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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">UNITED STATES </FONT></B><font size="4"><br>
    <B><FONT face="TimesNewRoman,Times New Roman,Times,serif">SECURITIES AND EXCHANGE COMMISSION</FONT></B></font><br>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Washington, D.C. 20549 </FONT></P>
<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F</FONT></B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Mark One)<br>
</FONT><BR>
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    <td width="3%" align="left"><img src="emptybox.gif" width="12" height="12"></td>
    <td width="3%">&nbsp;</td>
    <td align="left">
      <p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">REGISTRATION
          STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
          ACT OF 1934</FONT></p>
    </td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">or</font></div></td>
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    <td width="3%" align="left"><img src="tickedbox.gif" width="12" height="12"></td>
    <td width="3%">&nbsp;</td>
    <td align="left">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div align="center"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">For
    the fiscal year ended: 31 December 2005</font></b></div></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">or</font></div></td>
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    <td width="3%" align="left"><img src="emptybox.gif" width="12" height="12"></td>
    <td width="3%">&nbsp;</td>
    <td align="left">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">THE
SECURITIES EXCHANGE ACT OF 1934</FONT></td>
  </tr>
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<P align="center">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Commission file number: 1-14602
</FONT></B></P>
<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Exact name of Registrant as specified in its charter)
</FONT></P>
<P align="center"><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">England
and Wales<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Jurisdiction of incorporation or organisation)</FONT></P>
<P align="center"><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Members Hill, Brooklands Road, Weybridge, Surrey KT13 0QU, England
</FONT></B></P>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Address of principal executive office)<br>
  <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Securities registered or to be registered pursuant to Section 12(b) of the Act:</FONT></P>
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	<TD align=left>&nbsp;

	</TD>
	<TD width="50%" align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Name of each exchange</FONT></TD>
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	<TD align=center>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Title of each class</FONT></U>&nbsp;
	</TD>
	<TD align=center>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">on which registered</FONT></U>&nbsp;
	</TD>
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	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">American Depositary Shares</FONT></B>&nbsp;
	</TD>
	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">New York Stock Exchange</FONT></B>&nbsp;
	</TD>
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  <TD align=center>&nbsp;</TD>
  <TD align=center>&nbsp;</TD>
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	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ordinary Shares nominal value 10p per share</FONT></B>&nbsp;
	</TD>
	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">New York Stock Exchange </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">*</FONT></TD>
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<p align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">*Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.</FONT></p>
<p align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Securities registered or to be registered pursuant to Section 12(g) of the Act: <br>
  </FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">None</FONT></B></p>
<p align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:<br>
  </FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">None</FONT></B></p>
<p align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Indicate
          the number of outstanding shares of each of the issuer&#146;s classes of
      capital or common </FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">stock as of the close of 31 December 2005:<br>
      <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ordinary
      Shares nominal value 10p per share&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></b><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">656.0
      million shares</font></b>      </FONT></p>
<P><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">    </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: </FONT></P>
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    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Yes</font></div></td>
    <td width="10%"><div align="center"><img src="emptybox.gif" width="12" height="12"></div></td>
    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> No</font></div></td>
    <td width="10%"><div align="center"><img src="tickedbox.gif" width="12" height="12"></div></td>
    <td>&nbsp;</td>
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<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to to Section 13 or 15(d) of the Securities Exchange
Act of 1934. </FONT></P>
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    <td width="30%">&nbsp;</td>
    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Yes</font></div>
    </td>
    <td width="10%"><div align="center"><img src="emptybox.gif" width="12" height="12"></div>
    </td>
    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> No</font></div>
    </td>
    <td width="10%"><div align="center"><img src="tickedbox.gif" width="12" height="12"></div>
    </td>
    <td>&nbsp;</td>
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<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">for such shorter period that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days: </FONT></P>
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    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Yes</font></div>
    </td>
    <td width="10%"><div align="center"><img src="tickedbox.gif" width="12" height="12"></div>
    </td>
    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> No</font></div>
    </td>
    <td width="10%"><div align="center"><img src="emptybox.gif" width="12" height="12"></div>
    </td>
    <td>&nbsp;</td>
  </tr>
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<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Indicate by
    check mark whether the Registrant is a large accelerated filer, an accelerated
    filer, or a non-accelerated filer. See definition of &#147;accelerated filer and large
accelerated filer&#148; in Rule 12b-2 of the Exchange Act. (Check one): </FONT></P>
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	<TD width=33% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Large accelerated
filer&nbsp; <img src="tickedbox.gif" width="12" height="12"></FONT><FONT size=2 face="LucidaSansUnicode,Arial,Helvetica,sans-serif">&nbsp;</FONT></TD>
	<TD width=33% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accelerated filer&nbsp; <img src="emptybox.gif" width="12" height="12"></FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-accelerated
filer&nbsp; <img src="emptybox.gif" width="12" height="12"></FONT></TD>
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<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Indicate by check mark which financial statement items the Registrant has elected to follow:</FONT></P>
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  <TD width=3% align=left>&nbsp;</TD>
	<TD width=24% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Item 17 </FONT><FONT size=2 face="LucidaSansUnicode,Arial,Helvetica,sans-serif">&nbsp;<img src="tickedbox.gif" width="12" height="12"></FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Item 18 </FONT><img src="emptybox.gif" width="12" height="12"></TD>
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<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). </FONT></P>
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    <td width="30%">&nbsp;</td>
    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Yes</font></div>
    </td>
    <td width="10%"><div align="center"><img src="emptybox.gif" width="12" height="12"></div>
    </td>
    <td width="10%"><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> No</font></div>
    </td>
    <td width="10%"><div align="center"><img src="tickedbox.gif" width="12" height="12"></div>
    </td>
    <td>&nbsp;</td>
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<div style="page-break-before:always"></div><page><a name="#contents"></a>
<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
      GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
        20-F 2005 </FONT></B></P>
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<TR valign="bottom">
	<TD width=8% align=left><a href="#p6">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 1</FONT></a></TD>
	<TD align=left><a href="#p6">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IDENTITY OF DIRECTORS, SENIOR MANAGEMENT and ADVISERS</FONT></a></TD>
	<TD width="5%" align=right><a href="#p6">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p6a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p6a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors and Senior Management</FONT></a></TD>
	<TD align=right><a href="#p6a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p6b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p6b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Advisers</FONT></a></TD>
	<TD align=right><a href="#p6b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p6c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p6c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Auditors</FONT></a></TD>
	<TD align=right><a href="#p6c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p7">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 2</FONT></a></TD>
	<TD align=left><a href="#p7">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">OFFER STATISTICS and EXPECTED TIMETABLE</FONT></a></TD>
	<TD align=right><a href="#p7">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p7a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p7a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Offer Statistics</FONT></a></TD>
	<TD align=right><a href="#p7a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p7b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p7b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Method and Expected Timetable</FONT></a></TD>
	<TD align=right><a href="#p7b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p8">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 3</FONT></a></TD>
	<TD align=left><a href="#p8">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">KEY INFORMATION</FONT></a></TD>
	<TD align=right><a href="#p8">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p8a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p8a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Selected Financial Information</FONT></a></TD>
	<TD align=right><a href="#p8a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p14">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p14">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capitalisation and Indebtedness</FONT></a></TD>
	<TD align=right><a href="#p14">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p14">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p14a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reasons for the Offer and Use of Proceeds</FONT></a></TD>
	<TD align=right><a href="#p14a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p14b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT></a></TD>
	<TD align=left><a href="#p14b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Risk Factors</FONT></a></TD>
	<TD align=right><a href="#p14b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p20">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 4</FONT></a></TD>
	<TD align=left><a href="#p20">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">INFORMATION ON THE COMPANY</FONT></a></TD>
	<TD align=right><a href="#p20">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p20a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p20a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">History and Development of the Company</FONT></a></TD>
	<TD align=right><a href="#p20a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p22">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p22">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Business Overview</FONT></a></TD>
	<TD align=right><a href="#p22">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p32">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p32">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Organisational Structure</FONT></a></TD>
	<TD align=right><a href="#p32">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p33">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT></a></TD>
	<TD align=left><a href="#p33">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property, Plant and Equipment</FONT></a></TD>
	<TD align=right><a href="#p33">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p35">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 4A</FONT></a></TD>
	<TD align=left><a href="#p35">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Unresolved Staff
Comments</FONT></a></TD>
    <TD align=right><a href="#p35"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</font></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p36">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 5</FONT></a></TD>
	<TD align=left><a href="#p36">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">OPERATING AND FINANCIAL REVIEW AND PROSPECTS</FONT></a></TD>
	<TD align=right><a href="#p36">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p51">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 6</FONT></a></TD>
	<TD align=left><a href="#p51">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">DIRECTORS, SENIOR MANAGEMENT and EMPLOYEES</FONT></a></TD>
	<TD align=right><a href="#p51">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p51a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p51a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors and Senior Management</FONT></a></TD>
	<TD align=right><a href="#p51a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p52">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p52">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Compensation</FONT></a></TD>
	<TD align=right><a href="#p52">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">52</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p64">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p64">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Board Practices</FONT></a></TD>
	<TD align=right><a href="#p64">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">64</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#P75">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT></a></TD>
	<TD align=left><a href="#p75"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employees</FONT></a></TD>
	<TD align=right><a href="#p75">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">75</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p76">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">E</FONT></a></TD>
	<TD align=left><a href="#p76">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share Ownership</FONT></a></TD>
	<TD align=right><a href="#p76">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">76</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p77">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 7</FONT></a></TD>
	<TD align=left><a href="#p77">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">MAJOR SHAREHOLDERS and RELATED PARTY TRANSACTIONS</FONT></a></TD>
	<TD align=right><a href="#p77">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p77a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p77a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Major Shareholders</FONT></a></TD>
	<TD align=right><a href="#p77a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p77b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p77b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Related Party Transactions</FONT></a></TD>
	<TD align=right><a href="#p77b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p78">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p78">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interests of Experts and Counsel</FONT></a></TD>
	<TD align=right><a href="#p78">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">78</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p79">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 8</FONT></a></TD>
	<TD align=left><a href="#p79">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">FINANCIAL INFORMATION</FONT></a></TD>
	<TD align=right><a href="#p79">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">79</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p79a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p79a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated Statements and Other Financial Information</FONT></a></TD>
	<TD align=right><a href="#p79a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">79</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p80">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p80">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Significant Changes</FONT></a></TD>
	<TD align=right><a href="#p80">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">80</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p81">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 9</FONT></a></TD>
	<TD align=left><a href="#p81">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">THE OFFER AND LISTING</FONT></a></TD>
	<TD align=right><a href="#p81">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">81</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p81a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p81a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Offer and Listing Details</FONT></a></TD>
	<TD align=right><a href="#p81a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">81</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p82">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p82">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Plan of Distribution</FONT></a></TD>
	<TD align=right><a href="#p82">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p82a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p82a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Markets</FONT></a></TD>
	<TD align=right><a href="#p82a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p82b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT></a></TD>
	<TD align=left><a href="#p82b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Selling Shareholders</FONT></a></TD>
	<TD align=right><a href="#p82b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p82c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">E</FONT></a></TD>
	<TD align=left><a href="#p82c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dilution</FONT></a></TD>
	<TD align=right><a href="#p82c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p82d">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F</FONT></a></TD>
	<TD align=left><a href="#p82d">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expenses of the Issue</FONT></a></TD>
	<TD align=right><a href="#p82d">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p83">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 10</FONT></a></TD>
	<TD align=left><a href="#p83">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ADDITIONAL INFORMATION</FONT></a></TD>
	<TD align=right><a href="#p83">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">83</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p83A">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p83a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share Capital</FONT></a></TD>
	<TD align=right><a href="#p83a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">83</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p83b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p83b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memorandum and Articles of Association</FONT></a></TD>
	<TD align=right><a href="#p83b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">83</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p86">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p86">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Material Contracts</FONT></a></TD>
	<TD align=right><a href="#P86">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">86</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p86a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT></a></TD>
	<TD align=left><a href="#p86a"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange
      Controls</FONT></a></TD>
	<TD align=right><a href="#p86a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">86</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p87">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">E</FONT></a></TD>
	<TD align=left><a href="#p87"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation</FONT></a></TD>
	<TD align=right><a href="#p87">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">87</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p90">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F</FONT></a></TD>
	<TD align=left><a href="#p90"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends
      and Paying Agents</FONT></a></TD>
	<TD align=right><a href="#p90">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">90</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p91">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">G</FONT></a></TD>
	<TD align=left><a href="#p91"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Statement
      by Experts</FONT></a></TD>
	<TD align=right><a href="#p91">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p91a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">H</FONT></a></TD>
	<TD align=left><a href="#p91a"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Documents
      on Display</FONT></a></TD>
	<TD align=right><a href="#p91b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p91b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">I</FONT></a></TD>
	<TD align=left><a href="#p91b"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Subsidiary
      Information</FONT></a></TD>
	<TD align=right><a href="#p91b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p92">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 11</FONT></a></TD>
	<TD align=left><a href="#p92"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">QUANTITATIVE
      and QUALITATIVE DISCLOSURE about MARKET RISK</FONT></a></TD>
	<TD align=right><a href="#p92">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">92</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p96">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 12</FONT></a></TD>
	<TD align=left><a href="#p96"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">DESCRIPTION
      OF SECURITIES other than EQUITY SECURITIES</FONT></a></TD>
	<TD align=right><a href="#p96">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p96a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p96a"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Debt
      Securities</FONT></a></TD>
	<TD align=right><a href="#p96a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p96b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p96b"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Warrants
      and Rights</FONT></a></TD>
	<TD align=right><a href="#p96b">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p96c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p96c"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other
      Securities</FONT></a></TD>
	<TD align=right><a href="#p96c">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p96d">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT></a></TD>
	<TD align=left><a href="#p96d">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">American Depositary Shares</FONT></a></TD>
	<TD align=right><a href="#p96d">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p97">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 13</FONT></a></TD>
	<TD align=left><a href="#p97"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">DEFAULTS,
      DIVIDEND ARREARAGES and DELINQUENCIES</FONT></a></TD>
	<TD align=right><a href="#p97">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">97</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p98">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 14</FONT></a></TD>
	<TD align=left><a href="#p98">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">MATERIAL MODIFICATIONS
to the RIGHTS OF SECURITY HOLDERS and <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">USE
OF PROCEEDS</FONT></FONT></a></TD>
	<TD align=right><a href="#p98"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">98</font></a>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p99">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 15</FONT></a></TD>
	<TD align=left><a href="#p99"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CONTROLS
      AND PROCEDURES</FONT></a></TD>
	<TD align=right><a href="#p99">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">99</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p100">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 16</FONT></a></TD>
	<TD align=left><a href="#p100"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">DISCLOSURE
      ON AUDIT COMMITTEE FINANCIAL EXPERT</FONT></a></TD>
	<TD align=right><a href="#p100">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p100a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></a></TD>
	<TD align=left><a href="#p100a"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Disclosure
      On Audit Committee Financial Expert</FONT></a></TD>
	<TD align=right><a href="#p100a">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p101">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></a></TD>
	<TD align=left><a href="#p101"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code
      Of Ethics</FONT></a></TD>
	<TD align=right><a href="#p101">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">101</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#p102">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></a></TD>
	<TD align=left><a href="#p102"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Principal
      Accountant Fees And Services</FONT></a></TD>
	<TD align=right><a href="#p102">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">102</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#P102A"></a>
	</TD>
	<TD align=left><a href="#p102a"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exemption
      from the Listing Standards for the Audit Committees</FONT></a></TD>
    <TD align=right><a href="#p102a"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">102</font></a></TD>
</TR>
<TR valign="bottom">
  <TD align=left><a href="#p102b"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">E</font></a></TD>
    <TD align=left><a href="#p102b"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Purchases
      of Equity Securities by the Issuer and Affiliated Purchasers</font></a></TD>
  <TD align=right><a href="#p102b"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">102</font></a></TD>
</TR>
</TABLE>
<P align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">i</font> </P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pii"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
      GROUP Plc</font></b> <br>
<br>
<b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</font></b></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD width=6% align=left>&nbsp;</TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=5% align=right>&nbsp;</TD>
    <TD width=2% align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><a href="#p102"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM
      17</FONT></a></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><a href="#p102"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">FINANCIAL
      STATEMENTS</FONT></a></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><a href="#p102"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">102</FONT>
    </a></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><a href="#p104"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM
      18</FONT></a></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><a href="#p104"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">FINANCIAL
      STATEMENTS</FONT></a></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><a href="#p104"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT></a></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><a href="#p105"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM
      19</FONT></a></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><a href="#p105"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EXHIBITS</FONT></a></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><a href="#p105"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">105</FONT></a></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ii</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="piii"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b> <br>
<br>
<b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</font></b></p>
<p align="center"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">INTRODUCTION</font></b></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We publish our consolidated financial statements expressed in United Kingdom pounds sterling. "US dollars", "US &#36;" or "&#36;" refer to United States currency, "Euro" or "&#128;" refer
to the currency of European states who have adopted the currency and "pounds sterling", "sterling", "&#163;" or "p" refer to UK currency, and "&#163;m" refers to millions of pounds sterling. Solely for convenience, translations of certain pounds
sterling amounts into US dollars have been made at specified rates. These translations should not be taken to be that the pound sterling amounts actually represent such US dollar amounts or could be converted into US dollars at the rates indicated.
Translations of pounds sterling into US dollars have been made as of 31 December 2005 rate of &#163;1.00 = &#36;1.717 being the "noon buying rate" in New York City for cable transfers in foreign currencies as announced for customs purposes by the
Federal Reserve Bank of New York. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our fiscal year ends on 31 December of each year. References to a particular year are to the fiscal year unless otherwise indicated. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">"Companies Act" refers to the UK Companies Act of 1985, as amended, and "EU" refers to the European Union. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Except as indicated otherwise, market share information in respect of the UK reflects unit sales to consumers, and is based on information compiled by A.C. Nielsen Company Limited, and
applies to the year ended 31 December 2005. Nielsen's information reflects the results of surveys conducted by it and represents best estimates only. A.C. Nielsen data relating to the UK cigarette market quoted in Item 5 &#145;Operating and
financial review and prospects -Results of Operations &#150; Year 2005 compared with Year 2004&#146;, refers to the total cigarette market, unless otherwise specified. A.C. Nielsen data relating to the UK cigarette market quoted elsewhere refers to
the retail cigarette market. We believe that the latter measure provides a better reflection of our performance and thus adopted it during 2003. Trade sales in the UK for 2005 are based on information compiled, from data supplied by UK tobacco
manufacturers and importers, by Stretch Statistical Services for the period from 1 January 2005 to 20 October 2005, and thereafter from data complied by A.C. Nielsen Company Limited and HM Customs and Revenue. Market share information for the
Republic of Ireland reflects unit sales to the trade in the year ended 31 December 2005 and is based on information compiled by KPMG, Dublin, which reflects the results of the compilation of data supplied by the industry. Market share information
for Russia and Ukraine reflects audit information compiled by Business Analytica. Market share information for Kazakhstan reflects retail audit information compiled by A.C. Nielsen. Other market share information is mainly obtained from the
distributors in the country concerned and represents sales in each country's market. This type of data has been used in all other markets where our competitive position is discussed. In some cases it may not be as robust as that supplied by
recognised corporate market data collectors and the reader should not place undue reliance on the accuracy of any disclosure made. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We furnish The Bank of New York, as depositary for our American Depositary Shares, with annual reviews containing audited consolidated financial statements. These financial statements are
prepared in accordance with International Financial Reporting Standards as endorsed by the EU (&#147;IFRS&#148;). We also furnish the depositary with semi-annual reports. This information has not been audited. The depositary mails these reports to
record holders of American Depositary Receipts evidencing American Depositary Shares. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also furnish to the depositary all notices of shareholders' meetings and other reports and communications that are made generally available to our shareholders. The depositary, to the
extent permitted by law, makes such notices, reports and communications available for inspection by record holders of ADRs and mails to all record holders of ADRs the notice of a shareholders' meeting received by the depositary. We are not required
to report quarterly financial information. Further information on us is available on our website (www.gallaher-group.com). Information included on our website is not incorporated by reference in this Form 20-F.</FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">iii</FONT></P>

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<div style="page-break-before:always"></div><page><a name="piv"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
      GROUP Plc</font></b> <br>
<br>
<b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</font></b></p>
<p align="center"><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cautionary
Statement</font></u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp; </font></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This Annual Report includes &#145;forward-looking statements&#146; within the meaning of the US securities laws. All statements other than statements of historical fact included in this
Annual Report, including, without limitation, statements regarding our future financial position, strategy, market trends and price increases, dividend policy, exchange rates, anticipated investments, future capital expenditure, 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, objectives of management for future operations and
effects of restructuring activities, may be deemed to be forward-looking statements.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we 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
our expectations including, without limitation, changes in general economic, political or commercial conditions, foreign exchange rate fluctuations, 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 our 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. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information
or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against
issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility. </FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">iv</FONT></P>

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<div style="page-break-before:always"></div><page><a name="pv"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><font size="2"><B><FONT size="4" face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></font></P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Definitions</FONT></B><font size="2">
<P>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">The terms &#145;Gallaher&#146;, &#145;Group&#146; and &#145;Company&#146; refer to Gallaher Group Plc and its subsidiaries. The term &#145;Liggett-Ducat&#146; refers to the Liggett-Ducat
  group of companies.  The term &#145;ATG&#146; refers to Tobaccoland Automatengesellschaft mbH &amp; Co KG. The term &#145;Lekkerland&#146; refers to Lekkerland GmbH &amp; Co KG. The term &#145;Lekkerland Europa&#146; refers to Lekkerland-Europa
  Holding GmbH. The terms &#145;Tobaccoland Austria&#146; and &#145;TOBA&#146; refer to Tobaccoland Austria (Tobaccoland Handels GmbH).  The term &#145;KT Merkury&#146; refers to Kompania Tytoniowa Sp.z.o.o. The terms &#145;Reynolds-Gallaher
  International&#146; and &#145;RGI&#146; refer to the joint venture company, R.J. Reynolds-Gallaher International SARL. The term &#145;Reynolds-American&#146; refers to Reynolds American, Inc. and its subsidiaries. The term &#145;CNTC&#146; refers to
  the China National Tobacco Corporation. The term &#145;Shanghai Tobacco Group&#146; refers to the Shanghai Tobacco (Group) Corp. The term &#145;Altria&#146; refers to Altria Group, Inc. The terms &#145;British American Tobacco&#146; and
&#145;BAT&#146; refer to British American Tobacco plc. The term &#145;Japan Tobacco&#146; refers
to Japan Tobacco, Inc. and its subsidiaries.</FONT></P>
</font>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">v</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center">&nbsp;
  <b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</font></b><br>
  <br>
  <font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">Part
I</font></b></font></p>
<p align="left"><font size="2"> <b><font face="TimesNewRoman,Times New Roman,Times,serif"><a name="p6"></a>ITEM
1</font></b>&nbsp;&nbsp;&nbsp;<b><font face="TimesNewRoman,Times New Roman,Times,serif">IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS</font></b>&nbsp; </font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD width="3%" align=left><font size="2">
<B><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif"><a name="p6a"></a></font></b></font><FONT face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></B></font></TD>
	<TD align=left><font size="2">
<B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Directors and Senior
Management</FONT></B></font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
    section is not applicable.</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><b><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif"><a name="p6b"></a></font></b></font><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</font></b></TD>
  <TD align=left><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Advisers</font></b></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
    section is not applicable.</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><b><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif"><a name="p6c"></a></font></b></font><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</font></b></TD>
  <TD align=left><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Auditors</font></b></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
    section is not applicable.</font></TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"><b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</font></b></p>
<p align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p7"></a>ITEM
2&nbsp;&nbsp;&nbsp;OFFER STATISTICS AND EXPECTED TIMETABLE</font></b></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD width=3% align=left><font size="2">
<B><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p7a"></a></font><FONT face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></B>
	</font></TD>
	<TD align=left><font size="2">
<B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Offer Statistics</FONT></B></font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
    section is not applicable.</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><b><font size="2"><B><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p7b"></a></font></B></font><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</font></b></TD>
  <TD align=left><font size="2"> <b><font face="TimesNewRoman,Times New Roman,Times,serif">Method
    and Expected Timetable</font></b></font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
    section is not applicable.</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
</TABLE>
<P align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</font></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p8"></a>ITEM
3&nbsp;&nbsp;&nbsp;<b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">KEY INFORMATION</font></b></FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD width="3%" align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p8a"></a>A</FONT></B></TD>
	<TD colspan="2" align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Selected Financial Information</FONT></B></TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (&#147;IFRS&#148;),. As there are
no material differences between IFRS as adopted by the EU and complied with in the preparation of these financial statements these statements also comply with IFRS as published by the IASB.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The 2005 financial statements are the Group&#146;s first consolidated financial statements prepared under IFRS, with a transition date of 1 January 2004. Consequently, the comparative
figures for 2004 and the Group&#146;s balance sheet as at 1 January 2004 have been restated to comply with IFRS.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and financial liabilities (including derivative
instruments) at fair value through profit and loss. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those
estimates. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">You are requested to read the data in conjunction with our financial statements, the notes to the financial statements and &#147;Item 5. Operating and Financial Review and
Prospects&#148;. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We prepare our financial statements in accordance with IFRS, which differs in certain respects from US GAAP. A description of the significant differences, and reconciliations of net
income and shareholders&#146; equity, are set out in note 37 of the notes to the financial statements. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Following a board management restructure and the transition to IFRS for the year ending 31 December 2005, the financial information for the period is reported under the new segmental
structure and the financial information for year ending 31 December 2004 has been restated accordingly. </FONT></P>
<P> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Selected
Financial Data</font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">.</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD colspan="5" align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December</FONT>	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I>
	</TD>
	<TD align=left>
<I><U></U></I>&nbsp;
	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating Data</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;m</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales (including duty) (b)</FONT></I></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Continuing operations:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></TD>
	<TD width="2%" align=left>&nbsp;</TD>
	<TD width="8%" align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,281</FONT></I>
	</TD>
	<TD width="2%" align=left>&nbsp;

	</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,658</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,680</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,514</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,794</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,836</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">817</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">476</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">409</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">491</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">286</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">190</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14,103</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales (excluding duty)</FONT></I></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Continuing operations:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">982</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">572</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">568</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,656</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,547</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,553</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">611</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">356</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">307</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">220</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">128</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">119</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,469</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,603</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,547</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p9"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005 </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total Profit from Operations (c)</FONT></I></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Continuing operations:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></TD>
	<TD width=8% align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">525</FONT></I>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">306</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">299</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">419</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">244</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">115</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional cost of goods sold</FONT></TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(23</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other exceptional items</FONT></TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(37</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,057</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
</TABLE>

<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan=5 align=center>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD colspan=5 align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I>
	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD width=8% align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;m</FONT></I>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority interests</FONT></TD>
	<TD width="2%" align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the year (d)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">638</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">372</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">362</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
</TABLE>

<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan=5 align=center>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD colspan=5 align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I>
	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating Data</FONT></I></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings per share
for profit
attributable to equity shareholders:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
  &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic (e)</FONT></TD>
	<TD width="2%" align=left>&nbsp;</TD>
	<TD width=8% align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">97.0</FONT></I>
	</TD>
	<TD width=2% align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.5</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.0</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
  &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Diluted (f)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96.8</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">54.9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends per share (g)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.1</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32.1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30.15</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
</TABLE>

<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan="8" align=center></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD colspan="8" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I>
	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=left>

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Supplementary Data</FONT></I></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE (h)</FONT></TD>
	<TD width="2%" align=left>&nbsp;</TD>
	<TD width=1% align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;</FONT></I>
	</TD>
	<TD width=7% align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,150</FONT></I>
	</TD>
	<TD width=2% align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">m</FONT></I></TD>
	<TD width=1% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;</FONT>
	</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">670</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">m</FONT></TD>
	<TD width=1% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;</FONT>
	</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">648</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">m</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjusted EPS (i)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">108.3</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=left>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58.7</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actual dividend proposed/paid (j)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57.5</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=left>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33.5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31.5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
</TABLE>
<p>&nbsp;</p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD colspan=5 align=center> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year
    ended 31 December</font> </TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I>
	</TD>
	<TD align=left>
<I></I></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Balance Sheet Data</FONT></I></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;m</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current assets</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,652</FONT></I>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,545</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,129</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net current assets (k)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(724</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(421</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">117</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non current liabilities</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,043</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,772</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,380</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total assets</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,651</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,874</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,332</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net assets/(liabilities)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">232</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">136</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(60</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p10"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc
</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005 </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD colspan="11" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">US
	    GAAP</font>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I>
	</TD>
	<TD align=left>
<I></I></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2001</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating Data (l)</FONT></I></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;m</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net sales</FONT></TD>
	<TD width="2%" align=left>&nbsp;</TD>
	<TD width=8% align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14,103</FONT></I>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9,553</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9,048</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,422</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,719</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from operations</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">970</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">565</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">586</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">535</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">567</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">414</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Income</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">520</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">303</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">343</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">271</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">318</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">235</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority interest</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income (m)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">515</FONT></I>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">339</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">266</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">314</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">229</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income per ordinary share - basic</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">78.6</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">52.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">41.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income per ADS - basic (n)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">314.6</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">183</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">208.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">164.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">194.3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">146.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income per ordinary share - diluted</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">78.5</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51.8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40.9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48.4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income per ADS - diluted (n)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">313.9</FONT></I>
	</TD>
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c</FONT></I></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">182</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">207.2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">163.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">193.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">145.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
</TR>
</TABLE>

<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD colspan="11" align=center></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD colspan="11" align=center>    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year
    ended 31 December</FONT>     </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I> </TD>
    <TD align=left> <I></I></TD>
    <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2001</FONT></TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade>
    </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade>
    </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Balance
          Sheet Data</FONT></I></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;m</FONT></I> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total
        assets</FONT></TD>
    <TD width=8% align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7,125</FONT></I> </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,150</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,522</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,797</FONT> </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,649</FONT> </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,603</FONT> </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity
        shareholders&#146; funds/(deficit)</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">658</FONT></I> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">383</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">267</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(50</FONT> </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(168</FONT> </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(137</FONT> </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
</TABLE>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notes</FONT></U></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%"  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The pound sterling amounts presented for the year ended 31 December 2005, and as that date, have been translated into US dollars at the rate of &#36;1.717 to the pound sterling, which was
the noon buying rate in New York City on 31 December 2005.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales represents amounts charged to external customers for goods sold, services supplied and licence fees, and includes excise duties paid by group companies but not VAT or its
equivalent. Sales incentives payable to distributors and vendors of the group&#146;s products are deducted from sales. These incentives primarily comprise the following &#150; retrospective payments made to customers for specific performance,
normally targeted volume sales, ranging and stock availability, and payments to customers to support shelf price reduction in relation to promotional activity.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from operations (which includes profits from joint ventures) represents sales less cost of sales, duty and all expenses (including exceptional items) and excluding net
interest, investment income and taxes.</FONT>	<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">For
clarity we have disclosed exceptional items separately.</font> </TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(d)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the year represents net income.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(e)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic earnings per equity share are calculated on the profit on ordinary activities after taxation, divided by the weighted average number of ordinary shares in issue during the year
(2005: 653.3 million shares, 2004: 651.9 million shares, 2003: 650.0 million shares, 2002: 648.4 million shares, 2001: 628.0 million shares).</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(f)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Diluted earnings per equity share are calculated on the profit on ordinary activities after taxation, divided by the weighted average number of ordinary shares in issue during the year
plus potentially dilutive share options (2005: 654.9 million shares, 2004: 653.5 million shares, 2003: 651.7 million shares, 2002: 650.7 million shares, 2001: 629.9 million shares).</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(g)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends per equity share are calculated on total dividends, divided by the number of shares reported in note (e) above.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(h)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE represents earnings before interest, taxation, amortization of intangible assets and exceptionals.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(i)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjusted EPS (adjusted earnings per share) represents basic earnings per share adjusted to remove amortization of intangible assets and exceptional charges.</FONT>	</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p11"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%"  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(j)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends proposed/paid are dividends paid in the year and proposed at the year end.</FONT></TD>
</TR>
<TR>
  <TD  valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(k)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net current assets is equivalent to working capital.</FONT></TD>
</TR>
<TR>
  <TD  valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(l)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All operations
are continuing.</FONT></TD>
</TR>
<TR>
  <TD  valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(m)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">For a reconciliation of net income between IFRS and US GAAP for each of the two years in the period ended 31 December 2005, see note 37 of the notes to the financial
statements.</FONT>	</TD>
</TR>
<TR>
  <TD  valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(n)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic earnings per equity share under US GAAP are calculated on the net income for the year divided by the weighted average number of ordinary shares in issue during the year (See note
(e) above). Each ADS represents four ordinary shares. The amounts shown are in cents (&#147;c&#148;) and pence (&#147;p&#148;).</FONT>	</TD>
</TR>
<TR>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
<TD>&nbsp;</TD>	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Diluted earnings per equity share under US GAAP are calculated on the net income for the year divided by the weighted average number of ordinary shares in issue during the year plus
potentially dilutive share options (See note (f) above). Each ADS represents four ordinary shares. The amounts shown are in cents (&#147;c&#148;) and pence (&#147;p&#148;).</FONT>	</TD>
</TR>
</TABLE>

