees, comprised mostly of independent Directors, each with specific 

competencies assigned by the Company By-laws and the Regulations of the Board of Directors. 

Recommendation 6: “The position of Secretary of the Board should be given greater relevancy, reinforcing his/her 

independence and stability and emphasizing his/her responsibility to ensure the formal and material legality of the actions of 

the Board of Directors”. 

The Regulations of the Board of Directors describe in detail the duties attributed to the Secretary of the Board 

who, in addition to advising and informing as necessary, is also responsible for compliance with the orders 

issued by regulatory bodies and the consideration of their guidelines, as well as for ensuring observance of 

the principles of the Corporate Governance within the Company and the rules contained in the Regulations 

governing the Board. 

Recommendation 7: “The composition of the Executive Committee, should one exist, should reflect the same balance as 

the Board of Directors with respect to the various types of Directors, and the relationship between both bodies should be 

based on the principle of transparency, in such a manner that the Board is fully aware of the matters dealt with and the 

decisions adopted by the Committee”. 

The present Annual Corporate Governance Report describes the composition of the different Board Delegate 

Committees and the Executive Committee. The latter is comprised, like the Board of Directors, of a majority of 

independent Directors (of the total of eight members, six are independent and two are executive Directors). 

Recommendation 8: “The Board of Directors should create from among its members Delegate Committees for control, 

comprised exclusively of external Directors, for matters related to information and accounts control (Audit); selection of 

Directors and top executives (Appointments); determination and review of the remuneration policy (Remuneration); and 

evaluation of the Company governance system (Compliance)”.

224 


The Board of Directors has constituted an Appointments and Remuneration Committee and an Audit and 

Control Committee. Their composition, functions and faculties are fully described in sections B.2.2 to B.2.4. of 

the present Report; section G includes Reports on the activities undertaken by these Committees. 

Recommendation 9: “The necessary measures should be adopted to ensure that the Directors have sufficient prior 

knowledge of pertinent information, specifically drafted and focused on preparing the sessions of the Board, regardless of the 

importance or reserved nature of such information except in exceptional circumstances”. 

The Regulations of the Board of Directors encompass the information rights of Directors and the channels of 

communication established for the Directors to request the information they deem necessary for the 

performance of their duties. To this effect, all Directors are sent the information required to ensure the 

smooth course of the sessions as well as all the additional information they request prior to such meetings. 

The information below regarding recommendation 14 is also relevant to this point. 

Recommendation 10: “The proper operation of the Board requires meetings to be held with the frequency necessary to 

perform its duties; the Chairman must encourage the participation and free opinion of all the Directors; the minutes must be 

drafted with special care and the quality and efficiency of the Board’s work should be evaluated at least once a year”. 

Additionally, the Aldama Report indicates that the Board: “Shall meet each time the Chairman or a sufficient number 

of Directors so request, in accordance with the Company By-laws and its Regulations”. 

The Regulations of the Board of Directors establish that the Board meets at least every two months. Likewise, 

the Board must meet each time it is legally required to do so, or when its Chairman deems appropriate to 

better attend to Company matters, as well as when requested to do so by at least one half plus one of its 

members. During the financial year 2004, the Board held seven sessions, all attended by its Chairman. In 

addition, in the performance of his/her duties, the Secretary of the Board must conserve all Company 

documents, duly reflect the sessions in the minutes book and act as witness to the resolutions adopted by the 

Board. 

Recommendation 11: “The intervention of the Board of Directors in the selection and re-election of its members must 

follow a formal and transparent procedure, based on a reasonable proposal from the Appointments Committee”. 

As established in the Regulations of the Board of Directors, the Appointments and Remuneration Committee 

must furnish prior information regarding all the proposals submitted by the Board of Directors for the 

approval of the General Shareholders Meeting related to the appointment or dismissal of the Board Members. 

Recommendation 12: “Companies’ regulations should include the obligation of Directors to resign in cases where they 

may be detrimental to the operation of the Board or to the credit and reputation of the Company”. 

