Current Trading in Line With Management's Expectations.

Business Editors

LONDON--(BUSINESS WIRE)--Dec. 14, 2000

Prior to its year end (December 31, 2000), Gallaher Group Plc confirms that current trading is in line with management's expectations.

Reflecting the ongoing trend of increasing cross-border trade, the legitimate UK cigarette market continues to decline at around 10%. The resultant changes in the dynamics of the legitimate cigarette market continue to be addressed effectively by Gallaher using its balanced brand portfolio. The Group maintains its leadership of the UK cigarette market with its share of consumer sales of some 40%.

Gallaher's international volume growth remains strong, with significant improvements being seen in certain of the Group's established markets, and in its new emerging markets business. New sales offices have been opened in Madrid, Rome and Shanghai. The capital investment in Liggett-Ducat, of some (pound)40 million over 2000 and 2001 (announced on September 6, 2000), is underway, underpinning the ability of Gallaher's Russian operation's to continue to benefit from volume growth, and portfolio and pricing initiatives.

Overall, current trading remains in line with the market's expectations.

Following the acquisition of Liggett-Ducat, and after assessing the consequent implications of the UK Government's proposals on "limited onshore mixing of dividends", Gallaher now anticipates a moderate short-term reduction in the Group's expected effective tax rate.

Since the announcement of its 2000 interim results in September, Gallaher has repurchased 10.2 million shares in the market at a cost of (pound)41.7 million (as at December 13, 2000). In total, therefore, since January 1, 2000, the Group has repurchased 49.3 million shares, returning (pound)162.6 million to shareholders this year.

Notes:

-- Gallaher Group Plc, the international tobacco company with headquarters in
the United Kingdom, commands market-leading positions in the UK, Russia and the
Republic of Ireland. Gallaher's comprehensive brand portfolio includes Benson
and Hedges, Silk Cut, Mayfair, Sovereign, Sobranie, Dorchester, Prima, LD,
Hamlet, Old Holborn, Amber Leaf and Condor.

-- The Group employs 4,500 people, with manufacturing plants in the UK, Russia,
the Republic of Ireland and Kazakhstan. Gallaher's shares are listed on the
London Stock Exchange and its ADRs are traded on the New York Stock Exchange.

-- Gallaher's UK cigarette market share in the period January - September 2000,
excluding those brands involving distribution rights only, was 39.8% (1999:
39.5%). (Including the consumer sales of distributed brands, the Group's market
shares in the periods January - September 2000 and 1999 were 40.3% and 39.9%
respectively.)

-- Currently, there are 614.2 million ordinary shares in issue. The shares
repurchased to date in 2000 accounted for 7.45% of the shares outstanding at
the beginning of the year.