<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange rates</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following table sets out the exchange rates between the pound sterling and US dollar for the periods shown. We have used the noon buying rates in New York City for cable transfers in
foreign currencies, as announced for customs purposes by the Federal Reserve Bank of New York. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD colspan="9" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD colspan="9" align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US dollars per &#163;1.00</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2001</font> </TD>
	<TD align=right>&nbsp;
</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange rate at end of period</FONT></TD>
	<TD width="7%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.717</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="7%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.920</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="7%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.790</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="7%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.610</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="7%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.455</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average exchange
rate for period</FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">*</FONT></SUP></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.819</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.833</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.635</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.504</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.438</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Highest exchange rate during period</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.931</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.949</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.790</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.610</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.505</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Lowest exchange rate during period</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.711</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.756</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.550</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.408</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.373</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">*: The average exchange rate for the period is calculated by using the average of the noon buying rates on the last business day of each month during the period. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The highest and lowest rates for the last six months for US dollars per &#163;1.00 were:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">High</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Low</font> </TD>
	<TD align=center>&nbsp;
</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 2005</FONT></TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.785</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width="7%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.747</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">November 2005</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.776</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.711</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">December 2005</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.774</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.717</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">January 2006</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.787</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.739</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">February 2006</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.780</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.729</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2006</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.755</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.726</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The exchange rate at 31 March 2006 was 1.735. We make no representation that the pound sterling amounts actually represent such dollar amounts or that such amounts have been or could be
converted into dollars at such rate or any other rate. We do not use these rates in the preparation of our financial statements. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fluctuations in these rates in the past are not necessarily indicative of fluctuations that may occur in the future. Translations contained in this Annual Report do not constitute
representations that: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%"  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The stated pound sterling amounts actually represent the stated US dollar amounts or vice versa; or</FONT></TD>
</TR>
<TR>
  <TD  valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The amounts could be or could have been converted into US dollars or pounds sterling, as the case may be, at any particular rate.</FONT></TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p12"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reconciliation of Non-GAAP Financial Measures</FONT></U></B></P>
<P>
<B><I><U><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Reconciliation
of Net sales/sales excluding duty to Gross sales</FONT></U></I></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In this document we use net sales / sales excluding duty as a performance measure. The most directly comparable GAAP measure to net sales / sales excluding duty is gross sales, as shown
in the table below. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The net sales / sales excluding duty measure is a common performance indicator within the tobacco industry (both in the UK and internationally), which is utilised by us in managing our
business and for performance reporting in financial statements. Analysts and investors also commonly use operating margin data derived from sales excluding duty to assess individual company and sector relative performance across the industry.
</FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reconciliation
of net sales / sales excluding duty to gross sales:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</font></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net sales/sales excluding duty</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,603</FONT></B>
	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,547</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Duty</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,611</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,568</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black;border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross sales</FONT></TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></B>
	</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black;border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
</TR>
</TABLE>
<P>
<B><I><U><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Reconciliation of Earnings before Interest, Tax, Amortization and Exceptional Items (EBITAE) to Profit for the financial year.</FONT></U></I></B><B><I><FONT size=2
face="TimesNewRoman,BoldTimes New Roman,Times,serif"> </FONT></I></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In this document we use earnings before interest, tax, amortization and exceptional items (EBITAE) as a performance measure.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE is a measure that our board considers to be a key performance indicator and monitoring tool when discussing interest cover together with our underlying performance.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also believe that non-recurring exceptional items and amortization of intangible assets can distort the underlying operating trends of our business and as such discuss them separately
when they arise. We believe this approach gives the user of our accounts greater transparency.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The most directly comparable GAAP measure to EBITAE is total profit from operations.</FONT><B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">
</FONT></I></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=center>
<B></B></TD>
    <TD colspan=15 align=center><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</font></b></TD>
    <TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE</FONT></B>&nbsp;
	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right  style="border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for</FONT></B>
	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">charges</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit from</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">interest</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the year</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">minority</FONT></B>
	</TD>
	<TD style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operations</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and other</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left >&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">interests</FONT></B>
	</TD>
	<TD style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">finance</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD></TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Group</FONT></B></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">670</FONT></B>
	</TD>
	<TD width=2% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(19</FONT></B>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>&nbsp;
	</TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT></B>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD width=9% align=right style="border-left:solid 1pt;border-left-color:black; border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B>
	</TD>
	<TD width=2% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(100</FONT></B>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(144</FONT></B>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">372</FONT></B>
	</TD>
	<TD width=2% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD width=2% align=left style="border-top:solid 1pt;border-top-color:black;border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=center>&nbsp;
</TD>
    <TD colspan=15 align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</font></TD>
    <TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE </FONT></TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization</font> </TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Net
    interest</font></TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for </FONT></TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity</FONT>
	</TD>
	<TD style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">charges</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit from</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and other</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the year</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">minority</FONT>
	</TD>
	<TD style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operations</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">finance</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">interests</FONT>
	</TD>
	<TD style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">charges</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD height="20" align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Group</FONT></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">648</FONT></TD>
	<TD width=2% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT></TD>
	<TD width=2% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(114</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(142</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">362</FONT></TD>
	<TD width=2% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD width=9% align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE is used by management to monitor performance of its segments. Below we have set forth this data by segment with a reconciliation to Total Profit from Operations.</FONT><B><I><FONT
size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif"> </FONT></I></B></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p13"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
  <p>    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
        20-F 2005</FONT></B> </p>
  <p align="left"><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Primary
        reporting format - geographical segments</FONT></B></p>
</div>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group is organised into four distinct, independently managed, geographic segments: United Kingdom (&#147;UK&#148;), Europe, Commonwealth of Independent States (&#147;CIS&#148;) and
Rest of World (principally comprising: Africa; Asia Pacific; the Baltics; the Middle East; Poland; and Scandinavia).</FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The segment
results are as follows:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">World</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">310</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">259</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></B>
	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">670</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization of intangible assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>
	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#8211;</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#8211;</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(19</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>
	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>
	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>
	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#8211;</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>&nbsp;
	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>
	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit
from operations</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">284</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">234</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">World</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EBITAE</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">302</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">260</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">648</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization of intangible assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#8211;</FONT></B></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#8211;</FONT></B>	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional items</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#8211;</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit
from operations</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">290</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">245</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<B><I><U><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Reconciliation of Basic Earnings per Share to Adjusted Earnings per Share</FONT></U></I></B><B><I><FONT size=2 face="TimesNewRoman,BoldTimes New
Roman,Times,serif"> </FONT></I></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In this document we use adjusted earnings per share (&#147;adjusted EPS&#148;) as a performance measure. Adjusted EPS represents basic earnings per share adjusted to remove amortization
and exceptional charges. Adjusted EPS, excluding such items, contains useful information as it offers our investors an additional measure to evaluate our operating trends. It is also consistent with how we and the industry present our results to the
analyst community, particularly in the UK. We also use adjusted EPS as a performance indicator for certain management remuneration incentive programmes. The most directly comparable GAAP measure to adjusted EPS is basic earnings per ordinary share.
</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>&nbsp;
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings per share:</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pence</FONT></B>&nbsp;
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pence</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.5</FONT></B>&nbsp;
	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.0</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustment for exceptional charges (net of tax)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.7</FONT></B>&nbsp;
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustment for intangible asset</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.9</FONT></B>&nbsp;
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjusted</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.1</FONT></B>&nbsp;
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings:</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustment for exceptional charges (net of tax)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustment for intangible asset</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjusted earnings</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">413</FONT></B>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">382</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right><hr noshade size="1"></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<p align="center"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">13</font></p>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"></FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005 </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">millions</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">millions</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted average number of shares:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ordinary shares in issue</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">655.3</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">654.1</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shares held by employee share trusts</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2.0</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B>&nbsp;
	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2.2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shares used in the calculation of basic and adjusted earnings per share</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">653.3</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">651.9</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Potentially dilutive share options</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.6</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.6</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shares used in the calculation of diluted earnings per share</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">654.9</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">653.5</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p>&nbsp;</p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD width=3% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p14"></a>B</FONT></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capitalisation and Indebtedness</FONT></B>&nbsp;
	</TD>
</TR>
<TR valign="bottom">
  <TD colspan=2 align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD colspan=2 align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section is not applicable.</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p14a"></a>C</FONT></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reasons for the Offer and Use of Proceeds</FONT></B>&nbsp;
	</TD>
</TR>
<TR valign="bottom">
  <TD colspan=2 align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD colspan=2 align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section is not applicable.</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p14b"></a>D</FONT></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Risk Factors</FONT></B>&nbsp;
	</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investors in our company should be aware of a number of risk factors that could prevent us from achieving our stated goals, a number of which are set out below. We are subject to the same
risks as any other multinational fast moving consumer goods organisation doing business; including changes in general economic conditions, regulatory changes, political instability and the impact of any unforeseen natural disasters. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Integration
    of acquisitions and joint ventures</font></u></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Acquisitions and joint ventures continue to be a component of our business strategy and we intend to achieve the anticipated benefits of such transactions when they arise.  However,
failure to adequately manage the integration processes and coordinate the strategies of such entities with our own could affect our total profit from operations.</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reliance
    on tobacco supply</font></u></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco is the most important raw material in the manufacture of tobacco products. We are not directly involved in the cultivation of tobacco leaf. As with other agricultural commodities,
the price of tobacco leaf tends to be cyclical, with imbalances in supply and demand influencing future production levels. Different regions also experience variations in weather patterns, which may affect crop quality. Political unrest in any of
the countries where tobacco leaf is cultivated (such as in Zimbabwe) could also significantly increase the price of these materials. Presently this situation is not materially affecting our average tobacco cost and in general terms, the effect of
price fluctuations on our operating performance may be limited by the geographic spread of our tobacco leaf sources and by our practice of holding approximately between three months and one year average inventory of tobacco leaf across our
locations. However, any significant change in tobacco leaf prices could affect our total profit from operations. </FONT></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Increased
    regulation of the tobacco sector</font></u></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco markets are subject to significant regulatory influence from governments. These include:</FONT></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
  <TD width="3%"  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the levying of substantial and increasing tax or substantial changes to duty structures and duty charges;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">b)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the introduction of minimum tax and minimum price legislation for cigarettes;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">restrictions such as the prohibition of smoking in many public and work places;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">d)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">restrictions on advertising and marketing;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">e)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the display of larger health warnings, graphic pictorial warnings and statements of tar, nicotine and carbon monoxide smoke yields on product packaging;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">f)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the prohibition of certain descriptors such as &#145;light&#146; and &#145;mild&#146;;</FONT>	</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p15"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B>  </P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B><BR>
</P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
  <TD width="3%"  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">g)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">restrictions on the minimum number of cigarettes in packs; on the display of cigarettes at the point of sale; and on access to vending machines;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">h)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">regulations on the maximum tar, nicotine and carbon monoxide smoke yields of cigarettes;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">i)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the effect of other regulations relating to the manufacturing, presentation and sale of tobacco products;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">j)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the provision of tobacco ingredients information to regulators;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">k)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">requirements regarding the potentially costly analysis of ingredients and the potential for publication of proprietary brand formula information; and</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">l)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">changes in duty paid allowances.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
  <TD>&nbsp;</TD>	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Partly because of these measures, unit sales of tobacco products in certain principal markets have declined in recent years and we expect this trend to continue. Any significant decrease
in demand for our products could significantly affect our total profit from operations, together with our cost of complying with increased regulatory requirements.</FONT>	</TD>
</TR>
</TABLE>
<P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Regulations on tobacco marketing could significantly reduce our ability to compete and therefore have an adverse</FONT></U><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> </FONT><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">effect on our sales and total profit from operations</FONT></U><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Advertising, promotion and brand building continue to play a key role in our business, with significant expenditure on programmes to support key brands and to develop our performance in
markets for new brands and brand extensions. However, the regulation of advertising and marketing of tobacco products is significant and increasingly restrictive. Present and proposed regulations restrict the manner in which our products may be
marketed, including restrictions on advertising, sponsorship, promotion, point of sale display and sampling of tobacco products. Additional regulations restricting these and other aspects of tobacco marketing may be proposed and come into force in
the future. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We will use the full range of advertising, promotion and sponsorship opportunities allowed to us for as long as these are available and will continue to explore other methods through
which we can continue to build our brands. It is possible that the present and proposed regulations, as well as future regulations, may have a material adverse affect on our ability to advertise, promote and build our brands, to promote and
introduce new brands and products and to maintain the proprietary nature of our owned and licensed brands and thus materially adversely affect our sales and total profit from operations.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This important risk factor is discussed further in the regulation section in &#147;Item 4B. Business Overview&#148; of this Annual Report. </FONT></P>
<P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Regulations and voluntary agreements on smoking in public places and the workplace could have an adverse effect on</FONT></U><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> </FONT><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">our sales and total profit from operations</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At a global level, the World Health Organisation&#146;s Framework Convention on Tobacco Control (&#147;WHO FCTC&#148;) came into force in February 2005. Countries that have ratified the
convention will be legally bound by the provisions of the treaty which include measures relating to environmental tobacco smoke. In addition, a number of countries have recently established, or are considering, further legislation and/or volunatary
agreements that restrict or prohibit smoking in public places and the workplace, which may also include bars and restaurants. These countries include Austria, Belgium, France, Germany, Italy, Norway, Republic of Ireland, Spain, Sweden and the UK.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">These and other current and potential restrictions on smoking in public places and the workplace may reduce the opportunities available for smoking and may reduce the demand for tobacco
products. This potential reduction in demand for tobacco products may materially adversely affect our sales and total profit from operations. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This important risk factor is discussed further in the regulation section in &#147;Item 4B. Business Overview&#148; of this Annual Report. </FONT></P>
<P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excise tax increases/changes and minimum price legislation reduce sales volumes</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Governments in markets where we operate have imposed considerable excise taxes on tobacco products, and some have indicated that these will continue to increase. The continuing impact of
price increases in these markets, principally due to substantial duty increases in recent years, has resulted in: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%"  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">pressure on manufacturing and vending margins;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">b)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reduced annual industry volumes;</FONT>	</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p16"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B><BR>
</P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%"  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">greater price competition;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">d)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">accelerated trading down by consumers to lower price cigarette brands or to handrolling tobacco;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">e)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">increased legitimate cross border purchasing by consumers;</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">f)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">an illegal trade in tobacco products; and</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">g)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a growth in smuggled counterfeit tobacco products.</FONT>	</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">These changes have affected us and are expected to continue to affect us. For instance we have, in particular, been impacted by the UK Government&#146;s policy of maintaining duty levels
in excess of the duty levels of Europe. This has led to the cross border purchasing of cigarettes by travellers returning to the UK and illegal smuggling of cigarettes into the UK. Partly because of the black market, our UK sales have been reduced.
The entry of &#145;Accession Countries&#146; into the European Union has exacerbated the issue of price differentials provoked by different duty structures in adjacent markets. Furthermore, any shortfall in control arrangements at the borders of the
Accession Countries and Eastern Europe may impact on the legitimate EU market for tobacco products. Any of these could adversely affect our total profit from operations. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In addition, some EU member states, including Ireland, France, Belgium and Italy have introduced minimum price legislation and the Austrian government has indicated that it will implement
price legislation in April 2006. This may affect the sales mix of our brands. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This important risk factor is discussed further in the regulation section in &#147;Item 4B. Business Overview&#148; of this Annual Report. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Declining
    demand for tobacco products</font></u></td>
  </tr>
</table>
<P>  <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Developed markets
  for tobacco products including cigarettes, have been generally declining since
  the 1970s. This</font> <font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">adverse trend has been encouraged by consistent and substantial
  increases in the excise duty on tobacco products,</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">increasing
  governmental regulation, government-funded anti-smoking campaigns and heightened
  public awareness of</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">smoking-related
health concerns.</font></P>
<P>  <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Any future substantial
  decline in sales could have a materially adverse effect on our total profit from
  operations.</font></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Increasing
          dependence on sales in the Commonwealth of Independent States and other
    emerging markets</FONT></u></td>
  </tr>
</table>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We continue
    to increase our sales in the Commonwealth of Independent States (&#147;CIS&#148;)
    and other emerging markets.</font> <font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">The economic conditions in these countries have in the past
    suffered from substantially depressed economies,</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">devaluation
    of currencies and an unstable political and commercial environment. Any deterioration
    in the current</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">conditions
may affect the profitability of our operations in these countries.</font></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost
    of compliance with regulatory requirements</FONT></u></td>
  </tr>
</table>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are subject
    to increasing costs associated with regulatory requirements, eg the US Sarbanes-Oxley
    of 2002</font> <font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(&#147;SOX&#148;), pension funding obligations and compliance
    with enhanced corporate governance and specific regulations</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">impacting
    upon the tobacco sector
within Europe and elsewhere.</font></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Highly
    competitive business</FONT></u></td>
  </tr>
</table>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We must compete
    with other tobacco companies whose business plans and objectives may be similar
    to ours. Our</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">principal
    competitors are Philip Morris International, British American Tobacco, Japan
    Tobacco International, Imperial</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco
    Group and Altadis Group. Some of these companies have greater resources than
    we have, including R&amp;D</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">facilities.
    Action by any of our principal competitors or any other manufacturers could
    lead to competitive product</font> <font size=2
face="TimesNewRoman,Times New Roman,Times,serif">differentiation and pricing
pressure on our products.</font></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td><u><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Potential
    credit risk with our distributors</FONT></u></td>
  </tr>
</table>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In some of our
    markets we make the majority of our sales to small numbers of independent
    distributors. This can mean</font> <font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">that we have large credit exposures with a relatively limited
    number of customers. Whilst we have robust credit control</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">procedures
    in place throughout our business, the failure of one of these customers to
    pay receivables due to us could</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">have
    a material effect on our total profit from operations and on the cash flow
    of our business.
In addition, our business</font></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p17"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR>
    <TD colspan="3" align="left"  valign=top> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">relationships
      with distributors internationally are governed by our sales and distribution
      policy, which regulates selling practices and has been developed in co-operation
      with the UK customs authorities. While we closely monitor adherence to this
      policy, a material breach by any distributor could require us to discontinue
      trade or incur financial penalties, which could have a material effect on
    our total profit from operations and cashflow. </font></TD>
  </TR>
  <TR>
    <TD width="3%" align="left"  valign=top>&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left"  valign=top>&#8226;
    <TD colspan=2 align="left" valign="top"> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Risks
      to our facilities</FONT></U> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="3" align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
      production and distribution capacity is generated from facilities strategically
      located principally to supply markets geographically near our factories.
      Accordingly, a significant disruption in any of these facilities may have
      a material adverse effect on the production and distribution of our tobacco
      products and therefore on our operating results. Whilst we have the ability
      to produce different products in different factories the lead time to transfer
      to an alternative location and the corresponding difficulty in arranging
    distribution could cause a financial loss to our business.</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left"  valign=top> &#8226;
    <TD colspan=2 align="left" valign="top"> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Currency
      fluctuations affecting our financial reporting and debt levels</FONT></U>
    </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="3" align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
      financial statements are prepared in accordance with IFRS, and are stated
      in pounds sterling. As a result our financial reporting could be adversely
      affected by currency fluctuations, such as a significant increase in the
      value of the pound sterling against the currencies in which our sales is
      denominated for example, the euro and the US dollar. As at 31 December 2005,
      approximately 33% of our net debt was denominated in pounds sterling, 51%
      in euro, 12% in US dollars and 4% in Polish zlotys. Accordingly, our financial
      results are exposed to gains or losses arising from fluctuations in pound
      sterling and euro exchange rates. We are also exposed to currency risk when
      our expenses are in a currency other than the currency used for the sale
    of our products.</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left"  valign=top> &#8226;
    <TD colspan=2 align="left" valign="top"> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest
      rate fluctuations</FONT></U> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="3" align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      are exposed to fluctuations in interest rates on our net debt. In order
      to manage the impact of adverse variations in interest rates on our profits,
      we borrow a portion of our funds at fixed rates of interest and, where necessary,
      use interest rate derivatives to maintain a target level of fixed interest
      rate cover in the current and subsequent two years of between 40% and 80%
    of the level of core debt.</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="3" align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">For
      additional information about our exposure to interest rate fluctuations,
      please see Item 11:&#147;Quantative and Qualitative Disclosure about Market
    Risk.&#148;</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left"  valign=top>&#8226;
    <TD colspan=2 align="left" valign="top"> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Difficulty
      in developing and managing growth</FONT></U> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="3" align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Part
      of our business strategy is to pursue growth and start-up operations in
      new and existing markets. Our ability to achieve our planned growth depends
    on a number of factors, including:</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD  valign=top> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.</FONT></TD>
    <TD align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">our
      ability to compete in existing markets and identify new markets in which
      we can successfully operate;</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD  valign=top> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.</FONT></TD>
    <TD align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the
      access to additional financial resources;</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD  valign=top> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.</FONT></TD>
    <TD align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">our
      ability to hire, train and retain appropriately skilled management and other
      employees; and</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD  valign=top> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.</FONT></TD>
    <TD align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the
      increased cost to the business of pension funding and regulations relating
      to employees.</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="3" align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      will also need to adapt our operating systems to accommodate the expanded
      operations. Such planned expansion may not be achieved or we may not be
      able to successfully manage the expanded operations. Failure to manage such
      growth effectively could adversely affect our financial condition, the results
    of our operations and our prospects.</FONT> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD align="left"  valign=top> &#8226;
    <TD colspan=2 align="left" valign="top"> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Likelihood
      of identifying further acquisition opportunities</FONT></U> </TD>
  </TR>
  <TR>
    <TD colspan=3 align="left" valign="top">&nbsp;</TD>
  </TR>
  <TR>
    <TD colspan="3" align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Historically,
      we have engaged in acquisitions, which have been complementary to the organic
      growth of the Group. The continuation of this expansion strategy is dependent
      on, among other things, identifying suitable acquisition or investment opportunities
      and successfully consummating those transactions. Anti-trust or similar
      laws may make it difficult for us to make additional acquisitions if regulators
      in countries where we and potential acquisition targets operate believe
      that a proposed transaction will have an adverse effect on competition in
      the relevant market or economic region. Even if we are able to identify
      candidates for acquisition, it may be difficult to complete transactions.
      We have historically faced competition for acquisitions, and in the future
      this could limit our ability to grow by this method or could raise the price
      of acquisitions and make them less attractive to us. In addition, if we
      are unable to secure necessary financing, we may not be able to grow our
    business through acquisition.</FONT> </TD>
  </TR>
</TABLE>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p18"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center">  <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR align="left" valign="top">
    <TD colspan="3"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Typically,
      when we acquire a business we acquire all of its liabilities as well as
      its assets. Although we try to investigate each business thoroughly prior
      to acquisition and to obtain appropriate representations and warranties
      as to its assets and liabilities, there can be no assurance that we will
      be able to identify all actual or potential liabilities of a company prior
      to its acquisition or thereafter pursue claims against vendors within the
      limitation periods within which such claims can be made against vendors.
    </font></TD>
  </TR>
  <TR align="left" valign="top">
    <TD width="3%">&nbsp;</TD>
    <TD width=3%>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD> &#8226;
    <TD colspan=2> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adverse
      litigation and regulatory results could have an impact on profits</FONT></U>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There
      are a number of instances where litigation or regulatory proceedings, hearings
      or claims are actual, pending or prospective or otherwise threatened against
      us. Historically, such claims have focussed upon smoking and health related
      matters. More recently, regulatory, anti-trust and tax related claims have
    become more prevalent.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">To
      date, there has been no recovery of damages against any of our companies
      in any action alleging that our tobacco products have resulted in human
      illnesses. It is not possible to predict the outcome of the pending litigation.
      We believe that there are meritorious defences or suitable indemnities from
      prior risks to the actions and claims we currently face and based upon what
      is known to us actual, pending or prospective actions will not have a material
      adverse effect upon the results of our operations, our cash flow or our
    financial condition. There can be no assurance that:</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">favourable
      decisions will be achieved in the proceedings pending against us;</FONT>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">b)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">additional
      proceedings will not be commenced in the UK or elsewhere against us;</FONT>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">we will
      not incur damages; or</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">d)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">if we incur
      damages, such damages will not have a material impact on our operating performance
      or financial condition.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Regardless
      of the outcome of the pending litigation, the costs of defending actions
      and claims could be substantial and will not be fully recoverable from the
      plaintiffs, irrespective of whether or not we are successful. Details of
      the current position are found at Item 4: &#147;Information on the company
    &#150; Regulation and Litigation&#148;.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&#8226;
    <TD colspan=2> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
          effect of fluctuations in the pound sterling/US dollar exchange rate
          price
      on our ADSs and the US dollar value of any dividends</FONT></U></TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
      ADSs trade in US dollars. Therefore, a decline in the value of the pound
      sterling against the US dollar would reduce the value of our ADSs as reported
      in US dollars. This could adversely affect the price at which the ADSs trade
      on the US securities markets. Any dividend we might pay in the future will
      be denominated in pounds sterling. A decline in the value of the pound sterling
      against the US dollar would reduce the US dollar equivalent of any such
    dividend.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&#8226;
<TD colspan=2> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Potential
      volatility of the price of our ordinary shares and ADSs, and the extent
      to which an investor may lose all or part of their investment</FONT></U>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      market price for our ordinary shares and ADSs could be volatile and subject
      to fluctuations in response to a variety of factors, which could lead to
      losses for our shareholders and ADS holders. These factors include, but
    are not limited to, the following:</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">fluctuations
      in our operating results;</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">b)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">changes
      in earnings estimates by analysts;</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">announcements
      by us or our competitors relating to new products, brands or marketing campaigns,
      or relating to acquisitions, strategic partnerships or joint ventures;</FONT>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">d)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">regulations
      on the production, distribution or marketing of tobacco products;</FONT>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">e)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">additions
      or departures of key personnel;</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">f)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">potential
      litigation, particularly relating to actions which might be brought against
      us by parties seeking damages for ailments claimed to have resulted from
      tobacco use;</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">g)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">anti-trust
      claims or alleged claims or claims or alleged claims relating to tax liabilities;
      or</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">h)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">press,
      newspaper and other media reports including rumours and speculation in the
      tobacco sector on potential future consolidation within the industry.</FONT>
    </TD>
  </TR>
</TABLE>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p19"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B>  </P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B><BR>
</P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR align="left" valign="top">
    <TD>&#8226;
    <TD colspan=2> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Holders
      of ADSs do not hold their ordinary shares directly and as such may be subject
      to the following additional risks relating to ADSs rather than ordinary
      shares</FONT></U> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the
      event of a fluctuation in exchange rates during any period of time when
      the depositary cannot convert pounds sterling into US dollars for purposes
      of a dividend or other distribution, an ADS holder may lose some of the
      dividend or distribution. There can be no assurance that the depositary
      will be able to convert any currency at a specified exchange rate or sell
      any property, rights, shares or other securities at a specified price, or
      that any such transaction can be completed within a specified time period.</FONT>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Upon receipt
      of a notice from us of a shareholders&#146; meeting, the depositary has
      agreed to provide the holders of ADSs registered on the books of the depositary
      with any materials that we have distributed, along with a notice as to how
      each registered ADS holder can instruct the depositary on the voting of
      the ordinary shares underlying that holder&#146;s ADSs. We cannot guarantee
      that ADS holders will receive voting materials in time to instruct the depositary
      how to vote. It is possible that ADS holders, or persons who hold their
      ADSs through brokers, dealers or third parties, will not receive notice
      of a shareholders&#146; meeting or have the opportunity to exercise a right
      to vote at all.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ADS holders
      may not receive copies of all reports from the depositary or us. An ADS
      holder may need to go to the depositary&#146;s offices to inspect any reports
      issued.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(d)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ADS holders
      may not receive all of the benefits of a holder of ordinary shares, such
      as rights to participate in any capital increase.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(e)</FONT></TD>
    <TD> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ourselves
      and the depositary may amend or terminate the deposit agreement without
      the consent of the ADS holders in a manner that could prejudice ADS holders.</FONT>
    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&#8226;
    <TD colspan=2> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      ability of an ADS holder to bring an action against us may be limited under
      English law</FONT></U> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      are a public limited company incorporated under the laws of England and
      Wales. The rights of holders of ordinary shares and, therefore, many of
      the rights of ADS holders, are governed by English law, regulatory and non-regulatory
      requirements and by our Memorandum and Articles of Association. These rights
      differ from the rights of shareholders in typical US corporations. In particular,
      English law significantly limits the circumstances under which shareholders
      of English companies may bring derivative actions. Under English law generally,
      only our company can be the proper plaintiff in a proceeding in respect
      of wrongful acts committed against it or claimed to be committed against
      it. In addition without prejudice, it may be difficult for a US holder to
      prevail in a claim against us under, or to enforce liabilities predicated
      upon, US securities laws or doctrines of US laws more generally.</FONT>    </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&#8226;
    <TD colspan=2> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A
      US holder of ADSs may not be able to enforce a judgment against some of
      our directors and officers</FONT></U> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All
      of our directors and executive officers are residents of countries other
      than the United States. Consequently, it may not be possible for a US holder
      to effect service of process within the United States upon them or to enforce
      against them judgments of courts of the United States based on civil liabilities
      under the US securities laws. We cannot assure that a US holder will be
      able to enforce any judgments in civil and commercial matters against our
      directors or executive officers who are residents of the United Kingdom
      or other countries other than the United States. We also cannot assure that
      a US holder will be able to enforce any judgments under the US securities
      laws against our directors or executive officers who are residents of the
    United Kingdom or other countries other than the United States.</FONT> </TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan="3"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
      addition, English or other courts outside the United States may not impose
      civil liability on our directors or executive officers in any original action
      based solely on the US securities laws brought against us or our directors
      in a court of competent jurisdiction in England or other countries outside
    the United States.</FONT> </TD>
  </TR>
</TABLE>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p20"></a>ITEM 4 &nbsp;&nbsp;&nbsp; INFORMATION ON THE COMPANY</FONT></B></p>
<p><font size="2"><B><U><FONT face="TimesNewRoman,Times New Roman,Times,serif">Registered Office and Group Headquarters</FONT></U><FONT face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></font></p>
<p><font size="2">  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Group Plc </FONT><BR>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Members Hill </FONT><BR>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Brooklands Road </FONT><BR>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Weybridge </FONT><BR>
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Surrey, KT13 0QU, England </FONT></font></p>
<p><font size="2">  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Telephone number: +44 (0)1932 372000 </FONT><BR>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Facsimile number: +44 (0)1932 372792 </FONT><BR>
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Website: www.gallaher-group.com </FONT></font></p>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Group Plc is a public limited company, registered in England, and operates under the legislation and regulation of England and Wales. The registered company number is 3299793.
</FONT></font></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr align="left" valign="bottom">
    <td width="3%"><font size="2"><b><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p20a"></a></FONT><font face="TimesNewRoman,Times New Roman,Times,serif">A</font></b></font></td>
    <td><font size="2"> <b><font face="TimesNewRoman,Times New Roman,Times,serif"> History
          and
Development of the Company </font></b></font></td>
  </tr>
</table>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Our business was established in 1857 in Londonderry for the manufacture of Irish Roll pipe tobacco, and we manufactured our first machine-made cigarettes at around the beginning of the
20<SUP>th</SUP> century.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 1955, we acquired Benson &amp; Hedges Limited, through which we acquired the right to use the <I>Benson
&amp; Hedges </I>trademark in the UK and the Republic of Ireland. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 1964, we identified an opportunity for a lower tar cigarette and launched <I>Silk Cut</I>. The brand was developed through a series of successful advertising and promotional campaigns and is currently the leading low tar cigarette house in the UK.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In the 1980s, we began to give greater focus to our international operations, particularly in western Europe. The acquisition in 1993 of the rights to the <I>Benson &amp; Hedges</I> trademark in other European countries, other than duty free markets, supplemented our existing
rights in the UK and the Republic of Ireland and significantly increased our presence in western Europe.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">The American Tobacco Company, a former subsidiary of Fortune Brands, Inc. (formerly American Brands, Inc.), became a 13% shareholder in Gallaher Limited in 1962 and that shareholding
increased to 100% in 1975. Gallaher Limited was an indirect wholly owned subsidiary of Fortune Brands until Gallaher Limited was spun-off on 30 May 1997. Gallaher Group Plc (which was incorporated on 2 January 1997 and reregistered in England as a
public limited company on 12 May 1997) was formed to acquire the business of Gallaher Limited as part of a reorganisation undertaken prior to this spin-off. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Our subsequent ability to raise funds in the capital markets has allowed us to begin following a strategy to transform ourselves from a successful UK and Irish entity with a small export
business to an international player with specific interests throughout Europe, CIS and developing markets.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 1998 we completed construction of a factory on a greenfield site in Kazakhstan. Post completion, the business has grown rapidly.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 1999, we completed
the purchase of part of the UK tobacco business of the R.J. Reynolds group of
companies. The business acquired included the worldwide trademarks of <I>Dorchester</I>,
excluding some Middle East countries, and </FONT> <I><FONT face="TimesNewRoman,Times New Roman,Times,serif">Dickens &amp;</FONT></I><FONT face="TimesNewRoman,Times New Roman,Times,serif"> </FONT><I><FONT face="TimesNewRoman,Times New
Roman,Times,serif">Grant</FONT></I><FONT face="TimesNewRoman,Times New Roman,Times,serif">.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 2000, we acquired the Liggett-Ducat group of companies to develop our operations in the Commonwealth of Independent States. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Also, in 2000, we acquired the <I>Benson &amp; Hedges</I></FONT><FONT face="TimesNewRoman,Times New
Roman,Times,serif"> and </FONT><I><FONT face="TimesNewRoman,Times New Roman,Times,serif">Silk Cut</FONT></I><FONT face="TimesNewRoman,Times New Roman,Times,serif"> trademarks in certain European Union accession countries
including Hungary, Poland, Slovakia, Slovenia, Latvia and the Czech Republic. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 2001, we acquired 41.13% Austria Tabak AG from the Austrian Republic and completed the purchase of the remaining shares in early 2002. The acquisition of Austria Tabak has enabled us
to significantly expand our European business. </FONT></font></P>
<P align="center"><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></font></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p21"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Also, in 2001, we acquired a factory in Cherkassy, Ukraine from Reemtsma Cigarettenfabriken GmbH. This acquisition has enabled us to launch Liggett-Ducat Ukraine in 2002, a strategic
venture to further our growth in the CIS. In January 2004, we purchased from management the 15% of Gallaher (Ukraine) Limited that we did not already own.</FONT></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 2002, we formed a joint venture with the R.J. Reynolds Tobacco Company (now part of the Reynolds American Group) in Europe - initially in France, Spain, the Canary Islands and Italy -
to manufacture, market and sell a limited portfolio of &#147;American blend&#148; cigarette brands. Certain markets are excluded from this agreement, including Austria. We have licensed </FONT><I><FONT face="TimesNewRoman,Times New
Roman,Times,serif">Benson &amp; Hedges American Blend</FONT></I><FONT face="TimesNewRoman,Times New Roman,Times,serif"> and <I>Benson &amp; Hedges Red</I> to the joint venture company, R.J. Reynolds &#150; Gallaher International SARL, and the R.J. Reynolds Tobacco Company has licensed </FONT><I><FONT face="TimesNewRoman,Times New
Roman,Times,serif">Reynolds </FONT></I><FONT face="TimesNewRoman,Times New Roman,Times,serif">and<I> Austin</I></FONT><FONT face="TimesNewRoman,Times New
Roman,Times,serif">. We have entered into sales distribution, marketing and manufacturing agreements with the joint venture.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">We gained the manufacturing capability to enter the Swedish snus market through the acquisition of Gustavus, a local producer of both loose and portioned snus in July 2002.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In 2003, we acquired Kompania Tytoniowa Merkury Sp.z.o.o. (subsequently renamed Gallaher Polska Sp.z.o.o.), a Polish company engaged in the manufacture of cigarettes. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Also, in 2003 we signed reciprocal trademark agreements with Shanghai Tobacco (Group) Corp. (&#147;STG&#148;) to manufacture, distribute and sell one of each other&#146;s brands in China
and Russia. This followed the signing of a cooperative Letter of Intent in 2002 with the China National Tobacco Corporation, together with the State Tobacco Monopoly Administration. Under the licence agreements, STG nominated one of its key brands,
<I>Golden Deer</I>, to be manufactured, distributed and sold in Russia by us, through Ligget-Ducat, and
we nominated one of our key brands, <I>Memphis</I>, to be manufactured, distributed and sold by STG in
China. The products were launched in the first half of 2004. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In January 2004 our associate,
Lekkerland GmbH &amp; Co. KG (&#147;L-T&#148;), purchased 100% of Lekkerland
Europa Holding GmbH (&#147;LEH&#148;). LEH is a German company engaged in the
 wholesale distribution of tobacco and other products and operates principally
in EU and EU accession countries.</FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">As part of our on-going drive for efficiency, in January 2005, we announced proposals for a further restructuring of our European operations. These proposals included the closure of the
Schwaz cigarette and F&uuml;rstenfeld cigar factories in Austria during 2005. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In April 2005, we acquired the <I>Benson &amp; Hedges</I></FONT><FONT face="TimesNewRoman,Times New
Roman,Times,serif"> and </FONT><I><FONT face="TimesNewRoman,Times New Roman,Times,serif">Silk Cut</FONT></I><FONT face="TimesNewRoman,Times New Roman,Times,serif"> trademarks in Malta and Cyprus, and <I>Silk Cut</I> in Lithuania, from British American Tobacco. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">We acquired 100% of Cita Tabacos de Canarias SL and its group companies (&#147;CITA&#148;) on 2 January 2006. As part of the transaction, we agreed to acquire 100% of Tabacos Canary
Islands SA and Tabacos La Nubia SL.</FONT></font><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">Please see Item 5 &#147;Operating and Financial Review and Prospects - Liquidity and Capital Resources - Cash Flow Analysis for a discussion of our significant capital expenditures and
method of financing. </FONT></font></P>
<P align="center"><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></font></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr align="left" valign="bottom">
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p22"></a>B</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Business
    Overview</font></b></td>
  </tr>
</table>
<P align="left">  <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Introduction</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are one of the largest international manufacturers of tobacco products in the world. We manufacture and market a wide range of cigarettes, cigars and hand rolling and pipe tobacco
products and snus. We operate primarily in the United Kingdom, other European countries and the Commonwealth of Independent States. We are also involved in the distribution of tobacco and other products in certain markets in Europe as a result of
our acquisition of Austria Tabak. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following table shows our approximate market positions and market shares for our principal products in the primary countries in which we operate: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT>
	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Market position</FONT>
	</TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Market share in 2005</FONT>
	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="100" size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Cigarette<SUP>(1)</SUP></FONT></font></TD>
	<TD width=12% align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">2<SUP>nd</SUP></FONT>
	</font></TD>
	<TD width=2% align=right><font size="2">&nbsp;</font></TD>
	<TD width=12% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38.6</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigar</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">1<SUP>st</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">46.1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hand rolling tobacco</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">2<SUP>nd</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28.7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pipe tobacco</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1<sup>st</sup></FONT></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria</FONT>
	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="45" size="1" noshade></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">1<SUP>st</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42.9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigar</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">2<SUP>nd</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12.8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hand rolling tobacco</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">1<SUP>st</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pipe tobacco</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">1<SUP>st</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ireland</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="40" size="1" noshade></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Cigarette<SUP>(4)</SUP></FONT></font></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">1<SUP>st</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">49.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Cigars<SUP>(5)</SUP></FONT></font></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">1<SUP>st</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">47.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Germany</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="50" size="1" noshade></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Cigarette<SUP>(2)</SUP></FONT></font></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">4<SUP>th</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8.3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sweden</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="45" size="1" noshade></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Cigarette<SUP>(3)</SUP></FONT></font></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">1<SUP>st</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39.1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russia</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="40" size="1" noshade></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">3<SUP>rd</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16.9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Kazakhstan</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="65" size="1" noshade></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">2<SUP>nd</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">37.1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ukraine</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr align="left" width="45" size="1" noshade></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette</FONT></TD>
	<TD align=right valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">4<SUP>th</SUP></FONT>
	</font></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16.2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=right><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note: The UK, Sweden, Russia, Kazakhstan and Ukraine are based on retail audit data.</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="top">
	<TD width="3%"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(1)</sup></FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excluding vending and distribution of JTI brands.</FONT></TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(2)</sup></FONT></TD>
	<TD><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Factory made cigarettes
only. Our branded share of the German cigarette market was 0.6% and our share
of the</FONT>	 <font face="TimesNewRoman,Times New Roman,Times,serif">market
held through generic cigarettes, which we manufacture for retailers, was 7.7%.</font></font></TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p23"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR>
	<TD width="3%" align="left"  valign=top> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><SUP>(3)</SUP></FONT></TD>
	<TD align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excluding
      distributed and marketed JTI brands; based on latest available estimate
      of the market.</FONT> </TD>
</TR>
<TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><SUP>(4)</SUP></FONT></TD>
	<TD align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excluding
      distributed JTI brands.</FONT> </TD>
</TR>
<TR>
	<TD  valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><SUP>(5)</SUP></FONT></TD>
	<TD align="left" valign="top"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excluding
      distributed Ritmeester brands.</FONT> </TD>
</TR>
</TABLE>
<p><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Principal Markets</FONT></U></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At the end of 2004 our operations were re-organised as follows: United Kingdom, Europe (which includes Republic of Ireland but excludes Scandinavia, Baltics and Poland) Commonwealth of
Independent States and the Rest of World (which includes our operations in Scandinavia, Baltics, Poland, Asia Pacific, Africa and the Middle East).</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="3" align=left>&nbsp; </TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005(a)</FONT></I>
    </TD>
    <TD rowspan="3" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
    <TD rowspan="3" align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD rowspan="3" align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;m</FONT></I>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating
      Data</FONT></TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales
      (including duty)</FONT></I></TD>
    <TD align=left> </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD width=2% align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Continuing
      operations:</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></TD>
    <TD width="8%" align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,281</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,658</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,680</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,514</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,794</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,836</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">817</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">476</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">409</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest
      of World</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">491</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">286</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">190</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14,103</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales
      (excluding duty)</FONT></I></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Continuing
      operations:</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">982</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">572</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">568</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,656</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,547</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,553</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">611</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">356</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">307</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest
      of World</FONT></TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">220</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">128</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">119</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,469</FONT></I>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,603</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,547</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a) The pound sterling amounts presented for the year ended 31 December 2005 have been translated into US dollars at the rate of &#36;1.717 to the pound sterling, which was the noon
buying rate in New York City on 31 December 2005. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">United Kingdom</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the United Kingdom, we manufacture and market a wide range of cigarettes, cigars and hand rolling and pipe tobacco products. We have the leading market position in the cigar and pipe
tobacco product markets, and the second-leading position in the cigarette and hand rolling tobacco product markets.</FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We sold 19.5
  bn cigarettes in the UK in 2005 comprising various brands names and compete
  in the premium, mid-price and value sectors. Our </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges Gold</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  brand is the leading premium brand cigarette in the premium market sector, which
  together with </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson
  &amp; Hedges Silver</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  had a retail market share of 9.1% in 2005. Our share of the premium cigarette
  sector in 2005 was 45.2% excluding distributed JTI brands</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">.
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
  </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Mayfair</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  house had an overall market share of 13.3% and has a strong presence in the
  value sector. Our other cigarette brands include </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Silk
  Cut</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
  </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dorchester</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  and </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Sterling</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">.
  </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have a strong lead of the UK cigar market with a 46.1% share of sales to consumers in 2005. We market our cigars in the UK under the Hamlet brand, which includes </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Hamlet</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hamlet Miniatures</FONT></I><FONT
size=2 face="TimesNewRoman,Times New Roman,Times,serif">, </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hamlet Miniatures Filter</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> and
</FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hamlet Aromatic</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">. </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Hamlet</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> has a 54.6% market share in the large whiff sector, while </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hamlet
Miniatures </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">had a 30.9% market share in the small whiff sector in 2005 (35.7% including Filter and Aromatic). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have a strong position in the hand rolling tobacco market, where our market share in 2005 was 28.7% . We sell hand rolling tobacco products in the UK under the </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Amber Leaf </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and</FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Old
Holborn</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> brands. In addition, we achieved a 48.6% market share of the UK pipe tobacco market in 2005. Three of our key pipe tobacco brands hold three of the five leading brand
positions in the pipe tobacco sector. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our Europe division is headquartered in Vienna, Austria and includes the markets of Austria, Germany, Republic of Ireland France, Italy, Spain, Greece, Central Europe, and the Balkans. We
mainly sell cigarettes in these markets, although we also sell other tobacco products in some of these countries. In addition to our tobacco operations we operate a distribution business in certain European markets, which includes the sales of
tobacco and non-tobacco products, such as food and pre-paid phone cards and sales through cigarette vending machines. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette volume sales totalled 42.5 billion sticks in our Europe division in 2005. In Austria, we have a leading position in the cigarette market, with a 42.9% market share and sell our
products under the </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memphis </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Meine Sorte</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> brand houses, as well as under traditional local brands. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Germany we hold a leading position in German generic cigarette sector and we market our own products primarily under the </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Benson &amp; Hedges</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nil</FONT></I><FONT size=2 face="TimesNewRoman,Times
New Roman,Times,serif"> brand houses.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also hold a leading position in the Republic of Ireland with a 49.0% market share excluding distributed JTI brands Our </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Benson &amp; Hedges Gold</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> brand is the leading brand in this market with a 20.4% market share. We have the leading position in the Irish cigar market, with a
market share of 47.0% excluding distributed Ritmeester brands. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We primarily sell our cigarettes in France, Italy and Spain under the </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges</FONT></I><FONT
size=2 face="TimesNewRoman,Times New Roman,Times,serif"> brands. We have also introduced </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austin </FONT></I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">an American blend cigarette brand in these markets following the formation of our joint venture with R.J. Reynolds Tobacco Company (now part of Reynolds American). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also export our products to Central Europe (Hungary, Czech Republic, Slovenia and Slovakia) and the Balkans (Romania, Serbia, Kosovo and Bosnia). We have enhanced our position in
Central Europe with the launching of the </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges Metal </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">range in Hungary, the Czech
Republic, Slovenia and Slovakia. Our sales in the Balkans have been driven by the success of our </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memphis</FONT></I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronson</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> brands.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also have a distribution business within our Europe division. In Austria and Germany, we sell tobacco and non-tobacco products, including food and pre-paid phone cards, through our
Tobaccoland business and also operate a cigarette vending machine business in Germany.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The wholesale/distribution business is predominantly based in Austria and Germany with smaller operations in Estonia and Hungary. The wholesale and distribution systems within Europe
differ widely by country from the former monopoly markets such as Italy, Spain, Austria and France (characterised by a single wholesaler often representing 100% of annual cigarette volumes) to unregulated markets such as Germany and Belgium, where
multiple wholesalers service retailers.</FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Commonwealth of Independent States</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our operations in the Commonwealth of Independent States (CIS) region includes the countries comprising the former Soviet Union. Russia, Kazakhstan and Ukraine are the most significant
markets for us in this division, where we mainly sell cigarettes. We sold 97.0 billion sticks in the CIS market in 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Russia, where we sold 68.5 billion sticks in 2005, we had a market share of 16.9% . Our cigarettes compete predominantly in the low / intermediate price sectors, with brands such as
</FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Troika, St
George, Ducat</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Novost</FONT></I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">. In 2005 we had an approximate 4.7% market share in the premium price sector. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales from our Kazakhstan factory, including exports, totalled 11.8bn in 2005. Our cigarette sales in this market are predominantly in the higher and intermediate price sectors. We had a
market share of 37.1% in 2005. Our </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sovereign </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">brand is the leading cigarette in Kazakhstan, with a
market share of 17.4%, and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD,</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> which was launched in 2001, has a market share of approximately
10.3% .</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the Ukraine, our brands accounted for 16.2% of sales to consumers in 2005. We sold 16.7 billion sticks in Ukraine, led by sales of our </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">LD </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">brand, which had a 3.8% market share in 2005. Higher and intermediate price brands accounted for some 92% of our
invoiced volume sales in this market. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our operations in the Rest of World division include Scandinavia, the Baltic Region, Poland, Asia Pacific, Africa, Middle East and Latin America. We sold 14.8 billion sticks in 2005 in
our Rest of World operations. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B><BR>
</P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Sweden, we have a leading position in the cigarette market, with a 39.1% market share excluding distributed brands which is led by our </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Blend </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">brand. We also sell snus tobacco in Sweden using the </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Gustavus</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD</FONT></I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> brands.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Poland we own the rights to the </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges, Silk Cut, LD</FONT></I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> brands and have acquired KT
Merkury, a domestic Polish cigarette manufacturer, in order to strengthen our position in the Polish market. We grew our share of the total industry shipments to 7.3% . In May 2005, we launched </FONT><I><FONT size=2 face="TimesNewRoman,Times
New Roman,Times,serif">Ronson</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> into the low-price sector such that for the full year the brand achieved a 1.3% share of the market. Our share of the premium sector is now around
1%. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Asia, we sold 540 million sticks in 2005, driven by sales of our </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie </FONT></I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">brands in Asian Duty Free markets. We have also strengthened our relationships in the region and have signed reciprocal trademark agreements with STG to manufacture, distribute and sell one of each
other&#146;s brands in China and Russia. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our sales in Africa, the Middle East and Latin America totalled 3.8 billion sticks in 2005 consisting of our </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Ronson</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> brand, in addition to our </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sovereign</FONT></I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dorchester International </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">brands.
</FONT></P>
<B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Industry Overview and Competition</FONT></U></B><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We operate in a highly competitive business in all of our operating jurisdictions. Globally our principal competitors are Philip Morris International, British American Tobacco Plc, Japan
Tobacco International, Imperial Tobacco Group Plc and Altadis Group S.A.. In addition to these there are other local competitors in the markets in which we operate. We compete on the basis of price, quality, product and a range of brands and tobacco
blends. We also seek to maintain brand loyalty. In 2005 an estimated 5.5 trillion cigarettes were sold throughout the world, including approximately 640 billion in the EU (including the UK and Republic of Ireland). Demand has increased in the
emerging markets of eastern Europe, the Commonwealth of Independent States (CIS) and Asia, but sales in western Europe, including the UK, and North America have generally declined. We expect these trends to continue. Major international cigarette
manufacturers are competing to establish their brands in the emerging markets.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There are significant differences between each of our principal markets due to: </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td width="3%">&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">duty structures;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">distribution
      mechanisms;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the degree
      of government regulation; and</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">local preferences
      for tobacco blends in each market.</FONT></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The principal western European markets are led by a limited number of international brands. By contrast in eastern Europe, CIS</FONT><B><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and Asian markets a proliferation of brands exists. In the CIS and many other markets in which we operate, sales prices and profit margins are typically
lower than those achieved in the UK and western European markets. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">United Kingdom</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The UK market accounted for an estimated 50.5 billion cigarettes in 2005, according to the UK Tobacco Manufacturers Association, which made it the fifth largest market in western Europe.
We estimate that there are approximately 12.4 million adult smokers in the UK, with approximately 9.2 million being cigarette smokers. In 2005, the UK tobacco market had an estimated retail value, including excise duties and value added tax, of
approximately &#163;12 billion. Approximately &#163;11 billion of this consisted of cigarette sales. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The volumes of tobacco products sold in the UK have declined since the 1970s. Total cigarette consumer sales over the period from 1990 to 1997 fell by an average of 3-4% per annum.
Between 1997 and 2000 this trend accelerated, with a decline of approximately 7% per annum, reflecting an increasing trend for UK smokers to source their purchases from outside the UK market. Since this time the trend has slowed to approximately 3%
per annum on average over the period from 2001 to 2005, primarily a result of stricter border controls and customs activity. Over recent years, competition between manufacturers based on pricing has intensified and there was downtrading from the
premium and mid price sectors into value price cigarettes. The UK government&#146;s decision in 2002 to increase the indicative limit of cigarettes for travellers returning from within the EU from 800 to 3200 (the amount of cigarettes deemed
acceptable for personal consumption) could continue to affect the amount of tobacco product sourced outside of the UK. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">With certain regional exceptions, tobacco consumption in Europe consists principally of cigarettes, with a total estimated annual consumption of 715 billion cigarettes (including EU,
central and eastern European markets not in the</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p26"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EU but excluding UK, Poland, Scandinavian countries and the Baltics region). Turkey is the largest market, with an estimated annual consumption of 114 billion cigarettes, followed by
Germany (97 billion), Italy (92 billion) and Spain (91 billion). The western European markets have, until relatively recently, been broadly stable. However, consumer sales in recent years are beginning to decline and there is a greater degree of
price competition. In 2003 and 2004 above inflation duty increases had a negative impact on total market volumes in European states including France and Germany. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Commonwealth
  of Independent States</FONT></U></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We estimate that
  there are around 45 million adult smokers in Russia. Over 99% of these are cigarette
  smokers. In 2005, the cigarette market in Russia had an estimated retail value
  including excise duties and sales taxes of &#36;7.4 billion. The volume of cigarettes
  sold in Russia has continued to grow but the growth rate is slowing down. The
  growth rate in 2005 compared to 2004 was 1%. The proportion of the market accounted
  for by higher priced international brands has increased in association with
  economic growth and improved financial stability. There are around 350 cigarette
  brands sold in the Russian market. Leading international brands account for
  approximately 35% of volume sales. The remainder of volume sales are attributable
  to local brands. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We estimate that the total retail value of the Ukrainian and Kazakhstan tobacco markets in 2005 was &#36;1.8 billion and &#36;0.5 billion respectively. The volume of cigarettes sold in
Ukraine increased by some 8% between 1997 and 2002 and is experiencing a current growth rate of approximately 1-2%. The volume of cigarettes sold in the Kazakhstan market increased by around 38% in the same period with a current growth rate of 4%.
</FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></U></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our principal
  market in the Rest of World segment is the Swedish market. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We estimate that there are around 2.5 million adult tobacco users in Sweden, with around 1.5 million being cigarette smokers and 1.0 million Snus users. In 2005 the total estimated
cigarette consumption was around 7.1 billion cigarettes and the tobacco market in Sweden had an estimated retail value including excise duties and sales taxes of some &#128;1.4 billion.</FONT><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> </FONT></P>
<p><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing,
  Sales and Distribution</FONT></U></B></p>
<p><U><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">Marketing
  and Sales</font></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Advertising, promotion and brand building continue to play a key role in our business, with significant expenditure on programmes to support key brands and to develop our performance in
markets for new brands and brand extensions.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Regulation of advertising and marketing of tobacco products is significant and increasingly restrictive. We will use the full range of advertising, promotion and sponsorship opportunities
allowed to us for as long as these are available and will continue to explore other methods through which we can continue to build our brands. It is possible that the present and proposed regulations, as well as future regulations, may have a
material adverse affect on our ability to advertise, promote and build our brands, to promote and introduce new brands and products and to maintain the proprietary nature of our owned and licensed brands and thus materially adversely affect our
sales and total profit from operations.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We employ sales support staff throughout our markets and, where we have expanded our business, we have kept and utilised sales expertise specific to new markets. We also try to ensure the
leveraging of skills and marketing techniques across our businesses and have a group marketing team to facilitate this. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This is discussed further in the regulation section in &#147;Item 4B. Business Overview&#148; of this Annual Report. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution</FONT></U></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other than in
  the German vending business we do not sell directly to consumers in any of our
  markets. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2005 two distributors together accounted for 40% of our sales in the UK. Due to the established presence of these two distributors throughout the industry we do not believe that there
will be any interruption in their provision of distribution services for our products. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution within the Europe division is achieved through a combination of the distribution businesses owned or associated with the Group and a network of third party
distributors.</FONT></P>
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<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2005, in
  the CIS one distributor accounted for over 99% of our sales in Russia. In Kazakhstan
  all of our sales are to a single distributor. Both of these distributors are
  well established in their respective markets and we do not believe that there
  will be any interruption in their provision of distribution services for our
  products.</FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution
  in the Rest of World is primarily achieved through an independent network of
  distributors, although there are certain markets where 100% of our sales are
  made to single distributors.</FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacturing</FONT></B>
</p>
<p> <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Raw Materials
  </FONT></I></p>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our principal
  materials are tobacco leaf, additives, cigarette paper, acetate tow (for the
  production of cigarette filter tips), cardboard and other packaging materials,
  which are purchased from a number of suppliers. We are not unduly reliant on
  any one supplier and have not suffered any significant production losses as
  a result of an interruption in the supply of raw materials. We believe that
  the loss of any one supplier would not be material.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We purchase tobacco leaf from a number of world markets, principally Brazil, Zimbabwe, Southern Europe and Asia.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As with other agricultural commodities, the price of tobacco leaf tends to be cyclical, with imbalances in supply and demand influencing future production levels. Different regions also
experience variations in weather patterns, which may affect crop quality. Further, political unrest in any of the countries where tobacco leaf is cultivated, as is occurring in Zimbabwe, could also significantly increase the price of these
materials. Though the effect of price fluctuations on our operating performance may be limited by the geographic spread of our tobacco leaf sources and by our policy of holding approximately three months to a year inventory of tobacco leaf, any
significant change in tobacco leaf prices could affect our total profit from operations. </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Production</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The production of tobacco products is a process in which tobacco leaves are dried, cut and then blended before being manufactured and packaged either into cigarettes, cigars or pipe and
rolling tobacco. We use modern manufacturing processes and regularly update our machinery pool to ensure that the efficiency of our factories is amongst the best in the world. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We produce our tobacco products in the UK, Austria, Sweden, Russia, Kazakhstan, Poland, Romania, Ukraine, South Africa and the Canary Islands, with new production facilities in Turkey and
Singapore currently being built. The geographic spread of our manufacturing sites allows us to respond quickly to changes in market drivers and to operate efficient &#147;in country distribution networks&#148;. The use of multiple manufacturing
locations also reduces the risk to supply in the event of a disaster at one of our sites and protects against potential tariff barriers. </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Seasonality</FONT></I>
</p>
<p> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There is some
  seasonal fluctuation in tobacco consumption; however there may be occasions
  when factors such as duty increases can impact on invoiced sales patterns from
  one interim period to another.</FONT></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><B><U>Regulation
  and Litigation</U></B></FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are subject to significant legal restrictions, regulations and local non-statutory requirements in the jurisdictions in which we operate. We believe that we are in compliance in all
material respects with applicable laws, regulations and other requirements. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The global tobacco market is subject to significant regulatory influence, including: the levying of substantial tax and duty charges; legislation related to minimum taxes and prices for
cigarettes; restrictions on advertising and marketing; the introduction of minimum cigarette pack sizes; the display of larger health warnings (including pictorial health warnings) and statements of tar, nicotine and carbon monoxide smoke yields on
product packaging; regulations on the smoke yields of cigarettes; the provision of tobacco ingredients information to regulators; the prohibition of certain descriptors such as &#145;light&#146; and &#145;mild&#146;; increased restrictions such as
the prohibition of smoking in many public places; and, raising the ages at which cigarettes may be purchased. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have a long history of managing our business successfully within a regulatory climate and have reduced our susceptibility to regulatory changes in any single country by expanding our
international operations. However, it is possible that regulations could have an adverse effect on our sales and profit from operations. </FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27</FONT></P>