The Regulations of the Board of Directors list the causes for resignation of Directors arising primarily from the 

non-fulfilment of the personal and professional integrity required for a suitable performance of their duties. 

Likewise, Directors must place their offices at the disposal of the Board of Directors when they reach the age 

limit for their offices described in the following point. 

Recommendation 13: “An age limit should be established for the office of Director, which may be from sixty-five to 

seventy for executive Directors and the Chairman, and somewhat more flexible for the rest of the members of the Board”. 

This recommendation was revised in the Aldama Report, which eliminated the age limit and established: 

“That the Company should adopt a policy regarding this point and clearly reflect such policy in its internal regulations”.


Directors must tender their resignations from the Board when they reach the age of seventy; the Chairman of 

the Board and of the Executive Committee must resign at the age of sixty-five, but may continue to act as 

Directors. 

Recommendation 14: “The right of all Directors to obtain the information and advice necessary to perform their 

supervisory duties must be formally recognised, and the suitable channels must be established to exercise such right, 

including access to external experts under special circumstances”. 

As mentioned above, the Regulation of the Board of Directors clearly describes the information rights of 

Directors, contemplating the express right of all Directors to be suitably informed with regard to all aspects of 

the Company, as well as their right to examine its books, registers, documents and other information related 

to Company transactions and to inspect all Company facilities when they so request. This information right 

extends to all national and international subsidiary companies. 

In addition, with a view to receiving assistance in the exercise of their duties, Directors may request the 

services of legal, accounting, financial or other experts. 

Recommendation 15: “The remuneration policy for Directors should be proposed, evaluated and reviewed by the 

Remuneration Committee; it should adapt to the criteria of moderation, relationship to the Company profits and detailed, 

individualised information”. 

Directors’ remuneration is established by the Board of Directors on proposal from the Appointments and 

Remuneration Committee, within the maximum limits determined by the General Shareholders Meeting. 

The present Annual Corporate Governance Report includes a breakdown of the concepts and amounts of 

Directors’ remuneration, as well as the remuneration to executive Directors for the performance of their 

management duties. 

Recommendation 16: “The Company’s internal regulations should clearly describe the obligations arising from Directors’ 

diligence and loyalty, and should specifically contemplate situations of conflict of interest, confidentiality obligations, 

exploitation of business opportunities and the use of Company assets”. 

In this respect, the Aldama Report also contemplates the above recommendation, and lists the minimum 

aspects that should be considered within the obligations of Administrators’ loyalty to the Company, including: 

“avoiding conflicts of interest between the Administrators and the Company, holding office in competitor companies, using 

non-public Company information for private purposes, etc…” 

The Regulations of the Board of Directors contemplate the Directors’ obligations to be loyal and diligent and 

includes all the recommendations to this effect. 

Recommendation 17: “The Board of Directors should encourage the adoption of measures to extend loyalty obligations to 

significant shareholders, and in particular should establish the cautionary measures governing transactions entered into 

between such shareholders and the Company”. 

The Regulations of the Board of Directors establish that the loyalty obligations contained therein apply not 

only to the Directors and individuals who represent legal entity Administrators but also to the non-Director 

Company executives and controlling shareholders. During the financial year 2004, no relevant transactions 

occurred between the Company or entities within the Group and significant shareholders in the Company. 

Recommendation 18: “Measures should be adopted to make the mechanism for delegation of votes more transparent and 

to encourage communication between the Company and its shareholders and particularly with institutional investors”.

226 


Shareholders’ rights to information, attendance and participation are described in the Company By-laws and in 

the Regulations of the General Shareholders’ Meeting, which are available for consultation on the Company 

website. These same aspects related to the General Shareholders Meeting and shareholders’ rights are 

discussed in section E of the present Annual Corporate Governance Report. 

