NEWS RELEASE

Gallaher announces plans for further restructuring of the Group’s European operations

Following a review, to ensure that Gallaher remains at the forefront of operational efficiency, the Group is announcing plans for further restructuring of its European operations. While maintaining total Group production capacity, these plans will enhance Gallaher’s competitive position and allow the Group to retain the flexibility to meet changing market demands.

Gallaher plans to close the Schwaz cigarette and Fürstenfeld cigar factories in Austria during 2005. It also plans to restructure production at its cigarette and cigar factories at Lisnafillan and Cardiff in the UK.

In addition to this manufacturing restructuring, Gallaher plans to reorganise some aspects of its distribution network.

Regrettably, as a consequence of these combined changes, around 250 operational jobs could be affected in Europe.

A full employee consultation process is underway. Once the outcome of this process is known, the exceptional charges and annualised savings (which Gallaher plans to achieve by the end of 2007) associated with these changes will be finalised and announced.

Gallaher remains committed to strengthening its remaining manufacturing facilities in Austria and the UK, through continued investment, to meet the requirements of established Western and Central European markets.

In seeking to grow its Eastern European and Developing Markets business, Gallaher plans to establish on-shore production where appropriate, and concentrate remaining production for Developing Markets in its factory in Poland. The Group has commenced on-shore production in Romania and its brands are being manufactured under contract in Bosnia and Macedonia.

18 January 2005

Notes to Editors

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, impact of market trends and price increases, dividend policy, exchange rates, anticipated investments, projected sales, costs and results (including growth prospects in particular regions), plans, projects to enhance efficiency, impact of governmental regulations or actions, litigation outcomes and timetables, the successful integration of acquisitions and joint ventures into our Group, objectives of management for future operations and effects of restructuring activities, 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 (including those 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 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 and other emerging markets, 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 public filings and announcements. 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.