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<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
       GROUP Plc
</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Regulation</FONT></B></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At a global level,
  the World Health Organisation Framework Convention on Tobacco Control (&#147;WHO
  FCTC&#148;) came into force in February 2005. Countries that have ratified the
  convention will be legally bound by the provisions of the treaty which include
  measures relating to: price and tax to reduce the demand for tobacco; environmental
  tobacco smoke; regulation of the contents of tobacco products; regulation of
  tobacco product disclosures; packaging and labelling of tobacco products; tobacco
  advertising, promotion and sponsorship; illicit trade in tobacco products; and,
  sales to and by minors. The WHO FCTC Conference of the Parties is determining
  further procedural and technical issues relating to the future development of
  the treaty during 2006 and, specifically, is developing protocols for cross-border
  advertising and illicit trade, and guidelines for smoke-free places and ways
  of regulating tobacco products. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Within the EU, a directive concerning the manufacture, presentation and sale of tobacco products was adopted in 2001 and has been implemented into EU member states&#146; national law. In
July 2005, the EU published its report on the application of the directive which included smoke yield measurement, labelling, colour images and ingredients. The Commission has also requested the scientific committee on emerging and newly-identified
health risks to prepare an opinion on the &#145;health effects of smokeless tobacco products&#146; by November 2006.  Separately, the commission is considering possible initiatives regarding &#145;low ignition propensity&#146; cigarettes.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2003, the commission adopted a decision that establishes the rules for the use of colour photographs or other illustrations to depict and explain the health consequences of smoking. It
is for member states to decide whether or not to introduce such pictorial health warnings and on which product groups. In November 2005, Belgium legislated for the introduction of pictorial health warnings on cigarette packs although a transitional
period for the manufacture and marketing of packs with the existing health warning has been granted. Other member states are also considering the introduction of pictorial health warnings, including the UK. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The EU is currently considering a proposal for a regulation concerning the registration, evaluation, authorisation and restriction of chemicals which may include the ingredients used in
the manufacture of tobacco products. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2003, an EU directive relating to the advertising and sponsorship of tobacco products was adopted. Its provisions include the prohibition of tobacco advertising: in the press and other
printed publications; in radio broadcasting; in information society services; and, tobacco sponsorship of cross-border events or activities.  Member states were required to comply with this directive by 31 July 2005. However, the commission has sent
&#145;reasoned opinions&#146; to Germany and Luxembourg for failing to transpose the directive into national law. The commission is also investigating situations in countries where transposition has not been made correctly. The European Court of
Justice (&#147;ECJ&#148;) is currently considering Germany&#146;s legal challenge to the directive but a final judgement is not expected until May 2006. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A number of European countries have recently established, or are considering, further legislation and/or voluntary agreements that restrict or prohibit smoking in public places and the
workplace, which may also include bars and restaurants. These countries include Austria, Belgium, France, Germany, Italy, Norway, Republic of Ireland, Spain, Sweden and the UK. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Austria, amendments to the Tobacco Act prohibited smoking in public places with certain exceptions from January 2005.  Additionally, in 2004, the hotel, restaurant and catering sector
(&#147;HORECA&#148;) and the ministry of health concluded a voluntary agreement establishing designated smoking and non-smoking zones by the end of 2006. The Act also prohibited the sale of cigarette packs of less than 20 cigarettes from January
2005, and advertising in the press from August 2005. Billboard and cinema advertising, and national sponsorships will be prohibited from January 2007. Also, by 2007, cigarettes may only be sold in vending machines which have youth protection
technology installed. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Germany, from 2007, vending machines &#150; in which cigarettes are sold &#150; must have youth protection technology installed. Also, the HORECA sector and the ministry of health have
concluded a voluntary agreement establishing designated smoking and non-smoking zones by 2008. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the Netherlands,
  the state has introduced tobacco ingredient information regulations. In August
  2003, we and two Altria subsidiaries commenced a joint legal challenge to the
  Dutch regulations, which, we believe, do not provide adequate protection for
  brand recipes. Other tobacco companies also brought similar claims. In December
  2005, the court concluded that the Dutch state&#146;s ingredients legislation
  is consistent with the underlying articles of the EU directive concerning the
  manufacture, presentation and sale of tobacco products. However, the court accepted
  that the ingredient information in an individual brand can constitute a &#145;trade
  secret&#146;. We believe that issues surrounding tobacco ingredient reporting
  in the Netherlands remain unresolved. Accordingly, on 20 March 2006, we together
  with the Altria subsidiaries filed an appeal against the initial ruling of the
  courts. Separately, we, together with other manufacturers, are in discussion
  with the commission concerning ingredient reporting across the EU.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the Republic of Ireland, the Public Health (Tobacco) (Amendment) Act 2004 was signed into law in March 2004, purporting to give effect to two EU directives and an EU recommendation
relating to tobacco.  The Act includes</FONT></P>
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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">provision for: a comprehensive ban on tobacco advertising and sponsorship; measures relating to the manufacture, presentation and sale of tobacco products; and, a ban on smoking in all
public places with certain limited exceptions. We, along with seven other plaintiffs, have begun legal proceedings which challenge certain parts of both the repealed Public Health (Tobacco) Act 2002 and the Public Health (Tobacco) (Amendment) Act
2004. The case is likely to be heard in 2006. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Spain, legislation came into effect from January 2006 which prohibits: tobacco advertising, sponsorship and promotion, except at point-of-sale and in the trade press; sampling and free
distribution of tobacco products; and, smoking in enclosed public and private work places with certain limited exceptions. The sale of cigarette and cigarillo packs of less than 20 sticks is prohibited from April 2006. In addition, with the
exception of vending and travel retail, sales of tobacco products are restricted to estancos (licensed retail outlets) only. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Sweden, smoking in public places was prohibited with certain limited exceptions from June 2005.  Also, amendments to the Tobacco Act were passed in May 2005 which included the
prohibition of advertising and sponsorship from July 2005, and existing outdoor advertising and the sale of packs of less than 19 cigarettes from January 2006. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the UK, the House of Commons has approved legislation which will prohibit smoking in all enclosed public places and workplaces in England, with certain limited exceptions, from summer
2007.  The legislation also contains provisions for the Welsh Assembly to establish legislation for smoking in public places in Wales.  Separately, in Scotland smoking in all public places and workplaces will be prohibited again with certain limited
exceptions from 26 March 2006. The UK government also plans to consult on raising the legal age of sale of tobacco and tobacco products from 16 to 18 years. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In August 2003, the UK Office of Fair Trading (&#147;OFT&#148;) notified us of an enquiry into vertical agreements between manufacturers and retailers in the UK cigarette, tobacco and
tobacco-related markets. We are co-operating with the enquiry that remains at an information gathering stage. At this stage, it is not possible to assess whether or not the OFT will reach an adverse decision. Similarly, it is not possible, in the
event that an adverse decision is reached, to assess the extent (if any) of any fines. However, in the event that the OFT considers a company has infringed UK competition law, it has the authority to levy a fine against the infringing company. Until
30 April 2004, the maximum fine could not exceed 10% of that company&#146;s UK turnover during the relevant period. As from 1 May 2004, that limit is set by reference to worldwide turnover although it is unclear whether this new limit applies
retrospectively. We have been advised that any fine would be net of duty payments. In the three years ended 31 December 2003, our aggregate UK net turnover was &#163;1,776m (and our worldwide turnover was &#163;8,701m). In the event of an adverse
decision by the OFT, however, we would have significant rights of appeal. As at 31 March 2006, no notice has been filed by the OFT indicating its intention to reach an adverse decision in relation to this matter. In any event, we intend to defend
our position vigorously. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Russia, amendments to the federal law on restrictions on tobacco smoking came into force in June 2005. These include restrictions on the retail sale of tobacco products and the
prohibition of tobacco smoking in certain public places and transport. In addition, amendments to the federal law abolishing tobacco manufacturing licensing were enacted in July 2005. A new advertising law will come into force on 1 July 2006 that
bans outdoor tobacco advertising from 1 January 2007. Separately, draft legislation has been developed concerning the size of health warnings on tobacco products and the ingredients used in the manufacture of tobacco. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Ukraine, legislation has been enacted requiring the labelling of cigarette packs with a production date and maximum retail price from July 2005.  Also, maximum tar and nicotine smoke
yields for cigarettes have been introduced. Additional legislation was adopted in October 2005, including: prohibition of the sale of tobacco products to those under the age of 18 years, tobacco pack inserts, and disclosure of tobacco ingredients
information from October 2005; prohibition of smoking in workplaces and public places with certain exceptions from October 2005; new packaging and labelling from January 2007; and, maximum tar and nicotine smoke yields for cigarettes from January
2009. Separately, a draft law is being considered which further restricts tobacco advertising and promotion. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In South Africa, the government plans to introduce legislation in 2006 that would, if enacted, prohibit certain marketing practices and product descriptors such as &#145;light&#146; and
&#145;mild&#146;; introduce pictorial health warnings; prohibit the sale of loose cigarettes; restrict the display of tobacco products at point-of-sale; prohibit smoking in certain public places; raise the minimum age for purchasing tobacco products
to 18 years; and, require companies to disclose product and ingredient information. </FONT></P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco taxation and pricing legislation</FONT></B><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The EU commission is currently reviewing the directives governing the structure and rates of excise applied to all tobacco products in the EU.  The commission is planning to report to the
council and parliament with its recommendations in 2006. </FONT></P>
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<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Many new EU countries are required to implement significant duty increases in order to comply with the current minimum cigarette excise tax requirements. Eight countries have been allowed
transitional periods &#150; the longest until January 2010 &#150; in which to comply. Personal imports from new EU states into the previous 15 member states are having a significant negative impact on sales in neighbouring countries in the
transitional periods. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In certain European markets, excise duty increases continue to have an impact on prices, sales and margins. These include large tax increases in Austria, Germany, France, Netherlands and
changes in cigarette taxation in Italy and Spain. Also, Belgium, France, Italy and</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ireland have
minimum cigarette price legislation. Other member states are also considering or have decided to introduce similar legislation. The Austrian government has indicated that it will implement minimum price legislation for cigarettes in April 2006.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We believe that the wide price differentials between high and low taxed countries both inside western Europe and other parts of the world have led to an increase in legitimate
cross-border trade. They have also led to an illicit market for genuine and counterfeit cigarettes in a number of EU countries.  We are totally opposed to cigarette and tobacco smuggling and we continue to support and endorse regulatory
authorities&#146; activities to stop smuggling of tobacco products. We have a policy of co-operating with regulatory authorities with whom we readily exchange information to seek to combat illicit trade. In the UK, we have signed an updated
Memorandum of Understanding &#150; an anti-smuggling co-operation agreement &#150; with HM Customs &amp; Revenue.  We are discussing similar agreements with customs authorities in other countries. The UK government announced in March 2006 that it
will introduce legislation aimed at preventing cigarette smuggling which would, if enacted, introduce penalties against manufacturers who are deemed by the UK government to have failed to exercise reasonable control over their supply chain.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In November 2005, the ECJ ruled that in Germany &#145;singles&#146; (cylinders of tobacco sold for use with a paper shell) should be taxed as cigarettes. &#145;Singles&#146; will continue
to be taxed as fine cut tobacco until 31 March 2006 and as cigarettes thereafter. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Outside of the EU, in Russia the mixed tobacco excise system has been confirmed and from January 2006, cigarette excise rose by approximately 20% for filter cigarettes and 25% for
non-filter cigarettes. At present, tobacco excise duty is levied on the ex-factory price. However, there is a proposal to change the basis of the excise duty calculation to the maximum retail price in 2007. In Kazakhstan, cigarette excise was
increased by approximately 30% for filter and oval cigarettes from 1 January 2006. </FONT></P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Litigation</FONT></B><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The only jurisdiction in which we are currently defendants to actions where plaintiffs are seeking damages for ailments claimed to have resulted from tobacco use or exposure to tobacco
smoke is in the Republic of Ireland. As at 31 March 2006, 163 claims have been dismissed or abandoned since 1997. Currently, there are eight individual claims against our subsidiaries. Statements of claim have been delivered making wide-ranging
allegations against our subsidiaries and other tobacco companies, and against the Republic of Ireland, the attorney general and the minister for health and children, who are also named as defendants in some of those cases. Each of these claims is
subject to a procedural application or challenge by us. No defence will be delivered by us pending the conclusion of all of these procedural matters. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are not a party to smoking and health litigation anywhere else in the world and there has been no recovery of damages against any of our companies in any action alleging that our
tobacco products have resulted in human illness. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">On 4 March 2005, we terminated the distribution contract of a Middle Eastern distributor and commenced proceedings on the same date in the English High Court, seeking a declaration that
the contract had been validly terminated for numerous material breaches. On this basis there was no compensation payable in respect of the termination. By its defence and counterclaim served on 1 July 2005, the distributor asserted that the
termination was unlawful and claimed significant, but wholly un-particularised losses. In an amended claim received on 24 February 2006, the distributor set out some details of its alleged losses, of around &#36;500m, which primarily relate to
hypothetical future profits. We believe these claims to be without substance, and will vigorously contest them through the court process. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liggett-Ducat continues to be involved in court processes relating to payments allegedly due for unpaid taxes, penalties and fines claimed by the Russian tax authorities. Based upon the
facts and matters currently known, management considers that there are meritorious defences against these claims. They will be vigorously defended. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">It is not possible to predict the outcome of pending litigation or the regulatory matters that are subject to investigation or court actions. We believe that there are meritorious
defences to these actions and claims and that the pending actions will not have a material adverse effect upon the results of our operations, our cash flow or our financial condition. These pending actions and any prospective &#145;smoking and
health&#146; claims will continue to be robustly contested. There can, however, be no assurance that favourable decisions will be achieved in the proceedings and actions involving us,</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B><BR>
</P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">that additional proceedings will not be commenced in the UK or elsewhere against our companies, that those companies will not incur damages, or that, if incurred, such damages will not
have a material impact on our operating performance or financial condition. Regardless of the outcome of the pending litigation, the costs of defending these actions and claims could be substantial and will not be fully recoverable from the
plaintiffs, irrespective of whether or not they are successful. </FONT></P>
<B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intellectual Property</FONT></U></B><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are the owners
of the cigarette, cigar and tobacco brands listed in Item 4B under &#8220;Principal
Markets&#148;, with the exception of </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Reynolds</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austin </FONT></I><FONT
size=2 face="TimesNewRoman,Times New Roman,Times,serif">and for which appropriate
trademark protection is in place. Our brands are key to our profitability and
growth, and are among the market leaders in the cigarette, cigar, hand rolling
tobacco  and pipe tobacco sectors in the UK, the Republic of Ireland, Austria,
Sweden, Greece, Estonia, Kazakhstan and Russia. We have established positions
in other markets in western Europe. Our ability to compete effectively with other
companies depends,
to a significant extent, on our ability to maintain the proprietary nature of
our owned and licensed brands. If we were unable to maintain the proprietary
nature of our brands with respect to our significant current or proposed products,
our
business could be materially adversely affected. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also have other intellectual property relating to our manufacturing process.</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B>
<p align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p32"></a>C</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Organisational
      structure</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Group Plc is the beneficial owner of all (unless specified) of the equity share capital of its principal subsidiaries, either itself or through subsidiary undertakings. The
principal subsidiaries, all of which are unlisted, are shown below.</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Country
      of</FONT></TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Name</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Incorporation</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Principal
      activity</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Limited </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></SUP>
    </TD>
    <TD width=12% align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">England</FONT></TD>
    <TD width=50% align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture,
      marketing and distribution of tobacco products in the UK</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson
      &amp; Hedges Limited</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">England</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ownership
      of trademarks of tobacco products</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Asia Limited</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hong
      Kong</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and importation of tobacco products in Asia Pacific markets</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Belgium SA</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Belgium</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and importation of tobacco products in Benelux markets</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Canarias SA</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Spain</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and distribution of tobacco products in the Canary Islands</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      (Dublin) Limited</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Republic
      of Ireland</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and distribution of tobacco products in the Republic of Ireland</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      France EURL</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">France</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      of tobacco products in France</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Hellas SA</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Greece</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and distribution of tobacco products in Greece</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      International Limited</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">England</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      of tobacco products outside the UK</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Italia SRL</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Italy</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and importation of tobacco products in Italy</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Kazakhstan LLC</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Kazakhstan</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture,
      marketing and distribution of tobacco products in Kazakhstan</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Nederlands B.V.</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Netherlands</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and importation of tobacco products in the Netherlands</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Polska Sp z.o.o.</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Poland</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture,
      marketing and distribution of tobacco products in Poland</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Spain SA</FONT></TD>
    <TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Spain</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      of tobacco products in Spain</FONT></TD>
  </TR>
  <TR valign="top">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Switzerland SA</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Switzerland</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and distribution of tobacco products in developing markets (Africa, Middle
      East and South America)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">OOO
      Gallaher Liggett-Ducat</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russia</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and distribution of tobacco products in Russia</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liggett-Ducat
      CJSC</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russia</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture
      of tobacco products in Russia</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Ukraine CJSC</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ukraine</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture,
      marketing and distribution of tobacco products in Ukraine</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria
      Tabak GmbH &amp; Co KG</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture
      of tobacco products in Austria</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria
      Tabak GmbH</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Germany</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and distribution of tobacco products in Germany</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Austria Tabak Europe GmbH &amp; Co. KG</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and distribution of tobacco products in Europe</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Sweden AB</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sweden</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing
      and importation of tobacco products in Scandinavia</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
      Snus AB</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sweden</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture,
      marketing and distribution of snuff tobacco in Sweden</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobaccoland
      Handels GmbH &amp; Co. KG</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution
      of tobacco and non-tobacco products in Austria</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobaccoland
      Automatengesellschaft mbH &amp; Co. KG (63.9%)</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Germany</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco
      vending operations in Germany</FONT></TD>
  </TR>
  <TR valign="top">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cita
      Tabacos de Canarias SL</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Spain</FONT></TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture,
      marketing and distribution of tobacco products in the Canary Islands, Spanish
      Peninsular and Portugal</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)
      Shares held directly by Gallaher Group Plc.</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p33"></a>D</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property,
      plant and equipment</font></b></td>
  </tr>
</table>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our principal properties are: </FONT>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our international
      headquarters at Weybridge, Surrey, England.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      at Lisnafillan, Northern Ireland, with a capacity for the annual manufacture
      of 40 billion cigarettes</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and
      3,500 tonnes of pipe and hand rolling tobacco.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      at Cardiff, Wales, with a capacity for the annual manufacture of 600 million
      cigars.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A distribution
      warehouse at Crewe, Cheshire, England with a capacity to store over 8 billion
      cigarettes. An</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">additional
      8,630 square metre warehouse exists in Crewe which we rent to a third party.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      in, Moscow, Russia, with a current approval for the annual manufacture of
      65 billion cigarettes. In</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russia
      we lease 18 warehouses used for raw material storage or distribution purposes.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      at Almaty, Kazakhstan, with a capacity for the annual manufacture of 16.6
      billion cigarettes.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      at Cherkassy, Ukraine, with a capacity for the annual manufacture of 22.3
      billion cigarettes.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      in Poland with capacity for the annual manufacture of 15 billion cigarettes.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      in Sweden with capacity for the annual manufacture of 21 million cans of
      snus.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Two factories
      in Linz and Hainburg, Austria. These factories have a combined capacity
      of approximately 70</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">billion
      units (cigarettes).</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      in Romania with capacity for the annual manufacture of 2.9 billion cigarettes.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A factory
      in South Africa with a capacity for the annual manufacture of 3.2 billion
      cigarettes.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Wholesale
      depots in Austria and Germany.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">European
      headquarters in Vienna, Austria.</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Two factories
      in the Canary Islands.</FONT></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have continued to upgrade and maintain our properties. These improvements are primarily financed from the retained earnings of the businesses involved and, where additional short term
financing is required, our existing bank facilities. The costs involved are detailed in note 11 of the financial statements accompanying this Annual Report. Our current facilities are utilised below the capacities listed above.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2005 our factories overall operated in the range of 80-90% of their core manufacturing capacity. We are not presently aware of any environmental issues that may affect the existing
utilisation of our assets. We lease part of the Lisnafillan factory, certain of the Austrian wholesale branches and the Russian warehouses. We own the freehold of the remaining properties.</FONT></P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">None of our properties are pledged as collateral.</FONT><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also own approximately 140,000 vending machines in Germany as part of our vending business, Tobaccoland Automatengesellschaft mbH &amp; Co. KG. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In December 2005, we further announced a restructuring of our German vending operation, ATG, reducing its machine park in recognition of new legislation coming into effect in 2007. In
addition, we sold our Dublin former factory site. </FONT></P>
<B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operations</FONT></U></B><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our European operations and administration restructuring programmes continued in 2005. Details of the combined exceptional charges and savings from the respective projects are detailed in
Item 5. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In spite of lower manufacturing volumes in the UK and western Europe, and the near-term disruption caused by more recent stages of the operations restructuring, we have increased overall
cigarette manufacturing productivity (defined as output per worked hour) by 6.5% in the year. This overall performance was largely driven by improvements in the CIS, Poland and Austria with further benefits of the restructuring programme in the UK
and Europe expected in 2006.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p34"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our continuing commitment to remain at the forefront of operational efficiency &#150; including the effective utilisation of raw materials &#150; and the improvement in manufacturing
productivity, underpinned a real term reduction of 2.7% in our cigarette unit costs. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">United Kingdom</FONT></U><P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette productivity in the UK declined by 5.0%, due to lower production volume driven by the market declines for virginia product, the transfer of some developing markets&#146;
manufacturing volume to Poland and a planned reduction in UK finished goods stock levels. These adverse factors were partly offset by job losses emanating from the restructuring programmes and improvements to working practices. Management expects
the full benefits of the proposals announced in January 2005 to be reflected in 2006. </FONT></P>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette real term unit costs reduced by 1.8% in 2005.</FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We increased our tobacco (pipe and HRT) productivity by 6.6%, mainly as a result of increased efficiencies following the installation of a new primary processing line at the end of 2004
and improvements to working practices. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco real term unit costs increased by 2.8%, primarily reflecting higher non-tobacco materials costs attributed to increased demand for </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Amber Leaf </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and higher depreciation for the new primary</FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">.</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigar productivity increased by 11.6%, in spite of the overall reduction in the UK medium-cigar market and an increase in the number of brand pack variations manufactured for export
markets. This improvement was driven by the transfer of production following the closure of the F&uuml;rstenfeld factory and restructuring of manufacturing at the Cardiff factory &#150; identified as part of the restructuring programmes. </FONT></P>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigar real term
  unit costs reduced by 7.1% in the year.</FONT></p>
<p>  <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></U></p>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette productivity in Austria increased by 2.4%, in spite of lower western European volumes and the planned closure of the Schwaz factory at the end of August 2005. This strong
performance was driven by the initial benefits of the restructuring programme and improved efficiencies as a result of further investment.  Additional productivity benefits from the restructuring programmes are expected in 2006. </FONT></P>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austrian real term cigarette unit costs reduced by 4.7% .</FONT></p>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Commonwealth of Independent States</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette productivity in the CIS increased 8.4%, driven by higher production volumes, improved our working practices and investment in new technology. Arising from our holistic approach
to the management of our assets, further re-deployment of machinery &#150; made possible by new investment elsewhere in the Group &#150; took place during the year. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Ukraine and Russia, we continued to invest in new capacity to both drive improved performance and meet market demand. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The increased productivity meant that real term CIS cigarette unit costs reduced by 1.1%, even after the impact of higher raw materials costs resulting from the improved mix of sales in
the region. </FONT></P>
<P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of the World</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our factory in Poland increased productivity by 90.9%, driven by higher domestic and export volumes, ongoing improvements in working practices and investment in new plant and machinery.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The increase in productivity was partly offset by higher depreciation associated with the new machinery, which resulted in a reduction in real term unit costs of 9.2% . </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In accordance with our policy to re-deploy displaced equipment &#150; resulting from investment in new machinery for mature facilities &#150; the South African production facility was
established though the use of surplus equipment, including from Dublin, Russia and Ukraine. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"> <b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F
2005</font></b></p>
<p align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p35"></a>ITEM
4A&nbsp;&nbsp;&nbsp;UNRESOLVED STAFF COMMENTS</font></b></p>
<p align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">None</font></p>
<p align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT></p>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p36"></a>ITEM
5&nbsp;&nbsp;&nbsp; OPERATING
AND FINANCIAL REVIEW AND PROSPECTS</font></b></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Operating and Financial review and prospects discusses the operating and financial performance, the financial outlook and the financial resources of the Group. The results for the
year ended 31 December 2005, which have been prepared under IFRS, as adopted for use in the EU, are compared primarily with the results for the preceding year. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As there are no material differences between IFRS as adopted by the EU and complied with in the preparation of these financial statements these statements also comply with IFRS as
published by the IASB.</FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accounting presentation</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">With effect from 1 January 2005, Gallaher Group Plc has moved to reporting its financial results in accordance with IFRS as required by the European Union Regulation issued in 2002. The
review is prepared under IFRS, as adopted for use in the EU. Comparative figures for 2004 are presented on this basis. Full details of the major differences from UK GAAP as they apply to Gallaher Group plc are given in Note 36 to the financial
statements, IFRS transition disclosures. Information prepared under IFRS is not directly comparable with that prepared under UK GAAP. </FONT></P>
<p><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Overview</FONT></U></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We made good progress in the year, in spite of challenging conditions arising from increased taxation and competition in certain western European markets including the UK. The successful
execution of our strategy &#150; to maximise cash flow from key EU markets to fund international expansion through exports, investing &#145;on the ground&#146; and joint ventures and alliances &#150; meant that we delivered good organic growth in
2005. These results reflect both the cost of investments in new opportunities and the benefit of returns from investments in previous years. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We grew 2005 cigarette
volumes, excluding German &#145;singles&#146;, by 2.0% to 173.8bn (2004: 170.3bn).
Including the sales of singles, our cigarette volumes increased by 3.0% to  175.8bn
(2004: 170.6bn). This growth was driven by market share gains in our longer-established
markets of Russia, Kazakhstan and Spain. In addition, we made good progress in
our more recent on the ground investments in Ukraine, Poland (which moved
into profit) and Romania and our export markets &#150; including the Czech Republic,
Slovakia, Hungary, and Lithuania. These strong performances more than offset
the adverse conditions in some key western European markets including the UK.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We grew our strategic
cigarette brands&#146; volume sales by 11.5% . These brands &#150; </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp;
Hedges, Silk Cut, Sobranie, Sovereign, Memphis, Mayfair, LD </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronson</FONT></I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif"> &#150; totalled 83.8bn (2004:
75.1bn) cigarettes, accounting for 48.2% of our total volume sales (2004: 44.1%). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In April 2005, we acquired the </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges</FONT></I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Silk Cut</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> trademarks in Malta and Cyprus, and the </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">Silk Cut </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">trademark in Lithuania, from British American Tobacco for a total cash consideration of &#163;70m. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Later in the year we announced that we had agreed to acquire 100% of Cita Tabacos de Canarias SL and its group companies (&#147;CITA&#148;) for an enterprise value of some &#128;105m. As
part of the transaction, we agreed to acquire 100% of Tabacos Canary Islands SA and Tabacos La Nubia SL. The acquisition completed on 2 January 2006.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We increased overall
cigarette manufacturing productivity by 6.5%, which underpinned a real term reduction
in our cigarette unit costs of 2.7%. This performance was assisted by the  European
operations restructuring programme, which continued during the year. </FONT></P>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our segmental
results are summarised below:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross sales</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,658</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,794</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">476</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">286</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></B></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,680</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,836</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">409</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">190</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net sales</FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1)</FONT></SUP>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">572</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,547</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">356</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">128</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,603</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">568</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,553</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">307</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">119</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,547</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p37
"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
      GROUP Plc</FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
      20-F 2005 </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(&#163;m)</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from
operations</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">284</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">234</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">290</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">245</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<p> <sup><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1) </font></sup><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross
sales less duty paid by Group companies</font></p>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">European
  Operations&#146; Restructuring Programme</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2003 and early 2004, we announced the restructuring of our European operations and administration. We ceased all manufacturing in the Republic of Ireland by the end of 2003, and
reduced jobs in the UK, Austria and Sweden.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In early 2005, we announced proposals for a further restructuring of our European operations. These proposals comprised: the closure of the Schwaz cigarette and F&uuml;rstenfeld cigar
factories in Austria; the restructuring of production at the cigarette and cigar factories at Lisnafillan and Cardiff in the UK; and, reorganisation of some aspects of the distribution network in Europe. This activity commenced in 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In December 2005, we further announced a restructuring of our German vending operation, ATG, reducing its machine park in recognition of new legislation coming into effect in 2007. In
addition, we sold our Dublin former factory site. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net exceptional charges of &#163;35m are included in the income statement for the year ended 31 December 2005 in respect of these restructuring programmes, comprising: &#163;13m charged
in cost of goods sold (net of the gain on disposal of the Dublin former factory site); &#163;13m charged in distribution, advertising and selling costs; and, &#163;9m charged in administrative expenses. Of this total, &#163;18m related to the
impairment of operational plant and machinery, &#163;15m related to a gain on disposal of the Dublin former factory site and the balance of &#163;88m primarily related to redundancy costs. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> The total cost of the restructuring is expected to be in the region of &#163;95m, and once completed, by the end of 2007, we expect to achieve annualised savings of at least &#163;30m.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The tax credit associated with the 2005 net exceptional charge is &#163;8m (2004: &#163;6m). The restructuring gave rise to a net cash outflow in 2005 of &#163;18m (2004: &#163;15m).
</FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The table below
reflects the restructuring programme&#146;s liability balance:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liability at beginning of period</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash paid</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(18</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-cash</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional charges</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liability at end of period</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The majority of liabilities at 31 December 2005 are expected to crystallize in cash payments throughout 2006.</FONT></P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Changes to segmental disclosure from 2005</FONT></B><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Following the changes in board responsibilities effective from October 2004, and in line with IFRS&#146; principles regarding segmental reporting, we reviewed the segments under which we
report our financial results. As a result of this review, the financial information for the year ended 31 December 2005 is being reported under a revised segmental structure, and 2004 comparatives have been restated accordingly. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Further details, and IFRS reconciliations between the previous and current segmental structures for the year ended 31 December 2004, were set out in the 2004 annual report and financial
statements. This information is also available on our website (www.gallahergroup.com)</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">37</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p38"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Differences Between IFRS and US Generally Accepted Accounting Principles</FONT></U></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following discussion and analysis is based on our consolidated financial statements, which we prepare in accordance with international financial reporting standards as adopted by the
EU (&#147;IFRS&#148;). These differ from those generally accepted in the United States (&#147;US GAAP&#148;). We discuss the principal differences between IFRS and US GAAP, as they relate to us, in note 37</FONT><B><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of the notes to the financial statements.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Results of Operations - Year 2005 compared with Year 2004</FONT></B></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Group Income Statement Analysis</FONT></B></p>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Total sales </FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> for 2005 increased 1.2% to &#163;8,214m (2004: &#163;8,115m) while sales
excluding duty (&#147;net sales&#148;) grew 2.2% to &#163;2,603m (2004: &#163;2,547m) in spite of the impact of increased sales incentives (which are deducted from reported sales) versus 2004. </FONT></P>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Duty </FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">paid increased 0.8% in 2005 to &#163;5,611m, compared to &#163;5,568m in 2004. This
movement arises as a result of duty increases in most of our key markets as discussed in our performance factors above and the impact of increased volume sales across the business, offset partially by a change in mix towards lower duty
environments.</FONT></P>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Exceptional charges.</FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Net exceptional charges of &#163;35m are included in the income
statement for the year ended 31 December 2005 in respect of restructuring programmes, detailed earlier in this section.</FONT></P>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Other costs of sales </FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">increased &#163;14m or 0.9%</FONT><B><I><FONT size=2
face="TimesNewRoman,BoldTimes New Roman,Times,serif"> </FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">in 2005 to &#163;1,510m, compared to &#163;1,496m in 2004 including exceptional charges. After adjusting for
exceptional items the underlying item increased 0.6% to &#163;1,497m from &#163;1,488m in 2004 mainly reflecting increased volume sales across the business.</FONT></P>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Total costs of sales </FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">increased &#163;57m or 0.8% in 2005 to &#163;7,121m, compared to
&#163;7,064m in 2004. Total costs of sales decreased slightly as a percentage of total sales to 86.7% for fiscal year 2005 from 87.0% for fiscal year 2004. The variance mainly reflected</FONT><B><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the increase in total sales and the change in sales mix towards relatively lower duty environments. </FONT></P>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Distribution,
advertising and selling</FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> costs
increased &#163;19m or 5.9% in 2005 to
&#163;340m, compared to &#163;321m in 2004. This financial statement caption
excludes costs reported in our joint venture, RGI, for which results are reported
separately. Distribution, advertising and selling costs were 4.1% of sales in
2005 and  3.9% in 2004. After adjusting for exceptional items the underlying
item increased 1.9%. Increased selling costs mainly occurred due to higher volumes
in CIS, Denmark, central Europe and Balkan regions. Increased advertising costs
represent
increased investment in CIS, Europe, Asia Pacific, Poland, Africa and the Middle
East. Distribution costs are lower due to savings across Europe driven by greater
operational cost efficiency at ATG. </FONT></P>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Administrative</FONT></I></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B><B><I><FONT size=2 face="TimesNewRoman,BoldTimes New
Roman,Times,serif">expenses</FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> increased &#163;24m
or 17.9% in 2005 to &#163;158m, compared to &#163;134m in 2004. Administrative
expenses marginally changed as a percentage  of total sales to 1.9% in 2004 from
1.7% in 2004. After adjusting for exceptional items the underlying item increased
19.2%. This increase was driven by inflationary pressures across all regions,
together with new on-shore facilities in Romania and
South Africa. </FONT></P>
<p><B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Other gains and losses</FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> increased
by &#163;1m in 2005 to &#163;4m</FONT><B><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">.</FONT></B></p>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Share of post tax results of joint ventures and associates</FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> decreased &#163;2m or 10.5%,
driven by slightly lower profits in R.J. Reynolds &#150; Gallaher International SARL and higher amortization charges within Lekkerland, which offset the improved contribution of Lekkerland Europa.</FONT></P>
<P>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Total profit from operations</FONT></I></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> reduced &#163;2m or 0.3% to &#163;616m in 2005, compared to
&#163;618m in 2004. This reflects trading improvements offset partially by higher exceptional charges of &#163;35m (2004: &#163;17m). Underlying Total profit from operations, excluding the impact of this charge increased 2.5% to &#163;651m from
&#163;635m in 2004. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segmental Analysis</FONT></B></p>
<P>
<B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">United Kingdom</FONT></U></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">It is estimated that the UK duty-paid cigarette market declined by around 4% during the year.  Downtrading by consumers from higher-priced brands into the value sector continued, although
at a slightly slower rate than in 2004. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p39"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the UK, the House of Commons has approved legislation which will prohibit smoking in all enclosed public places and workplaces in England, with certain limited exceptions, from summer
2007. We believe the proposed legislation is disproportionate and fails to accommodate smokers and non-smokers alike. We expect that the proposals, if enacted, would have a moderately negative incremental impact on duty-paid market
volumes.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The shares of cigarette
market retail sales accounted for by each price sector in 2005 were: value: 61.4%
(2004: 59.1%); mid-price: 8.9% (2004: 10.1%); and, premium: 29.7% (2004: 30.8%).
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our UK volume sales
declined by 3.7% to 19.5bn cigarettes (2004: 20.2bn) . Our cigarette market share
(excluding distributed brands) was stable at 38.6% (2004: 38.6%). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK sales decreased to &#163;3,658m (2004: &#163;3,680m) largely reflecting lower cigarette volume sales and downtrading, partially offset by price increases. UK net sales increased 0.7%
to &#163;572m (2004: &#163;568m) in spite of the impact of increased sales incentives (which are deducted from reported sales) versus 2004.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK profit from operations was &#163;284m (2004: &#163;290m) &#150; the increase in net sales through price increases, which offset lower volumes and downtrading, is further aided by lower
operating costs arising from the lower volumes, restructuring savings and reduced sponsorship costs. This improvement is, however, more than offset by the higher UK exceptional charge in 2005 of &#163;22m (2004: &#163;9m). </FONT></P>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr align="left" valign="top">
    <td>-</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigarette</font></u></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mayfair</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
        which sells at a slight premium to competing value brands, continues
        to outperform in the
growing</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">value
cigarette sector. Together with </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges
Silver </font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">our
value-for-money portfolio
has</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">grown
its share of the value sector to 36.2% (2004: 35.2%). Stemming from the success
of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">in
the</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">multiple
grocers&#146; channel, we extended the distribution of the brand to the convenience
and
independent</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">channels
in January 2006.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In September,
        we introduced </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson
        and Hedges Gold 14s </font></i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">which has assisted in arresting the more recent</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">share
        declines of the brand in the premium sector. </font><i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Silk Cut&#146;s </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">share
        of the premium sector grew slightly to</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">19.4%
        (2004: 19.3%), following the introduction of new product packaging. Our
        leading share of the</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">premium
    sector was 45.2% (2004: 46.5%).</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td width="3%">&nbsp;</td>
    <td><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The successful execution of our value sector strategy in recent years means that our sales profile by price</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">sector
&#150; value: 57.6% (2004: 53.9%), mid-price: 7.7% (2004: 9.0%) and premium: 34.7% (2004: 37.1%) &#150;</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">was broadly in line with the market in 2005.</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>-</td>
    <td>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cigar</FONT></U></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Based on
        estimates of customs clearance data, total UK cigar market volumes declined
        by 6.5%, tempered by</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">growth
        in the miniature cigar sector, which increased its share of the total
    market to 43.2% (2004: 41.1%).</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We maintained
        our overall lead of the UK cigar market with a share of 46.1%. Merchandising
        and
packaging</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">innovations
have grown our share of the miniature cigar sector to 35.8% (2004: 35.1%). In
December, we</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">introduced
a new shelf-ready </font><i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Hamlet </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">merchandiser,
which includes five tins each of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hamlet
Miniatures,</font></i> <i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hamlet
Smooth, Hamlet Fine Aroma </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">and </font><i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">Hamlet Filters</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">. </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hamlet
Smooth</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
with new &#145;10s in a tin&#146; packaging,</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">was
also launched during the year.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>-</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco</font></u></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The UK
        handrolling tobacco market (&#147;HRT&#148;) grew by 5.0% (2004: 4.0%)
        in 2005, based on estimates</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">provided
        by
the Tobacco Manufacturers Association.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our share
        of the HRT market reduced to 28.7% (2004: 29.7%), albeit at a more moderate
        rate of decline than</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">in
        previous
years</font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">. </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">A
slower rate of decline in market share of </font><i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">Old Holborn </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">to
7.4% (2004: 8.8%) was partly</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">offset
by </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amber
Leaf </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#150; the
market&#146;s fastest growing HRT brand &#150; which grew its share of the market
to</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">18.5%
(2004: 17.0%). The limited edition </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amber
Leaf </font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">&#145;tins&#146; packaging assisted
in re-affirming the brand&#146;s</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">innovative
characteristics.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The small UK pipe tobacco market reduced by 4.1%. We continued to lead this market with 48.6% of</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">consumer sales (2004:
48.6%).</FONT></td>
  </tr>
</table>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p40"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="left"><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></U></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
      European cigarette volume sales declined by 6.1% to 42.5bn (2004: 45.3bn).
  Including the sales of singles in Germany, the division&#146;s volumes
      were 44.5bn (2004: 45.6bn). The decline in cigarette sales is largely
  attributed to substantial market declines in Austria, Germany, Italy and Benelux
  as
      a result of increased taxation, an escalation of cross-border trade, lower
      UK tourist volumes and workplace smoking bans. These
  declines were, however, partially offset by volume growth in the Republic of
      Ireland, Spain and a number of markets within central and eastern Europe
      and sales following the acquisition of trademarks in Cyprus and Malta.
  Since the fourth quarter, some western European markets have experienced an
  increase
      in competitor activity in the value sectors, which has also led to an increase
  in downtrading. Management expects that these trends will continue in 2006. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In spite of these challenging conditions, our European operations delivered a robust performance in 2005, benefiting from price increases and reduced operating costs.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the tobacco operations, market declines were largely mitigated by price increases and developing businesses in newer markets.  We also gained through the significant success of our
singles business in Germany, although the production of singles will be taxed as factory-made cigarettes from April 2006. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total sales were &#163;3,794m (2004: &#163;3,836m) and net sales were &#163;1,547m (2004: &#163;1,553m), comprising: tobacco net sales &#150; which increased 0.9% &#150; of &#163;448m
(2004: &#163;444m); and, distribution net sales &#150; which declined 0.9% &#150; of &#163;1,099m (2004: &#163;1,109m).</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe profit from
operations was &#163;234m (2004: &#163;245m) of which &#163;186m (2004: &#163;186m)
arose from tobacco operations and &#163;48m (2004: &#163;59m) come from the
distribution business. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco &#150; Profit from operations reflects the trading position and the reduced level of exceptional charge of &#163;0m (2004: &#163;5m). The weaker trading reflects lower overall
volumes as well as the change in mix of sales. In particular, 2005 has seen increased lower-margin volumes (particularly in EU accession and Balkan markets) and lower volumes in the higher-margin western European markets. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution &#150; Profit from operations reflects the trading position, offset by the increased level of exceptional charge of &#163;10m (2004: &#163;0m). The optical pricing parity for
most of 2005 between vending and retail in Germany, together with lower operating costs, has alleviated some pressure on the lower-margin vending business. In addition, our associate, Lekkerland, has delivered stronger results before amortization of
intangible assets. In spite of the reduced market size in Austria, earnings from the Austrian distribution business grew slightly, driven by increased operational efficiency and manufacturer price increases. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr align="left" valign="top">
    <td>-</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco</font></u></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In spite
        of intensified competitor activity in some markets across the region,
        we outperformed cigarette</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">market
        trends in a number of countries, notably in: Spain; Czech Republic; Romania;
        and, other EU accession</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">markets,
    including Slovakia and Hungary.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The underlying
        duty-paid Austrian cigarette market &#150; after eliminating the impact
        of the phasing of trade</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">sales &#150; declined
        by around 10%, primarily due to increased cross-border trade from new
    EU member states.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We maintained
        our leading position in Austria, but with an anticipated reduction in
        market share to 42.9%</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2004:
        45.2%). Following the repositioning of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memphis
        Classic </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">to
        a higher price point, </font><i><font
size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memphis </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">house&#146;s</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">market
        share declined to 25.4% (2004: 27.0%). However, in January 2006, competition
        in the value price</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">sector
        increased sharply. We reduced the prices of </font><i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">Ronson</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">, </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">B&amp;H
        Red </font></i><font
size=2 face="TimesNewRoman,Times New Roman,Times,serif">and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Smart</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">.
        The Austrian government</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">is
    currently reviewing the duty regime.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The total
        cigarette market in the Republic of Ireland increased by 1.8%, partly
        assisted by the phasing of trade</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">sales
        ahead of price increases. We estimate that the underlying market was
        broadly flat, reflecting a return to</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">more
        stable market conditions following the initial nine-month impact of the
        ban on workplace smoking that</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">was
        introduced in March 2004. We maintained our lead of the cigarette market
        with a share of 49.0% (2004:</font> <font size=2
face="TimesNewRoman,Times New Roman,Times,serif">49.1%), underpinned by a strong
        performance from </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges
        Gold</font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">, which grew its share to 20.4%</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2004:
    19.8%).</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Germany,
        the total duty-paid factory-made cigarette market declined by 14.7% due
        to substantial excise</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">tax
    increases, heightened cross-border trade and the growth of singles.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td width="3%">&nbsp;</td>
    <td><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our share of the singles sector was 9.1% in December 2005 (2004: 2.1%). Management does not expect the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">removal of the
tax advantage, this year, to have a material negative impact on our profitability.</FONT></td>
  </tr>
</table>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p41"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">  </FONT></B><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B></P>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%">&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The private
      label cigarette sector&#146;s share of the total market declined to 15.3%
      (2004: 16.9%), mainly as a result of the growth of singles. We maintained
      our lead of the sector with a share of 50.5% (2004: 50.1%) . Our branded
      cigarette market share declined moderately to 0.6% (2004: 0.7%).</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The French
      total duty-paid cigarette market broadly stabilised, following the substantial
      tax hikes in the preceding year, with volumes down 0.2% . Our share of the
      market reduced to 2.8% (2004: 3.1%) . Our higher-margin </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson
      &amp; Hedges Metal</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      range maintained its share stable at 1.6%, which partly offset share losses
      in the value sector from the Reynolds-Gallaher International brand portfolio.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Following
      the successful introduction of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson
      &amp; Hedges </font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">cigars earlier in the year, we
      increased our share of the French cigar market to 1.5% (2004: 1.2%) . </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Italy,
      increased smoking restrictions, which came into effect in January 2005,
      were a factor in the 6.5% decline of the total duty-paid cigarette market.
      Increased competition in the value sector meant that our market share reduced
      to 4.0% (2004: 4.9%) . However, our share improved in the second half of
      the year owing to </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson
      &amp; Hedges American Blend</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      share gains. </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Old
      Holborn</font></i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif"> grew its share of the growing tobacco market to 11.6% (2004:
      10.3%), increasing its volume sales by 33.7% . </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Spain,
      the duty-paid cigarette market remained broadly stable. However, during
      2005 there was an acceleration in consumers downtrading to lower-priced
      cigarettes. Our market share &#150; driven by brands such as </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austin</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
      </font><i><font size=2 face="TimesNewRoman,Times
New Roman,Times,serif">Benson &amp; Hedges American Blend</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronson</font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif"> &#150; increased to 2.2% (2004:
      1.7%) . CITA, led by its main brand </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Coronas
      Blond</font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">, grew its share to 4.1% (2004:
      3.6%) . Competition has further intensified, however, following significant
      price movements, repositioning of brands and duty absorption by a number
      of competitors in 2006. </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the Canary
      Islands, our share of the cigarette market declined to 7.6% (2004: 8.1%)
      and CITA grew its share to 22.4% (2004: 20.3%) . </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Western
      European tourist volumes were significantly lower in the year and it is
      unlikely that they will fully return to previous levels. For instance, in
      Belgium, sales to UK tourists were down by as much as 40.7%, and in the
      Netherlands, UK tourist sales were down by 28.2% . Our lower volumes were,
      however, largely offset by incremental sales of </font><i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Benson &amp; Hedges</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Silk
      Cut</font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif"> in Malta and Cyprus, following
      the acquisition of the trademarks from BAT in April. </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We made
      further advancements in central and eastern Europe, growing our EU accession
      and Balkan market volumes by 29.5% to 9.5bn (2004: 7.3bn) . </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the
      Czech Republic, we increased our share to 6.6% (2004: 1.8%) . Our moderate
      share decline in the second half (to 6.2% from 7.0% in 2005 H1) was attributed
      to management&#146;s decision to raise the price of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronson</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">.
      </font><i><font size=2 face="TimesNewRoman,Times
New Roman,Times,serif">LD</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
      which was launched earlier in the year, continues to make good progress.
      </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Hungary,
      we have quickly established an estimated share of 1.8% following </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD&#146;s</font></i><font
size=2 face="TimesNewRoman,Times New Roman,Times,serif"> launch in May. In Slovakia,
      the successful introduction of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Smart</font></i><font size=2 face="TimesNewRoman,Times
New Roman,Times,serif"> in the value sector has driven our estimated total market
      share to 6.4% (2004: 1.6%) . </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Romania,
      where we have established an on-shore manufacturing facility at the end
      of 2004, we grew cigarette volume sales (including duty-free) by 34.0% .
      Our share of the domestic market (excluding duty free) reached 3.2% in December,
      driven by the success of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">St
      George</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
      </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronson</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      and </font><i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">LD</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">.
      </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We recently
      acquired land and buildings in Turkey for the purpose of establishing on-shore
      manufacture. </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>-</td>
    <td> <u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution</font></u></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our distribution
      businesses &#150; Tobaccoland Austria (&#147;TOBA&#148;), ATG and the associate
      Lekkerland (primarily</font> <font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">made up of the German convenience business) &#150; were affected
      by cigarette market declines in both Austria</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">and
      Germany.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Austria,
      the ongoing focus on operational costs at TOBA and price increases in the
      premium cigarette</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">sector
      offset the impact of the total market decline.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ATG &#150;
      the German vending company in which we have a 63.9% holding &#150; was also
      affected by unfavourable</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">market
      conditions. These were, however, partly mitigated by an outperformance of
      the branded cigarette</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>

<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">41</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p42"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B><br>
  <br>
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%">&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">sector (decline
      of 13.0%) versus the market (decline of 14.7%), optical pricing parity between</font><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;
      </font><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">vending and retail channels for
      premium brands for eight months of the year and by a continued focus on
      operational cost reduction. </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In recognition
      of new legislation being introduced in 2007, it is planned that the ATG
      vending machine park will be rationalised from c.140,000 to c.100,000 machines.
      </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In spite
      of the lower German cigarette market, Lekkerland &#150; the associate in
      which we have a 25.1% holding &#150; had a robust performance, boosted by
      the contribution of Lekkerland Europa.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"> <b><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Commonwealth
      of Independent States</font></u><br>
      </b><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">Commonwealth
      of Independent States (&#147;CIS&#148;) sales increased 16.3% to &#163;476m
      (2004: &#163;409m), and net sales increased 15.9% to &#163;356m (2004: &#163;307m),
      in spite of increased sales incentives, reflecting the increased volume
      sales, price increases and continued sales mix improvements.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      CIS is a region of strengthening economies and our strategy to exploit our
      strategic brand portfolio &#150; with an ongoing focus on lowest cost production
      and improved product mix &#150; continues to deliver profitable volume growth.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
      CIS volume sales increased by 6.5% to 97.0bn cigarettes (2004: 91.0bn),
      in spite of excise duty increases in both Russia and Ukraine and manufacturer
      price increases across the region. </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      grew our strategic cigarette brands&#146; volume sales in the region by
      30.5% to 36.6bn (2004: 28.0bn) . </font><i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">LD</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      increased its volume sales by 24.5%, </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sovereign</font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif"> by 21.4% and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      by 47.8% . After identifying </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronson
      </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">as
      a key regional value proposition at the end of the first half, the brand
      grew in-market sales to 1.4bn cigarettes. </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      grew our estimated total CIS region market share to 16.9% (2004: 16.1%).
      </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS
      profit from operations increased 17.9% to &#163;67m (2004: &#163;57m), with
      the Group&#146;s significant increase in investment behind its brands and
      sales forces partly offsetting the increase in volumes, price increases
      and continued sales mix improvements.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>-</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russia</font></u></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We estimate
      that the total Russian cigarette market grew by 1% in the year.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The shares
      of retail sales accounted for by each price sector were: higher-priced:
      33.6% (2004: 30.2%);</font> <font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">intermediate-priced: 57.9% (2004: 58.7%); and, lower-priced:
      8.5% (2004: 11.1%).</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We grew
      our share of the total cigarette market to 16.9% (2004: 16.4%). This share
      gain was driven by the</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">success
      of a variety of our brands across all price sectors. In spite of price increases,
      </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD
      </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">delivered
      a robust</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">performance
      in the value sector, with its share of the market stable at 5.3% (2004:
      5.3%).</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Due to increased
      marketing efforts, mid-priced </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sovereign
      </font></i><font size=2 face="TimesNewRoman,Times
New Roman,Times,serif">increased its share of the market to 0.5% (2004:</font>
      <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.4%). </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Golden
      Deer</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
      Shanghai Tobacco Group&#146;s brand which we produce under license, continues
      to</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">perform
      in line with expectations.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie
      Slims </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">drove
      our share of the premium sector to 4.7% (2004: 4.0%). Following the successful
      launch</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">of
      </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie
      Red </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">and
      </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie
      Blue </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">in
      eight A-strata cities (where the population exceeds one million people),</font>
      <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">a full national
      roll-out is planned for March 2006.</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reflecting
      our improvement in sales mix, our share of the higher-priced sector grew
      to 4.2% (2004: 3.7%)</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">and
      our share of the intermediate-priced sector grew to 25.9% (2004: 24.5%).</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>-</td>
    <td> <u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Kazakhstan</font></u></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Kazakhstan,
      we grew our share of the total cigarette market to 37.1% (2004: 35.1%).
      </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sovereign
      </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">reaffirmed</font>
      <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">its position
      as the leading brand in the market, attaining a record share of 17.9% in
      December 2005 (2004:</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">16.0%)
      &#150; underpinned by the ongoing success of the &#145;Golden Fever&#146;
      campaign which is reaching more cities</font> <font size=2 face="TimesNewRoman,Times
New Roman,Times,serif">across the country.</font></td>
  </tr>
</table>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42</FONT></P>