Recommendation 19: “The Board of Directors, beyond the requirements set out by the regulations in effect, should be 

responsible for furnishing the markets with rapid, accurate and reliable Company information, particularly in reference to 

shareholding structure, substantial amendments to rules of governance, transactions of special importance and treasury 

stock”. 

The Regulations of the Board expressly contemplate the relationship between the Board and the shareholders, 

and the securities markets, which include the Board’s responsibilities with regard to ensuring the Company’s 

information, communication and transparency in the markets. In addition, the Company communicates all 

information relevant to shareholders through the CNMV as soon as it becomes known and prior to its diffusion 

in any other media. 

Recommendation 20: “All periodical financial information furnished to the markets in addition to annual reports should 

be prepared in accordance with the same professional principles and practices as the annual accounts and prior to its diffusion 

such information should be verified by the Audit Committee”. 

The Regulations of the Board of Directors establish that the Board will adopt the necessary measures to 

ensure that the half yearly, quarterly and whatsoever other financial information made available to the 

Securities Markets is prepared in accordance with the same principles, criteria and professional practices as 

the annual accounts, and is as reliable as the same. To this effect, the Audit and Control Committee reviews 

the quarterly financial statements prior to their communication to the market. 

Recommendation 21: “The Board of Directors and the Audit Committee should monitor all situations that may put the 

independence of the external company auditors at risk and, specifically, should verify the fees paid for all concepts as a 

percentage of the total income of the audit firm; all fees corresponding to non-audit services should be made public”. 

Among the duties attributed to the Audit and Control Committee in the Company By-laws are relations with 

External Auditors and the reception of information related to those matters that could put the independence of 

such auditors at risk. To this effect, a series of mechanisms has been developed that allow the Company to 

prove the inexistence of such problems on the part of the audit firm. 

Section B.1.29 of the present Annual Corporate Governance Report and the annual accounts include the 

amount paid to the audit firm for services rendered other than auditing services and the percentage that such 

amount represents within the total invoiced the Company. 

Recommendation 22: “The Board of Directors should endeavour to ensure that the annual accounts it submits to the 

General Shareholders Meeting do not give rise to any qualifications or exceptions in the auditors report and that, whenever 

possible, both the Board and the auditors clearly explain to the shareholders and the markets the nature and scope of any 

such discrepancies”. 

The auditors’ report corresponding to the annual account for the 2004 financial year was submitted without 

reservations. 

The Audit and Control Committee maintains regular communication with the Group External Auditors and 

informs the Board of Director of any changes in accounting criteria that imply the risk of reservations in the 

annual accounts for that financial year.


Recommendation 23: “The Board of Directors should include information regarding its rules of governance in its annual 

public report, as well as the reasoning behind those rules which do not conform to the guidelines established in the present 

Code”. 

The present Annual Report on the rules of Good Governance publicises the internal regulations and activities 

carried out in this area by the Administrative Bodies and the whole of the organisation. Likewise, the 

information is presented in accordance with the requirements of Circular 1/2004 of the CNMV, of March 17. 

Supplementary Recommendations contained in the Aldama Report– 

The following is a description of the primary recommendations included in the Aldama Report not 

encompassed in the previous section, as well as the measures adopted by Altadis, S.A. to ensure their 

observance: 

• “To have a website through which shareholders, investors and the market in general may be informed with respect to economic 

data and all other significant information related to the Company”. 

The Company maintains a corporate website (www.altadis.com) which covers all aspects of interest for 

shareholders, in addition to all content required by current legislation. 

• “All Companies should have a set of rules or criteria for Corporate Governance, including at least Regulations for the 

General Shareholders Meeting and the Board of Directors”. 

Altadis, S.A. has established the Regulations of the Board of Directors as the basic rules for Corporate 

Governance in the Company. With regards to the Regulations of the General Shareholders’ Meeting, its current 

text was approved by the General Shareholders’ Meeting on 15 June 2004. Both texts are registered at the 

Madrid Mercantile Register and may also be viewed on the Company website. 

