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April 1998
Volume 25
Number 2

RETAILER & TOBACCO INDUSTRY NEWS (cont.)

Big Profits for Major Cigar Companies in 1997
General Cigar Holdings, Inc. reported a net income for the 1997 fourth quarter of $14 million versus $3.2 million in the comparable period of 1996, an increase of 335 percent. For the full year, the company reported a 190 percent increase in net income to $36 million compared to net income of $12.4 million in 1996.

"We see a strong period ahead of us in 1998 and beyond because we believe established branded premium cigar products will recapture market share, as many of the newer, second- and third-tier brands continue to fall out of favor with consumers," said Edgar M. Cullman, Jr., president and c.e.o. of General Cigar. "Our company's hallmark always has been quality cigars made with properly aged tobacco, and our experience is that quality always is preferred."

Consolidated Cigar Holdings, Inc. reported record sales and net earnings for the fiscal year 1997. Net sales for the year increased 38 percent to $299.1 million versus $216.9 million in 1996, aided by increased net sales for the 1997 fourth quarter to $84.2 million versus $64 million in the comparable period in 1996.

Operating income for the year was $92.3 million in 1997 versus $54.1 million in 1996, an increase of 71 percent. Net income increased 80 percent to $53.6 million in 1997 compared to $29.8 million in 1996.

"We will spend more capital and resources in 1998 than we have spent in any of the last fifteen years, which will further increase our capacities," said Theo Folz, chief executive officer of Consolidated Cigar.

Swisher International Group reported a net income for the fourth quarter of $10.1 million, up 73 percent from the previous year. For the fiscal year 1997, net income increased 58 percent to $39.3 million.

Net sales for the year were $275.6 million versus $225.2 million in 1996, an increase of 22 percent.

Caribbean Cigar Pulls Production From Indonesia
Miami-based Caribbean Cigar Co. has transferred the production of its Indonesian-made brands - Celestino Vega, Rum Runner, Island Amaretto, and West Indies Vanilla - to its Dominican Republic production facilities. Caribbean Cigar had been involved in a joint venture with the PT Taru Martani factory in Java to manufacture these cigar brands for the U.S. market.

The company said in a statement it will now have greater capacity and quality control, specifically with respect to its popular flavored cigar brands. Additionally, in drawing from Caribbean's tobacco reserves in the Dominican Republic, the company will be able to ensure consistency on a long-term basis.

Management cited uncertainty in the Indonesian economy, logistics of Far East production, the high cost of shipping, duties, and a dispute with PT Taru Martani for its decision to move production.

Caribbean reported losses in the third quarter 1997, as sales decreased to $1.4 million compared to $2.5 million in the comparable period last year. Contributing to this decrease is the shortages in product due primarily to the interruption of supply from Indonesia.

In early January, a flood at the company's tobacco processing warehouse facility in Jaibon, Dominican Republic, affected certain stores of filler, wrapper, and binder, totaling about 220,000 pounds. Most of the damaged leaf was slated for outside sale, according to the company, which says tobacco destroyed by water damage will not affect the company's cigar production. The remaining tobacco is sufficient enough to enable the company to manufacture cigars through March of 1999.

Caribbean has since settled with its Dominican insurer, Compania Nacional De Seguros, C. Por A. for approximately $1.5 million.

Seita, Tabacalera Strike Alliance
Seita SA, the French tobacco products group, and Tabacalera S.A. of Spain, have finalized a strategic agreement to cooperate in international markets. The collaboration would cover commercial, industrial, and financial activities and create combined operations in the areas of supply, manufacturing, research, and distribution.

The five-year agreement is renewable and involves the creation of a joint venture, Global Tobacco, to be headquartered in France. The new group's chairman will be appointed annually on a rotating basis, the first chosen by Tabacalera. This new entity would provide a platform for Seita and Tabacalera to "identify and execute joint projects on international markets." Exact areas of cooperation would be defined country by country based on each company's existing business and a common strategy.

Currently, the Spanish government is preparing to publicly sell its 52 percent stake in Tabacalera, which is the world's leading cigar producer since it acquired four cigar companies last year, including U.S.-based Havatampa, Inc., and Max Rohr Importer, Inc.