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<div style="page-break-before:always"></div>
<page> <a name="p43"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"> <i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      maintained its position as the largest value-for-money brand, growing share
      to 10.3% (2004: 9.3%) . Higher-priced </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      achieved 4% market share for the first time in December 2005, assisted by
      the successful launch of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie
      Classic Slims</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      in the third quarter of the year. </font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
      export volumes to neighbouring countries &#150; including Kyrgyzstan, Mongolia
      and Armenia &#150; reached a record 1.6bn cigarettes in the year. In Kyrgyzstan,
      we grew our estimated share of the market to 17.7% (2004: 15.5%), further
      leveraging the &#145;Golden Fever&#146; campaign and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sovereign&#146;s
      </font></i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">English heritage. </font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%" align="left">-</td>
    <td align="left"> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ukraine</FONT></U></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      overall cigarette market continued to benefit from improved product mix
      during the year. The shares of</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">retail
      sales accounted for by each price sector were: higher-priced: 26.7% (2004:
      24.7%); intermediate-priced:</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.8%
      (2004: 63.2%); and, lower-priced: 9.5% (2004: 12.1%).</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      grew our share of the total cigarette market in Ukraine to 16.2% (2004:
      14.5%). LD, Level and Ducat</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">delivered
      strong performances in the intermediate-priced sector, and the successful
      launch of Ronson assisted</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">in
      increasing our share of the sector to 22.9% (2004: 20.0%).</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
      share of the higher-priced sector increased to 1.6% (2004: 1.4%), driven
      by a good performance from</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie
      Slims.</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2" align="left"> <b><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest
      of World</font></u><br>
      </b><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">Rest
      of World (&#147;RoW&#148;) sales grew by 50.6% to &#163;286m (2004: &#163;190m),
      and RoW net sales increased 7.8% to &#163;128m (2004: &#163;119m), in spite
      of increased sales incentives. These movements reflect the increased volumes,
      a change in sales mix and price increases.</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2" align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
      the RoW division, we defended our mature position in Sweden and enhanced
      our presence in northern Europe and Asia Pacific. </font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2" align="left"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      achieved strong cigarette volume growth in Poland, Denmark, Lithuania and
      Nigeria, more than offsetting weaker volumes in the Middle East and Guinea.
      With Swedish cigarette volumes some 4% higher due to the phasing of trade
      sales ahead of a tax increase in January 2006, RoW total volume sales increased
      7.0% to 14.8bn cigarettes (2004: 13.8bn) . </font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2" align="left"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">RoW
      profit from operations was &#163;31m (2004: &#163;26m) &#150; the increase
      reflecting trading improvements and a stable exceptional charge of &#163;3m
      (2004: &#163;3m). </font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td colspan="2" align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
      Poland, the operation moved into profit in 2005 in line with expectations.
      This, along with a good performance in Sweden and some manufacturer price
      increases, has more than offset the initial investments in Denmark, Lithuania
      and South Africa. </font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">-</td>
    <td align="left"> <u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Scandinavia
      and the Baltics</font></u></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
      Sweden, the underlying market for duty-paid cigarettes declined by around
      1%. Although a nationwide</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">public
      smoking ban came into force on 1 June 2005, it is still too early to ascertain
      the effect on the total</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">cigarette
      market.</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      defended our leading position with market share (excluding distributed brands)
      of 39.1% (2004: 39.5%).</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">25s
      </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">variant
      continues to bolster </font><i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Level&#146;s </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">performance,
      which increased its share of the market to 6.4%</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2004:
      4.9%). As anticipated, </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Blend
      </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">reduced
      its share to 17.6% (2004: 18.5%) and </font><i><font size=2
face="TimesNewRoman,Times New Roman,Times,serif">Right </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">maintained
      share</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">broadly
      stable.</font></td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
      estimate that the snus market in Sweden was broadly stable. According to
      official customs data, our</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">share
      of the market grew to 5.4% in December 2005 (2004: 2.7%), following the
      successful introduction of</font> <i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD
      Red </font></i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">in August. Since then, we have launched </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD
      Blue </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Juniper
      flavour) and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD
      Gold </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(traditional</font>
      <font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">flavour) at the same price point as </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD
      Red, </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">offering
      a fuller portfolio of flavours to the value snus consumer.</font> </td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left">&nbsp;</td>
  </tr>
  <tr valign="top">
    <td align="left">&nbsp;</td>
    <td align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
      the first quarter of 2005, we launched </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD
      </font></i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">into the Danish cigarette market. Our share of the market in
      the</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">three
      months to November was 5.1%.</font></td>
  </tr>
</table>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<a name="p44"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">We consolidated
        our position in the Estonian cigarette market, maintaining share broadly
        stable at 27.2% (2004: 27.3%) . </font><i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">LD </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">and </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Vermont </font></i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">both delivered excellent performances, offset by declines
        from our local brand &#150; </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Leek</font></i><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">. In Lithuania, </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">St
        George</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> has
        successfully driven our share to 14.9% (2004: less than 1%) of the total
    cigarette market. </font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td width="3%">-</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Poland</font></u></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Poland, we grew our share of total industry shipments to 7.3% (2004: 5.6%). </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD </FONT></I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">continued to take share</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">at higher prices, and we further developed the brand&#146;s image through a consumer loyalty promotion that
was</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">run over the summer months. In May, we launched </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronson </FONT></I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">into the low-price sector such that for the full</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">year the brand achieved a 1.3% share of the market. After launching the slims
variants </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD Blue </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and </FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">LD Red</FONT></I> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">at the end of 2004, </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD Slims </FONT></I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">achieved a 1.8% share of the value sector in 2005. Our share of the premium</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">sector is now around 1%.</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>-</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Africa
    and the Middle East</font></u></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our Africa
        and Middle Eastern volumes declined to 3.4bn cigarettes compared to 4.9bn
        in 2004, owing to the</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">reduction
        in sales in Guinea and the termination of a distribution agreement in
    the Middle East.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Nigeria,
        we grew our cigarette volume sales by 58.3%, largely attributed to an
        excellent performance from</font><br>
      <i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dorchester
    Menthol</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In South Africa &#150; less than one year into the venture &#150; we are establishing a meaningful sales and distribution</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">infrastructure. With a sales weighted distribution of only 20%, we attained a total market share of 1% in</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">December, primarily through our </FONT><I><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">LD </FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">brand.</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>-</td>
    <td><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Asia
    Pacific</font></u></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Including
        the China licensed brand, our Asian cigarette volumes increased 9.3%
        to 540m (2004: 494m) with</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">notable
        gains
in Japan, Singapore and regional duty-free.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>      <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">In China, </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memphis</font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">,
      produced under license by Shanghai Tobacco Group, is performing in line
      with</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">expectations.
      The China National Tobacco Import Export Company granted permission for
      Gallaher to</font> <font size=2
face="TimesNewRoman,Times New Roman,Times,serif">import </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">LD </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">into
      the market &#150; alongside
existing imports of </font><i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sobranie </font></i><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#150; during
the year, and both brands are</font> <font size=2
face="TimesNewRoman,Times New Roman,Times,serif">performing well.</font></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Singapore, we have begun construction of a small manufacturing facility that is due for completion by the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">end of
2006.</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Analysis of other Group Income Statement Headings</FONT></B></p>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance costs <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Lower
net finance costs of &#163;100m (2004: &#163;114m) reflect: positive cash flows; lower average borrowing costs; a net financing credit on retirement benefit schemes of &#163;9m
(2004: &#163;7m); and, an IAS 39 mark-to-market credit on interest rate derivatives of &#163;6m (2004: &#163;6m). The average borrowing cost during 2005 was 5.6% (2004: 5.8%) &#150; the
reduction brought about primarily through incremental costs in 2004 associated
with bond refinancing and a change in the currency mix towards cheaper dollar-denominated
debt in 2005. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit before tax</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit before tax was &#163;516m (2004: &#163;504m). The positive impact of trading improvements and lower interest charges were partly offset by higher exceptional charges of &#163;35m
(2004: &#163;17m) relating to the restructuring of our European operations. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The tax charge of &#163;144m (2004: &#163;142m), which excludes tax attributable to joint ventures and associates, represents an effective rate of 28.0% (2004: 28.1%) . This rate is
distorted through the low effective tax credit applicable to the higher exceptional charges in 2005. Removal of intangible amortization charges and exceptional charges (net of tax)</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">result in an adjusted effective rate of 26.8% (2004: 27.6%) . This reduction is primarily a result of the change in the corporate tax rate in Austria, reducing from 34% to 25% from 1
January 2005.</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Returns to shareholders (Profit After Tax and Minority Interests) </FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">After minority interests of &#163;3m (2004: &#163;4m), reported earnings attributable to equity shareholders were &#163;369m (2004: &#163;358m), and &#150; following a 0.2% increase in
the weighted average number of shares in issue &#150; basic earnings per share were 56.5p (2004: 55.0p) . </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our board recommends a final dividend of 22.9p per ordinary share, amounting to a total dividend for the full year of 33.5p per ordinary share (134.0p per ADS). This represents an
increase of 6.3% over the 2004 dividend of 31.5p per ordinary share (126.0p per ADS). Subject to shareholders&#146; approval at our AGM on 10 May 2006, the final dividend will be paid on 23 May 2006 to all ordinary shareholders on the register at
close of business on 17 March 2006. For ADS holders, The Bank of New York will convert the 91.6p ADS final dividend into US dollars, and distribute it to ADS holders on 30 May 2006. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our board declared an interim dividend of 10.6p per ordinary share, an increase of 6.0% over the 2004 interim dividend of 10.0p. This dividend was paid on 22 November 2005, to all
shareholders on the register at close of business on 23 September 2005. For ADS shareholders, The Bank of New York converted the 42.4p ADS dividend into US dollars, and distributed it to ADS holders on 30 November 2005. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liquidity and Capital Resources</FONT></B></p>
<p>    <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash Flow Analysis </FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other than changes to operating results, fluctuations in operating cash flows are caused primarily by changes in the level of working capital. This in the main is due to changes in the
country specific rules and regulations governing the timing, level and nature of tobacco duty payments, and our actions to respond to these changes. </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 v 2004</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash generated from operations before exceptional items was &#163;733m (2004: &#163;770m) including a reduction in working capital of &#163;16m, compared to a reduction of &#163;82m
during 2004. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In total, inventories fell by &#163;5m, mainly reflecting further reductions in leaf stocks, with a reduction in work in progress offset by an increase in finished goods &#150; reflecting
timing differences in usage of duty-paid tax stamps. Trade and other receivables increased by &#163;10m, largely resulting from higher selling prices partially offset by lower volumes in higher duty markets. Trade and other payables increased by
&#163;21m, mainly reflecting improved supplier payment terms and higher accruals. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">After cash costs relating to the exceptional charges of &#163;33m (2004: &#163;15m), taxation payments of &#163;143m (2004: &#163;90m) and dividends received from joint ventures and
associates of &#163;15m (2004: &#163;10m), net cash from operating activities totalled &#163;572m (2004: &#163;675m). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The increase in taxation payments primarily reflects tax assessments in Austria being brought into line with current levels of profitability. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net interest payments of &#163;119m were &#163;5m lower than 2004, mainly due to lower average borrowings. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital expenditure of &#163;103m reflects the continuing investment in production machinery and merchandising equipment. Disposal proceeds of &#163;21m include &#163;15m received from
the sale of the Dublin former factory site. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expenditure on intangible assets and acquisitions of &#163;75m mainly reflects the purchase of </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp;
Hedges</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Silk Cut</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
trademarks in Malta and Cyprus and </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Silk Cut</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> trademark in Lithuania, which the Group acquired from
British American Tobacco in April 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt at 31 December 2005 was &#163;2,136m &#150; a reduction of &#163;98m compared to the position at 31 December 2004. The decrease was attributable to a cash inflow of &#163;90m,
favourable exchange rate movements &#150; amounting to &#163;4m &#150; on Gallaher&#146;s euro and US dollar denominated financial liabilities, and IAS 39 fair value adjustments of &#163;4m. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s average net debt during the year was &#163;2,077m (2004: &#163;2,229m). </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In January 2005, the Group repaid a &#128;900m bond using the proceeds of an &#128;800m bond issued in June 2004 and internal cash flow. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In June 2005, the Group increased the amount of its committed syndicated revolving bank facility from &#163;500m to &#163;1,000m and extended the maturity date to June 2010. The financial
covenants under the facility remain unchanged. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The weighted average maturity of committed debt at the end of 2005 was 3.7 years (2004 year-end: 4.1 years). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s debt ratings from Moody&#146;s Investor Service Limited and Standard &amp; Poor&#146;s remain unchanged at Baa3 with stable outlook and BBB with stable outlook
respectively. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Treasury</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have a centralised treasury function that is responsible for the management of our financial risks, liquidity and financing requirements. The treasury function is not a profit centre
and its objective is to manage risk at optimum cost. Treasury operations are conducted within a framework of policies and guidelines authorised by the Board, and are monitored by the Treasury Committee, consisting of senior executives, including the
Finance Director and Chief Executive. This framework provides flexibility for the best execution of Board approved strategies. Summaries of treasury activities and exposures are reported on a regular basis to our Board and the internal control
environment is reviewed regularly. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We hold or issue financial instruments to finance our operations and to manage the interest rate and foreign exchange risks arising from operations and from our sources of finance.
Details of the financial instruments we held at the year end are disclosed in note 20 to the financial statements. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financing and Liquidity</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></p>
<p>    <I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Historical financing arrangements</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our principal sources of external debt financing are syndicated committed revolving credit facilities from banks and public bond issues. Our syndicated bank facilities usually have an
initial term of 5 years. They are available for general corporate purposes and although they have been used to finance corporate acquisitions initially, their main purpose is to finance working capital requirements. We have issued six public bonds
since 1998: two sterling bonds totalling &#163;550m and four Euro bonds totalling Euro 2,825m. These public bond issues have provided us with longer term funding to finance our core debt requirements.</FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current financing arrangements</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our principal sources of financing in 2005 have been bond issues, bank borrowings and retained profits. It is our policy to maintain sufficient committed borrowing facilities, with a mix
of long and short term debt, to enable us to meet our business objectives. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At the year end, bond issues amounted to &#163;1,999m, comprising a &#163;250m bond maturing in February 2013, a &#163;300m bond maturing in May 2009, a &#128;375m bond maturing in August
2008, a &#128;750m bond maturing in October 2006, a &#128;800m bond maturing in June 2011, and a European medium term note amounting to &#163;100m maturing in March 2006. In addition, at the year end, the Group&#146;s committed bank facilities
comprised amortising term loans of &#128;231m with a final repayment date in 2007 and a syndicated revolving facility of &#163;1,000m maturing in June 2010. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The weighted average maturity of committed debt at the year end was 3.7 years (2004: 4.1 years). The available headroom under the committed bank facilities at the year end was &#163;925m.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our credit ratings are BBB (Stable Outlook) and Baa3 (Stable Outlook) from Standard &amp; Poor&#146;s, a Division of the McGraw-Hill Companies, and Moody's Investors Service Limited
respectively. These ratings allow us to access the international capital markets and issue debt to a global investor base which would be restricted in the event of a rating reduction to below investment grade. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Certain of our debt instruments contain covenants that if our credit rating is downgraded below BBB minus in the case of Standard &amp; Poor&#146;s or below Baa3 in the case of
Moody&#146;s, additional interest accrues from the next interest period at the rate of 1.25 percentage points, in the case of the following bonds issued by ourselves: &#128;750m in October 2001, &#128;900 m in January/March 2002, &#163;250m in
February 2003 and &#128;800m in June 2004, and 1.0 percentage point in the case of</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">46</FONT></P>

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<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">  </FONT></B><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the committed syndicated bank facility. In the event that both credit ratings are subsequently raised or reaffirmed to BBB minus and Baa3, respectively, the additional interest no longer
accrues from the next interest period. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We look to maintain stable credit ratings by closely monitoring cash flow to net debt ratios which we regularly reviewed against rating agency guidelines. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IAS 19 adjusted
  EBITAE interest cover (a key performance measure for our senior management)
  &#150; combining both interest and operating components of IAS 19 into a net
  pension expense within EBITAE &#150; was 5.9 times.</FONT></P>
<P><B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Reconciliation
  of IAS 19 adjusted EBITAE interest cover</FONT></I></B>&nbsp;</P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;&#146;m&nbsp;</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating
        profit</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">599</FONT></TD>
    <TD width="2%" >&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit
      before taxation of joint ventures and associates</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      retirement benefits financing income</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization
      &#150; excluding amortization of investment in own shares</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional
      charges</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT></TD>
    <TD >&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings
      before interest, tax and amortization, and exceptional charge (EBITAE)</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">682</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      finance costs</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">115</FONT></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IAS
      19 adjusted EBITAE / Interest cover</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.9
      times</FONT></B></TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The only financial
  covenants applying to our facilities relate to the committed revolving bank
  facilities. These require us to maintain interest cover above 3.5 times based
  on IAS 19 adjusted EBITDAE and net debt below a multiple of IAS 19 adjusted
  EBITDAE of 3.5 times. We continue to comply with all borrowing obligations and
  financial covenants have been satisfied with an IAS 19 adjusted EBITDAE interest
  cover at 6.5 times and a net debt multiple of 2.8 times at 31 December 2005.</FONT></P>
<P><font face="serif"><B><I><FONT size=2>Reconciliation
  of IAS 19 adjusted EBITDAE interest cover and net debt multiple</FONT></I></B>&nbsp;
</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD width="88%" align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;&#146;m&nbsp;</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating
    profit</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">599</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit
      from operations of joint ventures and associates</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Depreciation</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">79</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      retirement benefits financing income</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization
      &#150; excluding amortization of investment in own shares</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional
      charges</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings
      before interest, tax,depreciation, amortization and exceptional charges
      (EBITDAE)</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">763</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      finance costs</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">115</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest
      in joint ventures and associates</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total
      net finance costs</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">117</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IAS
      19 adjusted EBITDAE / Interest cover</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.5
      times</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      Debt excluding derivative financial instruments, fair value adjustments
      and accrued interest</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,104</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      Debt / IAS 19 adjusted EBITDAE</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.8
      times</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following table summarises certain of our contractual obligations at 31 December 2005 and the effect such obligations are expected to have on our liquidity and cash flow in future
periods. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD colspan="16" style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD width=2% style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="12" align=center valign="middle"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Payments
      Due</font></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="12" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Later</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contractual
      Obligations</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2006</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2007</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2009</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2010</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Years</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Long
      Term Debt</FONT></U>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling
      (&#163;m)</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="5%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="5%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="5%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="5%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="5%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">75</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="5%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT></TD>
    <TD width="2%" align=right>&nbsp;</TD>
    <TD width="5%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">726</FONT></TD>
    <TD width="2%" style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euros
      (&#128;m)</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">750</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">146</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">375</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">800</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,086</FONT></TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Swedish
      Krona (SEKm)</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">125</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">125</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT></TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating
      Leases</FONT></U>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling
      (&#163;m)</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">69</FONT></TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Unconditional
      Obligations</FONT></U>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling
      (&#163;m)</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></TD>
    <TD style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
    <td colspan="16"  style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</td>
  </TR>
</TABLE>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">47</FONT></P>

<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div><page><a name="p48"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">  </FONT></B><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We do not have a contractual obligation to fund pension contributions. However, we do and have made payments in the past. The latest agreed contribution rates (as a percentage of
pensionable pay) for the material funded schemes are as follows: UK: 31% plus &#163;10m per annum, Austria: 13.9% per annum and Republic of Ireland: 6.0% per annum. The additional &#163;10m contribution in the UK scheme relates to a current deficit
in the scheme. Additional payments will be made to the schemes, where necessary, to address any funding strains. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In summary we believe that we have adequate financial resources to satisfy current operational requirements. Please refer to Note 20 of our financial statements for full details of the
maturity profile of our borrowings and information on our material undrawn sources of capital. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital commitments</FONT></U></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As at 31 December
  2005 contracts placed but not provided for in the financial statements were
  &#163;17.0m (2004: &#163;1m). These commitments relate mainly to plant and machinery
  and merchandising units. We expect to meet future capital commitments from our
  internal cashflows and existing facilities. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We expect our capital expenditure to be between &#163;140m and &#163;170m in 2006. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Off balance
  sheet arrangements</FONT></U></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IFRS, guarantees
  that are disclosed as contingent liabilities, are not normally regarded as &#145;off
  balance sheet arrangements&#146;. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have not engaged in any off balance sheet arrangements that would have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity,
capital expenditure or capital resources. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest Rate
  Risk</FONT></U></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are exposed
  to fluctuations in interest rates on our net debt. In order to manage the impact
  of adverse variations in interest rates on our profits, the Group borrows at
  fixed and floating rates of interest and, where necessary, uses interest rate
  derivatives to maintain a target level of fixed interest rate cover in the current
  and subsequent two years of between 40% and 80% of the level of core debt. At
  the year-end, fixed interest rate debt represented approximately 70% of total
  gross debt. The sale of an interest rate swap option has lowered the effective
  fixed interest rate payable. All interest rate derivative transactions have
  been accounted for as hedges. </FONT></p>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Foreign Currency
  Risk</FONT></U></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Due to the international
  nature of our operations, we are exposed to exchange rate fluctuations on the
  translation of the results of overseas subsidiaries into sterling and trading
  transactions in foreign currencies. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have continued a policy of only hedging balance sheet translation exposures to the extent that foreign currency liabilities, including borrowings, provide a natural hedge. On
significant acquisitions of overseas companies, borrowings are raised in the functional currency of the operations to minimise translation risk. It remains our policy not to hedge profit and loss account translation exposures. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Transaction exposures are hedged where deemed appropriate and where they can be reliably forecast with the use of forward exchange rate contracts.</FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank Counter-party
  Risk</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have cash and bank deposits and other financial instruments that give rise to credit risks in the event of non-performance by counter-parties. Credit risk is managed by limiting the
aggregate amount of exposure to any one entity and our policy of only transacting with major international financial institutions with an investment grade credit rating. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Research and
  Development, Patents and Licences</FONT></B></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Due to the nature
  of our business, the majority of our expenditure on research and development
  is not separately classified. The development of new brands and markets and
  market research is included in marketing and advertising expenditure. Costs
  in respect of improved manufacturing efficiency and tobacco leaf blend development
  are included in production overheads. </FONT></p>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p49"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center">  <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As well as assisting in these projects, the research and development facilities are used for the quality control of our production and the monitoring of our environmental and health and
safety obligations. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All of these ongoing costs are charged in our profit and loss account as they are incurred. </FONT></P>
<p><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Critical
  Accounting Policies</FONT></U></B></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have identified
  those policies which we consider involve complex or subjective decisions or
  assessments. Certain of the policies identified are discussed here, but you
  should read the following in conjunction with our principal accounting policies
  which are discussed in note 1 to the financial statements included in this Annual
  Report. </FONT></p>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a) Estimated
  impairment of goodwill and other intangible assets</FONT><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group tests
  annually whether goodwill and other long-lived intangible assets have suffered
  any impairment in accordance with the accounting policy stated in note 1 of
  the consolidated financial statements. The recoverable amounts of cash-generating
  units have been determined based on value-in-use calculations. These calculations
  require the use of estimates (note 12 of the consolidated financial statements).
  As at 31 December 2005, the headroom for value-in-use above the carrying value
  of goodwill on each material unit of acquired goodwill exceeds 10%. As such,
  it is not felt that a reasonably possible change in any single assumption on
  which management has based its determination of the value-in-use would cause
  the material units&#146; carrying amounts to exceed their recoverable amounts.
  </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP an impairment loss is indicated only when the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b) Income taxes</FONT><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group is subject
  to tax in numerous jurisdictions and significant judgement is exercised in determining
  the provision for taxes in each fiscal territory. There are many transactions
  and calculations for which the ultimate tax determination is uncertain during
  the ordinary course of business. The group recognises probable liabilities for
  anticipated tax issues based upon an estimate of whether additional tax will
  be due. Where the final outcome of these matters is different from the amounts
  that were initially recorded, such differences will impact the income tax and
  deferred tax provisions in the period in which such determination is made. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c) Retirement
  Benefits </FONT><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Costs relating
  to the various defined benefit pension schemes operating within the group are
  accounted for using methods that rely on actuarial estimates and assumptions
  to arrive at costs and assets or liabilities for inclusion in the accounts.
  The assets and liabilities of the scheme are included in the balance sheets
  of the entities to which the schemes relate and, on consolidation, in the Group
  balance sheet. The income statement components of the annual pension scheme
  movements are derived from the increase in the liability to pension scheme members
  of a further year of service, an interest cost relating to the unwinding of
  the discount used in arriving at the present value of that expected liability
  and an estimated return on the assets held by the scheme based on assumptions
  taken at the previous year end.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At the end of each year, the value of the assets and liabilities that comprise the scheme is ascertained and the difference between the actual and expected position (as derived from the
income statement entries) is taken through the Statement of Recognised Income and Expense and hence the reserves of the entity that operates the scheme. If the markets in which assets held by the pension scheme decline, substantial deficits may
arise and may reduce the ability of a company to pay dividends. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group takes advice from independent actuaries as to the appropriateness of the assumptions we use. However, it is important to note that relatively small changes in the assumptions we
use can have a significant effect on the income statement and balance sheet pension components. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details of the key assumptions used to derive the amounts disclosed in relation to retirement benefits are set out in note 21 to the financial statements. Management regards the key
valuation driver to be the discount rate, which over the last three years has moved by less than 1% in aggregate. As at 31 December 2005, a movement of 0.1% on the discount rate would give rise to a movement of &#163;16m on the present value of
accrued retirement benefit liabilities. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Recently issued
  US accounting pronouncements</FONT></U></p>
<p> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">SFAS123(R):
  Share-based payment </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">SFAS123(R) was issued in December 2004 and is effective for the first annual reporting period that starts after 15 June 2005. It supersedes APB Opinion 25, Accounting for Stock Issued to
Employees. SFAS123(R) is concerned with how</FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">49</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">to account for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity&#146;s equity instruments or that may be settled by the issuance of those equity instruments. The main effect of this revised standard is a move from an intrinsic value method to a
fair value based method. We currently use the Black-Scholes model for disclosure in Note 24, &#147;Share Capital&#148;. We will use the modified prospective application transition method. We are still studying the impact of applying the various
provisions of SFAS No. 123(R).</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In March 2005, the SEC issued Staff Accounting Bulletin No. 107, &#147;Share-Based Payment&#148; (&#147;SAB No. 107&#148;). SAB No. 107 provides guidance on the initial implementation of
SFAS No. 123(R). In particular, the statement includes guidance related to share based payment awards with non-employees, valuation methods and selecting underlying assumptions such as expected volatility and expected term. It also gives guidance on
the classification of compensation expense associated with SBP awards and accounting for the income tax effects of SBP awards upon the adoption of SFAS No. 123(R). We are currently assessing the guidance provided in SAB No. 107 in connection with
the implementation of SFAS No. 123(R).</FONT></P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">SFAS154: Accounting changes and error corrections</FONT><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">SFAS154 was issued in May 2005 and is effective for fiscal years beginning after 15 December 2005. This statement replaces APB Opinion 20, Accounting Changes, and SFAS 3, Reporting
Accounting Changes in Interim Financial Statements. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a
change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. SFAS
No. 154 also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
We will be adopting this pronouncement beginning in our fiscal year 2006.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">SFAS155: Accounting for certain hybrid financial instruments </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In February 2006, the FASB issued SFAS 155 &#145;Accounting for certain hybrid financial instruments&#146; an amendment of SFAS 133 and 140. SFAS 155 nullifies the guidance from the
FASB&#146;s Derivatives Implementation Group (DIG) in Issue D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets, which deferred the application of the bifurcation requirements of SFAS 133 for certain beneficial
interests. SFAS 155 provides a fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation and requires that beneficial interests in securitized financial assets
be analysed to determine whether they are freestanding derivatives or whether they are hybrid instruments that contain embedded derivatives requiring bifurcation. SFAS 155 also provides clarification on specific points related to derivative
accounting. SFAS 155 is effective for fiscal years beginning after 15 September 2006. The Group does not currently expect SFAS 155 to have a material impact on its financial position, results of operations or cash flows. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Recently issued IFRS accounting pronouncements</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At the date of authorisation of these financial statements there were a number of international standards and interpretations that, although issued, were not yet effective or applied by
the Group. These were IFRS 6 &#145;Exploration for and Evaluation of Mineral Resources&#146;, IFRS 7 &#145;Financial Instruments: Disclosures&#146; and the related amendments to IAS 1 &#145;Presentation of Financial Statements&#146; on capital
disclosures, IFRIC 4 &#145;Determining whether an Arrangement contains a Lease&#146;, IFRIC 5 &#145;Right to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds&#146;, IFRIC 6 &#145;Liabilities Arising from
Participating in a Specific Market &#150; Waste Electrical and Electronic Equipment&#146;, IFRIC 7 &#145;Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies&#146;, IFRIC 8 &#145;Scope of IFRS 2&#146; and
IFRIC 9 &#145;Reassessment of Embedded Derivatives&#146;. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The changes arising from the adoption of these standards and interpretations in future periods are not expected to have a material impact on the financial statements of the Group.
</FONT></P>
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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"><b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif"><b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</font></b></font></b></p>
<p align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p51"></a>ITEM
6&nbsp;&nbsp;&nbsp;DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES</font></b></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD width=3% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p51a"></a>A</FONT></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors and Senior Management</FONT></B></TD>
</TR>
</TABLE>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following is a list of executive and non-executive directors</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">John Gildersleeve</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 61 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(2)<br>
</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Chairman<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointed in May 1997, he became non-executive chairman in March 2004. As the former commercial and trading director of Tesco PLC (from which he retired in March 2004) he has extensive
international commercial experience. He is also non-executive chairman of The Carphone Warehouse Group PLC and non-executive deputy chairman of EMI Group plc. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sir Graham Hearne CBE</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 68 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(1) (2) (3)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-executive deputy chairman and senior independent director <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointed
in May 1997. He is non-executive chairman of Braemar Seascope Group PLC and Catlin
Group Limited and a non-executive director of N.M. Rothschild &amp; Sons Ltd
and Rowan
Companies, Inc. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Northridge</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 50 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(5)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Chief executive <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Joined
Gallaher in 1976 and held a number of senior positions, including that of sales
and marketing director, before his appointment as chief executive in 2000. He
has extensive
experience across all aspects of the Group&#146;s business and has played a key role in the development of general strategy and the Group&#146;s
expansion. He is a non-executive director of Aggreko plc and Paddy Power Plc. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronnie Bell</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 56 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3)
(4)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Non-executive director <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointed in March 2004.  His executive career was spent with Kraft Foods, Inc., where he gained extensive experience in international brand development and distribution, with a European
focus. He is a non-executive director of Northern Foods Plc, The Edrington Group Limited and Ansell Limited. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Alison Carnwath</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 53 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1) (2)
(3)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Non-executive director <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointed in January 2003.  She is a chartered accountant with extensive experience in merchant banking and commerce. She is a non-executive director of Land Securities Group PLC, Man
Group Plc, Friends Provident Plc and Dwr Cymru Cyfyngedig. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Richard Delbridge</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 63 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1)
(3)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Non-executive director<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointed
in January 2002, having been finance director of National Westminster Bank plc,
and prior to that group finance director of HSBC Holdings plc. He is a chartered
accountant and was a member of the Smith Committee, which was responsible for
the recommendations that led to audit-related changes in the combined code in
2003. He is a non-executive director of JP Morgan Cazenove Holdings, Tate &amp; Lyle
PLC and Fortis Group. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">James Hogan</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 49<br>
Non-executive director<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointed in May 2005, he is president and chief executive of Gulf Air and vice chairman of the Bahrain Hotels Company. Prior to that, he has worked for, amongst others, Hertz
International, Forte Hotels Limited and BMI British Midland. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 49 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4)
(5)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
Group operations director<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointed
a director in January 2003, having held a variety of senior operational positions
since joining Gallaher in 1980. He has been responsible for operational restructurings,
and the
Group&#146;s focus on cost and cash efficiency. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Neil England</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 51 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(5)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
Group commercial director<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Joined
Gallaher in January 2002, having previously held a number of senior positions
at Mars, Inc., latterly as vice president of the CIS region. Initially having
responsibility for the UK and Republic of Ireland markets, in October 2004 he
also assumed responsibility for the Group&#146;s mainstream European business.
He is a non-executive director of The Eastern European Trust PLC. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 37 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(5)<br>
</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Group
commercial director<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Joined
Gallaher in 2000 upon the Company&#146;s acquisition of Liggett-Ducat, of which
he was general director. He was appointed to the board on 1 October 2004 and
has responsibility for the CIS, developing markets and the northern European
region. He qualified as an accountant with BDO Stoy Hayward in 1993.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">, aged 47 </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(5)</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Group finance director<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Joined
the Company in 1986 and held a number of senior finance positions before being
appointed a director in 2000. He is a chartered accountant and was previously
with Coopers &amp; Lybrand.</FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Key (use symbols as appropriate):</FONT></U></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%" valign=top>
<FONT size=1 face="TimesNewRoman,Times New Roman,Times,serif">(1)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit committee</FONT>	</TD>
</TR>
<TR>
	<TD valign=top>
<FONT size=1 face="TimesNewRoman,Times New Roman,Times,serif">(2)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nomination committee</FONT>	</TD>
</TR>
<TR>
	<TD valign=top>
<FONT size=1 face="TimesNewRoman,Times New Roman,Times,serif">(3)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Remuneration committee</FONT>	</TD>
</TR>
<TR>
	<TD valign=top>
<FONT size=1 face="TimesNewRoman,Times New Roman,Times,serif">(4)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Corporate responsibility committee</FONT>	</TD>
</TR>
<TR>
	<TD valign=top>
<FONT size=1 face="TimesNewRoman,Times New Roman,Times,serif">(5)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Management committee</FONT>	</TD>
</TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p52"></a>B</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Compensation</font></b></td>
  </tr>
</table>

<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Introduction&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This report from the remuneration committee (the &#147;committee&#148;) sets out our
remuneration policy, and details the remuneration of our directors for the year ended 31 December 2005. It has been prepared in accordance with the Companies Act 1985, directors&#146; remuneration report regulations 2002 (the
&#147;regulations&#148;) and to meet the relevant requirements of the listing rules of the UK Listing Authority. The report also describes how the principles of good governance, which the committee has adopted, relating to directors&#146;
remuneration contained in the combined code published in July 2003 (the &#147;code&#148;) have been applied. The committee has also taken account of the recent guidelines and principles published by organisations representing institutional
shareholders as appropriate. The report has been approved without amendment by the board for submission to shareholders. It should be read in conjunction with our corporate governance statement.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The committee&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
committee is chaired by Sir Graham Hearne and during 2005 comprised the following
 independent non-executive directors (code, supporting principle B.2.1): Ronnie
Bell (from 3 May 2005); Alison Carnwath; Richard Delbridge; and Tony Portno (until
his retirement on 11 May 2005). No member of the committee has any personal financial

interest, other than as shareholders, in the matters addressed in this report.
During the year the committee met five times. There was full attendance at all
meetings.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Terms of reference </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(code,
main principle B.2) These comply with the code and are published on our website
 (code, supporting principle B.2.1) . They provide clear guidance, establish
formally the constitution of the committee, and set out the framework within
which the committee operates.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">While the board is ultimately responsible for the framework and scale of executive remuneration, the committee has responsibility, delegated by the board, for determining the salaries,
incentives and other benefit arrangements of executive directors, including pension provision and any severance payments. It is also responsible for monitoring the level and structure of remuneration for our heads of business units below board level
(code, supporting principle B.2.2) . The committee&#146;s approach is to be fully consistent with the our overall philosophy that all employees globally should be competitively rewarded to attract and retain their valued skills in the business, and
to support our corporate strategy, by directly aligning executive and senior management&#146;s remuneration with our strategic business goals. In doing so, the committee has paid careful regard to the appropriate balance between the fixed and
variable elements of pay (code, main principle B.2). The committee also oversees our employee share schemes.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Attendees </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Our chairman, John Gildersleeve, and chief executive, Nigel Northridge, attend meetings by
invitation to address questions raised by the committee, together with the company secretary and general counsel, Tom Keevil, who acts as secretary to the committee. However, they are specifically excluded from any discussions concerning details of
their own remuneration (code, main principle B.2).</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assistance </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Following the review of its advisers in 2004, the committee decided for 2005 onwards to retain
Deloitte &amp; Touche (&#147;Deloitte&#148;) to provide independent remuneration advice on an ongoing basis (code, supporting principle B.2). The committee sets the remuneration package principally, but not solely, based upon the advice that it
receives. Representatives from Deloitte attend committee meetings when required and this occurred on one occasion in 2005. During 2005, a comprehensive benchmarking exercise relating to all senior executives&#146; remuneration was undertaken
to</FONT></P>
<P align="center">
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<div style="page-break-before:always"></div><page><a name="p53"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ensure the overall remuneration package reflected not only the committee&#146;s policy on remuneration but was not inconsistent with current market practice. The review was underpinned
via participation in four surveys undertaken by: Hays; Monks; Towers Perrin; and, Mercers. Deloitte were then retained to help interpret, analyse and provide advice on the outcome as appropriate.  Support and advice was also provided in relation to
this exercise, amongst other matters, by the group human resources function working with the group head of performance and reward. During 2006, this review process is to be extended further into the global organisation. When reviewing its policy
during 2006 the committee will take account of the outcome of that process. Deloitte also advised us on a number of unrelated tax matters and provided organisational consulting services in 2005. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Remuneration policy statement&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In an ever increasingly competitive environment and with an enlarged
international spread of operations, it is of paramount importance that we should be able to attract, retain and motivate people of the highest quality throughout the Company. We believe that the level of remuneration and other benefits must be set
appropriately to achieve this in each commercial and operational division. The committee&#146;s approach is to maintain a remuneration policy which is consistent with our objectives and which is kept under review in light of emerging best practice
and market conditions.  Accordingly, the policy aims to attract, retain and motivate high calibre senior executives, align executive rewards with shareholder value creation, motivate executives to achieve appropriate performance levels and take into
account both individual and company performance. Accordingly, the committee&#146;s view is that performance targets that would enable the achievement of maximum performance related payouts in any one year under bonus schemes and long-term incentive
plans (&#147;LTIPs&#148;) not only have to reflect the creation of significant shareholder value but need to be robust. Accordingly, the committee liases closely with the audit committee members when evaluating proposed performance targets (in
accordance with ABI guidelines, principle 4). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also seek to align the interests of shareholders and employees at all levels by giving employees opportunities and encouragement to build up shareholdings in Gallaher Group Plc.
Employees are encouraged to build up shareholdings in Gallaher Group Plc through participation in our savings related share option scheme.  This scheme or similar arrangements are open to the majority of European employees and share participation
was extended to employees within the CIS during 2004. UK employees can also participate in an Inland Revenue approved share incentive plan (the &#147;SIP&#148;) and a bonus scheme related to earnings per share (&#147;EPS&#148;) performance.  A
significant proportion of employees eligible to participate in these schemes take advantage of the opportunity to do so. The committee believes this policy is in compliance with that laid down under code, main and supporting principles B.1.
</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Policy on executive remuneration&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As defined in the remuneration policy statement, the remuneration package
for executive directors and heads of business units below board level is intended to attract and retain high quality executives, instil loyalty and motivate them to achieve a high level of corporate performance in line with the best interests of
shareholders and the principles of the code while not being excessive. It is also intended to be in line with our overall policy on pay and benefits and, as we continue to extend our business internationally, account is taken of market practices
outside the UK where the scope of a particular executive&#146;s role warrants this approach. It is the present intention of the committee that, for 2006 and subsequent years, our policy on the remuneration of senior executives will remain within the
above guidelines, but this will be kept under review. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In addition to reviewing market data provided by the senior executive surveys referred to above, the committee also took into account the levels of awards to our UK employees, managers
and our heads of business units below board level in determining senior executive remuneration levels. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In determining policy and giving effect to it, the committee currently also reviews the remuneration practices of other FTSE-100 companies of a similar size and complexity, including an
industry comparator group of companies operating in the tobacco and consumer goods sectors. The make up of that group is reviewed by the committee, at least annually, with the assistance of Deloitte, to ensure that our practice remains aligned with
the appropriate comparator group (code, supporting principle B.1).</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary of executive benefits&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The remuneration package for executive directors and heads of business units
below board level consists of basic salary, annual bonus, LTIPs and pension and other benefits. The basic salary, pension, medical and life assurance elements of the executive remuneration package are fixed. By contrast, annual cash bonuses and
awards under the long-term incentive plans are related to our performance and of the directors and the heads of the business units.  It is our policy to ensure that a significant portion of the total potential reward is earned via the
performance-based schemes.  For executive directors, during 2005 approximately 60% of the total value of the remuneration package was targeted to be performance related with the ratio rising to approximately 75% for outperformance (code, supporting
principle B.1.1) . </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Base salary&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Base
salary is reviewed annually and determined by reference to individual responsibilities,
 performance, the challenging nature of the sector within which we operate and
external market data. Accordingly, it is targeted within a range around the market
median for the comparator group, although the committee recognises the comparisons

should be treated with caution to avoid the risk of an upward ratcheting of remuneration
levels in accordance with ABI guidelines, principle 5. Salary levels also reflect
the experience, responsibilities, effectiveness and market value of
the</FONT></P>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">53</FONT></P>
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<div style="page-break-before:always"></div><page><a name="p54"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">executives. In determining salary levels, the committee also assesses our overall performance and the impact on any associated benefits, e.g., pension, potential long-term incentive plan
awards and annual bonuses. Basic salary is the only element of the package used to determine pensionable earnings (in accordance with the code, paragraphs 6 and 7 of schedule A).  In 2004, executive directors&#146; salaries were demonstrated to be
below median for similarly sized comparator companies. The adjustment was confirmed as appropriate as a result of the benchmarking exercise. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Annual cash
bonus&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Payments
under the annual cash bonus arrangements for executive directors and heads of

business units are dependant on the achievement of profit before tax &#147;PBT&#148; targets
set at the beginning of each financial year by the committee. These targets are
directly related to our rolling business plans which include stretching  targets
and which are annually approved by the board. In addition, the committee&#146;s
view of performance related factors such as productivity, management of capital
expenditure and other financial matters, business and management development,

based on a &#145;balanced scorecard&#146; approach, are taken into account (in
accordance with the code, paragraph 1 of schedule A). The committee aims to deliver
bonus levels of around 50% of the maximum for delivering target performance,
but the  committee retains an absolute discretion as to what level of bonus,
if any, to award senior executives (including executive board members). Failure
to achieve the performance criteria set annually by the committee can result
in no bonus being
awarded and the committee vigorously assesses performance.  Indeed, in spite
of the successful performance of the Company since listing in 1997, at no time
to date has any annual bonus award been made at the maximum level available. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In respect of 2005, approximately 70% of the annual bonus target was PBT based (60% for the chief executive). The remaining circa 30% (40% for the chief executive) was dependant upon the
committee&#146;s view of the balanced scorecard. The maximum possible bonus for all executive directors was 85% of basic salary (for the chief executive a further 15% additional incentive award, related to the balanced scorecard element, was
available). The actual bonus awarded in 2005 to directors amounted to 63% of basic salary, with the chief executive receiving 78%. Heads of business units below board level admitted to the annual bonus scheme had the same PBT and scorecard targets,
but with lower targeted and maximum payout levels. PBT targets are not published as they are commercially sensitive. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other benefits&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All executive directors are provided with a company mobile phone, a company car (or an
allowance in lieu), personal accident insurance and medical insurance.  The taxable value of the benefits are included in the directors&#146; emoluments table.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">External appointments&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
board supports executive directors taking up non-executive directorships as part
 of their continued development that will ultimately benefit us. As a matter
of policy, such appointments are normally limited to two in number, only one
of which can be in another FTSE-100 company and under no circumstances can an
executive director
serve as chairman of such a company (code, supporting principle A.4.5) . Currently,
Nigel Northridge is a non-executive director of Aggreko plc and Paddy Power Plc
and received fees for 2005 of &#163;36,250 and &#128;40,000 respectively. Neil
 England is a non-executive director of The Eastern European Trust PLC for which
he received fees of US&#36;20,000 in 2005.  During 2005 Stewart Hainsworth retained
his interests in some family businesses</FONT><SUP><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">.
The committee is satisfied that these interests do not detract in any way from
each individual&#146;s ability to remain
focused on the Group&#146;s business and has further determined that these directors
may retain any fees from these directorships (code, supporting principle B.1.4)
..</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Executive directors&#146; service contracts&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The service contracts of all executive directors are with
Gallaher Limited, although Stewart Hainsworth has two contracts, the second of which reflects his overseas location and day-to-day duties as an executive director of the Group&#146;s Swiss operations.  However, his Gallaher Limited contract takes
precedence and his remuneration is considered in aggregate by the committee.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our policy is that all executive directors have a one-year notice provision in their contracts (code, supporting principle B.1.6), such notice period not extending beyond their current
normal retirement age of 60 years. </FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Severance&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We
are unequivocally against rewards for failure and fully aware of the need to
ensure that an
appropriate settlement is reached should a director&#146;s employment be terminated
with or without notice (code, supporting principle B.1.5) . In such circumstances,
it would take account of the circumstances and opportunities to mitigate loss
when  assessing any severance payment. So far as entitlements under the long-term
incentive plans are concerned, in normal circumstances they vest at the end of
the relevant performance period but on a pro-rata basis to the date of termination
(except in
the case of a change of control, when pro-rata vesting would happen at the time
of that event).</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-executive directors&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The non-executive directors have letters of appointment specifying three-year
fixed terms of office, with three-month notice periods (code, supporting principle A.4.4 of the code).  They are not eligible for</FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td><hr align="left" width="100" size="1" noshade></td>
  </tr>
  <tr>
    <td> <sup><font size=1 face="TimesNewRoman,Times New Roman,Times,serif">1</font></sup><font size=1 face="TimesNewRoman,Times New Roman,Times,serif"> At
        the time Mr Hainsworth joined the Group in 2001 he disclosed his interests
        in some family businesses. It was agreed that he could retain those interests,
        given his confirmation that those interests would not impinge upon his
        existing obligations as a full time employee of the Group. At the time
        of his appointment to the Group board, Mr Hainsworth reconfirmed this
    position. </font></td>
  </tr>
</table>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">54</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p55"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">company pension scheme membership, nor do they participate in any of our bonus plans or LTIPs. In addition to the requirements relating to re-election by shareholders contained in their
letters of appointment and the code, non-executive directors must, in any event, retire at the first annual general meeting after reaching 70 years of age.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In accordance with the provisions of the code, the board determines the fees paid to the non-executive directors (including the chairman). In determining the fee levels, account is taken
of the time commitment and scale of the roles that the non-executive directors perform, market norms and comparisons with companies of equivalent size based on information provided by Deloitte. Details of the fees that were paid to the chairman and
other non&#150;executive directors during 2005 are set out below. Fees are reviewed annually, and were increased in June 2005 to reflect the increased preparatory work they are required to undertake for committee and board meetings, along with the
importance of retaining high-calibre non-executive directors. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Periods of service </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details of the contracts of service or letters of appointment of each person who has
served as a director of the Company at any time during the 2005 financial year are set out below: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date of appointment
to board</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date of current
contract/letter
of appointment</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Period
	    to retirement/term</font>

	  <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">of appointment
  at 31 Dec 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       </font></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notice period under
contract/
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">appointment letter</font></FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font></TD>
  <TD align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left><hr size="1" noshade></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left><hr size="1" noshade></TD>
	<TD align=left><hr size="1" noshade></TD>
	<TD align=left><hr size="1" noshade></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Executive directors</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Northridge</FONT></TD>
	<TD width=18% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15 Apr 1997</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=18% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27 April 2004</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=18% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10 years 1 month</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=18% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 Jan 2003</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27 April 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10 years 10 months</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Neil England</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 Jan 2002</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27 April 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8 years 5 months</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth (a)</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 Oct 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 Oct 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23 years 2 months</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 July 2000</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27 April 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12 years 11 months</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-executive directors</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">John Gildersleeve</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13 May 1997</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8 September 2003</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 year 2 months</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sir Graham Hearne</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13 May 1997</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24 August 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4 months 2 weeks</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronnie Bell</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8 Mar 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8 March 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 year 2 months</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Alison Carnwath (b)</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 Jan 2003</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24 August 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 years</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Richard Delbridge (c)</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24 Jan 2002</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24 August 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2 years 3 weeks</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">James Hogan</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 May 2005</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 March 2005</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2 years 4 months</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 months</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tony Portno (d)</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13 May 1997</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24 August 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">expired 11 May 2005</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3 months</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="5%" valign=top>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></I></TD>
	<TD>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth&#146;s contract with Gallaher Switzerland SA was amended on 18 February 2006 to reflect an adjustment in pension arrangements; all other terms remain the
same.</FONT></I>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></I></TD>
	<TD>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A letter extending Alison Carnwath&#146;s appointment for a further three years was issued on 15 December 2005.</FONT></I>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c)</FONT></I></TD>
	<TD>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A letter extending Richard Delbridge&#146;s appointment for a further three years was issued on 4 January 2005.</FONT></I>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(d)</FONT></I></TD>
	<TD>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tony Portno retired as a director on 11 May 2005.</FONT></I>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR></TABLE>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors&#146; interests in shares&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The register kept by us pursuant to section 325 of the Companies Act
1985 shows that the directors in office at 31 December 2005, and their families, had the following interests in our ordinary shares. No such interests were held in any other Group company. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p56"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005 </FONT></B></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors&#146; interests in shares</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT><B><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">(beneficial and family interests)</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 Mar 2006</FONT></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 Dec 2005</FONT></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 Dec 2004</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="6" align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Executive directors</FONT></B></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
    <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD height="20" align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Nigel Northridge <SUP>(a)</SUP></FONT></font></TD>
	<TD width=10% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">299,946</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD width=10% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">254,031</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD width=10% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">216,976</FONT></TD>
    <TD width=2% align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop <SUP>(a)</SUP></FONT></font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">61,051</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45,456</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38,477</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Neil England <SUP>(a)</SUP></FONT></font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">73,352</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63,697</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45,620</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">168,279</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">160,860</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">220,062</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe <SUP>(a)</SUP></FONT></font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">140,028</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">111,130</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">78,710</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
  <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-executive directors</FONT></B></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
    <TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">John Gildersleeve</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27,901</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27,901</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26,582</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sir Graham Hearne</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,013</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,013</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,796</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronnie Bell</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Alison Carnwath</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,000</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Richard Delbridge</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10,000</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">James Hogan <SUP>(b)</SUP></FONT></font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,000</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">n/a</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Tony Portno <SUP>(c)</SUP></FONT></font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">n/a</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">n/a</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,000</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="6" align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">799,570</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">692,088</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">651,223</FONT></TD>
    <TD align=right><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="6" align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
  <TD valign=top><font size="2">&nbsp;</font></TD>
  <TD><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="top">
	<TD width="3%">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(a)</sup></FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Participates in the SIP with a contribution of &#163;125 per month.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(b)</sup></FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">James Hogan was appointed a director with effect from 3 May 2005.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(c)</sup></FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tony Portno retired as a director on 11 May 2005.</FONT>	</TD>
</TR></TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The interests of the directors in office at the date of this report have not changed from those shown above. Directors hold no options over shares in the Company, other than those under
the SRSOS, details of which are set out below. </FONT></P>
<P><font size="2">
<B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Executive share retention</FONT></B><FONT face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;To ensure the interests of management remain aligned with those of
shareholders, executive directors and heads of business units are encouraged to establish substantial shareholdings in us over time through cash purchases and/or participation in the LTIPs (code, paragraph 2 of schedule A). Executive directors are
encouraged to build up and maintain shareholdings to, at least, the value of their annual salaries. </FONT></font></P>
<P><font size="2">
<B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Directors&#146; emoluments&nbsp;&nbsp;&nbsp; </FONT></B><FONT face="TimesNewRoman,Times New Roman,Times,serif">The total salaries, fees and benefits paid to or receivable by each person who
served as a director of the Company at any time during the year appear below. These include all payments for services as a director of the Company, its subsidiaries or otherwise in connection with the management of our business and any other
directorship he/she holds because of our nomination. </FONT></font></P>
<P><font size="2">
<B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Directors&#146; emoluments in aggregate and by individual director for the year ended 31 December 2005 </FONT></B></font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
<sup><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</font></sup></TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black;border-top:solid 1pt;border-top-color:black">&nbsp;
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black;">&nbsp;</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
<sup><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</font></sup></TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black;border-top:solid 1pt;border-top-color:black">&nbsp;
	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;&#146;000</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;&#146;</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">000</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Executive directors</FONT></B></TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD width="2%" align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total salary</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,305</FONT></B>
	</TD>
	<TD width=2% align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,040</FONT>
	</TD>
	<TD width=2% align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benefits &#150; value of any other non-cash benefits</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">222</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">154</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bonus</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,561</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,089</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LTIP annual vesting </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c)</FONT></SUP></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,198</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,488</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Termination payment</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">312</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,286</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,083</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-executive directors</FONT></B></TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fees</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">610</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">507</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benefits</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black; border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=right style="border-bottom:solid 2pt;border-bottom-color:black"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">611</font></b> </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black; border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=right style="border-bottom:solid 2pt;border-bottom-color:black"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">511</font> </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black; border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black; border-bottom:solid 2pt;border-bottom-color:black"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total
    remuneration</font></b></TD>
  <TD align=left style="border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=right style="border-bottom:solid 2pt;border-bottom-color:black"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,897</font></b> </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black; border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=right style="border-bottom:solid 2pt;border-bottom-color:black"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,594</font> </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black; border-bottom:solid 2pt;border-bottom-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left style=>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left >&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="top">
  <TD width="3%">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(a)</sup></FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Includes directors who retired during 2005.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(b)</sup></FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Includes directors who retired during 2004.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><sup>(c)</sup></FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Value of LTIP shares vesting in the year, based on the mid-market share price at 12 noon on the day of</FONT>	<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">vesting.</font></TD>
</TR></TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p57"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
  <p><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></p>
</div>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors&#146; emoluments in aggregate and by individual director for the year ended 31 December 2005 (cont.)</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fees</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bonus</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Value of</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sub-total of</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Incentive</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
    <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">salary</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">any other</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">salary, fees,</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2"><FONT face="TimesNewRoman,Times New Roman,Times,serif">plans </FONT><FONT face="TimesNewRoman,Times New Roman,Times,serif"><sup>(c)</sup></FONT></font></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">remuneration</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">remuneration for</FONT></TD>
    <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">non-cash</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">bonus and</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">for 2005</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">benefits</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value of</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
    <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">non-cash</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
    <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">benefits</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>