According to the present Annual Corporate Governance Report and specifically the present section of the 

same, the Company has observed and implemented the various recommendations and regulations related to 

Corporate Governance and has endeavoured to transmit all the relevant information in this respect to the 

shareholders and the market. 

In addition, the Company views Corporate Governance as a process of adaptation and continual improvement 

according to both, the Company’s evolution and the latest regulations and orders to this effect. Therefore, it 

dedicates its best efforts and resources to involve not only the Administrative Bodies, but also the various 

business units in its commitment to maximum transparency in these issues.

228 


G OTHER INFORMATION OF INTEREST 

If there are principles or issues relevant to corporate governance practices applied by the company 

that have not been covered in the present Report, please indicate and explain the nature of the 

same. 

This section may include information, clarifications or details related to previous sections of the 

report, provided these are relevant and not reiterative. 

Specifically, indicate whether the company is subject to non-Spanish legislation with regard to 

corporate governance and, if so, include all the information required, other than that included 

herein. 

ADDITIONAL INFORMATION 

SECTION A.3.– 

In reference to the remuneration plan through stock options approved by the General Shareholders’ Meeting of 

the Parent Company, the two Co-Chairmen have been assigned 700,000 options on Altadis, S.A. Stock 

(300,000 options and 400,000 options in the 2000 and 2002 financial years, respectively). The exercise 

period for the options granted in 2000 commenced in 2004; the two Co-Chairmen exercised 175,000 of such 

options prior to year-end. 

Likewise, at the beginning of the year one of the two Co-Chairmen held title to 26,118 options over SEITA 

shares by virtue of a plan approved in the 1998 financial year, which have all been exercised in the course of 

the year. 

One of the Directors who stepped down during the 2001 financial year was the beneficiary of 43,000 stock 

options on Altadis, S.A. shares at 31 December 2004. 

SECTION B.1.2.– 

The Board of Altadis met on the 14th of May has accepted Mr. Pablo Isla’s resignation as chairman of the 

Board and member of the Executive Committee. Mr. Antonio Vázquez has been appointed. 


Directors Mr. José Mª Goya Laza and Mr. Edouard Stern passed away after the end of the 2004 financial year. 

Their posts have not yet been filled at this date.



The individual remuneration received by members of the Board of Directors of Altadis, S.A. during the 2004 

financial year for attendance fees and membership in Board Delegated Committees is detailed as follows: 


Delegate 

Attendance fees Committees Total 

Mr. Pablo Isla Álvarez de Tejera 55.5 15 70.5 

Mr. Jean-Dominique Comolli 55.5 15 70.5 

Mr. César Alierta Izuel 54.0 15 69.0 

Mr. Bruno Bich 54.0 15 69.0 

Mr. Carlos Colomer Casellas 55.5 15 70.5 

Mr. José Fernández Olano 55.5 10 65.5 

Mr. Charles-Henri Filippi 54.0 25 79.0 

Mr. Amado Franco Lahoz 55.5 10 65.5 

Mr. Gonzalo Hinojosa Fernández de Angulo 55.5 21.3 76.8 

Mr. Jean-Pierre Marchand 55.5 24.4 79.9 

Mr. Patrick Louis Ricard 54.0 10 64.0 

Mr. Jean-Pierre Tirouflet 55.5 6.3 61.8 

Mr. José María Goya Laza 54.0 10 64.0 

Mr. Edouard Stern 51.0 – 51.0 

Mr. Jean-Antoine Chabannes (*) 24.0 7.5 31.5 

Mr. Carlos Gómez Anuarbe (*) 25.5 5 30.5 

Mr. Fernando Labad Sasiaín (*) 25.5 – 25.5 

Mr. Rémy Tritschler (*) 25.5 – 25.5 

Mr. Marc Grosman (**) 34.1 – 34.1 

Mr. Gregorio Marañón y Bertrán de Lis (**) 34.1 – 34.1 

Mr. Berge Setrakian (**) 35.6 – 35.6 

Mr. Wulf Von Schimmelmann (**) 30.8 – 30.8 

Total 1,000.1 204.5 1,204.6 

(*) Directors who stepped down in the course of 2004. 

