INFORMATION ABOUT CETARSA

At industry level, in 2005 stands out the decision taken by the Spanish Administration of applying 40% of the total amount of aids to direct contributions to the farmers income during the transition period 2006-2009, maintaining the remaining 60% linked to production.

The evolution of the international markets has been negative, characterized by the high surpluses of the 2003 and 2004 harvests, which have exercised a strong downward pressure on prices, to which must be added the strength of the euro against the American dollar for European exports, which has contributed to the exit from the Spanish market of procurement and transformation of an important competitor of Cetarsa.

Activity of the company in year 2009:

In 2009, CETARSA together with the remaining agents which operate in the raw tobacco industry, has been very active in order to be able to take part in the 2010 season, which will witness the total decoupling of the aids to production. Once the aid measures packet for Spain has been approved, the Company continued negotiating with its customers the prices for future seasons, which have been use, in its turn, for determining the purchase prices paid to the farmers in the contracts for the 2010 harvest, which ended successfully in March 2010.

Regarding the international markets for raw tobacco, during 2009 continued the positive trend which began in 2007, both in the volumes demanded and in the final sale prices.

After the reduction in European production provoked by the transitory regime for aid decoupling during the 2006 season, production levels in Spain have progressively recovered for Virginian tobacco (from 25,495 tons in the 2006 season to 28,800 tons in the 2009 season), while for Burley and Havana, the volume has stagnated in around 6,100 tons per year on average. All things considered, the domestic production during the 2009 season reached about 35,000 tons, which means a 10% increase on the year before, while the total volume purchased by CETARSA (25,451 tons) was practically the same than that recorded in 2008, representing a market-share of about 72.7%.

As for the Company's production, which is related to the purchases during the year, reached 21,733 tons (15,934 tons of tobacco and 5,799 of byproducts), 3.7% more than the previous year.

The year 2009 can be seen as a good year for the Company, as it recorded an improvement in its operating profitability through the gradual application of a direct commercialization strategy, which makes possible to maintain a sound tobacco stock level, corresponding the stock at the end of the year to the last harvest. To this has contributed the positive evolution of the international markets, as well as the consolidation of a stable panel of customers, made up by the Imperial Group, which purchases 60% of its sales, as well as by Philip Morris and Japan Tobacco International, which purchase 37%. Turnover reached 41.9 Million Euros, which together with the application of measures for improving the production efficiency and the Running Expenses Reduction Plan, has allowed to obtain a 3.4 Million Euros operating profit and, finally, a 2.9 Million Euros earning after taxation.