	</TD>
    <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>
	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>
	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>
</TD>
	<TD align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">&#163;</FONT><FONT face="TimesNewRoman,Times New Roman,Times,serif">000</FONT></font></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>
	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>
	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>
	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT></TD>
	<TD align=left valign="bottom"><font size="2">&nbsp;</font>
	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT></TD>
    <TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="17" align=left><hr size="1" noshade></TD>
  </TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Executive directors</FONT></B></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Northridge</FONT></TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">725</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">566</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,304</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">483</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,787</FONT></TD>
	<TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD width=10% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,595</FONT></TD>
    <TD width=2% align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">340</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">214</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">573</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">89</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">662</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">524</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom"><font size="2">
    <FONT face="TimesNewRoman,Times New Roman,Times,serif">Neil England<sup> (d)</sup></FONT></font></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">400</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">252</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">715</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">230</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">945</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">569</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">400</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">252</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">112</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">764</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">83</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">847</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">213</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">440</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">277</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">732</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">313</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,045</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">968</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="17" align=left valign="bottom"><hr size="1" noshade></TD>
  </TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-executive directors</FONT></B></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">John Gildersleeve</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">279</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">279</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">279</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">211</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sir Graham Hearne</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">80</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ronnie Bell</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Alison Carnwath</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Richard Delbridge</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">66</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">66</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">66</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">53</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">James Hogan(e)</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">n/a</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tony Portno</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="17" align=left valign="bottom"><hr size="1" noshade></TD>
  </TR>
<TR valign="bottom">
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,305</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">610</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,561</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">223</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,699</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,198</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,897</FONT></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,335</FONT></TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="17" align=left valign="bottom"><hr size="1" noshade></TD>
  </TR>
<TR valign="bottom">
	<TD align=left valign="bottom"><font size="2">&nbsp;</font></TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
	<TD align=right valign="bottom"><font size="2">&nbsp;</font>

	</TD>
    <TD align=right valign="bottom"><font size="2">&nbsp;</font></TD>
</TR>
</TABLE>
<TABLE border=0 cellspacing=0 cellpadding=0>
<TR>
  <TD colspan="2" valign=top><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notes:</font></TD>
  </TR>
<TR valign="top">
	<TD width="3%">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</FONT></TD>
	<TD width=100%>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The annual fees of the non-executive directors (including the chairman) were revised with effect from 1 June 2005: board/committee members &#163;60,000; chairman of the audit committee
&#163;70,002; deputy chairman &#163;100,002; chairman &#163;300,000.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">b)</FONT></TD>
	<TD width=100%>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The value of non-cash benefits, where received, relate to the following benefits: company car, mobile phone, private health care, limited supplies of tobacco products and in one instance,
a retirement gift. In addition, directors are covered by personal accident and life insurance while on company business. There are no expense allowances chargeable to UK income tax.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c)</FONT></TD>
	<TD width=100%>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The value of the incentive plan awards reflect the performance of our shares over the last three years, during which time the share price increased 44% in respect of the DBP and 54% in
respect of the PSP.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">d)</FONT></TD>
	<TD width=100%>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Included in Neil England&#146;s non-cash benefits is the value of the contributions accrued for his funded unapproved retirement benefits scheme (&#147;FURB&#148;) resulting from the
restrictions imposed by the Inland Revenue earnings cap.</FONT>	</TD>
</TR><TR valign="top">
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">e)</FONT></TD>
	<TD width=100%>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">James Hogan joined the Board on 3 May 2005.</FONT>	</TD>
</TR></TABLE>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Long-term incentive plans </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;&nbsp;&nbsp;The LTIPs comprise a deferred bonus plan (&#147;DBP&#148;) and a performance
share plan (&#147;PSP&#148;). The plans are designed to align the interests of the participants with those of the shareholders over the long-term through the allocation of ordinary shares in the Group, contingent upon our performance (code, main
principle B.1 and schedule A). The incentive plan targets are applied uniformly to all executive directors, the company secretary and heads of business units reporting to them invited by the committee to participate in the scheme. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Incentive measures &nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In accordance with the code, schedule A, and following a full review of the LTIPs, at
the May 2005 AGM shareholders approved a move from a single performance measure of adjusted EPS for the PSP for performance periods starting in 2004. This has been replaced by a combination of total shareholder return (&#147;TSR&#148;) and return on
capital employed (&#147;ROCE&#148; &#150; see the footnote to performance conditions table). Real growth in adjusted EPS remains the performance measure for the DBP. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In using these performance criteria for the LTIPs, the remuneration committee&#146;s assessment is that EPS, ROCE and TSR are the most important measures that drive or measure sustainable
improvements in shareholder value thereby further aligning the interests of management with those of shareholders. The TSR performance condition measures comparative performance, while EPS and ROCE reflect core elements of our business strategy,
which are to seek to enhance earnings growth and to improve further capital efficiency.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rewards under the 2003-2005 LTIPs related to achievement of EPS targets set by the committee. Participation in the DBP is voluntary and is dependent upon the availability of an annual
bonus that, in turn, is contingent upon performance factors.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><br>
<br>
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During the transition from UK GAAP to International Financial Reporting Standards, to the extent that any adjustments are necessary to ensure a like-for-like comparison, these will be
reviewed and adjudicated upon by the committee. It should be noted that currently three members of the committee also sit on the audit committee. The committee expects to use the audited, adjusted EPS numbers reported in accordance with the
principal accounting framework adopted by us in each of the relevant plan years. The committee is satisfied that this approach has not had a significant impact upon the level of the award that is payable. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred bonus plan </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp; The purpose of the DBP is to encourage those senior executives invited to participate
to invest in us and increase commitment to our growth and future performance. The plan also acts as a retention tool in a business sector in which the recruitment and retention of high-calibre individuals can be challenging. If, upon invitation, a
participant voluntarily pledges shares up to a maximum value equal to 100% of his/her annual bonus (which shares must be held throughout the three-year performance period) we will award, at no cost to the participant (other than taxation and
national insurance charges), additional shares. The minimum number that the participant will receive, having held shares for the full three-year cycle, will be one half of the number originally pledged. If our predetermined targets for real growth
in adjusted EPS over a three-year period (as set by the committee) are met the participant will receive shares up to a maximum of one and a half times the number originally pledged. Awards between the minimum and maximum targets are calculated on a
linear basis. Details of the shares awarded to directors under the DBP are set out below. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Real growth in adjusted EPS over the 2003-2005 performance period was 4.5% per annum against a target range of between 2% and 10%, and thus 81.6% of the original conditional award was
payable. The calculation of the percentage vesting of the DBP is independently certified by the auditors. The gain attributable to each director will be disclosed in the 2006 remuneration report.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance share plan &nbsp;&nbsp;&nbsp; </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The PSP is designed to reward executives for delivering growth in shareholder value
through an annual award of shares. In the case of executive directors, such awards are based on a maximum potential value of 100% of salary at the discretion of the committee. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">For the cycle ending 2005, performance was determined by the real growth in adjusted EPS over the measurement period compared with the target range set by the committee. Achievement at or
above the top of the range would have produced vesting of 100% of the total award. Achievement of the bottom of the target range would have resulted in 20% of the original award. The proportion vesting for achievement between the top and bottom of
the range was calculated on a linear basis. No award would have been made if performance was below the bottom of the range. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Real growth in adjusted EPS over the 2003-2005 performance period was 4.5% per annum against a target range of 2% - 10% and therefore 45.3% of the total award was payable. The gain
attributable to each director will be disclosed as remuneration in 2006. Details of awards to directors under the PSP are detailed in the table below.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Target: DBP </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;&nbsp;&nbsp; The
committee has discretion to set targets for each performance period. The targets
set for  real growth in adjusted EPS for the DBP for each of the performance
periods, 2004-2006, 2005-2007 and 2006-2008 are adjusted EPS over the three-year
period equal to an annual compound growth rate above inflation (using the retail
price index) of 2%
per annum for the minimum threshold, and 10% per annum if the maximum applicable
award is to be achieved (audited information). A minimum of 2% real annual compound
growth in EPS is considered an appropriate target given the maturity of the sector
 within which the Company operates, the consolidation that has taken place in
recent years, the nature of the challenges faced by tobacco companies and the
prevailing UK retail price inflationary environment. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Targets: PSP &nbsp;&nbsp;&nbsp; </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In respect of the PSP for performance periods from 2004-2006 onwards the targets
are:</FONT></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><font size="2">&nbsp;</font></td>
    <td><font size="2"> <b><i><font face="TimesNewRoman,BoldTimes New Roman,Times,serif">50%
            ROCE</font></i><font face="TimesNewRoman,Times New Roman,Times,serif">:</font></b><font face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;&nbsp;&nbsp; The
            ROCE target ranges are: 27.1% to 28.3% for 2004-2006; 27.5% to 29.3%
            for 2005-2007; and, 28.3% to 30.0% for 2006-2008. Under IFRS the
            ROCE for the year ended 31 December 2005 was 27.4%, before exceptional
            items. Performance at the top end of the range would deliver maximum
            vesting i.e., 50% of the total award, and performance at the bottom
            end of the range would deliver 15% of the total award, with straight-line
            vesting in between. No payout will be made if performance is below
            the
lower end of the range.</font></font></td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td><font size="2">&nbsp;</font></td>
  </tr>
  <tr>
    <td><font size="2">&nbsp;</font></td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The committee
        reviews the appropriate ROCE performance range for each annual grant
        of awards to be made under the PSP, taking account of the business&#146; future
        plans and prospects. In order to mitigate the risk of fluctuations in
        the ROCE calculation, the committee retains discretion to make adjustments
        for significant events (e.g. exceptional items, major mergers and acquisitions
        or changes in accounting principles). Any amendment to target ranges
        would be explained in the annual report and financial statements. The
        target range is always expected to be in excess of our weighted average
    cost of capital. </font></td>
  </tr>
</table>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></P>
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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%">&nbsp;</td>
    <td><b><i><font size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">50%
            TSR:&nbsp;&nbsp;&nbsp;</font></i></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> The
            TSR element is measured against two comparator groups. Recognising
            the UK listing of our shares, half of this element of the award is
            measured against the performance of members of the FTSE 100 index
            at the beginning of the period. The remaining half is measured against
            a comparator group which reflects the international nature of the
            business comprising tobacco and other consumer companies, namely:
            Allied Domecq; Altadis; Altria; Associated British Foods; British
            American Tobacco; Cadbury Schweppes; Danone; Diageo; Heineken; Imperial
            Tobacco Group; InBev; Morrison Supermarkets; Nestle; Reckitt Benckiser;
            Reynolds American; SABMiller; J Sainsbury; Scottish &amp; Newcastle;
    Smith &amp; Nephew; Tesco; and, Unilever. </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">A median
        TSR return for each comparator group will deliver 7&frac12;% of the total
        award. An upper quartile performance would deliver a maximum payout of
        the award (i.e., 25% for each TSR element of the award) with a straight
        line payout in between and no payout of this element for performance
    below the median. </font></td>
  </tr>
</table>

<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The committee believes that in accordance with the code, provisions of schedule A these targets represent challenging and stretching targets for delivering continued improvement in
capital efficiency and shareholder value. Taken together with the DBP EPS measure, the ROCE and TSR 50 : 50 combination comprise a well balanced and focused package of long-term performance related remuneration aimed at incentivising management to
deliver continuing shareholder value. </FONT></P>
<P> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance
conditions relating to LTIP awards:</font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD width="2%" rowspan="4" align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black;border-bottom:solid 1pt;border-bottom-color:black" >&nbsp;</TD>
	<TD colspan=3 align=left style="border-top:solid 1pt;border-top-color:black;border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Calculation
    of award</font></TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black;border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjusted</FONT></TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black;border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD colspan="3" align=left style="border-top:solid 1pt;border-top-color:black;border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">TSR target</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ROCE</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black;border-top:solid 1pt;border-top-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Plan</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">real</FONT></TD>
	<TD align=left></TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Comparator</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">target </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1)</FONT></SUP>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">period</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">PSP</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">DBP</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">EPS target</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">FTSE 100</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">companies</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black;border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=right style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD width="2%" rowspan="2" align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black" >&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003-2005</FONT></TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD width=8% align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100% EPS</FONT></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD width=8% align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100% EPS</FONT></TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD width=8% align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2% to 10%</FONT></TD>
	<TD width=2% align=right style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD width=15% align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD width=15% align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD width=15% align=left style="border-bottom:solid 1pt;border-bottom-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=2% align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD width="2%" align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004-2006</font>

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">50%
    ROCE</font><br>    <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">50% TSR</font> </TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">100%
	    EPS</font>

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2%
	    to 10%</font>

	</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Median 7&frac12;%<br>
</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Upper quartile<br>
</font><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">25%</font>	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Median
	    7&frac12;%</font><br>
      <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Upper quartile</font><br>      <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">25%</font></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ROCE of</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
27.1= 15%</font><br>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ROCE
of<br>
28.3=
    50%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       </font></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD width="2%" align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005-2007</font>

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">50%
	    ROCE</font>
      <br>
    <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">50% TSR</font>	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">100%
	    EPS</font>

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2%
	    to 10%</font>

	</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Median 7&frac12;%</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Upper quartile<br>
</font>	<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">25%</font> </TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Median 7&frac12;%</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Upper quartile</font>	<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
25%</font></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ROCE of</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
27.5= 15%</font>	<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
ROCE
of</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
29.3=
50%</font></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2006-2008</font>

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">50%
	    ROCE</font>

	  <br>
    <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">50% TSR</font></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">100%
	    EPS</font>

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2%
	    to 10%</font>

	</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Median 7&frac12;%</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Upper quartile<br>
</font>	<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">25%</font></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD align=left valign="middle" style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Median 7&frac12;%</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
Upper quartile<br>
25%</font>	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;

	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ROCE of</FONT>
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
28.3= 15%</font>	<font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
ROCE
of</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><br>
30.0=
50%</font></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black;border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1) The calculation of the ROCE on an IFRS basis for each performance period is based on a three-year annual average:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ROCE % =</FONT></TD>
	<TD width=30% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings before interest and tax</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left><hr align="left" width="200" size="1" noshade></TD>
	<TD width=5% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">X</FONT></TD>
	<TD width=30% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=center>&nbsp;
</TD>
    <TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
    capital employed*</font> </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">* Average capital employed is calculated by taking the opening capital employed and the closing capital employed (as defined below) from our accounts for the relevant financial year and
dividing by two. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital employed consists of total equity + net debt (including accrued interest) + net retirement benefit liabilities + net deferred tax liabilities + other long-term liabilities.
</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">59</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p60"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"></FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005 </FONT></B></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred bonus plan : conditional share awards </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maximum</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Awards vesting
during</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Lapsed</font></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maximum</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maximum</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">period</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">potential share</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 (vesting share</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">during the</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">potential</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">potential</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">awards</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">price &#163;7.7275 on 7</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 year</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">share awards</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">share awards</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">outstanding at 1</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2005; share</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(see note</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">granted during</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">outstanding at</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">January 2005</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">price at award on 26</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">below)</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the 2005 year at</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 December</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2002, &#163;5.3608)</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;7.9150 on 30</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2005</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Northridge</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9,189</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=15% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5,697</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3,492</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57,178</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57,178</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">71,348</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">71,348</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62,825</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62,825</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">137,715</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5,697</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3,492</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62,825</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">191,351</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,329</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,444</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(885</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12,729</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12,729</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26,813</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26,813</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23,973</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23,973</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">41,871</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,444</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(885</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23,973</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63,515</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Neil England</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29,951</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29,951</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34,857</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34,857</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30,512</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30,512</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">64,808</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30,512</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">95,320</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13,638</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13,638</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13,094</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13,094</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22,169</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22,169</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26,732</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22,169</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48,901</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,992</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3,715</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,277</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">37,030</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">37,030</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39,684</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39,684</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34,871</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34,871</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82,706</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3,715</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,277</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34,871</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">111,585</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
</TABLE>

<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notes:&nbsp;&nbsp;&nbsp; Lapses refer to those awards that did not vest under the 2002-2004 DBP.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Awards were made in 2005 to the participating heads of business units and the executive directors under the DBP. The vesting for the performance related parts of these awards is
conditional upon the achievement of targets set by the committee over the three financial years 2005-2007. These targets are set out above. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p61"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"><b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F
  2005</font></b> </p>
<p> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance
share plan : conditional share awards</font></b></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maximum</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Awards vesting
during </FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Lapsed</font></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maximum</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maximum</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">period</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">potential share</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 (vesting share</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">during the</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">potential</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">potential</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">awards</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">price &#163;7.7275 on 7</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 year</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">share awards</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">share awards</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">outstanding at 1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2005; share</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(see note</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">granted during</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">outstanding at</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">January 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">price at award on 13</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">below)</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the 2005 year at</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 December</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2002, &#163;5.0325)</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7.7183on
9</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2005</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Northridge</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104,321</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=15% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(56,750)</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(47,571)</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">102,975</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">102,975</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96,107</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96,107</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">93,933</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">93,933</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">303,403</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(56,750)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(47,571)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">93,933</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">293,015</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18,527</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10,078)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8,449)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42,907</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42,907</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40,661</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40,661</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44,051</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44,051</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">102,095</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10,078)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8,449)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44,051</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">127,619</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Neil England</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">54,645</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(29,726)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(24,919)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55,778</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55,778</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,011</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,011</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,825</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,825</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">161,434</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(29,726</FONT></B><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></b>	</TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(24,919)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,825</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">158,614</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19,850</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10,798)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9,052)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17,831</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17,831</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19,695</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19,695</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,825</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,825</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57,376</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10,798)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9,052)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51,825</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">89,351</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002 - 2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67,561</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(36,753)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(30,808)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003 - 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63,501</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63,501</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 - 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">59,143</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">59,143</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 - 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57,008</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57,008</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">190,205</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(36,753)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(30,808)</FONT></B></TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57,008</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">179,652</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
</TABLE>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note: &nbsp;&nbsp;&nbsp;Lapses
refer to those awards that did not vest under the 2002-2004 PSP.</font> </P>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Awards were made in 2005 to the participating heads of business units and the executive directors under the PSP. The vesting of these awards is conditional upon the achievement of targets
  set by the committee over the three financial years 2005-2007. These targets are set out above. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total return indices </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The graph shows, for our last five financial years, a calculation of the TSR on a
holding of shares in the Group, compared with that of a hypothetical holding of shares in the FTSE-100. The FTSE-100 is the most appropriate index against which to illustrate our performance because we are a constituent member and the FTSE-tobacco
index would not provide a broad enough comparator group (although details of the tobacco index is available on the website). The graph has been calculated in accordance with the Directors&#146; Remuneration Report Regulations paragraph 4 of Schedule
7A. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">61</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p62"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center">    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></p>
<p align="center"><BR>
  <IMG src="b825957x64x1.jpg" border=0></p>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Savings related
share option scheme&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
executive directors may participate along with all eligible  employees in the
SRSOS. The SRSOS was established in 1997 for an initial 10-year term. During
the course of 2006 we will consider seeking Inland Revenue approval to extend
the SRSOS for a further 10-year period with a view to seeking shareholder
approval for this at the 2007 AGM. Participants, who enter into a savings contract
to a maximum level of &#163;250 per month, are granted options to subscribe for
our shares. The board may determine that an option is to be granted at a discount.
The  maximum discount is 20% of the then prevailing share price. The options
held by directors under the SRSOS are set out below. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The dilutive effect of participation by directors and employees in the SRSOS and executives in the LTIPs is considered to be de-minimis. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD align=left valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share options</FONT></B></TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=center valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD colspan=8 align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Options under SRSOS (10p shares)</FONT>	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>

	</TD>
	<TD align=left valign="bottom"><hr size="1" noshade>
</TD>
	<TD align=left valign="bottom">&nbsp;
	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;
</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number</font> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">of</font> </TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earliest</font> </TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number
	    of</font> </TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">shares
    at</font> </TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">exercise</FONT></TD>
	<TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expiry</FONT></TD>
	<TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Option</FONT> </TD>
	<TD align=left valign="bottom"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">shares
	    at </FONT></TD>
	<TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exercised
	    in</font> </TD>
	<TD align=left valign="bottom"><div align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Granted</font></div></TD>
	<TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">31
    Dec</font> </TD>
	<TD align=left valign="bottom">&nbsp;</TD>
</TR>
<TR>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date
      of grant</font> </TD>
  <TD align=left valign="bottom"><div align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">date</font></div></TD>
  <TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">date</font> </TD>
  <TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">price</font> </TD>
  <TD align=left valign="bottom"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">1
      Jan 2005</font> </TD>
  <TD align=left valign="bottom"><div align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">year</font> </div></TD>
  <TD align=left valign="bottom"><div align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">in
    year</font> </div></TD>
  <TD align=left valign="bottom"><div align="left"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</font> </div></TD>
  <TD align=left valign="bottom">&nbsp;</TD>
</TR>
<TR>
  <TD colspan=2 align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD colspan=2 align=left valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Executive directors</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel</FONT></TD>
	<TD width=2% align=left valign="bottom">&nbsp;

	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6/10/2003</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1/12/2008</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31/5/2009</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">443p</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,577</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,577</FONT>
	</TD>
	<TD width=2% align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Northridge</FONT></TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop</FONT></TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6/10/2003</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1/12/2008</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31/5/2009</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">443p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,577</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,577</FONT>
	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Neil England</FONT></TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6/10/2003</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1/12/2006</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31/5/2007</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">443p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,082</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,082</FONT>
	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart</FONT></TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7/10/2005</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1/12/2012</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31/5/2013</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">681p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,511</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,511</FONT>
	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hainsworth</FONT></TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe </FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></SUP>&nbsp;
	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">}</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15/07/1997</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1/9/2004</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28/2/2005</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">234p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,333</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8,333)</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">}</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6/10/2003</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1/12/2010</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31/5/2011</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">443p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,786</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,786</FONT>
	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21,355</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8,333)</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,511</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15,533</FONT>
	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
</TR>
<TR>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left valign="bottom">&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
  <TD valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD width="3%" valign=top>
<FONT size=1 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe exercised his option to acquire 8,333 shares at a price of &#163;2.34 per share on 22 February 2005, at which date the market price was &#163;8.02.</FONT>	</TD>
</TR></TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The share price at 31 December 2005 was 877.5p and the recorded highest and lowest prices in the year were 907.5p and 749.0p respectively. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p63"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B>    </p>
  <p><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B><BR>
  </p>
</div>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share incentive plan&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A SIP was launched in February 2002. UK employees have the opportunity to invest up
to &#163;125 per month in our shares from their pre-tax income. These shares are then held in trust and each separate purchase of shares will become free of income tax and national insurance if held for five years. Employees can participate in the
SIP in addition to the SRSOS. The shares held by directors under the SIP are included in the disclosure of directors&#146; interests in shares. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pensions&nbsp;&nbsp;&nbsp;</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details of the executive directors&#146; pensions are shown in the table and notes below. These
amounts exclude any benefits attributable to additional voluntary contributions (&#147;AVCs&#148;). The transfer values shown below represent our obligation, not a sum paid or due to the individual and cannot meaningfully be added to annual
remuneration. Under their service agreements, the UK-based executive directors are members of our management pension scheme. This is an Inland Revenue-approved, defined benefit occupational pension scheme based on final salary (excluding annual
bonus payments and awards under the long-term incentive plans). The fund allows members (depending upon length of service or seniority) to achieve a maximum pension of up to two-thirds of their salary at the normal retirement age. In common with all
other members, those directors who are members do not make contributions to the scheme, other than AVCs. Pension commutation to enable participants to receive a lump sum on retirement is permitted within Inland Revenue limits. In addition, the
scheme provides life cover of four times basic salary (again subject to Inland Revenue limits). In the event of death, a 50% spouse&#146;s pension is payable. Dependent children also receive allowances of up to a maximum of 50% of the member&#146;s
pension for two or more children. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">With effect from April 2006, the new UK pensions regime will come into effect. The committee is currently finalising what adjustments, if any, should be made to the UK pension
arrangements to take account of these changes. However, there is no intention to compensate directors or other senior executives for any additional tax they may be required to pay as a result of these changes.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Currently, where a UK-based executive director is subject to the UK Inland Revenue earnings cap then 1/60th accrual per year of service is provided through the pension scheme with
additional benefits being provided through a FURB where appropriate (see note below). Life assurance in excess of that provided by the pension scheme, up to four times basic salary, is separately insured. There is a defined contribution arrangement
available to Mr Hainsworth (who is located overseas). A contribution of 5% is automatically made to a Swiss scheme. Mr Hainsworth is then able to elect to have the balance as a cash alternative subject to local taxes and national insurance. The
aggregate contribution rate in respect of his pension arrangements was raised from 16% of base salary to 34%, effective 1 October 2005 following a review of market practice and recognition that Mr Hainsworth is now established as a director. Mr
Hainsworth additionally has life cover of four times base salary. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors&#146; pensions.</FONT></B></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
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  <TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
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</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1)</FONT>
	</TD>
	<TD align=left>

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3)</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3)</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2)</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4)</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5)</FONT>
	</TD>
  </TR>
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  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
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  <TD align=right><hr size="1" noshade></TD>
  <TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Increase in</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Transfer</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Transfer</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Transfer</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Money</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">increase in</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">accrued</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">accrued</FONT>
	</TD>
	<TD align=right>
      <div align="left"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value of</FONT>
      </div></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value of</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value of</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">change in</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">purchase</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">accrued</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">pension net</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">pension at</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">net</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">accrued</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">accrued</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">transfer</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">schemes</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">pension</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of inflation</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 Dec</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">increase in</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">pension at</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">pension at</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000 (pa)</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">accrual</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 Dec</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 Dec </FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">during</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000 (pa)</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">over period</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">period</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">000</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;000</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right>&nbsp;</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Northridge</FONT></TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48</FONT>
	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT>
	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">360</FONT>
	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">805</FONT>
	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7,522</FONT>
	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,760</FONT>
	</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,762</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=left>&nbsp;</TD>
	<TD width=1% align=left>&nbsp;</TD>
	<TD width=10% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nigel Dunlop</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">159</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">669</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,368</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,316</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,052</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Neil England</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">151</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">98</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">53</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">117</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Stewart Hainsworth (6)</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Mark Rolfe</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">193</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">413</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,846</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,963</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">883</FONT>
	</TD>
	<TD STYLE="border-right:solid 1pt;border-right-color:black" width="2%" align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
  </TR>
</TABLE>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notes:</FONT></U></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%" valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The increase in accrued pension during the year is net of any increase for inflation.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Transfer values have been calculated in accordance with version 8.1 of guidance note GN11 issued by the actuarial profession.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The value of net increase represents the incremental value to the director of his service during the year, calculated on the assumption service terminated at the year end. It is based on
the accrued pension increase (2) and the transfer value basis applicable at the year end.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR></TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%" valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The change in the transfer value includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and directors, such as stock market movements
and the effects of increased service, age and base salaries.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contributions due to Neil England&#146;s FURB resulting from the restrictions imposed by the Inland Revenue earnings cap.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In addition, under his Swiss contract, Stewart Hainsworth received &#163;62,000 in respect of a cash alternative to pension.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension accruals shown are the amounts which would be paid annually on retirement based on service to the end of the year and exclude voluntary contributions paid by directors, the
resulting benefits associated with which are not shown.</FONT>	</TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR>
<TR>
  <TD colspan=2>&nbsp;</TD>
</TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p64"></a>C</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Board
    Practices</font></b></td>
  </tr>
</table>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Differences
between UK &amp; US corporate governance</FONT></U></p>
<p>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As well as
      being subject to UK legislation and regulation, Gallaher, as a company listed
      on the NYSE, is subject to the listing requirements of the NYSE and the rules
      of the SEC.
  Compliance with the provisions of the Sarbanes Oxley Act (&#147;SOX&#148;) as it applies to foreign issuers, is continually monitored.  While the directors believe that our corporate governance policies are robust, changes have and will continue to
  be made to ensure compliance with the rules that are in place at any point in time. We follow UK corporate governance practice which does not differ significantly from the NYSE corporate governance standards for foreign issuers. Refer to &#150; New
  York Stock Exchange corporate governance requirements later in this section.</FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This report for shareholders sets out our approach to and compliance with the principles contained in the combined code on corporate governance (the &#147;code&#148;) and explains any
departure from its provisions.  This report has been prepared following the main principles of the code.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The board</FONT></B><br>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code, main principle A.1: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;Every
  company should be headed by an effective board, which is collectively responsible
for the success of the company.&#148;</FONT></I></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our board recognises its responsibility to provide entrepreneurial and responsible leadership to the Group within a framework of prudent and effective controls (described below) allowing
assessment and management of the key issues and risks impacting the business. The board sets our overall strategic direction, reviews management performance and ensures that we have the necessary financial and human resources in place to meet our
objectives.  The board is satisfied that the necessary controls and resources exist within the Group to enable these responsibilities to be met. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The board also ensures that our principal goal is to create shareholder value, while having regard to other stakeholder interests. Accordingly, the long-term interests of shareholders,
together with the wider community of interests represented by employees, customers and suppliers are factored into our management processes. Steps are also taken to ensure that account is also given to social, environmental and ethical issues within
our control and risk assessment processes.  The steps taken to achieve these goals are communicated to shareholders through a dedicated investor relations department, our website (www.gallaher-group.com), our corporate responsibility and
environment, health and safety publications and to employees via our intranet, formal and informal briefings and newsletters.  They are reinforced through employee participation in share ownership plans. Through formal policies (summaries of which
are published on our website) and the &#145;behaving responsibly&#146; statement, which sets out our position on key issues surrounding tobacco products, the board seeks to engender a culture where business ethics, integrity and fairness are values
that all employees endorse and apply in their everyday conduct. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The board meets at least six times a year, with additional meetings as required. In 2005 it met six times, including a combined board and senior executive two-day strategic planning
workshop. All directors attended all formal board meetings.  Annually, one meeting is held at the site of an operational business unit.  In 2005, marking the third anniversary of our joint venture with Reynolds American, the board visited the
offices of Reynolds Gallaher International in Lausanne.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There is a documented schedule of matters reserved to the board including decisions on strategic and policy issues, approval of published financial statements, major acquisitions and
disposals, expenditure authority levels, treasury and risk management policies and succession plans for senior executives at and below board level. During 2005, the board received regular briefings upon our performance (including detailed commentary
and analysis) and key issues and risks affecting our business. Reports on our operations, human resources, governance and regulatory matters affecting the</FONT></P>
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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B> </P>
<P align="left"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">Group
  were provided to the board on a regular and timely basis. Briefings on market
  activity, together with the views of shareholders and analysts on the Company,
  were also provided to the board. We also maintain appropriate insurance cover
  in respect of legal action for the directors. </font></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Board committees</FONT></B><br>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There
are five principal board committees: executive; audit; nomination; remuneration;
and,
corporate responsibility. The remit of the board&#146;s corporate responsibility committee now encapsulates not only environment, health and safety (&#147;EHS&#148;)
policy, but also assessing and reporting to the board upon our approach to all
matters connected with corporate responsibility. The roles and responsibilities
of each of these committees (with the exception of the corporate responsibility
committee, whose report detailed later in this section) are detailed below. With
the
exception of the chairman (who chairs the nomination committee) all the audit,
nomination and remuneration committee members are independent non-executive directors
under the code. The committees are provided with sufficient resources via the
company secretariat and, where necessary, have direct access to independent professional
advisers to undertake their duties. During 2005, we also established a disclosure
committee (comprising the chairman, chief executive, finance director, company
secretary and director, investor relations) and implemented procedures to ensure
current and future compliance with the relevant disclosure provisions of the
listing rules that came into effect on 1 July 2005. The disclosure committee
meets as and
when required in addition to two scheduled meetings annually. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Executive committee</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">  The chief executive chairs the executive committee which comprises the other
executive directors and company secretary and general counsel. Other senior executives, such as the chief marketing officer, group financial controller and head of the Asia business unit attend by invitation.  The executive committee is responsible,
amongst other matters, for implementing our strategic direction, monitoring the performance of the business and its control procedures on a day-to-day basis. Members normally meet weekly. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The remuneration committee </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sir Graham Hearne chairs the remuneration committee. That committee, whose
other members are Ronnie Bell, Alison Carnwath and Richard Delbridge, met five times in 2005. There was full attendance at each meeting. A detailed description of the committee&#146;s remit and work during 2005, including further information on our
application of the principles of the code, is contained in the compensation report (which was approved by the board). Its terms of reference comply with the code, are available on request and are published on our website. The full terms and
conditions of appointment of our non-executive directors are available for inspection at its registered office, and a summary is available on our website. Sir Graham provides a report to the board following each meeting of the remuneration
committee.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Nomination committee </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The nomination committee is chaired by John Gildersleeve. Sir Graham Hearne (the
deputy chairman and senior independent director) and Alison Carnwath are the other members. It meets as and when required. The committee met twice in 2005 with full attendance at each meeting.  Company executives and advisers attend meetings by
invitation only. The chairman updates the board and makes recommendations as and when required. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The terms of reference of the nomination committee are available on request and are published on our website. In essence, this committee is responsible for succession planning at board
level, overseeing the selection and appointment of directors and making its recommendations to the board. It is also responsible, in conjunction with the chairman of the Group, for evaluating the commitments of individual directors and the balance
of skills, knowledge and experience on the board. It also ensures that the membership of the board and its principal committees are refreshed periodically. Where appropriate, the committee will prepare an outline of the role and capabilities
required for particular appointments and use an external search consultancy and/or advertising in relation to board appointments. During 2005, its focus was upon refreshment of the board and board committees. In line with its recommendations, James
Hogan was appointed to the board in May 2005 and he, together with Ronnie Bell, will be appointed to the audit committee in May 2006. In line with another recommendation, Ronnie Bell took over as chairman of the corporate responsibility committee in
2005.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit committee </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Richard Delbridge is chairman of the audit committee. The other members are Alison
Carnwath and Sir Graham Hearne along with Tony Portno prior to his retirement from the board in May 2005. Ronnie Bell and James Hogan will join this committee in May 2006. Richard Delbridge and Alison Carnwath are chartered accountants. Richard
Delbridge is deemed by the board to be the audit committee financial expert with recent and relevant financial experience and independent not only for the purposes of the code but also in accordance with the New York Stock Exchange definition. All
of the committee members have extensive commercial experience (see Item 6A). Further information on our application of the code and on the audit committee and its work during 2005 is set out in its report later on in this section. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Corporate responsibility committee</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">  Ronnie Bell chairs the corporate responsibility (&#147;CR&#148;)
committee.  The committee, whose other members are Nigel Dunlop, Tom Keevil, and Richard Johnson, managing director, developing markets, met three times in 2005. The committee oversees our CR and EHS steering committees and ensures that key social,
ethical and environmental (&#147;SEE&#148;) risks are identified, assessed and prioritised accordingly. Strategically, the</FONT></P>
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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B>
</P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">committee is charged with ensuring that the philosophy of behaving responsibly is fully integrated into all areas of the business and that we strive for continual improvement in the key
SEE areas, as outlined in our CR report and EHS report &#145;Striding Ahead&#146;. These reports and the terms of reference for the committee are available on request and are published on our website. The chairman updates the board and makes
recommendations as and when required. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other committees </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our management committee, chaired by the chief executive, which consists of executive
board members and senior executives responsible for the key business units also meets regularly.  The management committee is used to cascade responsibilities for actions from the executive to the business units and to receive updates and
presentations on the performance of individual business and operational divisions. A Group operations committee chaired by the operations director, and otherwise consisting of senior operations executives below board level, also meets regularly to
consider primarily production, purchasing and logistics issues from a Group perspective. Details of the members of the management and operations committees are contained on our website.  Within each of our commercial divisions there are also
executive committees responsible for monitoring the performance of those business units. To ensure consistency of approach and cross-learning, members of the executive also chair Group committees responsible for the following areas: business
development; continuous improvement; corporate assurance; finance; information services; and, sales and marketing. Reports are provided from these various committees, as appropriate, to the executive and management committees and the board.
</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Chairman and chief executive </FONT></B><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  A.2: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;There
  should be a clear division of responsibilities at the head of the company between
  the running of the board and the executive responsible for the running of the
  company&#146;s business. No one individual should have unfettered powers of
  decision.&#148;</FONT></I></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There is a clear division of responsibilities between the roles of chairman (who serves in a non-executive capacity) and chief executive which is set out in writing and which has been
approved by the board. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Board balance</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  A.3: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;The
  board should include a balance of executive and non-executive directors (and
  in particular independent non-executive directors) such that no individual or
  small group of individuals can dominate the board&#146;s decision taking.&#148;</FONT></I></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The board currently comprises five executive directors and six non-executive directors (including the chairman). Sir Graham Hearne is the senior independent director.  Biographies of each
of the directors, their responsibilities and principal board committee memberships can be found in Item 6A. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During 2005, all the non-executive directors confirmed to the board that they have sufficient time available to fulfil their obligations as directors of the Group and, should any
individual&#146;s position change, they will inform the board. Details of the chairman&#146;s professional commitments are included in his biography (see Item 6A). In July 2005, the chairman became non-executive chairman of The Carphone Warehouse
Group PLC. There were no other changes to his commitments in 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Following review of the provisions of the code by the nominations committee and the board, the board considers all the non-executive directors to be independent. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointments to the board </FONT></B><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  A.4: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;There
  should be a formal, rigorous and transparent procedure for the appointment of
  new directors to the board.&#148;</FONT></I></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Appointments to the board and its committees are reserved for the board, based on recommendations from the nomination committee (see above). The appointment and removal of the secretary
is a matter reserved to the board as a whole. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Information and professional development</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  A.5: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;The
  board should be supplied in a timely manner with information in a form and of
  a quality appropriate to enable it to discharge its duties. All directors should
  receive induction on joining the board and should regularly update and refresh
  their skills and knowledge.&#148;</FONT></I></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under the stewardship of the chairman, the company secretary and general counsel, Tom Keevil, is responsible for advising the board on all governance matters, ensuring board procedures
are followed and applicable rules and regulations are complied with. During 2005, he ensured that board and board committee papers containing accurate, timely and clear information were circulated at least seven days before meetings. Periodic
updates were circulated as and when required. Procedures are in place to minute any unresolved concern that a director may have regarding a matter and to ensure that any departing non-executive director sets out any such concerns in a written
statement to the chairman, for circulation to the board. </FONT></P>
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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B>
</P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Training and briefings are available to all directors on appointment and thereafter directors keep abreast of our business through meetings with and presentations by senior management
below board level and through site visits to operating divisions. During 2005, a training programme was undertaken to ensure compliance with the revised &#145;insider dealing&#146; regulations introduced in July 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All non-executive directors undergo induction programmes upon appointment and have full access to management and to the internal and external auditors. The induction process includes the
provision of background materials on the Company, together with information on the responsibilities of directors under the listing rules, briefings by key senior executives at and below board level and the Company&#146;s head of internal audit and
site visits to the main operation locations. In addition to providing an overview of the business, its financial performance and the risk control matrix, areas covered by the process include: corporate responsibility, product stewardship; CR and SEE
issues; and legal, scientific and regulatory affairs. As part of his induction, before the strategic planning days in July, James Hogan undertook an intensive two day programme with, amongst others, senior executives in Weybridge. He subsequently
visited the Lisnafillan manufacturing facility to assist his understanding of tobacco manufacturing and our approach to research and development. The chairman has also organised a rolling programme of working suppers to enable non-executives to meet
informally and foster information exchange in advance of each board meeting. Executive directors attend by invitation only. Independently of the training facilitated by the Group, the non-executive directors variously receive independent training on
technical accounting and other governance related matters from professional service providers and institutions and bulletins from the Group on developments in the tobacco sector generally. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All directors individually, and each of the board committees, have access to the advice and services of the company secretariat and the secretary. There are also procedures in place
enabling any individual director in the furtherance of his or her duties to seek independent professional advice at the Company&#146;s expense.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The board supports executive directors taking up non-executive directorships as part of their continued development, which will ultimately benefit the Company. As a matter of policy, such
appointments are normally limited to two in number, but only one of which may be with another FTSE-100 company. Under no circumstances will an executive director be allowed to become the chairman of a FTSE-100 company. The nomination committee will
assess and makes recommendations to the board as to whether any proposed appointment would mean that the executive is unable to devote sufficient time to his duties to the Company.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance evaluation </FONT></B><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  A.6: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;The
  board should undertake a formal and rigorous annual evaluation of its own performance
  and that of its committees and individual directors.&#148;</FONT></I></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During 2005, the board, and each of the audit, nomination and remuneration committees, undertook performance/effectiveness evaluations. Using the Higgs &#145;Suggestions for Good
Practice&#146; as guidance, the individual directors and/or committee members initially completed separate questionnaires.  The results were compiled and analysed by the secretary, who prepared reports to the board and each of the committees. The
areas covered included the role of the executive and non-executive directors and the board/board committees, preparation for and the performance at meetings, the effectiveness of the board/board committees, leadership, culture and corporate
governance. The results were then considered by the board and each of these committees in meetings as specific items of business. No major issues were identified, although a more structured training programme is being implemented to reflect the
requirements of the revised listing rules published in July 2005.  These exercises or similar ones will continue to be repeated annually. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During 2005, the chairman undertook individual appraisals of each director and the company secretary, again using the Higgs &#145;Suggestions for Good Practice&#146; to assist him with
this exercise. He also convened a formal meeting of the non-executive directors to assess the effectiveness and performance of the board in the absence of the executive directors. When undertaking this exercise, the chairman and the non-executive
directors used the output of the individual appraisals and collective reviews, and amongst other matters, had regard to the principles in the code relating to the evaluation of the collective and individual performance of board members.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The deputy chairman and senior independent director also met with the non-executive directors, in the absence of the chairman, to assess the chairman&#146;s performance and effectiveness
(having taken soundings beforehand from the executive directors) and reported their findings for consideration to the board. The board was entirely satisfied with the chairman&#146;s performance and effectiveness. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Re-election</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  A.7: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;All
  directors should be submitted for re-election at regular intervals, subject
  to continued satisfactory performance. The board should ensure planned and progressive
  refreshing of the board.&#148;</FONT></I></P>
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<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B> </P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B> </P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All directors
  are subject to election by shareholders at the first AGM following appointment
  and thereafter to re-election at least every three years. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">John Gildersleeve, the non-executive chairman, Sir Graham Hearne, the non-executive deputy chairman and senior independent director, who were both appointed to the board in 1997, together
with Ronnie Bell and Mark Rolfe, the group finance director, are offering themselves for re-election.  As an executive director Mr Rolfe has a service agreement which requires us to give him 12 months&#146; notice of termination.  As non-executive
directors, Messrs Gildersleeve and Bell and Sir Graham Hearne do not have service agreements but letters of appointment which are for three year fixed terms and require three months&#146; notice of early termination. As detailed above under
&#145;Performance evaluation&#146; the contribution that each of the candidates seeking re-election by shareholders makes to the Group was evaluated.  The nomination committee&#146;s conclusion was that, having regard to the roles that they perform
and individual input and contribution they make, each candidate&#146;s performance more than justified nomination for reelection by shareholders. In the case of Sir Graham, account was taken that 2006 will mark his ninth anniversary as a
non-executive director. In considering his candidacy for re-election, regard was had to the refreshment of the board that has taken place since 1997, the need for continuity and the effective role that he performs as the senior independent director
and chairman of the remuneration committee. The nomination committee had no hesitation in concluding that he remained independent and recommended his re-appointment to the board. Moving forwards, Sir Graham will be subject to re-election annually.
The views of the nomination committee on all directors seeking re-election are unanimously endorsed by the board. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Risk management and internal controls </FONT></B><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  C.2: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;The
  board should maintain a sound system of internal control to safeguard shareholders&#146;
  investment and the company&#146;s assets.&#148;</FONT></I></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Introduction  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The board has overall responsibility for our system of risk management and internal
controls. The schedule of written matters reserved to the board ensures that the directors are responsible for the control of, amongst other matters, all significant strategic, financial and organisational risks. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have an established risk management programme that assists management throughout the Group to identify, assess and mitigate business, financial, operational and compliance risks on a
continuous basis. The board views management of risk as integral to good business practice. The programme is designed to support management&#146;s decision making and to improve the reliability of business performance.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The risk management programme is supported by the dedicated team of internal risk specialists, including the internal auditors, who make up group risk assurance (&#147;GRA&#148;). As part
of the management of risk process, GRA (in addition to following annual audit plans) undertake rolling three year schedules of risk workshops across our divisions. In 2005, members of GRA conducted seven risk workshops within this programme,
culminating in an assessment by the management committee of key business risks and a review of them by the board. These risk assessments are wide ranging, including risks arising from the regulatory environment in which tobacco companies operate, in
strategy, with counter-parties and in organisational change associated with major projects and with acquisitions.  The risk management process operates throughout the Group, being applied to the main business divisions and corporate functions.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The output from each annual assessment is a list of key strategic, financial, operational and compliance risks. Associated action plans and controls to mitigate them have been put in
place where possible and to the extent thought appropriate by the board taking account of costs and benefits. Individual members of our management committee are responsible for these action plans and controls. The identified key risks, changes in
their status or the composition of the risk matrix are reviewed regularly by the executive and management committees and quarterly by the board. Accordingly, during 2005, the list of key risks reviewed at each management committee meeting were
revised as new risks emerged or existing ones receded. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Internal controls </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The directors have overall responsibility for our system of internal control and for
reviewing its effectiveness. The board delegates to executive management the responsibility for designing, operating and monitoring both the system and the maintenance of effective internal control in each of the businesses which comprise the Group.
The systems of internal control are based on an ongoing process of identifying, evaluating and seeking to manage key risks and includes the risk management processes set out above. The systems of internal control were in place throughout the year
and up to the date of approval of the annual report and financial statements. The effectiveness of these systems has been regularly reviewed by the management committee and executive and was periodically reviewed by the audit committee and the
board, in accordance with the guidance in the Turnbull Report and the Internal Control Revised Guidance for Directors published by the Financial Reporting Council in October 2005. These systems are also refined as necessary, to meet changes in our
business and the associated risks. Joint venture arrangements with other companies and participations via shareholdings in other businesses, as is the case with some of our European wholesale operations, are outside our own formal control
procedures.  However, our exposure to them is assessed by line management (in most cases through representation on the boards of those operations) and formed part of the</FONT></P>
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<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">68</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B>
</P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">programme of reviews by GRA. Regular performance reports have been provided to our management committee, the executive and/or the audit committee or the board. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Control systems</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">  The main components of the organisation for internal control are summarised below. Their
foundation is in the considerable value that we place, throughout our activities, on seeking to ensure that employees are of the highest quality and integrity. Formal control is exercised through a management structure, which includes clear lines of
responsibility and documented delegations of authority from the board. The systems of internal control include a series of Group policies, operating and procedural manuals and processes, with which all relevant employees are expected to comply.
Processes underpinning the financial reporting systems are managed and monitored by line and functional management and regular reporting. Separately, the effectiveness of these internal controls is reviewed by an internal audit function that
operates on a global basis. It reports its results to the executive management team and directly to the audit committee. The work of the internal auditors is focused and prioritised upon the areas of perceived greatest risk to us as determined by
internal risk assessments, senior management and the audit committee. The internal controls system also takes into account the compliance requirement of the Proceeds of Crime Act 2002 and money laundering regulations.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Function of controls </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The systems of internal control are designed to manage rather than eliminate the risk
of failure to achieve business objectives. They can only provide reasonable and not absolute assurance against material errors, losses, fraud or breaches of laws and regulations. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Corporate assurance</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> To assist compliance with the requirements of the US Sarbanes-Oxley legislation
(&#147;SOX&#148;) which are applicable to foreign issuers and in furtherance of the principles of good corporate governance, we have a corporate assurance committee, which is chaired by the company secretary and general counsel.  That committee
(comprising senior executives at and below board level), amongst other matters, reviews proposed financial and trading statements and the assumptions, procedures and controls underpinning their preparation.  The chief executive and finance director
attend some of the committee meetings by invitation only. It reports the results of its review and recommendations to the chief executive, finance director, the audit committee and the board. In 2005, it met formally five times and is supported by
independent professional advisors in discharging its duties.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Processes underpinning the financial reporting systems have been reviewed in light of the requirements of SOX. The in-scope business units&#146; key financial controls have been
documented for the purposes of section 404 of SOX and these have been subjected to trial testing during 2005.  We continue to make progress to meet the required compliance standards. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Control of major risks </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The major risks that might hinder the achievement of our business objectives are
reported on, controlled and monitored in a variety of ways and in line with the revised internal control guidance published by the Financial Reporting Council in October 2005: </FONT></P>
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    <td width="3%">&nbsp;</td>
    <td width="3%">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">key strategic risks are addressed through our process of preparation of plans by each business unit and the</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">compilation of these risks in our strategic plan;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the process of preparing business operating and functional plans is supported by reviews of the key issues we</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">face and
the identification of material risks through the process of risk assessment workshops described</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">above. Major risks are reviewed at the appropriate level within the business and all
operating units are</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">involved in the risk assessment process. The review is ongoing and we have clear procedures for monitoring</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">and controlling the risks identified. Comparisons between the key risks and key issues are undertaken and</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">considered at the board&#146;s strategic two-day
workshop or by the board as special items of business, if</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">appropriate;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the executive committee monitors risk management, litigation risk and the insurance arrangements of the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Group, and
provides reports to the board;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the process of planning, budgeting and short-term forecasts ensures early warning of potential financial risks.</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There
is a comprehensive budgeting system for all items of expenditure with appropriate and pre-determined</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">authority limits, and with an annual budget approved by the board. Actual
results are reported against budget</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">on a monthly basis. Revised financial forecasts for the year are prepared regularly and financial projections</FONT> <FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">for future years are prepared, at least, twice yearly. Guidelines are also in place covering the sanctioning of</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">new
investments;</FONT></td>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">resources are committed to ensure adequate arrangements are in place relating to security and environment,</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">health and
safety matters;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the activities of the treasury function are carried out within policies approved by the board. Compliance with</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">these
policies is monitored by a treasury committee that is chaired by the finance director and includes one</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">other executive director (generally the chief executive), the company
secretary, and other relevant senior</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">executive management, such as the group financial controller, together with the head of GRA. Financing</FONT> <FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">arrangements and management of currency risks are also subject to regular review by the treasury committee</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and are approved by that
committee or the executive and are reported to the board. To assist in the</FONT></td>
  </tr>
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<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">69</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B>
</P>
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    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">management
        of our exposure to movements in interest and exchange rates the board
        has sanctioned the limited use of certain hedging instruments and receives
    regular reports on hedging activities and positions; and, </font></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td width="3%">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the internal audit team specifically, and GRA generally, follow a planned programme of reviews that are</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">aligned with
the risks existing in our business, and have the authority to review any relevant aspect of the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">business should the need arise.</FONT></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Annual review of risk management and internal control systems </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In addition to the regular reports received
by the audit committee and the board on internal controls and key risks and periodic reviews, the board has conducted an annual review of the effectiveness of the systems of risk management and internal control in operation during the year and up to
the date of the approval of the annual report and financial statements. Controls required to mitigate such risks and any significant control failings are reviewed by the board through operational reports from management. The board, through the audit
committee, also controls the review that is conducted by GRA.  Management of all the business divisions of the Group are required to complete and sign-off control self-assessment questionnaires that confirm that the key internal controls are in
place and being operated effectively.  Where weaknesses have been identified plans and timetables for putting them right are also reported. GRA monitors and selectively checks the results of this exercise, ensuring that the representations made are
consistent with the results of the internal audit function&#146;s work during the year. The results of this exercise are summarised for the audit committee and the board. In the event that any significant losses were incurred during any year as a
result of the failure of internal controls, then an analysis would form part of the reports to the audit committee and the board and a plan would be implemented to take the necessary action to remedy any significant weaknesses. In 2005, there were
no such losses and the board was satisfied with: </FONT></P>
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  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td width="3%">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the changes since the last annual assessment in the nature and extent of significant risks identified by</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">management;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">our ability to respond to changes in our business and the external environment to the extent that such changes</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">are
events that management can materially influence;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the scope and quality of management&#146;s ongoing monitoring of risks and of the system of internal control, and,</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">where applicable, the work of its internal audit function and other providers of assurance;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the extent and frequency of the communication of the results of the monitoring to the board (or board</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">committee(s))
which enables it to build up a cumulative assessment of the state of controls in the Company</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and the effectiveness with which risk is being managed; and,</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">our external reporting processes.</FONT></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Report of the audit committee </FONT></B><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle
  C.3: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;The
  board should establish formal and transparent arrangements for considering how
  they should apply the financial reporting and internal control principles and
  for maintaining an appropriate relationship with the company&#146;s auditors.&#148;</FONT></I></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Members </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The audit committee met five times in 2005. All members of the committee were present at each
meeting (other than Tony Portno, who was not present at the May meeting which marked his retirement from the board). The chairman of the audit committee provided a report on the work of the committee and any significant issues that may have arisen
at the board meeting following each committee meeting. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Attendees at meetings </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The chief executive and finance director of the Group and other senior management
attend committee meetings by invitation of the committee. Representatives of our external auditors and the head of GRA, which includes insurance and internal audit, also attend these meetings by invitation. In 2005, the external and internal
auditors attended all meetings, had direct access to the committee during the meetings and time was also set aside for them to have private discussions with the committee, in the absence of management.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit committee compliance with the code </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The audit committee&#146;s terms of reference (available on
request and published on our website) comply with the code. During 2005, the formal calendar of items (which were reviewed at each audit committee meeting and within each annual cycle) embraced the code requirements to: </FONT></P>
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    <td width="3%">&nbsp;</td>
    <td width="3%">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">monitor the integrity of our financial statements, and any formal announcements relating to our financial</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">performance,
including reviewing significant financial reporting judgements and any disclosures contained in</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">them;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">review our internal financial controls and our internal control and risk management systems and to make</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">recommendations to the board;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">monitor and review the effectiveness of our internal audit function;</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">make recommendations to the board, for it to put to the shareholders for their approval in general meeting, in</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">relation to the appointment, re-appointment and removal of the external auditors and to approve the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">remuneration and terms of engagement of the external
auditors;</FONT></td>
  </tr>
</table>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">70</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&nbsp;</td>
    <td width="3%">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">review and monitor the external auditors&#146; independence and objectivity and the effectiveness of the audit</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">process, taking into consideration relevant UK professional and regulatory requirements; and,</FONT></td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">review our policy on the engagement of the external auditors to supply non-audit services. In doing so,</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">account is
taken of relevant ethical guidance regarding the provision of non-audit services by the external</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">auditors and the pre-approval requirements of SOX (as a US listed company). In this
context, the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">committee&#146;s remit requires it to report to the board identifying any matters in respect of which it considers</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">that action or improvement is needed and to make recommendations as to the steps to be taken.</FONT></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit committee activities </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">An overview of the work undertaken by the audit committee during 2005 is
described within the following sections of this report. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The audit committee has a formal policy, endorsed by the board, to safeguard the independence and objectivity of the external auditors. The policy complies with UK and US regulatory
requirements. The audit committee determined that it was satisfied that the independence of the external auditors had been maintained, having taken into account the external auditors&#146; written representations and the committee&#146;s own
enquiries.  These were facilitated by a private meeting with the external auditors without executive management being present. The independence policy sets out certain disclosure requirements by the external auditors to the audit committee,
restrictions on mutual hiring of personnel, rules for rotation of audit partners and procedures for the approval of non-audit services provided by the external auditors. The audit committee has monitored the application of the policy both during
2005 and up to the date of this report. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The audit committee reviewed the external auditors&#146; audit scope, plans and materiality levels and the resources proposed to execute the plans. Having done so, the committee approved
the terms of engagement and the audit fees. The committee also reviewed the findings of the external auditors, their management letters on internal financial controls and audit representation letters.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The audit committee also assessed the qualifications, expertise and resources and independence of the external auditors and the effectiveness of the audit process. As part of that
process, the committee has appointed Independent Audit Limited to assist it in assessing the effectiveness of the 2005 audit. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the light of the assessments and review undertaken, the committee recommended to the board that PricewaterhouseCoopers LLP be retained as our auditors. This recommendation was endorsed
by the board and approved by shareholders in May 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The policy relating to the provision of non-audit services by the external auditors specifies the types of work from which the external auditors are excluded; for which the external
auditors can be engaged without referral to the audit committee; and, for which a case-by-case decision is required. The ratio of non-audit fees to audit fees was monitored by the committee within an overall limit set by the board upon the
recommendation of the audit committee. In doing so, the committee took account of the work performed by other accounting firms and reviewed the level of fees paid to those firms. The audit committee is satisfied that this policy was applied in 2005
and up to the date of this report. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A statement of fees for services from the external auditors in relation to 2005 is set out below:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005 &#163; million</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004 &#163; million</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit services</FONT></TD>
	<TD width=10% align=right><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.4</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.3</FONT></TD>
    <TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit related fees</FONT></TD>
	<TD align=right>
 <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.5</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.9</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax services</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
 &nbsp; &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">compliance services</FONT></TD>
	<TD align=right>
 <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
 &nbsp; &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">advisory services</FONT></TD>
	<TD align=right>
 <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.8</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.6</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other services</FONT></TD>
	<TD align=right>
 <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
 <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.8</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.0</FONT>
	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All non-audit services were pre-approved by the audit committee by category or on a case-by-case basis, as appropriate, depending upon the nature of the service and the circumstances.
Audit related fees primarily related to factual due diligence work undertaken in respect of actual and possible acquisitions. Tax services comprised compliance services and technical advice associated with relevant UK and international fiscal laws
and regulations and, in particular, in the context of assessing the potential implications of proposed corporate transactions or restructuring.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">71</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Having undertaken a review of the nature and amount of non-audit related work, the audit committee has satisfied itself that the services undertaken during 2005 did not prejudice the
auditors&#146; independence. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The audit committee met prior to the board meetings at which the interim financial statements and the annual report and financial statements were approved. The committee reviewed
significant accounting policies, financial reporting issues and judgements and, in conducting this review, considered reports from the external auditors, financial management and internal audit. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At each of its meetings, the committee reviewed and considered reports from the head of GRA. Those reports include the status of our risk management systems, findings from the internal
audit function concerning internal controls and reports on the status of the correction of any weaknesses in internal controls identified by the internal and the external auditors. The committee also received reports from our brand protection and
security unit, amongst other matters, on the steps being taken to combat illicit trade in our products. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The audit committee also reviewed and approved the remit, organisation, plans and resources of our internal audit function. The committee carried out a review of the effectiveness of the
internal audit function and met the head of that function without management being present. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Speaking
  up </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;The
  audit committee reviews annually the arrangements by which our employees may,
  in confidence, raise concerns about possible improprieties in matters of financial
  reporting or other respects, under the Group&#146;s &#145;Talk Openly&#146;
  policy. The &#145;Talk Openly&#146; team is led by the company secretary, in
  his capacity as the Group&#146;s general counsel. The audit committee is satisfied
  that these arrangements allow for appropriate independent investigations of
  any such matters and suitable follow up actions. (For further detail, see our
  corporate responsibility report which is available on request and is published
  on our website.) </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Communication with investors <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle D.1: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;There
should be a dialogue with shareholders based on the mutual understanding of objectives.
The board as a whole has responsibility for ensuring that a satisfactory dialogue
with shareholders takes place.&#148;</FONT></I></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Introduction
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;We
  believe it is important to explain business developments and financial results
  to our shareholders and to understand any shareholder concerns.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We communicate to our shareholders through news releases (including results&#146; announcements), publications and our website (see below &#145;Access to information&#146;). During 2005,
our representatives also met with shareholders representing some 48% of the issued share capital of the Group. Responses were also given to letters and e-mails received from shareholders on a variety of subjects. In all such communications, care is
taken to ensure that no price sensitive inside information is released.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The chief executive and finance director have lead responsibility for investor relations.  They are supported by a dedicated investor relations department that, among other matters,
organises presentations for analysts and institutional investors. There is a full programme of regular dialogue with major institutional shareholders, fund managers, analysts, retail brokers and credit investors, upon which the chairman ensures that
the board receives regular updates at board meetings. In 2005, we commissioned our bi-annual comprehensive non-attributable perception audit which included interviews with 29 institutional investors (accounting for some 30% of our shares) and 11
sell-side analysts. This provided detailed feedback on the investment community&#146;s views of the Company. Our senior executives also meet annually with major shareholding institutions to enable them to ask questions relating to topics that are
not price sensitive. The board also receives periodic reports on investors&#146; views of our performance. All the non-executive directors and, in particular, the chairman and senior independent director, are available to meet with major
shareholders, if such meetings are so required. Further financial and business information is available on the investor relations&#146; section of our website. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Annual general meeting <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code main principle D.2: </FONT><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#147;The
board should use the AGM to communicate with investors and to encourage their
participation.&#148;</FONT></I></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We also communicate with shareholders through the AGM, at which the chairman gives an account of the progress of the business over the last year, a review of current issues and provides
the opportunity for shareholders to ask questions. Such addresses are published on our website and released to the stock exchanges upon which we are listed and to the media. The senior independent director (who chairs the remuneration committee),
together with the chairman of the audit committee and the other members of the board attend the AGM and so are on hand to answer questions raised by shareholders. </FONT></P>
<P align="center">
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<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B> </P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We count all proxy votes and indicates the level of proxies lodged on each resolution. We also publish the level of votes for and against resolutions and the number of abstentions. We
ensure that votes cast are properly received and recorded. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Separate resolutions are proposed on each substantially discrete subject and we do propose a resolution at the AGM relating to the report and accounts. Notices of the AGM and related
papers are sent to shareholders at least 21 working days before such meetings.</FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Access to
  information&nbsp; </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Electronic
  communication has fast become the principal medium for shareholders, providing
  ready access to shareholder information and reports, and for voting purposes.
  Recognising this, annual reviews, annual reports and financial statements, Form
  20-F filings and interim reports are published on our website. Briefings on
  results are given at tele-conferences and at presentations, and the results
  are also accessible to shareholders via the website. All shareholders are automatically
  provided with copies of annual reviews and interim reports, amongst our other
  things, (unless they have requested that they are simply notified of the publication,
  so that they can view them on our website). They can also receive full annual
  reports and Form 20-F filings upon request. Other information which shareholders
  and third parties are entitled to access is made available in accordance with
  legislative and regulatory requirements. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension funds <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our
two main defined benefit UK pension funds are controlled by a corporate trustee,
Gallaher Pensions Limited, the board of which comprises five nominees from Gallaher
Limited and three employee members elected by all members whether active, deferred
or pensioners. The pension funds&#146; assets are held separately from those
of the Group and can only be used in accordance with the rules of the schemes.
In 2003, the defined benefit schemes were closed to new employees and a defined
contribution scheme was established for new employees. There is a defined benefit
pension scheme in place for employees of the Irish subsidiary, operated upon
the same lines as the UK schemes. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have additional pension schemes, principally in Austria, Germany and Sweden. The assets of these schemes are administered and maintained by pension scheme syndicates functioning in
accordance with the legal requirements of those countries. There are also a number of defined contribution schemes in place for employees in other parts of the world.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">New York Stock Exchange corporate governance requirements<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As a listed non-US issuer, we are only required to comply with some of the NYSE Corporate Governance Rules. Otherwise, we must disclose any significant ways in which our corporate
governance practices differ from those followed by US companies under the NYSE listing standards. We believe that our corporate governance practices do not differ in any significant ways from those followed by US companies under the NYSE corporate
governance standards, except that the nomination committee is not composed entirely of independent directors (given the code provision that deems the chairman of the Group to be non-independent following appointment). Two members of the audit
committee sat on the audit committees of more than three publicly quoted companies. Furthermore, the audit committee (which is composed entirely of independent directors) develops and recommends certain corporate governance principles related to the
scope of its activities to the board. The board nevertheless maintains the lead in the area of corporate governance. It should also be noted that the internal audit team is incorporated within the independent GRA function. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Compliance with the provisions contained within the combined code<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Throughout
the year we were in compliance with the provisions of the code with one partial
exception relating to notice periods for executive directors which was addressed
in 2003. With the exception of Stewart Hainsworth (who, upon appointment to the
board in October 2004, received a service contract with a one year notice period
in all circumstances), until December 2005 the other executive directors&#146; service
contracts contained an additional provision relating to the notice period during
the two years following a change of control of the Company. That entitlement
was removed in December 2005 without compensation. For further details see the
2004 annual report
and financial statements. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Corporate governance rating<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
terms of corporate governance ratings, we have been advised by GovernanceMetrics
International that the Group&#146;s rating is within the top 10% of companies
globally. </FONT></P>
<p><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Corporate Responsibility</FONT></U></B></p>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Commitment
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;We
  regard corporate responsibility as integral to how we conducts our business.
  We are committed to being a good corporate citizen and behaving responsibly
  with a demonstrated transparency of approach.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">73</FONT></P>