(**) Directors replacing the Directors who stepped down in 2004. 

The joint salary received by the two Co-Chairmen in the 2004 financial year amounted to 1,417 thousand 

euros and 965 thousand euros, corresponding to fixed and variable remuneration, respectively. At December 

31, 2004 there were no loans granted to members of the Board of Directors of Altadis, S.A. Benefits such as 

life insurance and pension plans for the two Co-Chairmen amounted to a global sum of 330 thousand euros in 

the 2004 financial year. 


Of the sum indicated for total remuneration to Senior Management in this section, 4,470 thousand euros refer 

to profits obtained in 2004 in the exercise of stock options in the Group companies, largely corresponding to 

Altadis, S.A. stock options plan granted in 2000, the exercise period for which runs from 13 July 2004 to 12 

July 2006. With a view to covering the impact of the exercise of such options on equity, the Group entered into 

the relevant “equity swap” agreements, such that the aforementioned remuneration did not require outlay from 

the Group. 


The Group continues with its policy of including guarantee clauses in favour of Senior Management in the 

event of termination, under certain circumstances, of their labour contracts, that range from one to four times 

the sum of annual remuneration.

230 


REPORT ON THE ACTIVITIES OF THE AUDIT AND CONTROL COMMITTEE OF THE ALTADIS GROUP FOR 

THE 2004 FINANCIAL YEAR 

Composition 

At the end of the 2004 financial year, the composition of the Audit and Control Committee was as follows: 

Members Position 

Mr. Jean-Pierre Tirouflet Chairman 

Mr. Patrick Louis Ricard Member 

Mr. José Fernández Olano Member 

Mr. José María Goya Laza Member 

In accordance with the provisions of the Company By-laws and the Regulations of the Board of Directors and 

the Executive Committee of Altadis, S.A., in 2004 Mr. Jean-Pierre Tirouflet was appointed as Chairman of the 

Audit and Control Committee, replacing Mr. Jean-Pierre Marchand, whose four-year term of office had 

elapsed, and who continues to act as Company Director. 

All the members of the Audit and Control Committee are external independent Directors, with the exception of 

Mr. José Fernández Olano, Executive Chairman of Aldeasa, S.A., a company in which Altadis, S.A. held a 

34.58% stakeholding at 31 December 2004. 

The Secretary to the Board of Directors, Mr. Miguel Ángel Sánchez-Terán Hernández, acts as Secretary to this 

Committee. 

Functions 

Pursuant to Act 44/2002 on Financial System Reform Measures (Finance Act), in the 2003 financial year the 

General Shareholders Meeting approved the regulations governing the Committee contained in the Company 

By-laws, which are substantially similar to the regulations that were included in the Regulations of the Board 

of Directors and Executive Committee of Altadis, S.A., but also incorporating the provisions required by virtue 

of the Finance Act and the recommendations of the “Report by the Special Commission to Foster Transparency 

and Security in Markets and in Listed Companies” (Aldama Report). 

The Audit and Control Committee meets periodically when the need arises and at least four times per year, 

called by its Chairman. 

One of the aforementioned sessions must necessarily be devoted to evaluating the efficiency and compliance 

with the Company governance rules and procedures and to prepare the information to be submitted for the 

approval of the Board of Directors and included in the Annual Report. 

Furthermore, the Committee is statutorily empowered to seek the assistance of any member of the Company 

management or employee. Likewise, the Committee may require the attendance of the external Auditor at its 

meetings and may receive counsel from external professionals. Notwithstanding other tasks that it may be 

assigned by the Board, the Audit and Control Committee has the following responsibilities: 

– To report to the General Shareholders Meeting with respect of all matters raised by the shareholders within 

the scope of its competencies. 

– To propose to the Board of Directors the appointment of the External Auditors to be subsequently submitted 

by the Board to the General Shareholders Meeting. 

