Philip Morris announced it will close its plant in Hodonin in the Czech Republic by the end of July. The company expects a one-off cost of CZK 480m, i.e. CZK 175/share, and annual savings of CZK 100m (CZK 74/share) resulting in a payback period of 5 years. The intention to close the plant was already announced last year at the 1H04 results, thus it should not be a surprise to the market. We believe that by closing the Hodonin plant the company will optimize its production capacity and operating margins given the drop in sales following the introduction of excise tax hikes in the Czech Republic and Slovakia (2004 and 2003) and further planned hikes going forward leading to the consumption of cheaper cigarettes.