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<P align="center"><font size="5" face="TimesNewRoman,Times New Roman,Times,serif">
  <B>GALLAHER GROUP Plc</B></font></P>
<P align="center"><font size="4" face="TimesNewRoman,Times New Roman,Times,serif">
  <B>Form 20-F 2005</B></font></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CR committee
  of the board </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;During
  2005, Ronnie Bell, a non-executive director, was appointed chairman of the CR
  committee of the board. In recognition of our growth in developing markets,
  Richard Johnson, managing director, developing markets, also joined the committee.
  Other members include the group operations director and the company secretary
  and general counsel. The committee is charged with ensuring that significant
  social, ethical and environmental (&#147;SEE&#148;) risks are identified, assessed
  and prioritised appropriately. It also monitors the integration of our CR agenda
  into all areas of the business and looks for evidence that we are striving for
  continual improvement in SEE performance. It exercises strategic oversight over
  both our Group CR committee and our EHS committee. It submits a formal report
  to the board each year.</FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Group CR
  committee and Group EHS committee </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;These
  operational committees are focused on both setting CR and EHS improvement targets
  against established objectives and monitoring progress to ensure they are achieved.
  Our system for managing CR and EHS matters follows established &#145;plan, do,
  check, act&#146; principles, with a focus on continual improvement, as encouraged
  by internationally recognised standards. We are committed to ensuring our operations
  are carried out with proper respect for the environment and in a manner that
  secures the health and safety at work of its employees. Our policies on CR and
  EHS and further information is published on our website (www.gallaher-group.com).
  </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Communication
  and reporting of performance&nbsp; </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">To
  demonstrate the importance that we attach to CR, we publish annual reports for
  both CR and EHS on our website. During 2005, we published our second CR review.
  This examines our activities in 2004, providing an update on performance against
  last year&#146;s targets and outlining new performance indicators for the future.
  We also published our fourth EHS report and statistics (&#145;Striding Ahead&#146;)
  during the year.</FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Communication</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  </FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">with
  employees </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;To
  promote internal communication and raise the profile of both CR and EHS within
  the business, both the CR review and &#145;Striding Ahead&#146; are published
  on our intranet. The intranet also provides an efficient and effective method
  for communicating our CR principles, practices and performance to employees.
  Additionally, use is made of employee surveys, publications, inductions, newsletters
  and briefings.</FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance
  benchmarking</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;
  We recognise the importance of internal and external benchmarking of our CR
  activities. We continue to participate in the Business in the Community (&#147;BITC&#148;)
  Corporate Responsibility Index and the BITC Environment Index. These seek to
  measure the CR and environmental performance of FTSE companies and other organisations.
  In the CR Index published in March 2005 (addresses 2004 performance), we scored
  81% (previous year: 79.2%) and were ranked 69</FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">th</FONT></SUP><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif"> in the &#145;Top 100 Companies
  that Count&#146; (2004: 84</FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">th</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">). In the Ninth Environment Index, our score increased to 84.62%
  (previous year: 76.73%), demonstrating significant progress along the &#145;continual
  improvement&#146; path. We were placed 68</FONT><SUP><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">th</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  out of 168 (previous year: 113</FONT><SUP><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">th</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  out of 176) in the overall ranking of participants. In the interests of transparency,
  we have published on our website the &#145;confidential feedback reports&#146;
  as received from BITC for both indices.</FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Environmental
  performance indicators</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  &nbsp;We pay particular attention to energy consumption, water consumption,
  greenhouse gas emissions, waste generation and reducing the proportion of its
  wastes which are disposed of to landfill, all being aspects where improvements
  offer commercial as well as environmental benefits. Group-wide performance indicators
  are collated by our Group EHS department and published on the intranet. Quantitative
  and qualitative performance is reported each year in the Group EHS report and
  statistics, published on our website. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accidental
  injury statistics</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  &nbsp;Detailed Group-wide accidental injury statistics are collated by the Group
  EHS department and published on the intranet. Typically, the two most common
  categories of accidental injury in our manufacturing facilities comprise &#145;injured
  while handling, lifting and carrying&#146; and &#145;slips, trips and falls&#146;.
  An analysis of accidental injury performance and trends Group-wide is reported
  in the annual Group EHS report and statistics. During September 2005, the Health
  and Safety Executive published the third in a series of research studies investigating
  the level and quality of health and safety information made publicly available
  by the UK's top companies, Government departments and agencies, NHS Trusts and
  local authorities. The researchers looked at 288 of the UK's top companies,
  scoring each out of a maximum 11 points. With a score of 10, we were one of
  just 12 of the 288 which scored 10 or 11. The tobacco sector was top of the
  35 industry sectors for "quality of health and safety reporting", with a score
  of 8.7 out of a maximum 11. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Community
  giving&nbsp; </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
  2005, our total contribution to community projects totalled &#163;814,236. Details
  of our approach are described in the CR review. As a matter of policy, we do
  not make political donations. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assurance</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  &nbsp;We recognise that our external stakeholders are nowadays looking for independent
  assurance or verification that CR and EHS reports have been properly prepared.
  To this end, the internal audit function within our risk assurance department
  has been involved in auditing the content of both the CR report and the EHS
  report and statistics. Their assurance statements are included in those publications.</FONT></P>
<P align="center">
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<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p75"></a>D</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"></font></b><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employees</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2005, the average number of persons employed by the Group were 11,100, of which 1,761 were employed in the UK, 3,378 employed in our Europe division, 5,162 were employed in the CIS and
799 were employed in the ROW. In 2004, the average number of persons employed were 11,172, of which 1,836 were employed in the UK, 3,597 employed in our Europe division, 5,026 were employed in the CIS and 713 were employed in the ROW.</FONT></p>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We consider
  relations with our employees to be good. Approximately 80% of our employees
  in the UK are members of trade unions including the Amalgamated Transport and
  General Workers Union and AMICUS. In Gallaher Dublin the majority of our employees
  are members of trade unions including the Services Industrial Professional Technical
  Union (SIPTU) and AMICUS.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In Europe trade unions representation varies due to different legal and cultural backgrounds. The highest levels of representation are in Austria, Germany and France.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the CIS relations with employees are generally good. Representation through trade unions varies due to different jurisdictions, historical and legal backgrounds, with highest levels of
representation in Russia and the Ukraine. In Kazakhstan establishment of a trade union relationship is in development. </FONT></P>
<P align="center">
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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p76"></a>E</font></b> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"></font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share
    Ownership</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><u>Directors&#146;
  interests in shares</u></FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our register kept pursuant to section 325 of the Companies Act 1985 shows that our directors in office at 31 March 2006 and their families had interests in our ordinary shares as detailed
in Item 6B (Compensation). No interests were held in any other Group company. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">For details of share ownership under the Savings Related Share Option scheme see Item 6 &#147;Directors, Senior Management and Employees &#150; Compensation &#150; Savings related option
scheme&#148;.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">For a full description of our Savings Related Share Option Scheme, and details of the options over ordinary shares that had been granted and were outstanding at 31 December 2005, please
refer to note 24 (of the consolidated financial statements). </FONT></P>
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<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"><b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">
  Form 20-F 2005</font></b></p>
<p align="left"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p77"></a>ITEM
  7</font></b>&nbsp;&nbsp;&nbsp;<b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">MAJOR
  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS</font></b></p>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p77a"></a>A</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Major
    shareholders</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As
  far as is known to our management, we are not directly or indirectly owned or
  controlled by another corporation or by any government. The Bank of New York,
  the depositary in respect of the ADSs, as a nominee, is the record owner of
approximately 25.2% of our issued share capital as at 31 March 2006. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following shareholders notified us that they held the following interests in our share capital as at the dates shown: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR align="center" valign="bottom">
  <TD colspan="2" style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="5" style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">31
    March 2006</font> </TD>
  <TD colspan="5" style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">31
    March 2005</font> </TD>
  <TD colspan="5" style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">19
    March 2004</font> </TD>
  <TD rowspan="7" style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="5" style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="5" style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="5" style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  </TR>
<TR valign="bottom">
  <TD rowspan="5" style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD rowspan="5" style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number</FONT></TD>
	<TD rowspan="5" align=right ><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Percentage of</FONT>
	</TD>
	<TD rowspan="5" align="right"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD rowspan="5" align="right" style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number</FONT></TD>
	<TD rowspan="5" align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Percentage of</FONT>
	</TD>
	<TD rowspan="5" align="right"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD rowspan="5" align="right" style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number</FONT></TD>
	<TD rowspan="5" align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</font></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Percentage</FONT>
	</TD>
    <TD rowspan="5"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">issued share</FONT>
	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">issued share</FONT>
	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of issued</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ordinary</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">capital</FONT>
	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ordinary</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">capital</FONT>
	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ordinary</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">share</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">shares</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">shares</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">shares</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">capital</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">millions</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">millions</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">millions</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font> </TD>
</TR>
<TR valign="bottom">
  <TD width="2%" align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Capital Group</FONT></TD>
	<TD width=1% align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22.7</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=11% align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.46</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD width=1% align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33.0</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=11% align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.10</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD width=1% align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31.0</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=11% align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.80</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
    <TD width=2% align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>
 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Companies, Inc</FONT></TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left ><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black">    <hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Legal and General</FONT></TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19.7</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.02</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.02</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.02</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
    <TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
</TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UBS AG</FONT></TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">66.4</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10.13</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">66.4</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10.13</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">N/a</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">N/a</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Barclays</FONT></TD>
	<TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26.4</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.01</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">N/a</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Below
      3</FONT> </TD>
	<TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>
    </TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">N/a</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Below 3</FONT>
	</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>

	</TD>
    <TD align=right style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="17" align=left style="border-top:solid 1pt;border-top-color:black">&nbsp;</TD>
  <TD align=left >&nbsp;</TD>
</TR>
</TABLE>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Each of our ordinary
  shares carries equal voting rights.</FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We do not know of any arrangements the operation of which may result in a change in control of the Company. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The total of
  the ordinary shares held by, or for the benefit of, our directors and officers
  and their families, as a group, as at 31 March 2006 was 0.8 million shares.
  This amounted to approximately 0.1% of our issued share capital. Please see
  &#147;Item 6B.of this Annual Report for more details of our directors&#146;
  interests in our shares. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p77b"></a>B</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Related
    party transactions</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During the year, the Group purchased tobacco and non-tobacco products and services from its associate, Lekkerland GmbH &amp; Co KG, to the value of &#163;16m (2004: &#163;15m). At 31
December 2005, there was no balance outstanding in respect of these transactions (2004: nil).</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During the year, Lekkerland GmbH &amp; Co KG purchased tobacco and non-tobacco products and services from the Group to the value of &#163;36m (2004: &#163;31m). At 31 December 2005, the
balance outstanding in respect of these transactions was &#163;1m (2004: &#163;1m). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During the year, the Group sold tobacco and non-tobacco products and services to its associate, Hungarotabak-Tobaccoland Rt, to the value of &#163;2m (2004: &#163;1m). At 31 December
2005, the balance outstanding in respect of these transactions was &#163;1m (2004: nil).</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During the year, the Group purchased tobacco products and non-tobacco products and services from its joint venture, R.J. Reynolds-Gallaher International SARL to the value of &#163;39m
(2004: &#163;47m). At 31 December 2005, the balance outstanding in respect of these transactions was &#163;16m (2004: &#163;14m). The Group also sold tobacco and non-tobacco products and services to the joint venture amounting to &#163;30m (2004:
&#163;53m). At 31 December 2005, the balance outstanding in respect of these transactions was &#163;2m (2004: &#163;9m). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During the year, the Group sold non-tobacco products to its joint venture, Gallaher Reynolds Equipment Company amounting to &#163;0.1m (2004: &#163;3m) At 31 December 2005, the balance
outstanding in respect of these transactions was &#163;0.1m (2004: nil).  The Group also purchased non-tobacco products from it&#146;s joint venture, Gallaher Reynolds Equipment Company amounting to &#163;0.5m (2004: nil). At 31 December 2005, there
was no balance outstanding in respect of these transactions (2004: nil). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other than the transactions disclosed above, to the best knowledge of our management, there have been no transactions, nor are there any proposed transactions, with related parties that
are material to ourselves or to a related party. Except for the employment arrangements referred to under &#147;Item 6B. Compensation of Directors, Senior Management and</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employees&#148;,
  neither we nor any of our subsidiaries have been a party during the last fiscal
  year to any material transaction, or proposed transaction, in which any of our
  directors or officers, or any relative or spouse of such person, or any relative
  of any such spouse, has a direct or indirect material interest. None of our
  directors or officers, nor any associate of our directors or officers, is indebted
  to us or to any of our subsidiaries. </FONT></P>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p78"></a>C</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interests
          of
experts and counsel</font></b></td>
  </tr>
</table>
<p>  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section is not applicable. </FONT></p>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">78</FONT></P>

<hr noshade align="center" width="100%" size="2">

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"><b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">
  Form 20-F 2005</font></b></p>
<p align="left"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p79"></a>ITEM
  8</font></b> &nbsp;&nbsp;&nbsp;<b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">FINANCIAL
  INFORMATION</font></b></p>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p79a"></a>A</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated
    Statements and Other Financial Information</font></b></td>
  </tr>
</table>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Please refer
    to &#147;Item 17. Financial Statements&#148; on which are listed the financial
    statements and notes to financial statements appended as pages F-01 to F-66
    to this Annual Report. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividend Distributions</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our board recommends a final dividend for 2005 of 22.9p per ordinary share. Subject to approval at the Gallaher AGM on 10 May the dividend will be paid on 23 May 2006. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We expect, subject to shareholders&#146; approval where necessary, to continue to pay dividends. However, the payment of any future dividends will depend upon our earnings and financial
conditions and such other factors as our board deems relevant.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividend payments to ADS holders are made in US dollars by the ADR Depositary Bank.  Payment of the final dividend for the year ended 31 December 2005 will be forwarded on 30 May 2006 to
holders of record on 17 March 2006 converted at the &#163;/US&#36; exchange rate on 23 May 2005.</FONT></P>
<p><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Litigation</FONT></U></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The only jurisdiction in which we are currently defendants to actions where plaintiffs are seeking damages for ailments claimed to have resulted from tobacco use or exposure to tobacco
smoke is in the Republic of Ireland. As at 24 February 2006, 163 claims have been dismissed or abandoned since 1997. Currently, there are eight individual claims against our subsidiaries.  Statements of claim have been delivered making wide-ranging
allegations against our subsidiaries and other tobacco companies, and against the Republic of Ireland, the attorney general and the minister for health and children, who are also named as defendants in some of those cases. Each of these claims is
subject to a procedural application or challenge by us. No defence will be delivered by us pending the conclusion of all of these procedural matters. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are not a party to smoking and health litigation anywhere else in the world and there has been no recovery of damages against any of our companies in any action alleging that our
tobacco products have resulted in human illness. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">On 4 March 2005, we terminated the distribution contract of a Middle Eastern distributor and commenced proceedings on the same date in the English High Court, seeking a declaration that
the contract had been validly terminated for numerous material breaches. On this basis there was no compensation payable in respect of the termination. By its defence and counterclaim served on 1 July 2005, the distributor asserted that the
termination was unlawful and claimed significant, but wholly un-particularised losses. In an amended claim received on 24 February 2006, the distributor set out some details of its alleged losses, of around &#36;500m, which primarily relate to
hypothetical future profits. We believe these claims to be without substance, and will vigorously contest them through the court process. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liggett-Ducat continues to be involved in court processes relating to payments allegedly due for unpaid taxes, penalties and fines claimed by the Russian tax authorities. Based upon the
facts and matters currently known, management considers that there are meritorious defences against these claims. They will be vigorously defended. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">It is not possible to predict the outcome of pending litigation or the regulatory matters referred to in Item 4 part B of this Annual Report that are subject to investigation or court
actions. We believe that there are meritorious defences to these actions and claims and that the pending actions will not have a material adverse effect upon the results of our operations, our cash flow or our financial condition. These pending
actions and any prospective &#145;smoking and health&#146; claims will continue to be robustly contested. There can, however, be no assurance that favourable decisions will be achieved in the proceedings and actions involving us, that additional
proceedings will not be commenced in the UK or elsewhere against our companies, that those companies will not incur damages, or that, if incurred, such damages will not have a material impact on our operating performance or financial condition.
Regardless of the outcome of the pending litigation, the costs of defending these actions and claims could be substantial and will not be fully recoverable from the plaintiffs, irrespective of whether or not they are successful. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Costs incurred to litigate claims related to tobacco use and exposure to tobacco smoke were less than 2% of our total administrative expenses in each of the years 2001 - 2005 and have
neither historically nor in the current fiscal year had a material impact on our results of operations. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">79</FONT></P>

<hr noshade align="center" width="100%" size="2">
<div style="page-break-before:always"></div>
<page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
      20-F 2005</FONT></B></P>
<P> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Export Sales</FONT></U></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Please see note
  2 to the financial statements included in this Annual Report to review the significance
  of export sales to our business.</FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p80"></a>B</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Significant
    Changes </font></b></td>
  </tr>
</table>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Since 31 December
  2005, there have been no significant changes to our operations, financial position
  or company structure. Details of other changes since 31 December 2005 are detailed
  in note 35 to the consolidated financial statements.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">80</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p81"></a>ITEM
  9 &nbsp; &nbsp; &nbsp; THE OFFER AND LISTING</font></b></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p81a"></a>A</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Offer
    and Listing Details</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The principal trading market for our ordinary shares is the London Stock Exchange (trading symbol &#147;GLH&#148;), where they were first listed on 30 May 1997. Our ordinary shares have a
nominal value of 10p each. Our ADSs, each representing four of our ordinary shares, are listed on the New York Stock Exchange (trading symbol &#147;GLH&#148;). The ADSs are evidenced by ADRs issued by The Bank of New York, as depositary, pursuant to
a Deposit Agreement, as amended and restated as at 8 May 1997.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following table shows, for the calendar quarters indicated:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="3%" valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The reported high and low middle market quotations, which represent an average of closing bid and asked prices, for our ordinary shares on the London Stock Exchange, as derived from its
Daily Official List, and</FONT></TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The highest and lowest sales prices of the ADSs as reported on the New York Stock Exchange composite tape.</FONT></TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR></TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="3" align=left>&nbsp; </TD>
    <TD rowspan="5" align=center>&nbsp;</TD>
    <TD colspan=3 align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pence
      per</font></TD>
    <TD rowspan="5" align=center>&nbsp;</TD>
    <TD colspan="3" align=center>&nbsp;</TD>
    <TD rowspan="5" align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD colspan=3 align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ordinary
      Share</font></TD>
    <TD colspan="3" align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#36;
      per ADS</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="3" align=right><hr size="1" noshade></TD>
    <TD colspan="3" align=right><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year
      ended 31 December</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">High</FONT></TD>
    <TD rowspan="2" align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Low</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">High</FONT></TD>
    <TD rowspan="2" align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Low</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><hr align="left" width="150" size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2001</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">First
      Quarter</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">477.00</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">365.00</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27.62</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.88</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Second
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">463.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">430.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26.99</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23.67</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Third
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">495.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">433.75</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28.53</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24.29</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fourth
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">475.25</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">426.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27.93</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24.02</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2002</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">First
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">540.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">444.75</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30.86</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Second
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">595.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">540.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34.36</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30.95</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Third
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">712.15</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">526.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44.05</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fourth
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">705.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">566.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44.52</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34.45</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2003</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">First
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">634.08</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">543.68</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40.79</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35.15</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Second
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">625.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">570.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40.68</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.74</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Third
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">599.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">545.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40.29</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34.45</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fourth
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">610.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">554.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42.68</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.84</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">First
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">697.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">587.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42.60</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Second
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">711.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">632.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Third
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">683.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">630.60</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50.80</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44.60</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fourth
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">798.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">646.80</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62.20</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">46.20</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">First
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">861.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">746.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">64.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Second
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">865.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">755.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Third
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">898.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">790.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">64.20</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fourth
      Quarter</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">913.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">838.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.40</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Last
      six months</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October
      2005</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">891.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">838.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">November
      2005</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">913.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">866.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.40</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">December
      2005</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">902.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">854.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.20</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">59.90</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">January
      2006</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">889.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">835.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">59.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">February
      2006</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">920.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">859.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">64.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60.80</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March
      2006</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">925.50</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">834.00</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.70</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57.60</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During 2005 we issued 0.9 million ordinary shares in respect of share option schemes. As at 31 March 2006, we had 656.0 million ordinary shares in issue. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">81</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B> </P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As at 31 March 2006, 41.3 million ADSs equivalent to 165.2 million of our ordinary shares, or approximately 25.2% of the total ordinary shares in issue, were outstanding and were held by
16,250 holders. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As at 31 March
  2006, there were a total of 4,777 record holders of our ordinary shares. Of
  these record holders, four had a registered address in the United States and
  held a total of 44,484 ordinary shares, less than 0.0068% of the total issued.
  Since some of our ordinary shares and ADS&#146;s are registered in the names
  of nominees, the number of shareholders of record may not be representative
  of the number of beneficial owners. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p82"></a>B</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Plan
    of Distribution</font></b></td>
  </tr>
</table>
<p> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section
  is not applicable.</FONT></p>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p82a"></a>C</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Markets</font></b></td>
  </tr>
</table>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Please see &#147;Item
  9A. Offer and Listing Details&#148; above for information regarding the markets
  in which our securities are traded.</FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p82b"></a>D</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Selling
    Shareholders</font></b></td>
  </tr>
</table>
<p> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section
  is not applicable.</FONT></p>
<b></b>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p82c"></a>E</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Dilution</font></b></td>
  </tr>
</table>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section
is not applicable.</font></p>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p82d"></a>F</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expenses
          of
the Issue</font></b></td>
  </tr>
</table>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section
is not applicable.</FONT></P>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</font></b></p>
<p align="center"> <b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</font></b></p>
<p align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p83"></a>ITEM
  10</font></b><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;ADDITIONAL
  INFORMATION</font></b></p>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p83a"></a>A</font></b><b></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share
    Capital</font></b></td>
  </tr>
</table>
<p align="left"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
  section is not applicable.</font></p>
<b></b>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p83b"></a>B</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memorandum
    and Articles of Association</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following discussion summarises certain provisions of Gallaher&#146;s Memorandum and Articles of Association (&#147;the Articles&#148;) and relevant applicable English law. It is a
summary only and is qualified in its entirety by reference to the Companies Act 1985 of England and Wales, as amended (the &#147;Companies Act&#148;) and by the Articles.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During 2004 we undertook a review of the Articles, which were adopted following our demerger in 1997.  The principal purpose of the exercise was to update and simplify them.  The proposed
Articles were approved by the shareholders at the AGM in May 2005. The revised Articles of Association are filed as an exhibit to this report.</FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Objects</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher is a public limited company incorporated under the name Gallaher Group Plc, registered in England under registered number 3299793. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The object for which Gallaher is established is to carry on business as a general commercial company. Accordingly, generally speaking, it can carry on any trade or business whatsoever and
Gallaher has the power to do all such things as are incidental or conducive to the carrying on of any trade or business by it. A full description of Gallaher&#146;s objects is set out in Section 4 of its Memorandum. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Director Interests</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A director must declare any direct or indirect interest in any transaction with Gallaher at the meeting of the board of directors (the &#147;Board&#148;) at which the question of entering
into the transaction is first considered or, if the director did not at the date of that meeting know his interest existed in the transaction, at the first meeting of the Board after he knows that he is or has become so interested. A director shall
not vote (nor be counted in the quorum) on any resolution of the Board in respect of any transaction in which he has an interest which (together with any interest of any person connected with him) is to his knowledge a material interest, and if he
shall do so, his vote shall not be counted. In the absence of some other material interest, this restriction on voting does not apply to the following situations: </FONT></P>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr align="left" valign="top">
    <td width="3%">&nbsp;</td>
    <td width="3%">&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the giving
      of any guarantee, security or indemnity in respect of money lent or obligations
      undertaken at the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">request
      or for the benefit of Gallaher;</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the giving
      by Gallaher or any subsidiary of any guarantee, security or indemnity to
      a third party in respect of</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a
      debt or obligation of Gallaher or any subsidiary in respect of which the
      director has also given an</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">indemnity,
      guarantee or security;</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">an offer
      of shares or debentures or other securities by Gallaher or any subsidiary
      in which the director may be</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">able
      to participate as a holder of securities or in the underwriting or sub-underwriting
      of which the director is</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">to
      participate;</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">any transaction
      concerning any other company in which a director does not own one percent
      or more of the</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">shares
      in which he is interested directly or indirectly as an officer, shareholder,
      creditor or otherwise;</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">any insurance
      which Gallaher is empowered to purchase and or maintain for the benefit
      of any directors of</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher;
      and</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">any arrangement
      for the benefit of employees of Gallaher or any subsidiary which does not
      award any</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">director
      any privilege or benefit not generally awarded to the employees to whom
      such arrangement relates.</FONT></td>
  </tr>
  <tr align="left" valign="top">
    <td>&nbsp;</td>
    <td>&#8226;</td>
    <td> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Remuneration
      of Gallaher&#146;s non-executive directors is determined in accordance with
      the limits set out in the</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Articles, as such limits may be increased from time to time
      by ordinary resolution of the members.</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Remuneration
      of Gallaher&#146;s executive directors is determined by its Remuneration
      Committee.</FONT></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A director shall not vote or be counted in the quorum on any resolution of the Board concerning his own appointment as the holder of any office or place of profit with Gallaher or any
other company in which Gallaher is interested (including the arrangement or variation of the terms thereof, or the termination thereof). </FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">83</FONT></P>

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<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B> </P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B> </P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Borrowing
  Powers</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Board may exercise all the powers of Gallaher to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled
capital of Gallaher and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of Gallaher or of any third party. The Board shall restrict the borrowings of Gallaher and exercise
all voting and other rights or powers of control exercisable by Gallaher in relation to its subsidiary undertakings (if any) so that (but as regards subsidiary undertakings only insofar as by the exercise of such rights or powers of control the
Board can secure) the aggregate principal amount from time to time outstanding of all borrowings by the Group (exclusive of certain intra-group borrowings) does not, without the previous sanction of an ordinary resolution of Gallaher, at any time
exceed an amount equal to the greater of &#163;3.5 billion or two times Adjusted Capital and Reserves (as defined in Article 113.2 (B)(1)). </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Age Limit
  Requirements</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Any director attaining the age of 70 must retire at the next annual general meeting. Under the Companies Act, if, at a general meeting, a director who is 70 or more years is proposed for
election or re-election, that director&#146;s age must be set out in the notice of the meeting. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shareholding
  for Director Qualification</FONT></U></p>
<p> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">No shareholding
  qualification for directors is required.</FONT></p>
<p> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rights Attaching
  to Shares</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The issued share capital of Gallaher at the date hereof comprises ordinary shares only. The rights attaching to those ordinary shares include the following: </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher may by ordinary resolution from time to time declare dividends to be paid to the members according to their rights and interests in the profits available for distribution. No
dividend shall be declared in excess of the amount recommended by the Board. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher may, upon the recommendation of the Board, by ordinary resolution direct payment of a dividend in whole or in part by the distribution of specific assets (and in particular of
paid up shares or debentures of any other company) and the Board shall give effect to such resolution. The Board may, with the sanction of an ordinary resolution of Gallaher and subject to such conditions as the Board may determine, in respect of
any dividend declared or paid during such period as may be specified in that ordinary resolution, offer members the right to elect to receive shares, credited as fully paid, in whole or in part, instead of cash. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The payment by the Board of any unclaimed dividend or other moneys payable on or in respect of a share into a separate account shall not constitute Gallaher a trustee in respect thereof
and any dividend unclaimed after a period of 12 years from the date such dividend was declared or became due for payment shall be forfeited and shall revert to Gallaher. </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Voting</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Every member who is present in person (which expression shall include a person present as the duly authorised representative of a corporate member acting in that capacity) at a general
meeting of Gallaher shall have one vote and on a poll every member who is present in person or by proxy shall have one vote for every share of which he is the holder. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint
holders and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding. </FONT></P>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Members do not
  have cumulative voting rights.</FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The directors of Gallaher stand for re-election at staggered intervals. At each annual general meeting approximately one-third of the directors must retire from office by rotation.
</FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">84</FONT></P>

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<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B> </P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
  20-F 2005</FONT></B> </P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sharing in
  Profits</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The holders of Gallaher&#146;s ordinary shares have a right to share in the profits of Gallaher to the extent of any dividends paid pursuant to the Articles, as summarised above.
</FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liquidation
  Event</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the event of a liquidation of Gallaher, after payment of all liabilities and applicable deductions under UK laws, the remaining assets of Gallaher would be shared equally among the
holders of the ordinary shares. The liquidator may however, with the authority of an extraordinary resolution, divide among the members in specie or kind the whole or any part of the assets of Gallaher (whether they shall consist of property of the
same kind or not) and may, for such purpose, set such values as he deems fair upon any assets to be so divided and may determine how such division shall be carried out as between the members or different classes of members. </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Redemption</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher does not currently have any redeemable shares in issue. However, subject to the provisions of the Companies Act, any shares may, with the sanction of a special resolution, be
issued on terms that they are, or at the option of Gallaher or the members are liable, to be redeemed on such terms and in such manner as may be provided for by the Articles. </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sinking Fund</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher does not currently have any sinking fund provisions.</FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital Calls</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Board may from time to time make such calls upon the members in respect of any moneys unpaid on their shares (whether on account of the nominal amount of the shares or by way of
premium) save in respect of unpaid moneys which are made payable at a date fixed by or in accordance with such terms of issue, provided that fourteen days notice at least is given of each call. </FONT></P>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shareholding
  Restrictions</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There are no provisions discriminating against any existing or prospective holder of Gallaher&#146;s shares as a result of such shareholder owning a substantial number of shares.
</FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Modifications
  to Rights of Holders</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All or any of the rights for the time being attached to any class of shares for the time being issued may from time to time (whether or not Gallaher is being wound up) be varied or
abrogated with the consent in writing of the holders of not less than three-quarters in nominal value of the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of the
shares of the class. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This restriction also applies to the variation or abrogation of the special rights attached to only some of the shares of any class as if each group of shares of the class differently
treated formed a separate class the separate rights of which are to be varied. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The above conditions are not more significant than is required by law. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Meetings</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher shall hold a general meeting as its annual general meeting every year and no more than 15 months may elapse between annual general meetings. The Board may, whenever it thinks
fit, convene an extraordinary general meeting and, on the requisition of members under the Companies Acts, shall proceed to convene an extraordinary general meeting. If sufficient directors are not within the United Kingdom to call a general
meeting, any director or member may call a general meeting. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">An annual general meeting or a meeting called for the passing of a special resolution or a resolution of which special notice has been given to Gallaher or a resolution appointing a
person as a director shall be called by not less than 21 clear days&#146; notice in writing. A meeting other than either an annual general meeting or a meeting called for the passing</FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">85</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of a special resolution or a resolution of which special notice has been given to Gallaher or a resolution appointing a person as a director shall be called by not less than 14 clear
days&#146; notice in writing.<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The notice convening the meeting must specify the place, date and time of meeting and, in the case of special business, including an annual general meeting or special or extraordinary
resolution, the general nature of that business, and there shall appear with reasonable prominence in every such notice a statement that a member entitled to attend and vote is entitled to appoint one or more proxies to attend and on a poll vote
instead of him and that a proxy need not be a member of Gallaher. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">No business may be transacted at a general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum does not preclude the appointment, choice
or election of a chairman. Two members present in person or by proxy and entitled to vote constitute a quorum for all purposes.<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Holders of our American Depository Shares are entitled to attend and speak (but not vote) at any general meeting or at any separate meeting of the holders of any class of shares in
Gallaher after providing evidence as to his identity to Gallaher. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Limitations on Rights</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Holders of American Depository Shares may attend, but may not vote at general meetings of Gallaher. Except as described in the preceding sentence, there are no other limitations on the
rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Change of Control</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There are no provisions of the Articles, charter or bylaws that would have an effect of delaying, deferring or preventing a change in control of Gallaher and that would operate only with
respect to a merger, acquisition or corporate restructuring involving Gallaher (or any of its subsidiaries). </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Disclosure of Share Ownership Interests</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Article 39 governs the disclosure of share ownership interests. The Board may by notice in writing (a &#147;Disclosure Notice&#148;) require any member or other person appearing to be
interested or appearing to have been interested in any shares in Gallaher to disclose to Gallaher in writing and within such reasonable period as is specified in the Disclosure Notice such information as the Board shall, pursuant to any provision of
the Companies Acts (but subject to the other provisions of the Articles), be entitled to require relating to interests in the shares in question. </FONT></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Host Country Law</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The laws applicable to Gallaher with respect to the matters described above are those of its host country</FONT><I><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">.</FONT></I></P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Changes in Capital</FONT></U><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The conditions imposed by the Articles in relation to changes in Gallaher&#146;s capital are no more stringent than is required by law.</FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p86"></a>C</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Material
    Contracts</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have not entered into any material contracts other than contracts entered into in the ordinary course of business, during the two years immediately preceding this Annual
Report.</FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p86a"></a>D</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange
    Controls</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under current English law, there are no general restrictions on the import or export of capital that affect the remittance of dividends or other payments to non-UK resident holders of our
ordinary shares. However, there may be tax consequences of remitting dividends or other payments to non-UK resident holders of our shares, which are more fully discussed in below in &#147;E. Taxation&#148;. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under our Articles of Association and under current English law, there are no restrictions that limit the right of nonresident or foreign owners of our shares to hold or vote their
shares. However, our Articles of Association permit our directors to limit voting and other rights of any holder of our shares if our directors believe the holder&#146;s interests may be detrimental to Gallaher. We give ADS holders the right to
attend and speak at general meetings, but they cannot vote in person and do not count in the quorum. Unless we have received an address in the UK to which to send notices, non-UK holders of our shares will not be entitled to receive notices from us,
including notices of shareholder meetings. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">86</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
  <TD colspan="2" valign=top><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">From time
    to time, the UK Treasury may impose restrictions:</FONT></TD>
  </TR>
<TR>
  <TD valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD width="3%" valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">on the import or export of capital to or from particular foreign governments or residents of particular foreign countries;</FONT></TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">on the holding or voting of shares in the capital stock of an English company pursuant to The United Nations Act of 1946, the Emergency Laws of 1964 or other laws.</FONT></TD>
</TR>
<TR><TD colspan=2>&nbsp;</TD></TR>
<TR>
  <TD><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p87"></a>E</font></b></TD>
  <TD><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation</font></b> </TD>
</TR>
</TABLE>

