14 May 2003

                              GALLAHER GROUP PLC                               

                            ANNUAL GENERAL MEETING                             

                    EXTRACTS FROM THE CHAIRMAN'S STATEMENT                     

"2002 was another year of substantial progress for Gallaher.

"We grew our businesses across Europe, the CIS and Asia, increasing pro-forma
volumes by 18 per cent to 153 billion cigarettes.

"This growth was matched by a strong financial performance. Group profit before
interest, taxation and amortisation - EBITA - increased by 23 per cent, profit
before taxation and amortisation - PBTA - increased by 16 per cent, and
adjusted earnings per share grew by nine per cent.

"Gallaher's underlying trading performance continues to be robust, despite the
impact of substantial duty increases in several large markets.

"Total volumes increased by some two per cent in the first quarter - and, on a
full year basis, Group trading remains in-line with management and market
expectations.

"In the UK, the growth achieved in the Group's cigarette market share during
the second half of 2002 has been consolidated this year. Gallaher maintained
cigarette retail market share at 38.6 per cent during the first quarter, and
the Group increased its respective shares of the cigar and handrolling tobacco
markets to 46.9 per cent and 31.9 per cent.

"Our brands continued to benefit from incremental marketing investment in the
run-up to the commencement of the advertising ban on 14th February. This
expenditure is expected to underpin long-term brand equity.

"The UK Chancellor raised cigarette duty by an in-line with inflation figure of
eight pence per pack in his April Budget.

"In combination with last year's increase in the Government's guidelines for
personal tobacco import allowances for travellers returning from the EU, the
on-going high levels of UK tobacco taxation have encouraged further non-UK duty
paid consumption.

"During the first three months of this year, the UK duty paid cigarette market
underwent an expected decline of some four per cent.

"Gallaher's Continental European division has continued to trade well in 2003.
The Group has achieved modest growth in pro-forma volumes, and has taken price
increases, despite the disruption caused by excise tax increases to trading
patterns in Austria, Sweden, Germany and France.

"Reynolds-Gallaher International is making solid progress. The incremental
marketing expenditure that is being placed behind Benson & Hedges American
blended cigarettes, and the innovative new brand Reynolds, is delivering good
results. Market share has increased in France, Spain and Italy.

"The strength of the euro has negatively impacted margins achieved on
Gallaher's exports from Austria to countries outside the euro-zone. However,
this negative impact is being more than offset by the translation of the
division's euro denominated profits into sterling.

"Gallaher's underlying trading performance in the CIS remains strong.

"In Russia, first quarter invoiced sales were down due to the planned extended
closure of our Moscow factory in early January. However, the Group outperformed
the market - which has been impacted by January's substantial increase in
excise tax - growing total cigarette market share to 14.2 per cent.

"Our share of the premium sector increased to 1.9 per cent in the first quarter
- up from some 1.4 per cent in the fourth quarter of 2002 - as a result of the
marketing investment placed behind our brands.

"In Kazakhstan, first quarter market share grew to over 26 per cent, and our
share of the Ukrainian market has increased to over 10 per cent.

"Gallaher's CIS sales are largely US dollar denominated, and earnings are,
therefore, impacted by the translation of CIS profits into sterling.

"In our Rest of World division, market volumes in the Republic of Ireland have
fallen as a result of trade de-stocking following last December's 50 euro cents
per pack tax increase. However, the Group's trading performance in Ireland
remains resilient.

"Exchange rate movements are also affecting this division. The strength of the
euro is benefiting the translation of our Irish profits into sterling, and our
operations in Asia and AMELA have been affected by the weakness of the US
dollar.

"At Group level, the impact of exchange rate movements on earnings is
marginally positive, and, although the sterling cost of our euro denominated
debt is being adversely affected by the strength of the euro, this is being
broadly offset by lower interest rates.

"I am pleased with the progress that is being made by the Gallaher and Shanghai
Tobacco project team towards the reciprocal agreements in China and Russia.
Although, recently, meetings and site visits have been cancelled because of
current travel restrictions, we hope to make up time once these restrictions
have receded.

"Following the successful integration of Austria Tabak, management has been
reviewing Group operating efficiencies during the last few months, and we
expect to have more to say about this in the near future.

"I look with pride on the significant expansion that has taken place since
Gallaher became an independent company six years ago. We have successfully
followed our Eurasian vision, delivering value-creating growth.

"I again extend my gratitude to our employees, customers, suppliers and
shareholders, whose commitment to Gallaher helps to ensure our continued
success."

Enquiries:                                                                     
                                                                               
Claire Jenkins - Director, Investor Relations                 Tel: 01932 859777
                                                                               
Anthony Cardew - CardewChancery                              Tel: 020 7930 0777



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