– To supervise the Internal Audit services.

– To be aware of the Company’s financial information process and internal control systems. 


– To liase with the External Auditors to receive information on such matters that may jeopardise the independence 

of the latter and any other matters related to the accounts auditing process, as well as other communications 

set out in the audit legislation and in the technical audit norms. 

– To inform about the annual financial statements and the quarterly and half-yearly financial statements, 

which have to be sent to the market regulating or supervisory bodies, making due mention of the internal 

control systems, the monitoring thereof and their compliance through Internal Audit Services and, where 

applicable, the accounting criteria applied. The Committee must also inform the Board of any change in 

accounting criteria and balance sheet and off-balance sheet risks. 

– To write an annual report addressed to the Board of Directors on the activities of the Audit and Control 

Committee. 

– To monitor compliance with the Internal Code of Conduct for Matters related to the Stock Markets and, in 

general, the Company’s rules of governance, making any necessary proposals for the improvement thereof. 

In particular it shall issue reports on disciplinary measures for the members of the Company’s top executive 

team. 

Activities of the Committee in the 2004 financial year 

The Audit and Control Committee held five meetings in 2004. All the Committee sessions were attended by a 

majority of its members, the Secretary and the Group Audit Director. The Company Auditor, Deloitte, also 

attended the meetings held in February, May and August, which dealt with the annual and half-year results 

and the impact of the international financial reporting standards (IFRS) on the Group financial statements. 

The Finance Director and other members of the Group management team were also called to the Committee 

meetings. 

The main activities handled by the Committee in the performance of the duties with which it is statutorily 

entrusted are the following: 

a) Appointment of External Auditors: 

At its session of 11 May, the Audit and Control Committee proposed that the Board of Directors consider the 

appointment of Deloitte as the Accounts Auditor for Altadis, S.A. and its consolidated Group for the 2004 

financial year. On proposal from the Board of Directors, the General Shareholders’ Meeting of 15 June 2004 

approved the aforementioned appointment. 

This proposal was based on a detailed prior analysis which took place at the previous session (24 February). 

On submitting its proposal, The Committee bore in mind a series of aspects, such as the inexistence of 

situations that could jeopardize the firm’s independence in the performance of its work, the audit firm’s 

experience in the various countries where Altadis, S.A. is present and the positive evaluation of its 

contribution and work done in previous years. 

Likewise, the Audit and Control Committee analysed the appointment of the Auditors in each of the Group 

companies, and made certain decisions to change auditors in the companies that recently joined the Group 

with a view to unifying the accounts auditing process. 

b) Supervision of Internal Audit activities: 

The Committee has approved the Internal Audit Plan for the financial year and periodically studies the main 

conclusions of the same and the degree of compliance with the recommendations in the work undertaken.

232 


In 2004, the Internal Audit Director attended all the meetings of the Audit and Control Committee, and 

reported regularly on the conclusions of the projects undertaken by the Group Audit Department within the 

framework of the Annual Audit Plan. 

c) Awareness of the financial information and internal control systems in Altadis: 

In the performance of this duty, the Committee is assisted by the Group Auditor and the Group Audit 

Department, which report regularly to the Committee on the evolution of their work, their conclusions 

regarding the internal control system, recommendations, monitoring and the progress made in the 

implementation of the recommendations for the financial information system and internal control. 

Likewise, the Group Finance Department also assisted the Audit and Control Committee in the analysis of the 

Group’s investment, financing and risk management policies. 

Moreover, the Group Audit Department collaborated with the Committee in the risk analysis through the 

development and updating of the Group risk map, the basis on which projects are included and prioritised in 

the Audit Plan. 

In addition, during the 2004 financial year the Group Audit Department undertook a specific, internal control 

auto-evaluation project applied to the main processes and companies of the Group, the conclusions of which 

were presented to the Audit and Control Committee at its session held on 11 May 2004. 

d) Analysis of the independence of the External Auditors: 

Since its constitution, the Audit and Control Committee has developed a series of actions addressed at 

guaranteeing the independence and the quality of the work done by the external Auditors at the various 

companies comprising the Group. 