<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following summary discusses the material US federal income and UK tax consequences generally applicable to the acquisition, ownership and disposition by a beneficial owner of ADSs
representing ordinary shares, or of ordinary shares not in ADS form, that is: </FONT></P>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td width="3%" valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">resident in the US and is not (and has not ever been) resident in the UK for the purpose of the UK/US</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Income) Tax
Treaty of 24 July 2001 (as amended) (the &#147;Treaty&#148;) and the UK/US (Death Duty) Treaty of 19</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 1978 (the &#147;Estate Tax Treaty&#148;, and, together with the Treaty,
the &#147;Treaties&#148;),</FONT></TD>
  </tr>
  <tr>
    <td valign="top">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">otherwise qualified for full benefits under the Treaties,</FONT></TD>
  </tr>
  <tr>
    <td valign="top">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a holder whose ordinary shares or ADSs are not, for the purposes of the Treaties, attributable to a permanent</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">establishment through which the holder carries on a business in the UK,</FONT></TD>
  </tr>
  <tr>
    <td valign="top">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a citizen or individual resident of the US,</FONT></TD>
  </tr>
  <tr>
    <td valign="top">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a corporation or partnership organised in or under the laws of the US or any State (other than any partnership</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">which
is treated as foreign under US Treasury regulations),</FONT></TD>
  </tr>
  <tr>
    <td valign="top">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">an estate the income of which is subject to US federal income taxation regardless of its source, or</FONT></TD>
  </tr>
  <tr>
    <td valign="top">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a trust if (1) a US court can exercise primary supervision over the trust&#146;s administration and one or more</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">United
States persons (within the meaning of the US Internal Revenue Code) are authorized to control all</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">substantial decisions of the trust or (2) the trust has a valid election in effect
under applicable Treasury</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">regulations to be treated as a United States person.</FONT></TD>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Persons described above are referred to as &#147;US Holders&#148; in the following summary. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This summary, which primarily addresses the US federal income and UK tax consequences to a US Holder, is based on:</FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%" valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">current US federal income and UK tax law, regulations, practice, rulings and court decisions, and</FONT></TD>
  </tr>
  <tr valign="top">
    <td valign="top">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td valign="top">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the Treaties,</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">all as of the date hereof and all of which are subject to change, possibly with retroactive
effect.</FONT></TD>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This summary assumes that the obligations and representations in the Deposit Agreement that we entered into with The Bank of New York and owners and beneficial owners of ADSs and any
related agreement will be performed and complied with in accordance with their terms. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This summary does not purport to address all material US federal and UK tax consequences of the acquisition, ownership and disposition of ordinary shares or ADSs. It does not take into
account the US federal income tax consequences to US Holders that may be subject to special US federal income tax rules. This latter category includes, but is not limited to: </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">tax-exempt entities,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US expatriates,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">financial institutions,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">insurance companies,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">broker-dealers,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">traders in securities,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">investors liable for alternative minimum tax,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">investors that own (directly, indirectly or by attribution) 5% or more of our voting shares,</FONT></TD>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">investors that hold ordinary shares or ADSs as part of a straddle or a hedging, conversion or integrated</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">transaction,
and</FONT></TD>
  </tr>
</table>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">87</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<table width="100%%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" valign="top">&#8226;<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
    <td><p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">investors
    whose functional currency is not the US dollar. </font></p></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Also, this summary does not address US state, local and other (such as US estate and gift) tax consequences of the acquisition, ownership and disposition of ordinary shares or ADSs.
Holders of ADSs or ordinary shares should consult their own tax advisers as to the particular UK tax and US federal, state and local income and other tax consequences to them of the acquisition, ownership and disposition of ordinary shares or ADSs.
The summary which follows is generally limited to US Holders that hold our ordinary shares or ADSs as capital assets for US federal income tax purposes. It does not apply to US holders that are resident in the United Kingdom for UK tax purposes or
for the purposes of the Treaties. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In general, for US federal income tax purposes, US Holders of ADSs will be treated as the beneficial owners of the underlying ordinary shares represented by the ADSs. Under the current
practice of the UK Inland Revenue, for UK tax purposes and for the purposes of the Treaties, US holders of ADSs should be treated as the beneficial owners of the underlying shares represented by those ADSs. </FONT></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation of Dividends </FONT></B></p>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK Taxation of Dividends</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under current UK tax legislation, we are not required to withhold any amounts in respect of UK tax from dividends.</FONT></P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Taxation of Dividends</FONT></I>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">For US federal
income tax purposes, a US Holder will include in gross income the amount of a
dividend paid by us, to the extent paid out of our current or accumulated earnings
and profits  (as determined for US federal income tax purposes), as ordinary
income when the dividend is actually or constructively received by the US Holder,
in the case of ordinary shares, or by the Depositary, in the case of ADSs. The
amount of the dividend
included in the income of a US Holder will be the US dollar value of the dividend,
determined at the spot UK pound sterling/US dollar rate on the date such dividend
is included in the income of the US Holder, regardless of whether the payment
is in  fact converted into US dollars. For US foreign tax credit purposes, the
dividend included in a US Holder&#8217;s income will generally constitute foreign source &#147;passive
income&#148; or, in the case of some US Holders, foreign source &#147;financial

services income&#148; or foreign source &#147;general category income&#148; for
taxable years beginning before 2007. The dividend will not be eligible for the
dividends-received deduction generally allowed to US corporations in respect
of dividends  received from other US corporations. Generally, any gain or loss
resulting from currency exchange fluctuations during the period from the date
the dividend payment is included in income to the date such payment is converted
into US dollars will be
treated as US source ordinary income or loss for US foreign tax credit purposes.
Distributions in excess of our current or accumulated earnings and profits, as
determined for US federal income tax purposes, will be treated as a non-taxable
return of
capital to the extent of the US Holder&#146;s tax basis in the ordinary shares
or ADSs and thereafter as capital gain recognised on a deemed sale or exchange
of the ordinary shares or ADSs. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends received from us in taxable years beginning after December 31, 2002 and before January 1, 2009 by a non-corporate US Holder who meets certain eligibility requirements will
qualify for US federal income taxation at a reduced rate of 15% or lower if we are a &#147;qualified foreign corporation&#148;. We generally will be a &#147;qualified foreign corporation&#148; if either (i) we are eligible for benefits under the
Treaty or (ii) our ordinary shares or ADSs are listed on an established securities market in the United States. As we are eligible for benefits under the Treaty and our ADSs are listed on the New York Stock Exchange, we presently are a
&#147;qualified foreign corporation&#148;, and we generally expect to be a &#147;qualified foreign corporation&#148; during such taxable years, but no assurance can be given that a change in circumstances will not affect our treatment as a
&#147;qualified foreign corporation&#148; in any of such taxable years. A non-corporate US Holder will not be eligible for the reduced rate (a) if the US Holder has not held the ordinary shares or ADSs for at least 61 days of the 121-day period
beginning on the date which is 60 days before the ex-dividend date, (b) to the extent the US Holder is under an obligation to make related payments on substantially similar or related property or (c) with respect to any portion of a dividend that is
taken into account as investment income under Section 163(d)(4)(B) of the US Internal Revenue Code. Any days during which a US Holder has diminished the US Holder&#146;s risk of loss with respect to the ordinary shares or ADSs (for example, by
holding an option to sell such shares or ADSs) is not counted towards meeting the 61-day holding period. Special rules apply in determining the foreign tax credit limitation with respect to dividends subject to US federal income taxation at the
reduced rate. US Holders should consult their own tax advisors concerning whether dividends received by them qualify for the reduced rate. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">88</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p89"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B>
</P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation of Capital Gains </FONT></B></p>
<p><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK Taxation of Capital Gains</FONT></I></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Holders will not be liable for UK tax on capital gains realised on the disposal of their ADSs or ordinary shares.</FONT></P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Taxation of Capital Gains</FONT></I><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A US Holder will, upon the sale, exchange or other taxable disposition of an ADS or an ordinary share, recognise a gain or loss for US federal income tax purposes. The amount to be
recognised will be the difference between the US dollar value of the amount realised and the US Holder&#146;s tax basis determined in US dollars in the ADS or ordinary share. Such gain or loss generally will be treated as from US sources for US
foreign tax credit purposes. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A gain or loss recognised upon the sale of an ADS or an ordinary share will be a capital gain or loss if such ADS or ordinary share is a capital asset in the hands of the US Holder. The
maximum non-corporate US federal income tax rate on net capital gains is generally 15% for capital assets sold on or after May 6, 2003 and 20% for capital assets sold on or after January 1, 2009 for capital assets held for more than one year. Net
capital gains on the sale of capital assets held for one year or less are subject to US federal income tax at ordinary income tax rates. For a corporate US Holder, all capital gains are currently taxed at the same rate as ordinary income. The
deductibility of capital losses is subject to limitations. For non-corporate US Holders other than married couples who file separate US federal income tax returns, net capital losses not in excess of US &#36;3,000 are deductible against ordinary
income in the year incurred, with any excess carried forward indefinitely to offset (a) capital gains in such years and (b) other income not in excess of US &#36;3,000. For married individuals who file separate US federal income tax returns, the
limitations on capital losses that may be deducted against ordinary income is reduced to &#36;1,500. For corporate US Holders, capital losses can only be used to offset capital gains recognised during the year incurred or during the permitted
carryback and carryforward period. Ordinarily, corporations may carry capital losses back three years and forward five years. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The surrender of ADSs in exchange for the deposited ordinary shares represented by the surrendered ADSs, and the deposit of ordinary shares in exchange for ADSs representing the deposited
ordinary shares, will not be a taxable event for the purposes of US federal income tax, UK income and corporation tax or UK capital gains tax. Accordingly, US Holders will not recognise any gain or loss for such purposes upon such surrender or
deposit. </FONT></P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Estate and Gift Tax</FONT></I><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A US Holder who is an individual domiciled in the US for the purposes of the Estate Tax Treaty generally will not be subject to UK inheritance tax with respect to ADSs or ordinary shares
on the individual&#146;s death or on a gift of such ADSs or ordinary shares made during the individual&#146;s lifetime, except where the ADSs or ordinary shares are part of the business property of the individual&#146;s UK permanent establishment.
The Estate Tax Treaty generally provides for tax paid in the UK to be credited against tax payable in the US, based on priority rules set forth in the Estate Tax Treaty, in a case where ADSs or ordinary shares are subject to both UK inheritance tax
and US federal gift or estate tax. There are special rules applying to trusts. </FONT></P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Backup Withholding Tax and Information Reporting</FONT></I><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Information reporting requirements will apply to dividends in respect of ordinary shares or ADSs and the proceeds received on the sale or disposition of the ordinary shares or ADSs paid
within the US, and in certain cases outside of the US, to a US Holder unless the US Holder is an exempt recipient, such as a corporation, and backup withholding may apply to such amounts if the US Holder fails to provide an accurate taxpayer
identification number or to report interest and dividends required to be shown on its federal income tax returns. The amount of any backup withholding from a payment to a US Holder will be allowed as a credit against the US Holder&#146;s US federal
income tax liability. </FONT></P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK Stamp Duty and Stamp Duty Reserve Tax</FONT></I><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK stamp duty is charged in respect of certain documents and UK stamp duty reserve tax (&#147;SDRT&#148;) is imposed in respect of certain transactions in securities. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Transfers of the ordinary shares will generally be subject to UK stamp duty at the rate of 50p for every &#163;100 (or part thereof), rounded up to the next whole unit of &#163;5, of the
full consideration given for the transfer. This is irrespective of the identity of the parties to the transfer and the place of execution of any instrument of transfer. There is generally no ad valorem stamp duty on an instrument of transfer made
which is neither on sale nor in contemplation of sale. In such cases, the instrument of transfer will be either exempt from stamp duty or a fixed stamp duty of &#163;5 per instrument of transfer will be payable. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">89</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B>
</P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">An agreement to transfer ordinary shares or any interest therein for money or money&#146;s worth will normally give rise to a charge of SDRT at the rate of 0.5% of the amount or value of
the consideration given for the ordinary shares. The liability to SDRT will arise, in respect of conditional contracts, on the date the conditions are satisfied. The charge to SDRT will be cancelled if an agreement to transfer ordinary shares is
completed by a duly stamped transfer within six years of the conditions being satisfied (in the case of a conditional contract), or the contract being made (in the case of an unconditional contract). Where the SDRT charge has been paid, the SDRT
will be repaid, generally with interest, provided that a claim for repayment is made. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Transfers of ordinary shares through the electronic transfer system (known as &#147;CREST&#148;) are exempt from UK stamp duty so long as the transferee is a member of CREST and the
transfer is in a form which will ensure that the securities become held in uncertificated form with CREST. Such transfers, however, if made for a consideration in money or money&#146;s worth are liable to SDRT rather than stamp duty. SDRT on
relevant transactions settled within the system or reported through it for regulatory purposes will be collected by CREST, and this will apply whether or not the transfer is effected in the UK, and whether or not the parties to it are resident or
situated in the UK. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A charge to stamp duty or SDRT respectively at the rates of &#163;1.50 for every &#163;100 (or part thereof), rounded up to the next whole unit of &#163;5, or 1.5% of the amount or value
of the consideration. However, in some circumstances, the value of the ordinary shares concerned, a charge may arise on a transfer of ordinary shares to, or to the custodian of, the depositary or to certain persons providing a clearance service (or
their nominees or agents). Generally, these charges will be payable by the depositary or person providing the clearance service. In accordance with the terms of the deposit agreement, any tax or duty payable by the depositary, or the custodian of
the depositary, on deposits of ordinary shares will be charged by the depositary to the party to whom ADRs are delivered against such deposits. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">No liability for stamp duty will arise on any transfer of, or agreement to transfer, an ADS or beneficial ownership of an ADS, provided that: </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%">&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the ADS and any instrument of transfer or written agreement to transfer remains at all times outside the UK,</FONT> <FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif">and</FONT></td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">any instrument of transfer or written agreement to transfer is not executed in the UK, and</FONT></td>
  </tr>
  <tr valign="top">
    <td>&#8226;</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the transfer does not relate to any matter or thing done or to be done in the UK (the location of the custodian</FONT> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">as a
holder of an ordinary share not being relevant in this context).</FONT></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In any other case, any transfer of, or agreement to transfer, an ADS or beneficial ownership of an ADS could, depending on all the circumstances of the transfer, give rise to a charge to
ad valorem stamp duty. The current rate of ad valorem stamp duty on a transfer of stock or marketable securities, which includes ADSs, is 50p for every &#163;100 (or part thereof), rounded up to the next whole unit of &#163;5, of the amount of value
of the consideration. A transfer in contemplation of sale would be stampable by reference to the value of the property transferred. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">SDRT will not be payable on any agreement to transfer ADSs or beneficial ownership of ADSs. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A transfer of the underlying ordinary shares from the depositary other than on cancellation of the ADS, whether to the US Holder or directly from them to a purchaser, may give rise to a
liability to ad valorem stamp duty. However, on a transfer from the custodian to a US Holder or registered holder of an ADS upon cancellation of the ADS, a fixed UK stamp duty of &#163;5 per instrument of transfer only would be payable. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p90"></a>F</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Dividends
          and
Paying Agents</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our board recommends a final dividend for 2005 of 22.9p (net) per ordinary share. The dividend, if approved by our shareholders at our annual general meeting on 10 May 2006, will be paid
on 23 May 2006. The equivalent amount per ADS will be 91.6p and this will be distributed on 30 May 2006 to ADR holders of record on 17 March 2006. The dividend payable to ADR holders will be paid in US dollars converted at the &#163;/US dollar rate
on 23 May 2006. These payments, together with the interim amounts already paid, amount to a total dividend of 33.50p per ordinary share (134.0p per ADS) for 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We expect, subject to shareholders&#146; approval where necessary, to continue to pay dividends. However, the payment of any future dividends will depend upon our earnings and financial
condition and such other factors as our board deems relevant. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash dividend payments will be made in pounds sterling. Exchange rate fluctuations will affect the US dollar amount received by holders of ADSs on conversion of such dividends.
Fluctuations in the exchange rate between pounds sterling and the US dollar will affect the dollar equivalent of the pounds sterling price of the ordinary shares on the</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">90</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B>
</P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">London Stock Exchange. These fluctuations are likely to affect the market price of the ADSs on the New York Stock Exchange. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p91"></a>G</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Statement
    by Experts</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section is not applicable. </FONT></p>
<p>&nbsp;</p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p91a"></a>H</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Documents
    on Display</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the &#147;Exchange Act&#148;) and accordingly file reports, proxy statements and other
information with the SEC. You may read and copy any document filed by us with the SEC without charge at the SEC&#146;s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Copies of documents may be obtained by mail from the Public
Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an internet website that contains reports, proxy statements and
other information about issuers, including us, who file electronically with the SEC. The address of that site is http://www.sec.gov.</FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p91b"></a>I</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Subsidiary
    Information</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section is not applicable. </FONT></p>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p92"></a>ITEM
11&nbsp;&nbsp;&nbsp;QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK</font></b></P>
<P><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest Rate Sensitivity</FONT></U></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We have entered into certain interest rate swap transactions with contractual maturities exceeding those of the underlying debt being hedged, in anticipation of there being additional
floating rate debt when the existing debt matures. In order to manage the impact of adverse variations in interest rates on our profits, the Group borrows at fixed and floating rates of interest and, where necessary, uses interest rate derivatives
to maintain a target level of fixed interest rate cover in the current and subsequent two years of between 40% and 80% of the level of core debt.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The expected cash flows on the variable legs of interest rate swaps are determined using implied rates for the appropriate period calculated by reference to the financial market&#146;s
yield curve for the relevant currency. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">We recognise payments on derivative instruments and their fair value on an accrual basis. At 31 December 2005 we had net unrealised gains of &#163;7 million on interest rate derivative
financial instruments (2004: net unrealised losses of &#163;4 million). The &#163;11 million net unrealised gain arising from the change in fair values of interest rate derivative financial instruments was accrued in the financial statements for the
year ended 31 December 2005. At 31 December 2005 we had unrealised losses of &#163;82 million on long-term debt (2004: unrealised losses of &#163;98 million). We make no provisions in our financial statements for unrealised gains or losses on long
term debt in respect of future accounting periods other than where the change in fair values are subject to effective hedges At 31 December 2005, &#163;27 million of unrealised losses on long term debt was accrued in the financial statements (2004:
&#163;22 million). The &#163;5 million unrealised loss arising from the change in fair values of long term debt was accrued in the financial statements for the year ended 31 December 2005.</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD colspan="19" align=left style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black; border-right:solid 1pt;border-right-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font></TD>
  </TR>
<TR valign="bottom">
  <TD width=2% rowspan="4" align=left style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font></TD>
	<TD colspan="2" align=left>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities</FONT></TD>
	<TD colspan="11" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maturity Dates</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
    <TD rowspan="4" align=left style="border-right:solid 1pt;border-right-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="11" align=left><hr size="1" noshade></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  </TR>
<TR valign="bottom">
  <TD width=3% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Later</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m Equivalent</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2006</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2007</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2009</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2010</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Years</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Value</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
  <TD rowspan="8" align=left style="border-left:solid 1pt;border-left-color:black"><font size="1" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font></TD>
	<TD colspan="2" align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><u>Long Term Debt</u></FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD width="2%" rowspan="10" align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"><font size="1" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font> </TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed Rate - Principal</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">101</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">260</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">301</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">823</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,101</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,154</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average rate</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">Variable Rate - Principal</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">75</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average rate</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><u>Other Borrowings</u></FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">Variable Rate - Principal</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">147</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">147</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">147</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><FONT  size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
      rate</FONT></TD>
  <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.0</FONT> </TD>
  <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
  <TD align=left> </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left> </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left> </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left> </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left> </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.0</FONT> </TD>
  <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
  <TD align=left>&nbsp; </TD>
  </TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">Accrued
    interest</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">14</font></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">58</font></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">58</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="18" align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black"><font size="1" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font> </TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">92</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p93"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following table presents the derivative financial instruments held by the Group at 31 December 2005, other than short-term forward foreign exchange contracts. We do not enter into any
market risk sensitive instruments for trading purposes. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Later</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2006</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2007</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2009</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">years</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">
 &nbsp;&#163;m</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">
 &nbsp;&#163;m</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp; &nbsp;&#163;m</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp; &nbsp;&#163;m</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp; &nbsp;&#163;m</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
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  <TD align=right><hr size="1" noshade></TD>
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  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling interest rate derivatives</FONT></B></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps and swap options &#150; pay fixed, receive variable:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional amount</FONT></TD>
	<TD width=6% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">420</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>&nbsp;

	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">470</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(21</FONT></B>
	</TD>
	<TD width=2% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted average interest rate payable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.2</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps &#150; pay variable, receive fixed:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted average interest rate receivable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.8</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.8</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Margin over LIBOR payable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.0</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps &#150; pay variable, receive fixed:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted average interest rate receivable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.6</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Margin over LIBOR payable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.3</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro interest rate derivatives</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps &#150; pay fixed, receive variable:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted average interest rate payable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.9</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.9</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps &#150; pay variable, receive fixed:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">82</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted average interest rate receivable (%)</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.9</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.9</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Margin over LIBOR payable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.1</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps &#150; pay variable, receive fixed:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional amount</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">550</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">550</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted average interest rate receivable (%)</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.9</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Margin over LIBOR payable (%)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.9</FONT></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax equalisation swaps</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">94</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">69</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">163</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">93</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p94"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange Rate Sensitivity</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Due to the international nature of our operations, we are exposed to exchange rate fluctuations on the translation of the results of overseas subsidiaries into sterling and the settlement
of commercial transactions in foreign currencies. We make limited use of derivative financial instruments to hedge balance sheet translation exposures.  On significant acquisitions of overseas companies, borrowings are raised in the local currency
to minimise the translation risk. It remains our policy not to hedge income statement translation exposures. Transaction exposures are hedged where deemed appropriate and where they can be reliably forecast with the use of forward exchange rate
contracts. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The table below provides information about our derivative financial instruments and firmly committed sales and purchases transactions at 31 December 2005. The table summarises information
on instruments and transactions that are sensitive to foreign currency exchange rates, namely firmly committed foreign currency denominated sales and purchases transactions and forward foreign exchange contracts. For firmly committed foreign
currency denominated sales and purchases transactions, sales and purchases amounts are presented by the expected transaction date. For forward foreign exchange contracts, the table presents the contractual amounts and weighted average exchange rates
by expected (contractual) maturity dates. The information is presented in pounds sterling equivalents, which is our reporting currency. We do not enter into any market risk sensitive instruments for trading purposes.</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD colspan="16" align=left style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD rowspan="5" align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD rowspan="4" align=left style="border-left:solid 1pt;border-left-color:black"><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD width=3% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD colspan="9" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contractual Transaction Date</FONT>	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="9" align=left><hr size="1" noshade></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Later</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m Equivalent</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2006</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2007</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008 </FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">years</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD colspan="2" align=left>
    <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Firmly Committed Sales Contracts:</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD width=2% align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euros</FONT></TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=2% align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Dollars</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD colspan="2" align=left>
    <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Firmly Committed Purchase Contracts:</FONT></B></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euros</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black">&nbsp;</TD>
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Dollars</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left style="border-left:solid 1pt;border-left-color:black"><hr size="1" noshade></TD>
  <TD colspan="2" align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left style="border-right:solid 1pt;border-right-color:black"><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
  <TD rowspan="20" align=left style="border-left:solid 1pt;border-left-color:black; border-bottom:solid 1pt;border-bottom-color:black;">&nbsp;</TD>
  <TD colspan="2" align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward Contracts</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD rowspan="5" align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pay &#163;, receive euros:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contract amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">229</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> 229</font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
    contractual exchange rate</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.682</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
    </font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.682</font></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pay US&#36;, receive &#163;:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contract amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">236</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
    </font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">236</font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
	    contractual <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">exchange
    rate</font></FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.758</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
    </font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.758</font></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD rowspan="2" align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pay Polish Zloty, receive &#163;:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contract amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">76</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">76</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
    contractual exchange rate</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.63</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
    </font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.63</font></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD rowspan="11" align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pay South African Rand, receive &#163;:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contract amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
	    contractual <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">exchange
    rate</font></FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11.25</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
    </font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">11.25</font></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pay Singapore &#36;, receive &#163;:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contract amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
    contractual exchange rate</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.94</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> 2.94</font></TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
  </TR>
<TR valign="bottom">
  <TD colspan="2" align=left><font size="2" face="serif"><FONT face="TimesNewRoman,Times New Roman,Times,serif">Pay
    Ukraine Hryvna,  receive US $:</FONT></font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contract
    amount</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">6</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">6</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average
    contractual exchange rate</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">5.05</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">5.05</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD colspan="15" align=left style="border-bottom:solid 1pt;border-bottom-color:black">&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The fair value
of &#163;5
million represents the net unrealised loss on forward foreign exchange contracts
at 31 December 2005, which was recognised in the financial statements for the
year ended 31 December 2005. At 31 December 2004 we had net unrealised gains
of &#163;30
million on forward foreign exchange contracts. </FONT></P>
<p><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exposure to Commodity Fluctuations</FONT></U></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our financial results are exposed to fluctuations in the price of tobacco leaf. As with other agricultural commodities, the price of tobacco leaf tends to be cyclical as supply and demand
considerations influence tobacco plantings in those countries where tobacco is grown. Different regions may experience variations in weather patterns that may affect crop quality or supply and so lead to changes in price. The current political
situation in Zimbabwe has resulted and may</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">94</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p95"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">continue to result, in a significantly reduced tobacco crop. This may also lead to changes in price. We seek to reduce our exposure to individual markets by sourcing tobacco leaf from a
number of different countries, including Brazil, China, India, Italy, Spain and Zimbabwe. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2005, we purchased approximately 132,000 tonnes (2004: 138,000 tonnes) of tobacco leaf through a number of well-established international tobacco merchants. There is no futures market
for tobacco and there is limited ability to enter into long term contracts based on price. Based on 2005 purchase volumes, a 10% increase in the cost of tobacco leaf would result in an increase of approximately &#163;12million (2004:
&#163;13million) in tobacco leaf costs to the Group. We believe that, based on our ability to effect price increases and the relatively low proportion of the retail price represented by tobacco leaf costs, which represented approximately 12% of the
total UK duty - paid retail price of cigarettes in 2005, we are generally able to mitigate the effects of tobacco leaf price increases through manufacturers own price increases and thereby limit any related effect on our total profit from
operations.</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">95</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B><br>
  <br>
  <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p96"></a>ITEM
12&nbsp;&nbsp;&nbsp;DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES</font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR align="left" valign="top">
    <TD width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p96a"></a>A</font></b></TD>
    <TD colspan=2> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Debt
      Securities</font></b></TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
      section is not applicable.</font></TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p96b"></a>B</font></b></TD>
    <TD colspan=2> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Warrants
      and Rights</font></b></TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
      section is not applicable.</font></TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p96c"></a>C</font></b></TD>
    <TD colspan=2> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other
      Securities</font></b></TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
      section is not applicable.</font></TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p96d"></a>D</font></b></TD>
    <TD colspan=2> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">American
      Depositary Shares</font></b></TD>
  </TR>
  <TR align="left" valign="top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
  </TR>
  <TR align="left" valign="top">
    <TD colspan=3> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">This
      section is not applicable.</font></TD>
  </TR>
</TABLE>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="center"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Part
II</font></b></P>
<P><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p97"></a>ITEM 13&nbsp;&nbsp;&nbsp; <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES</font></b></font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD colspan=3 align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There
      are no items to be reported in this section.</FONT></TD>
  </TR>
</TABLE>
<P align="center"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">97</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p98"></a>ITEM 14&nbsp;&nbsp;&nbsp;MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There are no items to be reported in this section. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">98</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p99"></a>ITEM 15&nbsp;&nbsp;&nbsp;CONTROLS
    AND PROCEDURES</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pursuant to rules adopted by the Securities and Exchange Commission as directed by Section 302 of the Sarbanes-Oxley Act of 2002, the Company is providing the following information:
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As of the end of the period covered by this report (the &#8220;Evaluation Date&#8221;) the Company conducted an evaluation (under the supervision and with the participation of the Company&#8217;s
chief executive and finance director), pursuant to Rule 13a-15 promulgated under
the Securities Exchange Act of 1934, as amended (the &#8220;Exchange Act&#8221;) of the effectiveness of design and operation of the Company&#8217;s disclosure controls and procedures. Based
on this evaluation, the Company&#8217;s chief executive officer and chief financial officer have concluded that as of the Evaluation Date such disclosure controls and procedures were reasonably designed to ensure that information required to be disclosed
by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Since the last evaluation by the Company of the Company&#8217;s internal controls there have been no changes in the internal controls that have materially affected, or are reasonably likely to
materially affect, the internal controls over financial reporting. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">99</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"> <b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F
2005</font></b></p>
<p> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p100"></a>ITEM 16&nbsp;&nbsp;&nbsp;DISCLOSURE
ON AUDIT COMMITTEE FINANCIAL EXPERT</font></b></p>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p100a"></a>A</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Disclosure
    On Audit Committee Financial Expert</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The board has determined that Richard Delbridge is the audit committee financial expert with recent and relevant financial experience and independent not only for the purposes of the
Combined Code but also in accordance with the definition under Section 10A-3 of the Exchange Act.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM
16</font></b></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p101"></a>B</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code
    Of Ethics</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Persuant to rules adopted by the Securities and Exchange Commission, we are providing the following information: </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Board of Directors confirm that senior management of the Company has adopted a Code of Ethics which also covers the responsibilities of the Chief Executive, Finance Director, and
Group Financial Controller. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">101</FONT></P>

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<div style="page-break-before:always"></div><page>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<P align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 16</font></b></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p102"></a>C</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Principal
    Accountant Fees And Services</font></b></font></b></td>
  </tr>
</table>
<P align="left"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details
    of the aggregate fees billed for each of the last two fiscal years for professional
    services rendered by the independent auditors, PricewaterhouseCoopers LLP,
    for the audit of the
Group&#146;s annual financial statements together with procedures for approving
services by the auditor are set out below: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163; million</FONT></B></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163; million</FONT></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit fees</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.4</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.3</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit related fees</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.9</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax fees:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">compliance services</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">advisory services</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.6</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All other fees</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.0</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The policy relating to the provision of non-audit services by the external auditors specifies the types of work from which the external auditors are excluded; for which the external
auditors can be engaged without referral to the audit committee; and, for which a case-by-case decision is required. The ratio of non-audit fees to audit fees is monitored by the committee within an overall limit set by the board upon the
recommendation of the audit committee. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All non-audit services are pre-approved by the audit committee by category or on a case-by-case basis, as appropriate, depending upon the nature of the service and the circumstances.
Audit related fees primarily relate to factual due diligence work undertaken in respect of possible acquisitions and disposals. Tax services comprise compliance services and technical advice associated with relevant UK and international fiscal laws
and regulations and, in particular, in the context of assessing the potential implications of proposed corporate transactions or restructuring.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Having undertaken a review of the non-audit related work the audit committee has satisfied itself that the services undertaken during 2005 did not prejudice the auditors&#146;
independence.</FONT></P>
<P><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 16</font></b></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p102a"></a>D</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exemptions
    from the Listing Standards for Audit Committees</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There are no items to be reported in this section.</FONT></p>
<p><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ITEM 16</font></b></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p102b"></a>E</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Purchases
          of
Equity Securities by the Issuer and Affiliated Purchasers </font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At the AGM in May 2005 shareholders reviewed the authority for us to purchase up to 10% of our own shares. We did not purchase any of our own shares in 2004 or 2005.</FONT><B><FONT size=2
face="Univers,Arial,Helvetica,sans-serif"> </FONT></B></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">102</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005 </FONT></B></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p103"></a>ITEM 17&nbsp;&nbsp;&nbsp;FINANCIAL
STATEMENTS </FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Our consolidated financial statements and notes to the financial statements, together with the report thereon by an independent registered public accounting firm, are filed as part of
this Annual Report as pages F-2 to F-66. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">An index to these pages is given on page F-1. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">103</FONT></P>

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<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"> <b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</font></b></p>
<p align="center"> <b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form
20-F 2005</font></b></p>
<p> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p104"></a>ITEM 18&nbsp;&nbsp;&nbsp;<b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">FINANCIAL
STATEMENTS</font></b></font></b></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">This section is not applicable.</FONT></p>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT></P>

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005 </FONT></B></P>
<p><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><a name="p105"></a>ITEM 19&nbsp;&nbsp;&nbsp;</font></b><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">EXHIBITS</font></b>
</p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
  <TD width="8%" align="left" valign=top> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exhibit
    no.</font></b></TD>
  <TD align="center" valign="top"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Description
    of Exhibits</font></b>&nbsp; </TD>
</TR>
<TR>
  <TD valign=top><hr align="left" width="60" size="1" noshade></TD>
  <TD valign="top"><hr align="center" width="130" size="1" noshade></TD>
</TR>
<TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memorandum and Articles of Association.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.1</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trust Deed dated 21 May 1999 for Guaranteed Bonds due 2009 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.2</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trust Deed dated 6 August 1998 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
<TD valign="top">&nbsp;</TD>	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">First Supplemental Trust Deed dated 24 May 2001 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated
herein by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.3</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pricing Supplement dated 28 September 2001 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
<TD valign="top">&nbsp;</TD>	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pricing Supplement dated 21 May 2004 was filed with the SEC on June 8, 2004 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.4</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Offering Circular dated 4 February 2003 for Guaranteed Bonds due 2013, was filed with the SEC on May 30, 2003 under Form 20-F, file registration number 1- 14602, and is incorporated
herein by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.5</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Group Plc - &#163;650,000,000 Facility Agreement dated 11 March 2003 as amended, restated and increased to &#163;1,000,000,000
pursuant to an amendment and restatement agreement
dated 16 June 2005 (the &#147;Agreement&#148;).</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Offering Circular by Gallaher Group Plc for &#163;2,000,000,000 Medium Term Note Programme, unconditionally and irrevocably guaranteed by Gallaher Limited dated 21 May 2004.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">List of Subsidiaries</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code of Ethics was filed with the SEC on April 8, 2004 under Form 20-F, file registration number 1-14602 and is incorporated by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Section 302 Certification</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Section 906 Certification</FONT>	</TD>
</TR>
<TR><TD colspan=2 valign="top">&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15.1</FONT></TD>
	<TD valign="top">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notice of annual general meeting 2006 to be held on 10 May 2006.</FONT>	</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">105</FONT></P>

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<div style="page-break-before:always"></div><page><a name="p106"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Form 20-F 2005</FONT></B></P>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">SIGNATURES</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this Annual Report on its
behalf. </FONT></P>
<P>&nbsp;</P>
<P>&nbsp;</P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD colspan="3" align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
    GROUP Plc</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD colspan="3" align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Registrant) </font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan="2" align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan="2" align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan="2" align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">By:&nbsp;</font></TD>
  <TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">/s/&nbsp;</font></TD>
  <TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> M.
    E. Rolfe</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font></TD>
	<TD width=3% align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif"> &nbsp;</font> </TD>
	<TD colspan="2" align=left> <hr size="1" noshade>
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=25% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Name: M. E. Rolfe</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Title: Group Finance
Director</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date: 18 April,
2006</FONT></TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">106</FONT></P>

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<div style="page-break-before:always"></div><page><a name="#contents1"></a>
<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">INDEX TO FINANCIAL STATEMENTS</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following consolidated financial statements, together with the report thereon by the independent registered public accounting firm, are filed as part of this Annual Report. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Page</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="1" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="1" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#pf2">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Report of Independent
    Registered Public Accounting Firm &#150; PricewaterhouseCoopers LLP</FONT></a></TD>
	<TD width=10% align=right><a href="#pf2">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-2</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial Statements</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#pf3">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated Income
Statements for the years ended 31 December 2005, and 2004</FONT></a></TD>
	<TD align=right><a href="#pf3">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-3</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#pf4">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated Balance Sheets at 31 December 2005 and 2004</FONT></a></TD>
	<TD align=right><a href="#pf4">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-4</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#pf6"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated
	    Cash Flow Statements for the years ended</FONT>
        <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 December 2005
and 2004</FONT></a></TD>
	<TD align=right><a href="#pf6">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-6</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#pf7"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated
	    Statements of Recognised Income and Expense</FONT>
        <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">for the years ended
31 December 2005, and 2004</FONT></a></TD>
	<TD align=right><a href="#pf7">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-7</FONT></a></TD>
</TR>
<TR valign="bottom">
	<TD align=left><a href="#pf8">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></a></TD>
	<TD align=right><a href="#pf8">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-8 to F-66</FONT></a></TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-1</FONT></P>

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<div style="page-break-before:always"></div><page><a name="pf2"></a><p><a href="#contents1"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">&nbsp;</P>
<P align="center">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Report of Independent Registered Public Accounting Firm</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">To the Board of Directors and Shareholders of Gallaher Group Plc: </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In our opinion,
the accompanying consolidated balance sheets and the related consolidated statements
of income, of cashflows and of statements of recognised income and expenses present
fairly, in all material respects, the financial position of Gallaher Group Plc
and its subsidiaries at December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31,
2005, in conformity with International Financial Reporting Standards as adopted
by the European Union. These financial statements are the responsibility of the
Company&#146;s management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accounting principles under International Financial Reporting Standards, as adopted by the European Union, vary in certain significant respects from accounting principles generally
accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 37 to the consolidated financial statements. </FONT></P>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">PricewaterhouseCoopers LLP</FONT></p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">London, United Kingdom</FONT><br>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">th</FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> April 2006 </FONT></p>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-2</FONT></P>

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<div style="page-break-before:always"></div><page><a name="pf3"></a><p><a href="#contents1"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc </FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated Income Statements</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD colspan="7" align=center>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=center><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=center><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD colspan="7" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="7" align=right><hr size="1" noshade></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD colspan="7" align=right><hr size="1" noshade></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Before</FONT></B>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional</font></b>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</font></b>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Before</FONT>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional</FONT>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width="2%" align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">exceptional</FONT></B>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">items</font></b>
</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">exceptional</FONT>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">items</font>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width="2%" align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">items</FONT></B>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(note
    4)</font></b> </TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>
</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">items</font>

