Trading Statement

    16 December 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 preliminary results for the year
ended 31 December 2003.

Gallaher confirms that group trading in 2003 is in line with expectations, and
the Group's business remains in a strong position going forward.

-   United Kingdom                                                        
                                                                          
    Gallaher's trading in the cigarette, cigar and tobacco markets remains
    robust, with UK cigarette market share stable year on year.           
                                                                          
    The increase in the Government's guidelines for personal tobacco      
    import allowances in October 2002 for travellers returning from the   
    EU, together with the on-going high levels of UK tobacco taxation,    
    drove an underlying decline in UK duty-paid market volumes of         
    approximately 5% in the first six months of 2003. On a full year      
    basis, Gallaher expects the UK cigarette market to decline by         
    approximately 3%, mainly as the effect of increased personal          
    allowances was already a factor in the second half of 2002.           
                                                                          
-   Continental Europe                                                    
                                                                          
    Gallaher continues to trade well in Continental Europe, growing       
    underlying volumes by over 7% in the first 10 months of 2003. This    
    performance was achieved despite the negative impact of above         
    inflation duty increases on total market volumes in certain European  
    states, including France and Germany, and lower than anticipated UK   
    traveller volumes during the second half.                             
                                                                          
    Planned duty increases in France and Germany are expected to          
    negatively affect total duty-paid volumes in these markets. However,  
    the Group is well placed to compete in the French market with its     
    value brands and has a balance of branded, private label, vending and 
    distribution interests in Germany.                                    
                                                                          
    Following the acquisition of KT Merkury in July, Gallaher is making   
    good progress in Poland. A programme of investment is underway at the 
    factory in Gostkow and brands including LD and Level have been        
    launched.                                                             
                                                                          
-   Commonwealth of Independent States                                    
                                                                          
    Gallaher's brands continue to trade strongly in the CIS, with market  
    share gains in Russia, Kazakhstan and Ukraine. In the first 10 months 
    of 2003, divisional volumes grew by over 13%, with vibrant growth in  
    Kazakhstan, Ukraine and hard box filter cigarettes in Russia more than
    offsetting a planned reduction in non-filter Russian oval sales.      
                                                                          
    In Russia, average 2003 market share is around 15% and the Group's    
    share of the strategically important premium sub-sector has continued 
    to increase, and is now over 3%.                                      
                                                                          
    Gallaher's CIS sales are largely US dollar denominated. The continued 
    weakening of the dollar during the second half of 2003 is further     
    impacting the translation of CIS profits into sterling.               
                                                                          
-   Rest of World                                                         
                                                                          
    Gallaher's trading performance in the Republic of Ireland remains     
    resilient, with market share being maintained at around 49%. However, 
    total market volumes declined following the substantial increase in   
    excise tax that took place last December, and have stayed at reduced  
    levels when compared with 2002. The additional duty increase that took
    place on 4 December this year is expected to further impact market    
    volumes.                                                              
                                                                          
    Trading in AMELA and Asia Pacific remains in line with management's   
    expectations. The Group has continued to achieve good volume growth in
    Asia, driven by increased in-market sales in Taiwan, China and Japan. 

For further information, contact:

Claire Jenkins, Director, Investor Relations                 Tel: [phone]
                                                                               
Anthony Cardew, CardewChancery                               Tel: [phone]

                             Cautionary Statement                              

This announcement includes "forward-looking statements" within the meaning of
the US securities laws. All statements other than statements 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, litigation outcomes and
timetables, the successful integration of acquisitions and joint ventures into
our Group 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,
political or commercial conditions, foreign exchange rate fluctuation, interest
rate fluctuations, competitive product and pricing pressures, the impact of
excise tax increases, regulatory developments, the uncertainties of litigation,
difficulties in integrating acquisitions and joint ventures, production or
distribution disruptions, difficulty in managing growth, declining demand for
tobacco products, increasing dependence on sales in the CIS, changes in the
supply of tobacco and non-payment of receivables by our distributors 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.
                          



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