These actions focus on reviewing compliance with a specific rule drawn up and approved in the 2003 financial 

year by the Committee, which contains the procedure through which Group companies engage the professional 

services of audit firms and related companies. This rule establishes the controls and restrictions required to 

safeguard the independence of the external Auditor and to guarantee the coordination necessary in the Group 

audit work, in keeping with the best practices in this respect. 

The content of this rule includes the mechanisms to guarantee that the external Auditor of Altadis, S.A. and its 

consolidated Group examines the great majority of the Group’s assets and results directly. Likewise, it 

establishes the levels of authorisation and information to the Audit and Control Committee of the services to 

be engaged, the non-auditing services that cannot be provided by the Group external Auditors and a system to 

monitor the fees paid and the rotation of audit teams. 

As it has done regularly in the past, in 2004 the Committee has reviewed the situations that could jeopardize 

the independence of the Group Auditor, including the nature of the work and fees for the services rendered to 

the Altadis Group. In this respect, the fees corresponding to accounts audit services rendered by the 

worldwide Deloitte organization in 2004 amounted to 1,481 thousand euros, while fees for other professional 

services totalled 579 thousand euros. The latter figure is primarily related to audit services for tax purposes 

and studies related to the implementation of the IFRS rules. 

e) Information on Financial Statements: 

Within the framework established by Altadis, S.A. with regard to encouraging maximum transparency in the 

Company organisation and in the information provided to the market, the Audit and Control Committee plays a 

key role in the analysis of the integrity and consistency of such information.


The Committee reviewed the Annual Accounts for 2003 prior to their submission by the Board of Directors; 

the External Auditors’ report was issued without qualifications. 

Additionally, in accordance with the provisions established by the regulations and the Company By-laws, the 

Committee revises the quarterly and half-yearly financial statements prior to their submission by the Board of 

Directors and their communication to the market and regulatory bodies. In this task the Committee is assisted 

by the Group External Auditors and the Internal Audit Department, which undertakes periodical reviews 

during the financial year as instructed by the Committee. 

Likewise, prior to year-end, the Audit and Control Committee requested information from the Group Auditors 

with respect to their preliminary conclusions, with a view to ensuring that their recommendations were taken 

into account in the process of closing the accounts for the 2004 financial year. 

Moreover, the Committee met with the External Auditor to be informed of the degree of progress made in the 

work and the impact of the implementation of the international financial reporting standards (IFRS) on the 

same. 

f) Examine the degree of compliance with the Internal Code of Conduct and other recommendations 

related to Corporate Governance: 

Since its inception, the Audit and Control Committee has been monitoring all recommendations, initiatives and 

regulations in existence with regards to Corporate Governance, with a view to strengthening the supervisory 

mechanisms in Altadis’ rules of Corporate Governance. 

In this respect, the Audit and Control Committee undertook the following actions in 2004: 

– Review of the amendments made to the Regulations of the Board of Directors and the Executive Committee 

of Altadis, S.A. and in the Company By-laws, as well as the proposed Regulations of the General 

Shareholders’ Meeting, for subsequent report to the Board of Directors. In addition, the content of the 

Annual Report on Corporate Governance for the 2003 financial year was reviewed prior to its approval by 

the Board of Directors. 

– Likewise, and as has been customary each year, the Committee reviewed the degree of compliance with the 

Internal Code of Conduct in Matters Related to the Stock Market, establishing the specific measures and 

controls to be developed to ensure full compliance with the same.

