30 June 2003

                              GALLAHER GROUP PLC                               

                   CURRENT TRADING IN LINE WITH EXPECTATIONS                   

The following statement provides an update on Gallaher Group Plc's current
trading, which will be discussed with analysts and investors before the close
period leading up to the announcement of its results for the six months ended
30th June 2003.

Group trading remains in line with expectations for the full year, and the
impact of ongoing currency movements on the Group's earnings is marginally
positive.

The announced plans and process of consultations for the restructuring of
Gallaher's European operations (encompassing the UK, Republic of Ireland and
Austria) are proceeding as planned.

-         United Kingdom

The increase in the Government's guidelines for personal tobacco import
allowances for travellers returning from the EU, together with the on-going
high levels of UK tobacco taxation, have resulted in an underlying expected
decline in UK duty-paid market volumes, of approximately 4% to 5%. The summer
months will give a better indication of trends going forward.

Gallaher's trading in the cigarette, cigar and tobacco markets remains robust.
Management expects full year UK earnings to be distributed broadly evenly
between the first and second halves of the year - with the impact on first half
earnings of the pull forward of sales ahead of the Group's announced 1st July
price increase marginally more than offsetting incremental marketing
expenditure invested in advance of the February advertising ban.

-         Continental Europe

Gallaher continues to trade well in Continental Europe with a modest increase
in pro-forma volumes, despite the negative impact of above inflation duty
increases on total market volumes. The Group has taken price increases in
certain markets and is benefiting from the growth in market share that is being
achieved by Reynolds-Gallaher International in France, Spain and Italy.

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

Full year Continental European earnings are expected to be distributed broadly
evenly between the first and second halves of 2003, with initial start-up
losses in Poland in the second half being balanced by continued trading
benefits elsewhere in Europe.

-         Commonwealth of Independent States

Gallaher's brands continue to trade strongly in the CIS, growing market share
in Russia, Kazakhstan and Ukraine. The Group's share of the premium segment in
Russia has continued to increase, and is now over 2.5%, as a result of the
marketing investment placed behind its brands which commenced in the second
half of 2002.

The planned extended holiday closure of Gallaher's Moscow factory in January,
and trade loading ahead of the 1st January tax increase, have impacted first
half invoiced sales volumes.

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

Margins are being reduced by the strength of the euro, and rouble, in relation
to the US dollar. Certain non-tobacco purchases are made in euros, and
cigarette taxation - which increased substantially in January, and was largely
absorbed by the industry - is denominated in roubles.

Management expects the distribution of full year CIS profits to reflect the
region's traditional trading patterns, with approximately one third of annual
earnings being attributable to the first half.

-         Rest of World

Market volumes in the Republic of Ireland have declined following last
December's 50 euro cents per pack tax increase, however, Gallaher's trading
performance in Ireland remains resilient. Trading in AMELA and Asia Pacific
also remains in line with management's expectations.

Exchange rate movements are also affecting this division. The strength of the
euro is benefiting the translation of Gallaher's Irish profits into sterling.
This benefit is offsetting the negative impact of the weakness of the US dollar
on the Group's operations in AMELA and Asia Pacific.

Management expects full year earnings in the Rest of World division to be
distributed broadly evenly between the first and second halves of the year.

-         Amortisation

The majority of the amortisation applicable to Gallaher's earnings relates to
the euro denominated acquisition of Austria Tabak in 2001. The strength of the
euro is, therefore, affecting the sterling equivalent of this charge.

-         Interest

The impact of exchange and interest rate movements on Gallaher's interest
charge continues to be largely neutral. The majority the Group's debt is
denominated in euros. Therefore, the absolute amount and cost of this debt is
being adversely affected by the strength of the euro, however, this effect on
the interest charge is being offset by lower euro, sterling and dollar interest
rates.

-         Minority Interests

The most significant element of the Group's equity minority interests pertains
to the shares not held by Gallaher in the German vending operation, ATG. As
such, the minority charge is being adversely impacted by the strength of the
euro.

In conclusion, trading remains in line with expectations on a full year basis
across the Group.

The impact of ongoing currency movements on Gallaher's group earnings is
expected to be marginally positive in 2003. The benefit of the translation of
Continental European earnings into sterling is more than offsetting the impact
of the weaker US dollar on operating margins in the CIS, and the translation of
this division's earnings into sterling.

For further information, contact:

Claire Jenkins, Director, Investor          Tel: 01932 859 777                 
Relations                                                                      
                                                                               
Anthony Cardew, CardewChancery.             Tel: 020 7930 0777                 

                             Cautionary statement                              

This announcement includes forward-looking statements within the meaning of
Section 27A of the US Securities Exchange Act of 1934, as amended. All
statements other than statement of historical fact included in this
announcement, including, without limitation, statements regarding Gallaher's
future financial position, strategy, dividend policy, projected sales, costs
and results (including growth prospects in particular regions), plans, impact
of governmental regulations or actions, the successful integration of Austria
Tabak and other acquisitions into our group, progress in completing an
agreement with the China National Tobacco Corporation, and objectives of
management for future operations, may be deemed to be forward-looking
statements. Although Gallaher believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. Important factors could cause
actual results to differ materially from Gallaher's expectations including,
without limitation, changes in general economic conditions, foreign exchange
rate fluctuation, interest rate fluctuations (including those resulting from
any potential credit rating decline), competitive product and pricing
pressures, the impact of excise tax increases, regulatory developments, the
uncertainties of litigation, difficulties in completing and integrating
acquisitions and joint ventures and production or distribution disruptions,
difficulty in managing growth, declining demand for tobacco products,
increasing dependence on sales in the CIS and risks to factories, as well as
other uncertainties detailed from time to time in Gallaher's filings with the
US Securities and Exchange Commission. The risks included here are not
exhaustive. Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for us to predict all such risk factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. Given these
risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.

                                            



END