234 


REPORT ON THE ACTIVITIES OF THE APPOINTMENTS AND REMUNERATION COMMITTEE OF THE 

ALTADIS GROUP FOR THE 2004 FINANCIAL YEAR 

At the close of the 2004 financial year, the composition of the Appointments and Remuneration Committee 

was as follows: 

Members Position 

Mr. Amado Franco Lahoz Chairman 

Mr. Charles-Henri Filippi Member 

Mr. Jean-Pierre Marchand Member 

Mr. Gonzalo Hinojosa Fernández de Angulo Member 

Mr. Miguel Ángel Sánchez – Terán Hernández Secretary 

The Appointments and Remuneration Committee is comprised of four non-executive Directors. The Chairman 

of the Committee is elected by the members themselves. The Committee meets at least once a year to prepare 

the information on Directors’ remuneration that must be presented by the Board of Directors in its annual 

report, and whenever appropriate to perform its duties or on request from the Board of Directors or the 

Executive Committee. 

Functions 

The organisation, operation and competencies attributed to the Appointments and Remuneration Committee 

are governed by the Company By-laws and the Regulations of the Board of Directors and the Executive 

Committee of Altadis, S.A. 

Notwithstanding other tasks it may be assigned by the Board of Directors, the main competencies attributed 

to the Appointment and Remuneration Committee are the following: 

– To inform the Board of Directors with respect to all appointments, re-elections and resignations of Directors 

from their offices. In particular, to furnish previous information regarding all the proposals to be submitted 

by the Board of Directors to the General Shareholders Meeting in relation to the appointment or resignation 

of Directors, including those cases of co-optation within the Board itself. 

– To propose to the Board of Directors the amount of remuneration to the members of the Board of Directors 

and the delegate bodies of the same, as well as remuneration for the Chairman of the Board, the Chairman 

of the Executive Committee and all Directors exercising executive functions. 

– To propose the global remuneration policy for the members of the Company management team. 

– To oversee the proper application of the regulations regarding transparency in remuneration. 

– To present proposals with respect to criteria and types of attribution of stock option plans, and the purchase 

and/or subscription of shares. 

– To offer the Board its opinion in reference to transactions which involve or may involve conflicts of interest. 

Committee activities during the 2004 financial year 

The Appointments and Remuneration Committee held four sessions in the 2003 financial year. The foremost 

matters dealt with and the activities carried out were the following: 

– Proposal to the Board of Directors for presentation to the General Shareholders’ Meeting of amendments to 

the Company By-laws in reference to the elimination of the requirement to hold 50 share to attend the 

General Shareholders’ Meeting (Article 22), to include the option of granting proxy by remote means of


communication (Article 23), to suppress the need for special quorums and qualified majorities for the adoption 

of certain resolutions and to include the personal or proxy voting by electronic mail or any other means 

of remote communication (Article 25), and to broaden shareholders’ information rights (Article 28). 

– Report on the Regulations of the General Shareholders’ Meeting, on amendments to the Regulations of the 

Board of Directors and the Executive Committee and the Annual Report on Corporate Governance. 

– Report on the resignation of Directors Mrs. Chabannes, Gómez Anuarbe, Labad Sasiaín and Tritschler, and 

on the appointment of the following Directors by co-optation: Mr. Marc Grosman, Mr. Gregorio Marañon y 

Bertrán de Lis, Mr. Wulf Von Schimmelmann and Mr. Berge Setrakian. 

– Proposal to the Board of Directors regarding the variable remuneration for the Co-Chairmen for the 2003 

financial year and fixed remuneration for the 2004 financial year. 

– Analysis of the medium-term remuneration policy for Altadis senior management. 

OTHER APPLICABLE REGULATIONS RELATED TO CORPORATE GOVERNANCE. 

Because it is listed on the Paris Stock Exchange, the Company is subject to certain French regulations on 

matters related to Corporate Governance, which does not require the publication of any supplementary 

information than that included in the present Report. 

The present Annual Corporate Governance Report was approved by the Board of Directors of the 

company, at its meeting held on 14 May 2005. 

List the Directors who voted against or abstained from voting for approval of the present Report. 

None

Annual report 2004 (English) - PDF 3546K - Imperial Tobacco

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