	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(note
	    4)</font>
</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width="2%" align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>
</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width="2%" align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales</FONT></B></TD>
	<TD width="5%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
	<TD width=2% align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></B>
	</TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></B>
	</TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT>
	</TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width=7% align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD width=2% align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD width=7% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT>
	</TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD width=2% align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD width="2%" align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Duty</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5,611</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5,611</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5,568</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5,568</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other cost of goods sold</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,497</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,510</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,488</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,496</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost of goods sold</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7,108</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7,121</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7,056</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7,064</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross profit</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,106</FONT></B>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,093</FONT></B>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,059</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,051</FONT>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution, advertising and selling costs</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(327</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(340</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(321</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(321</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Administrative expenses</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(149</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(158</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(125</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(134</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other gains and losses - net</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating Profit</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">634</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">599</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">599</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share
of post tax results of joint ventures </font>and associates</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from operations</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">651</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">635</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest and other finance income</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">88</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">88</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest and other finance expense</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(177</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(177</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(202</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(202</FONT>
	</TD>
	<TD align=left  style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left >&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance costs - net</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(100</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(100</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(114</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(114</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit before taxation</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">551</FONT></B>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">516</FONT></B>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">521</FONT>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">504</FONT>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(152</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B>
	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(144</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(148</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(142</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the year</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">399</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">372</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">373</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(11</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">362</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Attributable to:</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp; </TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity shareholders</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">394</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(25</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(11</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority interests</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
      <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">399</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">372</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">373</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(11</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">362</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp; </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings per share
for profit attributable to equity shareholders</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.5</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.0</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Diluted</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.4</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">54.9</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
	<TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note: <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details
of the exceptional items are set out in note 4 to the financial statements. Excluding
the impact of exceptional items and amortization of intangible assets of &#163;19m (2004:
&#163;13m), total profit from operations is &#163;670m (2004: &#163;648m). </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The notes to the Financial Statements are an integral part of these Financial Statements </FONT></I></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-3</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF4"></a><p><a href="#contents1"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated Balance Sheets </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note</FONT></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right><font size="2">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ASSETS</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non current assets</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property, plant and equipment</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">622</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">588</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,452</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,401</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments in associates</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">116</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">122</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments in joint ventures</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement benefit assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade and other receivables</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Derivative financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial assets at fair value through profit or loss</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,329</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,203</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current assets</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inventories</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">474</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">484</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade and other receivables</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">812</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">800</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Derivative financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">84</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,539</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,129</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non current assets classified as held for sale</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,545</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,129</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total assets</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,874</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,332</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">LIABILITIES</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non current liabilities</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Borrowings</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,594</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,215</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Derivative financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade and other payables</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax liabilities</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement benefit liabilities</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">71</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">79</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Provisions for liabilities and charges</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,772</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,380</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current liabilities</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Borrowings</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">816</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">892</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Derivative financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">37</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade and other payables</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,032</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">992</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current income tax liabilities</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">61</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">83</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Provisions for liabilities and charges</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,966</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,012</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total liabilities</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,738</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,392</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net assets/(liabilities)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">136</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(60</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-4</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF5"></a><p><a href="#contents1"><font size="2">Back to Contents</font></a></p>
<p align="center"><b><font size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
        GROUP Plc</font></b></p>
<p align="center"> <b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated
      Balance Sheets</font></b></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share capital</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share premium account</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">134</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">129</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital redemption reserve</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Merger reserve</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">146</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">146</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other reserve</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(911</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(911</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Currency translation reserve</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retained earnings</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">667</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">485</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity attributable to shareholders</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(91</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority interests</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total equity</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">136</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(60</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Notes to the Financial Statements are an integral part of these Financial Statements</FONT></I></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-5</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF6"></a><p><a href="#contents1"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated Cash Flow Statements</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash flows from operating activities</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash generated from operating activities</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">700</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">755</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends received from associates and joint ventures</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Income tax paid</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(143</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(90</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net cash from operating activities</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">572</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">675</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash flows from investing activities</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Acquisition of subsidiaries, including minority interests</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Purchases of property, plant and equipment</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(103</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(103</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Proceeds from sale of property, plant and equipment</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Purchases of intangible assets</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(75</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Decrease in investments in associates and joint ventures</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net cash from investing activities</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(155</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(103</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash flows from financing activities</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest paid</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(163</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(140</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest received</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Proceeds from issuance of ordinary shares</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Purchase of ordinary shares</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Proceeds from borrowings</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">75</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">586</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Repayment of borrowings</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(701</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(215</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends paid to minority interests</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends paid to the Company&#146;s shareholders</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(210</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(196</FONT>
	</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net cash from financing activities</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(953</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">49</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net (decrease)/increase in cash and cash equivalents</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(536</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">621</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents at beginning of the year</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">756</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">134</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange (losses)/gains on cash and cash equivalents</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents at the end of the year</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">219</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">756</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Notes to the Financial Statements are an integral part of these Financial Statements</FONT></I></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-6</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf7"></a>
<p><a href="#contents1"><font size="2">Back to Contents</font></a></p>
<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  </FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated
  Statements of Recognised Income and Expense </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actuarial
      gain/(loss) recognised on retirement benefits</FONT></TD>
    <TD width=5% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></B>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(14</FONT>
    </TD>
    <TD width=2% align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
      tax relating to actuarial gain/(loss) on retirement benefits</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Currency
      translation differences</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      income/(expense) recognised directly in equity</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit
      for the year</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">372</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">362</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total
      recognised income for the year</FONT></B></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">401</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">340</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Attributable
      to:</FONT></B></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity
      shareholders</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">398</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">336</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority
      interests</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">401</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">340</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Notes to the Financial Statements are an integral part of these Financial Statements</FONT></I></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-7</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf8"></a><p><a href="#contents1"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  </FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
  to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="top"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.</font></b></td>
    <td><b></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;
      </font><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary
      of significant accounting policies</font></b></td>
  </tr>
</table>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basis of
  preparation<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
  consolidated financial statements have been prepared in accordance with International
  Financial Reporting Standards as adopted by the European Union (&#147;IFRS&#148;).
  There are no material differences between IFRS as adopted by the EU and complied
  with in the preparation of these financial statements and IFRS as published
  by the IASB. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The 2005 financial statements are the Group&#146;s first consolidated financial statements prepared under IFRS, with a transition date of 1 January 2004. Consequently, the comparative
figures for 2004 and the Group&#146;s balance sheet as at 1 January 2004 have been restated to comply with IFRS.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and financial liabilities (including derivative
instruments) at fair value through profit and loss. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those
estimates. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basis of
  Consolidation<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
  consolidated financial statements incorporate the accounts of Gallaher Group
  Plc and all its subsidiaries together with the Group&#146;s share of the post
  tax results and net assets of its joint ventures and associates. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)&nbsp;Subsidiaries <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Subsidiaries are all entities that are ultimately controlled by Gallaher Group Plc. Control is the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The cost of an acquisition is measured as the fair value of the consideration given for assets acquired, equity instruments issued and liabilities incurred or assumed at the date of the
exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date. The excess of the
cost of acquisition over the fair value of the Group&#146;s share of the identifiable net assets acquired is recorded as goodwill. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b) Associates and joint ventures <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Associates
are all entities over which the Group has significant influence but not control.
Joint ventures are contractual arrangements whereby the Group, together with
one or more parties, undertake an economic activity which is subject to joint
control. Investments in associates and joint ventures are accounted for using
the equity method of accounting and are initially recorded at cost. The Group&#146;s
investment in
associates and joint ventures includes goodwill identified on acquisition. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s share of its associates&#146; and joint ventures&#146; post acquisition profits or losses are recognised in the income statement post tax, and its share of
post-acquisition movements in reserves are recognised in reserves. The cumulative post&#150;acquisition movements are adjusted against the carrying amount of the investments.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group&#146;s interest in the associate or joint venture.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-8</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf9"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
  to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="top"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary
      of significant accounting policies </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment reporting</FONT></B></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s management structure and internal reporting systems are focused on the geographic regions in which the Group operates. Therefore, the primary reporting format under IAS
14 Segment Reporting is by geographic segment. These segments reflect components of the Group that operate within particular economic environments which are subject to certain risks and returns that are different from those components operating in
other economic environments. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The secondary reporting format is by business segment. The Group distinguishes the results of its manufacturing and distribution operations within this format.</FONT></P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Costs are borne by geographic and business segments as incurred.</FONT><BR>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Foreign currencies<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
  income and cashflow statements of Group undertakings with a functional currency
  other than sterling are translated to sterling at average rates of exchange
  in each year. Assets and liabilities of these undertakings are translated at
  rates of exchange existing at the end of the accounting period. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The differences between retained profits of overseas subsidiaries, joint ventures and associates translated at average and closing rates of exchange are taken to reserves, as are the
differences arising on the retranslation to sterling (using closing rates of exchange) of overseas net assets at the beginning of the year. Any differences that have arisen since 1 January 2004 are presented as a separate component of equity. As
permitted under IFRS 1 First time Adoption of International Financial Reporting Standards, any differences prior to that date are not included in this separate component of equity. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Foreign currency transactions are initially recorded in the functional currency of the transacting entities at the exchange rate ruling at the date of the transaction. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at period end rates of exchange are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Revenue recognition<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Revenue
  from the sale of goods and services is measured at fair value, net of sales
  and marketing incentives and excluding sales within the Group. Revenue comprises
  amounts charged to customers for goods sold, services supplied, licence fees
  and excise duties paid by the Group but not VAT or its equivalent. The Group
  recognises such revenue when the risks and rewards of ownership are transferred
  significantly (which is generally when goods are received by the customer),
  and collection of the related receivable is reasonably assured. Sales and marketing
  incentives include retrospective payments made to customers relating to specific
  performance criteria, normally targeted volume sales, ranging and stock availability,
  and payments to customers to support shelf price reduction in relation to promotional
  activity. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excise duties<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excise
  duties are accounted for as a component of cost of goods sold and, accordingly,
  are not shown as a deduction from sales. However, a key performance indicator
  used by management is operating margin which is calculated as total profit from
  operations before amortization of intangible assets and exceptional items expressed
  as a percentage of net sales. Net sales in this context is defined as sales
  less excise duties incurred. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional
  items<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Items
  that are both material in size, and unusual and infrequent in nature are presented
  as exceptional items in the income statement. The directors are of the opinion
  that the separate recording of exceptional items provides helpful information
  about the Group&#146;s underlying business performance. Examples of events,
  inter alia, which may give rise to the classification of items as exceptional
  include the restructuring of existing and newly acquired businesses, gains and
  losses on the disposal of businesses or individual assets and asset impairments.
  </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Advertising<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All
  advertising expenditure, including that relating to new brands, is charged to
  the income statement in the year in which it is incurred. </FONT></P>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Research
  and development<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Research
  and development expenditure is charged to the income statement as incurred,
  except that development expenditure is capitalised if it meets the recognition
  criteria of IAS 38 Intangible Assets. To date, no development expenditure has
  met the capitalisation recognition criteria. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-9</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf10"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary
    of significant accounting policies </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividend distribution <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividend
distributions to shareholders are recognised as a liability in the Group&#146;s financial statements in the period in which the dividends are approved by the relevant
Company&#146;s shareholders or, in the case of interim dividends, when they are
declared. Where a dividend has been proposed, no liability is recognised in the
financial statements for the period, although it is included in certain performance
indicators such as dividend cover.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property, plant and equipment</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property, plant and equipment is stated at cost less depreciation. Depreciation is calculated to write down the cost of the tangible assets to their residual values, on a straight-line
basis, over their estimated useful lives, namely: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Land and buildings</FONT></TD>
	<TD width="12%" align=right>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
 &nbsp;&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Freehold land</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Not depreciated</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
 &nbsp;&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Freehold buildings</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50 years</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
 &nbsp;&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Long leasehold (lease term 50 years or more)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50 years</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Plant and machinery</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3-20 years</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fittings and equipment</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3-10 years</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets in the course of construction</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Not depreciated</FONT></TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets in the course of construction relate mainly to new factory premises under construction and deposits paid in respect of the installation of certain plant and machinery. Depreciation
commences when these assets become operational. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group does not capitalise borrowing costs incurred in the construction of qualifying assets. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible assets: Acquired goodwill<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill is not amortised, but is tested at least annually for impairment and carried at cost less accumulated impairment losses. At the date of acquisition, goodwill is allocated to cash
generating units for the purpose of future impairment testing. Each cash generating unit is the smallest identifiable group of assets that generate cash inflows that are largely independent of the cashflows from other groups of assets. Goodwill
arising on the acquisition of subsidiaries is presented in intangible assets and on the acquisition of associates and joint ventures is presented in investments in associates and joint ventures. Internally generated goodwill is not recognised as an
asset.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible assets: other<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The cost of other intangible assets acquired in a business combination is the fair value at acquisition date. These assets are shown at cost, and amortised, on a straight line basis, over
their expected useful economic lives. The definition of cost for separately acquired assets, as well as the useful economic life, varies according to the type of intangible asset: </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a) Trademarks<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trademarks
acquired separately are shown at historic cost, including acquisition expenses,
and amortised, on a straight line basis, over their expected useful economic
lives. Trademarks
principally relate to certain registrations of the Benson &amp; Hedges and Silk Cut trademarks in western Europe. The directors are of the opinion that, based on the established brand equity of Benson &amp; Hedges
and Silk Cut in these and other markets and the expectation that they will continue
to be developed and generate significant earnings over the long-term future,
a life of up to 40 years is appropriate. All other trademarks are amortised over
a period not exceeding 20 years. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b) Other intangible assets<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other intangible assets include separately acquired computer software, licences, location rights for vending machines and distribution rights. Computer software licences are capitalised
on the basis of the costs incurred to acquire and bring to use the specific software. Computer software development costs that are directly associated with the implementation of major business systems are capitalised as intangible assets. These
costs are amortised over their useful economic lives, a period not exceeding 10 years. Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. If acquired separately, other intangible
assets are shown at historic cost, including acquisition expenses, and amortised on a straight-line basis, over their expected economic lives, not exceeding 20 years. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Impairment of assets<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other intangible assets include separately acquired computer software, licences, location rights for vending machines and distribution rights. Computer software licences are capitalised
on the basis of the costs incurred to acquire and bring to use the specific software. Computer software development costs that are directly associated with the implementation of major business systems are capitalised as intangible assets. These
costs are amortised over their useful economic lives, a period not exceeding 10 years. Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. If acquired separately, other intangible
assets are shown at historic cost, including acquisition expenses, and amortised on a straight-line basis, over their expected economic lives, not exceeding 20 years. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-10</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf11"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary
    of significant accounting policies </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred Taxation<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial
statements. Deferred tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the liability is settled. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax assets are not recognised to the extent that the realisation of economic benefits in the future is not probable. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax is fully provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of the
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inventories<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inventories
are stated at the lower of cost and net realisable value. Cost is determined
using the first-in, first-out method. The cost of finished goods and work in
progress comprises consumable goods, raw materials, direct labour, other direct
costs and related production overheads (based on normal operating capacity).
Borrowing costs are excluded. Raw materials and consumable goods primarily consist
of raw tobacco leaf,
packaging materials and tax stamps. Finished goods comprise products made within
the Group&#146;s manufacturing locations including excise duty where the liability
has crystallised, and goods purchased by the Group for direct re-sale. Net realisable
value is the estimated selling price in the ordinary course of business, less
applicable variable selling expenses.</FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee benefits<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a) Pensions<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group operates both defined benefit pension plans and defined contribution pension plans. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A defined benefit pension plan defines the amount of pension benefit an employee will receive on retirement. The amount recognised in the balance sheet is the difference between the
present value of the defined benefit obligation and the fair value of plan assets at the balance sheet date. The defined benefit obligation is calculated at each reporting date by independent actuaries using the projected unit credit method.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Past service costs are recognised immediately in the income statement within operating profit, except past service costs where changes to the pension benefits are conditional on the
employees remaining in service for a specified period of time. In this case, the past-service costs are amortised on a straight-line basis over the vesting period. Interest on retirement benefit liabilities and the expected return on pension plan
assets are disclosed within finance expense and finance income in the income statement. All actuarial gains and losses, including differences between actual and expected returns on assets and differences arising from changes in actuarial
assumptions, are recognised in the statement of recognised income and expense in the period in which they arise.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A defined contribution plan is one under which fixed contributions are paid by the Group to a third party. The Group has no further payment obligations once these contributions have been
paid. The contributions are recognised in the income statement as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in the future payments is available.
</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b) Other post employment benefit obligations<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other post employment benefits comprise healthcare, product gratuities and severance plans provided by certain subsidiaries of the Group to some retirees. The entitlement to these
benefits is generally conditional on an employee remaining in service up to retirement age and/or the completion of a minimum service period and the rules of the relevant trusts. The income statement and balance sheet treatment with respect to these
benefits is similar to that for defined benefit pension plans. The obligations are valued at each reporting date by independent actuaries. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c) Share-based compensation<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
Group operates various equity settled, and cash settled share option schemes.
For equity settled schemes, the option is recognised as an expense over the vesting
period of the options. The total amount to be expensed over the vesting period
is determined by the fair value of the options granted at the grant date. Non-market
related vesting conditions are included in the assumptions about the number of
options that are
expected to become exercisable. At each balance sheet date these estimates are
revised and any adjustments are recognised in the income statement and shareholders&#146; equity.
The proceeds received are credited to share capital and share premium when the
options are exercised. Cash settled schemes are recognised as an expense over
the vesting period. The fair value of the liability is measured at each balance
sheet date and at the date of settlement with changes in fair value recognised
in
the income statement. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS 2 Share-based Payment, has been applied, in accordance with IFRS 1, to equity settled options granted after 7 November 2002 (including those that vested before 1 January 2005) and to
all cash settled share options. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-11</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf12"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary
    of significant accounting policies </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial Instruments<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial instruments are reported and measured in accordance with IAS 32 and IAS 39 respectively. Financial instruments comprise: non-derivative financial assets and liabilities,
including cash, deposits and borrowings; and financial derivatives, whose value changes in line with movements in market rates. The Group uses derivative financial instruments to hedge exposure to interest rate and foreign exchange risks arising
from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-derivative financial assets are classified as either: loans and receivables, cash and cash equivalents, or financial assets held at fair value through profit and loss. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial assets held at fair value through profit and loss are stated at their market value and changes in this value are taken to the income statement. Financial assets held at fair
value principally comprise listed securities held as collateral for pension and excise duty obligations. All other financial assets are stated at the lower of their initial cost (including any transaction costs and accrued interest receivable) and
their estimated recoverable amount. Cash and cash equivalents include cash in hand; deposits held on call with banks, other short-term highly liquid investments and accrued interest income thereon. Bank overdrafts are included within borrowings in
current liabilities on the balance sheet. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-derivative financial liabilities include borrowings and finance leases. They are stated at their redeemable value, including accrued interest payable, less transaction costs that have
not yet been recognised in the income statement. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Where the change in value of a financial liability or financial asset, due to the movement in market interest rates, has been hedged with a financial derivative, its value is adjusted for
the change in market value due to the financial risk being hedged. Where such fair value hedging relationships exist, the change in the value of the liability or asset being hedged should broadly offset the change in market value of the hedging
instrument and any difference is recognised immediately in the income statement.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Derivative financial instruments are stated at their market value in the balance sheet and are classified as current assets or liabilities, unless they form part of a hedging
relationship, in which case their classification follows the classification of the hedged financial asset or liability. Changes in the market value of derivative financial instruments are recognised immediately in the income statement, unless the
derivative is designated as a hedge of a net investment in a foreign operation or as a hedge of future cash flows, in which case the changes in value are taken direct to equity. A net investment in a foreign operation comprises the cost of the
investment, long-term intra-group receivables and payables that are not intended to be settled, and post-acquisition reserves. Where non-derivatives such as foreign currency borrowings are designated as net investment hedges, the relevant exchange
differences are similarly taken to equity. Where gains and losses have been taken direct to equity, the accumulated gain or loss is subsequently transferred to the income statement in the same period in which the foreign operation is sold or
otherwise disposed of. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Leases<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets held under finance leases are capitalised in the balance sheet and are depreciated over the shorter of useful economic lives and the period of the lease. The capital elements of
future obligations under leases are included as liabilities in the balance sheet. The interest elements of the lease obligations are charged to the income statement over the period of the lease. Rentals paid under operating leases are charged to the
income statement over the lease term on a straight-line basis. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-12</FONT></P>

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<div style="page-break-before:always"></div><page><a name="pF13"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center">    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Critical
    accounting estimates and assumptions</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and
assumptions that are felt most capable of influencing the carrying amounts of assets and liabilities to a material extent within the next financial year are discussed below. </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a) Estimated impairment of goodwill and other intangible assets<br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
Group tests annually whether goodwill and other long-lived intangible assets
have suffered any impairment, in accordance with the accounting policy stated
in note 1. The recoverable amounts of cash-generating units have been determined
based on value-in-use calculations. These calculations require the use of estimates
(note 12). As at 31 December 2005, the headroom for value-in-use above the carrying
value of goodwill on each
material unit of acquired goodwill exceeds 10%. As such, it is not felt that
a reasonably possible change in any single assumption on which management has
based its determination of the value-in-use would cause the material units&#146; carrying
amounts to exceed their recoverable amounts. </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b) Income taxes<br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group is subject to tax in numerous jurisdictions and significant judgement is exercised in determining the provision for taxes in each fiscal territory. There are many transactions
and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises probable liabilities for anticipated tax issues based upon an estimate of whether additional tax will be due. Where
the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c) Retirement Benefits<br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Costs relating to the various defined benefit pension schemes operating within the group are accounted for using methods that rely on actuarial estimates and assumptions to arrive at
costs and assets or liabilities for inclusion in the accounts. The assets and liabilities of the scheme are included in the balance sheets of the entities to which the schemes relate and, on consolidation, in the Group balance sheet. The income
statement components of the annual pension scheme movements are derived from the increase in the liability to pension scheme members of a further year of service, an interest cost relating to the unwinding of the discount used in arriving at the
present value of that expected liability and an estimated return on the assets held by the scheme based on assumptions taken at the previous year end.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At the end of each year, the value of the assets and liabilities that comprise the scheme is ascertained and the difference between the actual and expected position (as derived from the
income statement entries) is taken through the Statement of Recognised Income and Expense and hence the reserves of the entity that operates the scheme. If the markets in which assets held by the pension scheme decline, substantial deficits may
arise and may reduce the ability of a company to pay dividends. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group takes advice from independent actuaries as to the appropriateness of the assumptions we use. However, it is important to note that relatively small changes in the assumptions we
use can have a significant effect on the income statement and balance sheet pension components. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details of the key assumptions used to derive the amounts disclosed in relation to retirement benefits are set out in note 21 to the financial statements. Management regards the key
valuation driver to be the discount rate, which over the last three years has moved by less than 1% in aggregate. As at 31 December 2005, a movement of 0.1% on the discount rate would give rise to a movement of &#163;16m on the present value of
accrued retirement benefit liabilities. </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-13</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF14"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment
    reporting</font></b></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Primary reporting format - geographical segments<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
Group is principally engaged in the manufacture, marketing and selling of tobacco
and tobacco related products. A segment is a distinguishable component of the
Group that is engaged in providing products or services within a particular economic
environment and the Group&#146;s geographical segments form the focus of the Group&#146;s
internal reporting systems. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group is organised into four distinct, independently managed, geographic segments: United Kingdom (&#147;UK&#148;), Europe, Commonwealth of Independent States (&#147;CIS&#148;) and
Rest of World (principally comprising: Africa; Asia Pacific; the Baltics; the Middle East; Poland; and Scandinavia). </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The segment results are as follows:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">World</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross segment sales</FONT></TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,767</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,810</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">476</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">318</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=7% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,371</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inter-segment sales</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(109</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(16</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(32</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(157</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,658</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,794</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">476</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">286</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Duty</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,086</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,247</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">120</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">158</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,611</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from
operations before amortization of intangible assets and exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">310</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">259</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">670</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization of intangible assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(19</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from operations</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">284</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">234</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other segment items
included in the income statement are as follows:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share of profit of associates and joint ventures</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Depreciation</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">41</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">86</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Impairment of trade receivables</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="11" align=left><hr size="2" noshade></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">World</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross segment sales</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,799</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,866</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">410</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">192</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,267</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inter-segment sales</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(119</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(30</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(152</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,680</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,836</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">409</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">190</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Duty</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,112</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,283</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">102</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">71</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,568</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from
operations before amortization of intangible assets and exceptional items</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">302</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">260</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">648</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization of intangible assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional items</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from operations</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">290</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">245</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other segment items
included in the income statement are as follows:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share of profit of associates and joint ventures</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Depreciation</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-14</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF15"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">3. </font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment
    reporting </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment operating profit comprises total profit from operations less the share of profit of associates and joint ventures. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group operates a centralised financing policy and considers that any segmental apportionment of interest and interest bearing net liabilities would not be meaningful. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The segment assets and liabilities at 31 December and capital expenditure for the year then ended are as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">World</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">815</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,737</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">494</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">489</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,535</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Associates</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">116</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">116</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Joint ventures</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">815</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,862</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">494</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">489</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,660</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(542</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(513</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(96</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(103</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,254</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">273</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,349</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">398</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">386</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,406</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital expenditure:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions to property, plant and equipment</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">124</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions to intangible assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">73</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">76</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="11" align=left><hr size="2" noshade></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">World</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">793</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,819</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">458</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">402</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,472</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Associates</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">122</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">122</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Joint ventures</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">793</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,949</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">458</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">402</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,602</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(547</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(579</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(103</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(63</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,292</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">246</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,370</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">355</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">339</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,310</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital expenditure:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions to property, plant and equipment</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">47</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions to intangible assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="11" align=left><hr size="2" noshade></TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment assets consist primarily of property, plant and equipment, intangible assets, inventories and receivables. They exclude deferred taxation, derivatives and cash and cash
equivalents. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment liabilities
comprise operating liabilities. They exclude items such as current income tax
payables, deferred taxation, corporate borrowings and derivatives. </FONT></P>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment net
  assets are reconciled to the consolidated balance sheet as follows:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment net assets</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,406</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,310</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation (current income tax, deferred tax assets and deferred tax liabilities)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(106</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(101</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt (cash and cash equivalents, borrowings and derivative financial instruments)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,164</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,269</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net assets/(liabilities)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">136</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(60</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-15</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf16"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment
    reporting </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Secondary reporting format - business segments<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At
31 December 2005, the Group&#146;s operations comprise two main business segments: the manufacture, marketing and selling of tobacco products (&#147;Tobacco&#148;); and the
distribution of tobacco and non-tobacco products (&#147;Distribution&#148;).
The distribution operations are all within the Europe business segment. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,254</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6,121</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,960</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,994</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,214</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Duty</FONT></B></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,750</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,683</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">861</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">885</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,611</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,568</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from operations</FONT></B></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-before amortization of intangible assets and exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">605</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">585</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-amortization of intangible assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(12</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(25</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">568</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">559</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution</FONT></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-before amortization of intangible assets and exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-amortization of intangible assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">59</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-before amortization of intangible assets and exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">670</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">648</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-amortization of intangible assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(19</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total assets</FONT></B></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,330</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,698</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">544</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">634</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,874</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,332</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital expenditure </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(additions to property, plant and equipment and intangible assets)</FONT></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">192</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">200</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">111</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-16</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf17"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional
    items</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2003 and early 2004, Gallaher announced the restructuring of its European operations and administration. Gallaher ceased all manufacturing in the Republic of Ireland by the end of
    2003, and reduced jobs in the UK, Austria and Sweden.</FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In early 2005, Gallaher announced proposals for a further restructuring of its European operations. These proposals comprised: the closure of the Schwaz cigarette and Furstenfeld cigar
factories in Austria; the restructuring of production at the cigarette and cigar factories at Lisnafillan and Cardiff in the UK; and, reorganisation of some aspects of the distribution network in Europe. This activity commenced in 2005. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In December 2005, Gallaher further announced a restructuring of its German vending operation, ATG, reducing its machine park in recognition of new legislation coming into effect in 2007.
In addition, Gallaher sold its Dublin former factory site, realising a gain of &#163;15m. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net exceptional charges of &#163;35m are included in the income statement for the year ended 31 December 2005 in respect of these restructuring programmes, comprising: &#163;13m charged
in cost of goods sold (net of the gain on disposal of the Dublin former factory site); &#163;13m charged in distribution, advertising and selling costs; and, &#163;9m charged in administrative expenses. The charge for the year ended 31 December 2004
amounted to &#163;17m. The tax credit associated with the 2005 net exceptional charge is &#163;8m (2004: &#163;6m). The restructuring charges mainly relate to redundancy costs and the write-down of operational plant and machinery, offset partly
through the gain on disposal of land and buildings. The restructuring gave rise to a net cash outflow in 2005 of &#163;18m (2004: &#163;15m) (notes 28 and 29). </FONT></P>
<hr size="2" noshade>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Directors
    and employees</font></b></td>
  </tr>
</table>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Information
    on the directors&#146; remuneration (including pensions), shareholdings and
    share options is given in the remuneration report in Item 6 of this Annual
Report. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The average number of persons employed by the Group during the year, including executive directors and part-time employees, was: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">number</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">number</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,761</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,836</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,378</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,597</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CIS</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,162</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5,026</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of world</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">799</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">713</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11,100</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11,172</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee benefit expense:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Wages and salaries, including termination benefits of &#163;26m (2004: &#163;11m)</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">233</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">222</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Social security costs</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share options granted to directors and employees</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension costs - defined contribution plans</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension costs - defined benefit plans (note 21)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other post-employment benefits (note 21)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">296</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">284</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-17</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf18"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif"> Notes
to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.</font></b></font></b></td>
    <td><b><font size=4 face="TimesNewRoman,Times New Roman,Times,serif"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance
    costs - net</font></b></font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest expense:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- bank borrowings</FONT></TD>
	<TD width=7% align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B>
	</TD>
	<TD width=1% align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;&nbsp;

	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=7% align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD width=1% align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
    <TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- eurobonds and medium term notes</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">114</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">130</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- premium on forward foreign exchange contracts</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- other</FONT></TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">129</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">155</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest and other financial income:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- bank deposits</FONT></TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(16</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- interest rate swaps</FONT></TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left style="border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- other</FONT></TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(14</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(28</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair value gains on derivative financial instruments not designated as hedges</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net retirement benefits financing income:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- expected return on pension plan assets</FONT></TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(57</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(54</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- interest on retirement benefit liabilities</FONT></TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">47</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance costs - net</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">114</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Comprising:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest and other finance income</FONT></TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(77</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(88</FONT>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest and other finance expense</FONT></TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">177</FONT></B>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">202</FONT>
	</TD>
	<TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group uses forward foreign exchange contracts to hedge the foreign exchange risk arising on intra-Group borrowings and to hedge the net investment in foreign operations. The premiums
payable and discounts receivable on such contracts are amortised over the term of the contracts and recognised as net finance costs in the income statement. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The fair value gains on derivative financial instruments not designated as hedges represents the change in the market value of interest rate swaps and the change in the value of foreign
exchange contracts attributable to interest rate risk. The change in the value of forward foreign exchange contracts attributable to foreign exchange risk is matched with exchange gains and losses on the underlying assets or liabilities within Group
operating profit or, in the case of net investment hedges, taken direct to the currency translation reserve in equity. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The ineffective portion of interest rate swaps designated as fair value hedges was nil in 2005 (2004: nil). </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-18</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf19"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP
  Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  </FONT></B></p>
<p align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
  to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="top"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">7.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit
      before taxation</font></b></td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
      </FONT></B></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit
      before taxation is stated after charging/(crediting):</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Staff
      costs (note 5)</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">296</FONT></B>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">284</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Depreciation
      of property, plant and equipment:</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      owned assets (including &#163;7m charged in 2005 within exceptional items.
      2004: nil)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">85</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      under finance leases</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization
      of government grants</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization
      of intangible assets:</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      subsidiaries</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      associates</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      profit on disposal of property, plant and equipment</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(including
      a profit of &#163;14m in 2005 within exceptional items. 2004: nil)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other
      operating lease rentals payable:</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      plant and machinery</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      property</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional
      items - restructuring costs (note 4)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net
      foreign exchange gains (included in administrative expenses)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Audit
      fees for the Group amounted to &#163;1.4m (2004: &#163;1.3m).</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fees
      payable to PricewaterhouseCoopers in the UK for non-audit work amounted
      to &#163;0.7m (2004: &#163;0.3m).</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="5" align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-19</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf20"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
  to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="top"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">8.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation
      charge</font></b></td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left> <B></B></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
    <TD rowspan="2" align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD rowspan="2" align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current
      tax:</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      UK corporation tax at 30% (2004: 30%)</FONT></TD>
    <TD width="8%" align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62</FONT></B></TD>
    <TD width="2%" align=left>&nbsp;</TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63</FONT></TD>
    <TD width="2%" align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      overseas</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">127</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">123</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
      tax (note 22)</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      UK</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-
      overseas</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">144</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">142</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The tax on the Group&#146;s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies
as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit
      before tax</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">516</FONT></B>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">504</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax
      calculated at domestic tax rates applicable to profits in the respective
      countries</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">136</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">133</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expenditure
      not deductible for tax purposes</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non
      taxable income / credits</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(14</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Untaxed
      reserves</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax
      losses for which no deferred tax assets have been recognised</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Timing
      differences</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Utilisation
      of previously unrecognised tax losses</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization
      of goodwill and other intangibles</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustments
      to tax charge in respect of prior periods</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax
      charge</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">144</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">142</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      tax charge in 2005 includes a tax credit of &#163;8m relating to exceptional
      items (2004: &#163;6m) (note 4).</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="5" align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="5" align=left><hr size="2" noshade></TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-20</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf21"></a>
<p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP
  Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  </FONT></B></p>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
  to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="top"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">9.</font></b></td>
    <td> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Earnings
      per share</font></b></td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic
      earnings per share (pence per share)</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.5</FONT></B>
    </TD>
    <TD width=2% align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.0</FONT>
    </TD>
    <TD width=2% align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Diluted
      earnings per share (pence per share)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.4</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">54.9</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic earnings per share is calculated by dividing the earnings attributable to equity shareholders by the weighted average number of ordinary shares outstanding during the year,
excluding shares held in the Employee Benefit Trust. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">For diluted
  earnings per share, the weighted average number of ordinary shares in issue
  is adjusted to assume conversion of all dilutive potential ordinary shares.
  The Group&#146;s dilutive potential ordinary shares are those options granted
  to employees where the exercise price is less than the average market price
  of the company&#146;s ordinary shares during the year.</FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">A reconciliation
  of the earnings and weighted average number of shares used in the calculations
  are set out below.</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings
      (&#163;m):</FONT></B></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic
      and diluted</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT></B>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted
      average number of ordinary shares in issue (m):</FONT></B></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ordinary
      shares in issue</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">655.3</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">654.1</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shares
      held by employee share trusts</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2.0</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2.2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shares
      used in the calculation of basic earnings per share</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">653.3</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">651.9</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Potentially
      dilutive share options</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.6</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.6</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shares
      used in the calculation of diluted earnings per share</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">654.9</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">653.5</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The earnings have been impacted by exceptional items and amortization of intangible assets. To illustrate the impact of these items, the adjusted earnings per share are shown below:
</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings
      per share (pence):</FONT></B></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Basic
      earnings per share</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">56.5</FONT></B>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.0</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustment
      for exceptional items (net of tax and minority interest)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.7</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.7</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustment
      for amortization of intangible assets</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.9</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.0</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjusted
      earnings per share</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63.1</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58.7</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      adjusted earnings per share is based on:</FONT></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings
      (&#163;m):</FONT></B></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit
      for the year attributable to equity shareholders</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional
      items (before tax)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax
      on exceptional items</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority
      share of exceptional items</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization
      of intangible assets</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjusted
      earnings</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">413</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">382</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted
      average number of ordinary shares in issue (m):</FONT></B></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">653.3</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">651.9</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="5" align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-21</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf22"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD width=5% align=left><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10.</FONT></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Dividends per
share</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total dividends paid to the Group&#146;s shareholders in each year are as follows:</FONT></TD>
  </TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pence per</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pence per</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">share</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">share</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends on ordinary equity shares:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Final dividend in respect of 2004</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21.5</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.15</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">141</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">131</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interim dividend in respect of 2005</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10.6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10.00</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">69</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32.1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30.15</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">210</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">196</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
</TABLE>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Proposed dividend<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A
final dividend in respect of 2005 of 22.9p per share, amounting to a total dividend
of &#163;219m (33.5p per share), is to be proposed at the Annual General Meeting in May 2006. These
financial statements do not reflect this proposed dividend. In 2004 the final proposed dividend was 21.5p per share, amounting to a total dividend of &#163;206m
(31.5p per share). </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-22</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf23"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="5%" valign=top>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11.</FONT></B>&nbsp; &nbsp; &nbsp; 	</TD>
	<TD>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property, plant and equipment</FONT></B></TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 align="center" cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Land and</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Plant and</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fittings and</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Construction</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">buildings</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">machinery</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">equipment</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">in progress</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January 2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">143</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">433</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">284</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">872</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accumulated depreciation</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(172</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(99</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(293</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">261</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">185</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">579</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December 2004</FONT></B></TD>
	<TD align=left>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
	</TD>
	<TD align=left>&nbsp;
	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Opening net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">261</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">185</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">579</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reclassifications</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(37</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Disposals</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Depreciation charge</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(47</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(77</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Closing net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">272</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">181</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">588</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">144</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">455</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">297</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">910</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accumulated depreciation</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(23</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(183</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(116</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(322</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">272</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">181</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">588</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December 2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Opening net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">272</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">181</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">588</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">124</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reclassifications (see below)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(40</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Disposals</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Depreciation charge</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(35</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(48</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(86</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Closing net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">294</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">171</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">622</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">147</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">497</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">324</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,004</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accumulated depreciation</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(26</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(203</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(153</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(382</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">294</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">171</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">622</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The net book
    amount of reclassifications in 2005 of &#163;6m comprises properties reclassified
as &#147;held for sale&#148; (note 18). </FONT></p>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Depreciation
    has been charged in the income statement as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost of goods sold</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution, advertising and selling costs</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Administrative expenses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">86</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
</TABLE>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Included within
    fixtures and fittings are assets acquired by finance lease with a net book
value of &#163;2m (2004: &#163;6m). </FONT></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The net book
  amount of land and buildings comprises:</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Freehold</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">120</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Long leasehold</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">121</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-23</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf24"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
      GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"> <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
      to the Financial Statements </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD width="5%" valign=top>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12.</FONT></B>&nbsp; &nbsp; &nbsp; 	</TD>
	<TD>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible assets</FONT></B></TD>
</TR>
</TABLE>
	<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trademarks</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">intangibles</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January 2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,219</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,474</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accumulated amortization and impairment</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(48</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(11</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(59</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,219</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">173</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,415</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December 2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Opening net book value</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,219</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">173</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,415</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization charge</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(12</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Closing net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,214</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">165</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,401</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,214</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">37</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,472</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accumulated amortization and impairment</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(56</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(71</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,214</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">165</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,401</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Year ended 31 December 2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Opening net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,214</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">165</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,401</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additions</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">71</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">76</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization charge</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Closing net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,205</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">227</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,452</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,205</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">292</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,533</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accumulated amortization and impairment</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(65</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(16</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(81</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net book amount</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,205</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">227</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,452</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other intangible assets include separately acquired computer software, licences, location rights for vending machines and distribution rights. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization in respect of subsidiaries has been charged in the income statement as follows:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost of goods sold</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution, advertising and selling costs</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Administrative expenses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-24</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF-25"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B></p>
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">  </FONT></B>    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
  <table width="100%" border="0" cellspacing="0" cellpadding="0">
    <tr valign="top">
      <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">12.</font></b></td>
      <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible
      assets </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
    </tr>
  </table>
</div>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Impairment tests for goodwill</FONT></B><br>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill
is allocated to the Group&#146;s cash-generating-units (CGUs) identified according to the country of operation and business type. A summary of the goodwill allocation,
illustrating the significant goodwill allocations in comparison with the Group&#146;s
total goodwill, is presented below: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Segment</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria Tabak - Central Europe</FONT></TD>
	<TD width="12%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD width="8%" align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">720</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">742</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria Tabak - Scandinavia</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rest of World</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">266</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">275</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Various</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">219</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">197</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill - subsidiaries</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,205</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,214</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Associate - Lekkerland</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Europe</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">90</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">92</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total goodwill</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,295</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,306</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">With respect to the two significant Austria Tabak CGUs shown above, the recoverable amount of the goodwill of each CGU is determined based on value-in-use calculations. These calculations
use cash flow projections based on financial budgets approved by management covering a three-year period. Based on management&#146;s experience as to the periods over which competitive advantage from acquisition can be retained, cash flows beyond
the initial forecast period are extrapolated for an additional four years at growth rates applicable to reduce the annual growth rates gradually down to rates in line with management&#146;s view of the long-term average growth for the tobacco
industry in each business region. A terminal value is then calculated, based on the final extrapolated year&#146;s cash flows and appropriate perpetual growth rates.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">When assessing the value-in-use of potential acquisitions, the tobacco industry tends to apply perpetual growth rates within the range of -1% to +1%, depending on the operating
environment of the acquisition in question. The weighted average perpetual growth rates applied in calculating the value-in-use of the significant recoverable amount calculations fall within this range. Discount rates applied to the Austria Tabak -
Central Europe and Austria Tabak - Scandinavia CGUs are 9% and 10% respectively. Other key assumptions relate to cigarette market shares, size and profitability, which have been based on the key markets of Austria and Sweden. These assumptions have
been determined by management based on past performance and expectations for the future. Recoverable value significantly exceeds carrying value for these CGUs.</FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-25</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF-26"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc
</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">13.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments
    in associates</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width="8%" align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">122</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">116</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share of profit</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other movements</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">116</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">122</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments in associates at 31 December 2005 include goodwill of &#163;90m (2004: &#163;92m). The share of profit of associates in 2005 is stated after charging &#163;4m in respect of
the amortization of intangible assets (2004: &#163;1m). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s interest in its principal associate, which is unlisted, was as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD width=8% align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=5% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest</FONT></TD>
	<TD width=5% align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=5% align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=5% align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=5% align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=5% align=left>&nbsp;

	</TD>
    <TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Country of</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">held</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Name</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Incorporation</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade> </TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Lekkerland GmbH &amp; Co KG</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Germany</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,511</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">284</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">168</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(formerly Lekkerland-Tobaccoland</FONT></I>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">GmbH &amp; Co KG)</FONT></I>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Lekkerland GmbH &amp; Co KG</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Germany</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,343</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">286</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">164</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(formerly Lekkerland-Tobaccoland</FONT></I>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">GmbH &amp; Co KG)</FONT></I>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr valign="top">
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">14. </font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments
    in joint ventures</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<B></B></TD>
	<TD align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width="8%" align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share of profit</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
 &nbsp; &nbsp; &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other movements (see below)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">During 2005, the Group&#146;s net investment in its joint ventures decreased by &#163;2m (2004: &#163;3m), as a result of the repayment of long-term loans by R.J.Reynolds-Gallaher
International SARL. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s interest in its principal joint ventures, all of which are unlisted, were as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=20% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Country of</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=40% align=left>&nbsp;

	</TD>
    <TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Name</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">incorporation</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Principal activity</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hungarotabak-Tobaccoland Rt</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hungary</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Wholesale distribution of tobacco and other products.</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">R.J.Reynolds-Gallaher International SARL</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Switzerland</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing of tobacco products in Europe.</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher-Reynolds Equipment Company</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Republic of Ireland</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Leasing of tobacco manufacturing machinery.</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">GOLD-FILTER Kereskedelmi es</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hungary</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Wholesale distribution of non-tobacco products.</FONT></TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Szolgaltato kft</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s interest in each joint venture is 50%, except in the case of Hungarotabak-Tobaccoland Rt, where the Group owns 51% of the equity through its subsidiary, Austria Tabak.
However, voting rights are restricted to 50%. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s share of the assets, liabilities and results of its joint ventures are as follows: </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-26</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF-27"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">14.</font></b><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments
    in joint ventures (continued)</font></b></td>
  </tr>
</table>
<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
      GROUP Plc
</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements </FONT></B></p>
<TABLE width="100%" border=0 align="center" cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-current assets</FONT></TD>
	<TD width="8%" align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-current liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net Assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Income</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">95</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expenses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(56</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(90</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit after income tax</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There are no contingent liabilities relating to the Group&#146;s interest in its joint ventures, and no contingent liabilities of the joint ventures themselves. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s joint ventures had no capital commitments at 31 December 2005 (2004: nil).</FONT></P>
<hr size="2" noshade>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">15.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade
    and other receivables</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
	<TABLE width="100%" border=0 align="center" cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<B></B></TD>
	<TD align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade receivables</FONT></TD>
	<TD width="8%" align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">750</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">741</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less: provision for impairment of receivables</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade receivables - net</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">746</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">738</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Prepayments and accrued income</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Receivables from related parties (note 34)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other receivables</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">49</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">40</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">816</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">804</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less non-current portion: other receivables</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current portion</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">812</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">800</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The non-current receivables are due within five years from the balance sheet date. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Groups&#146; current receivables principally comprise short-term trade receivables due within 30 - 60 days of the balance sheet date in accordance with normal trade terms.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The fair value of the Group&#146;s non-current receivables at 31 December 2005 amounted to &#163;4m (2004: &#163;4m). The fair values are based on cash flows discounted using a rate based
on the borrowings rate of 5.0% (2004: 5.0%) . </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group has recognised a loss of &#163;1m (2004: nil) for the impairment of trade receivables during the year ended 31 December 2005. The loss has been included within operating
expenses in the income statement. </FONT></P>
<hr size="2" noshade>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-27</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf28"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">16.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Inventories</font></b> </td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Raw materials and consumables</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">178</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">189</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Work in progress</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finished goods and goods for resale</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">288</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">267</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">474</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">484</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The cost of
    inventories recognised as expense and included in &#145;cost of goods sold&#146; amounted
to &#163;5,874m (2004: &#163;5,829m).</font></P>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finished goods
    inventories are carried at lower of cost or net realisable value (fair value
    less costs to sell). During the year the Group has written down inventories
    amounting to &#163;5m (2004: &#163;3m). The Group reversed &#163;1m (2004: nil) of previously written down inventories. The amount reversed has been included in &#145;cost of goods sold&#146; in
    the income statement. </FONT></P>
<hr size="2" noshade>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">17.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
    assets at fair value through profit or loss</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Listed equity securities - eurozone countries</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial assets principally comprise listed securities held by the Austria Tabak group of companies as collateral for pension and excise duty obligations. These financial assets are
designated at fair value on initial recognition.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Changes in financial assets at fair value through profit or loss are presented within the section on operating activities as part of changes in working capital in the cash flow
statement.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Changes in fair values of financial assets at fair value through profit or loss are recorded in &#147;other gains and losses - net&#148; in the income statement. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">18.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non
    current assets held for sale</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As a consequence of the restructuring of the Group&#146;s European operations and administration during 2005 (note 4), a number of properties have become surplus to requirement. These
properties, which include two factories in Austria and several distribution depots, are being actively marketed and have been classified as assets held for sale. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property, plant and equipment</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">19.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade
    and other payables</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trade payables</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">160</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">125</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Excise duties, social security and other taxes</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">726</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">746</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amounts due to related parties (note 34)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other payables</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">61</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued expenses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">75</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">70</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,038</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">997</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less non-current portion: accrued expenses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current portion</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,032</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">992</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-28</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf29"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
    Instruments</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Balance
    sheet analysis</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD colspan="3" align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>	</TD>
	<TD align=left>&nbsp;</TD>
	<TD colspan="3" align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</font>

	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD colspan="3" align=center><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan="3" align=center><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Assets</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">i) Cash and cash equivalents</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash at bank and in hand</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">199</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">188</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments in preference shares issued by corporate entities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">550</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other cash equivalents</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ii) Borrowings</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non-current:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">195</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">163</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,384</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,034</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance lease obligations</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,594</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,215</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings and overdrafts</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">156</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">175</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">615</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">639</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance lease obligations</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">816</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">892</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">iii) Derivatives</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest-rate-swaps - fair value hedges</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest-rate-swaps - other</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward foreign exchange contracts</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">33</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">68</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">116</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less non-current portion:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest-rate-swaps - fair value hedges</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">84</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">37</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total financial assets and liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">289</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,453</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">877</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,146</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total accrued interest included in the above</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance lease obligations are effectively secured as the rights to the leased assets revert to the lessors in the event of default. All other borrowings are unsecured. Cash at bank at 31
December 2005 includes &#163;8m (2004: nil) held in an escrow account (see note 35). </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans comprise:</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;900m 2005 Eurobond 4.875%</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">638</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;750m 2006 Eurobond 5.875%</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">515</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">530</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;375m 2008 Eurobond 5.875%</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">260</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">268</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;300m 2009 Eurobond 6.625%</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">301</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">301</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;800m 2011 Eurobond 4.625%</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">567</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">583</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;250m 2013 Eurobond 5.75%</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">256</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">252</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total listed bonds</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,899</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,572</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;100m Medium term note 6.47%</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equipment debt promissory notes</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,999</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,673</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-29</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf30"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.</font></b> </td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
    Instruments </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Balance
    sheet analysis </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><b><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">iv) Currency analysis and effective interest rates</font></b> </p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The currency denomination and the effective interest rates of the Group&#146;s cash and cash equivalents at the balance sheet date are as follows.</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Currency:</FONT></U></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.1</FONT></B></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">75</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.3</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Polish zloty</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">64</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.4</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US dollar</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.3</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Swedish kroner</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.1</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russian rouble</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.1</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Kazakhstan tenge</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.2</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.3</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Class of Instrument:</FONT></U></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash at bank and in hand</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">199</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.1</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other cash equivalents</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.2</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.3</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Currency:</FONT></U></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">605</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.4</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">73</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Polish zloty</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">61</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US dollar</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Swedish kroner</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.6</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russian rouble</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Kazakhstan tenge</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.0</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Class of Instrument:</FONT></U></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash at bank and in hand</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">188</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.7</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Investments in preference shares issued by corporate entities</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">550</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.4</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other cash equivalents</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.6</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.0</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The effective
    interest rates shown in the tables above have been calculated excluding the
accrued interest balances.</font></p>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-30</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf31"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
  <p>    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B><BR>
  </p>
</div>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD width=5% align=left><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.</FONT></B></TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Financial Instruments </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</FONT></TD>
</TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD width="3%" align=left><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">a)</FONT></B></TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">      Balance sheet analysis </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</FONT></TD>
  </TR>
</TABLE>
<P><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">iv) <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Currency
analysis and effective interest rates </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></font></b></P>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The currency
      denomination and the effective interest rates of the Group&#146;s borrowings
  at the balance sheet date are as follows:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD colspan="11" align=left>
      <div align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maturity</FONT>	</div></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD colspan=2 align=right><hr size="1" noshade></TD>
  <TD colspan=3 align=right><hr size="1" noshade></TD>
  <TD colspan=3 align=right><hr size="1" noshade></TD>
  <TD colspan=3 align=right><hr size="1" noshade></TD>
  <TD colspan=4 align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD colspan=2 align=right>
      <div align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less than</FONT></div></TD>
	<TD colspan=3 align=right>
      <div align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 1</FONT></div></TD>
	<TD colspan=3 align=right>
      <div align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 2</FONT></div></TD>
	<TD colspan=3 align=right>
      <div align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">More than</FONT></div></TD>
	<TD align=right>
      <div align="center"></div></TD>
    <TD colspan=2 align=center><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Weighted</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
      <div align="left"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 year</FONT></div></TD>
	<TD colspan=3 align=right><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">and
    2 years</font></div></TD>
	<TD colspan=3 align=right><div align="center"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">and
    5 years</font></div></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
      <div align="left"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5 years</FONT></div></TD>
	<TD align=right>
      <div align="center"></div></TD>
    <TD colspan=2 align=center><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Currency:</FONT></U>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></B></TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.5</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">377</FONT></B></TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.3</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">256</FONT></B></TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.8</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">733</FONT></B></TD>
	<TD width=6% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.1</FONT></B></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">587</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">101</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.9</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">270</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.7</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">567</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,525</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.1</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Polish zloty</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.6</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Swedish kroner</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.0</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Dollar</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.1</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11.5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11.5</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">816</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">110</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">647</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">837</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,410</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.4</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Class of Instrument:</FONT></U>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">156</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.9</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">109</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">86</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.7</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">351</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.1</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans and finance lease obligations</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.9</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">561</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.3</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">823</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,001</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.7</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">816</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">110</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">647</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">837</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,410</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.4</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Currency:</FONT></U>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.5</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">341</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">252</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.8</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">697</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.0</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">724</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">532</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.9</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">373</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">583</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,212</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Polish zloty</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Swedish kroner</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US Dollar</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">34</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">892</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">642</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">724</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">849</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,107</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">By Class of Instrument:</FONT></U>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">175</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">153</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">338</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.7</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans and finance lease obligations</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">640</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.9</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">632</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">571</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">835</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,678</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.5</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">892</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">642</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">724</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">849</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,107</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The effective interest rates shown in the tables above have been calculated excluding the accrued interest balances. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The overall average interest rate payable on net financial liabilities, after the impact of interest rate swaps, during 2005 was 5.6% (2004: 5.8%) and on 31 December 2005 was 5.8% (2004:
5.8%) . </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-31</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf32"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B>    </p>
  <p><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
  <p align="left">  <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.&nbsp;&nbsp;&nbsp;Financial
    Instruments </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font> </p>
</div>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD width="3%" align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">b)</FONT></B> </TD>
    <TD align=left>  <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest
    rate exposure</FONT></B></TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="2" align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
        exposure of the Group&#146;s borrowings and cash and cash equivalents
        to interest rate changes at the balance sheet dates are set out in the
        tables below, together with the impact of interest rate swaps. Where
        fixed interest rate receivable swaps have been used to swap fixed rate
        borrowings into variable rate borrowings, the effective date of the interest
        rate change is less than 1 year. Where fixed interest rate payable swaps
        have been used to swap variable rate borrowings into fixed rate borrowings,
        the effective date of the interest rate change is the maturity date of
        the
fixed interest rate payable swap. </font></TD>
  </TR>
</TABLE>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The dates on which the interest rate on a borrowing changes will be earlier than the contractual maturity date of the borrowing shown in paragraph c) liquidity risk below where the
interest rate payable is reset before the maturity date.</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD colspan="7" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date of interest rate change</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less than</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">More than</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 year</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and 2 years</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and 5 years</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5 years</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Borrowings:</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings and overdrafts</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">251</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">351</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">615</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">562</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">822</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,999</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance leases obligations</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total borrowings</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">925</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">101</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">562</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">822</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,410</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(221</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(221</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net borrowings subject to interest rate changes,</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">before the impact of interest rate swaps</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">704</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">101</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">562</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">822</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,189</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps:</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed rate receivable swaps</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,206</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(384</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(822</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed rate payable swaps</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(470</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">470</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net borrowings subject to interest rate changes, after</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the impact of interest rate swaps</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,440</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">101</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">648</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,189</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Borrowings:</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings and overdrafts</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">235</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">103</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">338</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">639</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">630</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">569</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">835</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,673</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance lease obligations</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total borrowings</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">969</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">631</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">672</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">835</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,107</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(761</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(761</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net borrowings subject to interest rate changes,</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">before the impact of interest rate swaps</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">208</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">631</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">672</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">835</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,346</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps:</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed rate receivable swaps</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,136</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">84</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(385</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(835</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed rate payable swaps</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(527</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">57</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">470</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net borrowings subject to interest rate changes, after</FONT></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left></TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;
	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">the impact of interest rate swaps</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">817</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">772</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">757</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,346</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate sensitivity</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
2005, if variable interest rates had been 1% higher, on average, with all other
variables held constant, post-tax profit for the year would have been &#163;4m (2004: &#163;4m)
lower,
mainly as a result of higher interest expense on variable rate borrowings. </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-32</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf33"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
  <p>    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B><BR>
  </p>
</div>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD width=3% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.</FONT></B>
	</TD>
	<TD align=left>
<B></B>  <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial Instruments </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</FONT></TD>
  </TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD width="3%" align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">c)</FONT></B> </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liquidity
          Risk</FONT></B></TD>
  </TR>
</TABLE>
<P><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The settlement
      dates of financial instruments at the balance sheet date are set out below.
      In the case of financial derivatives, settlement is either on a gross or
      net basis. The Group manages the liquidity risk of financial liabilities
      by maintaining sufficient liquid financial assets and the availability
    of funding through an adequate amount of committed credit facilities. At
    31
      December 2005, in addition to cash and cash
    equivalents of &#163;221m, the Group had undrawn committed credit facilities totalling &#163;925m (2004: &#163;500m)
that mature in 2010. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD colspan="7" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Settlement date</FONT>	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less than</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 2</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">More than</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 year</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and 2 years</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and 5 years</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5 years</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross Settlement Receipts</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents</FONT></B></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward foreign exchange contracts:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">231</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">231</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">323</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">323</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">170</FONT></B></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">69</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">378</FONT></B></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=center>&nbsp;</TD>
  <TD align=center><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">842</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">170</FONT></B></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">69</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,153</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross Settlement Payments</FONT></U>&nbsp;
	</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left><hr size="1" noshade>

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings and overdrafts</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">156</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">109</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">86</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">351</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">615</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">558</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">800</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,973</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance lease obligations</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward foreign exchange contracts:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US dollars</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">241</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">241</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">229</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">229</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Polish zloty</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">63</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">148</FONT></B></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">42</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">320</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,452</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">177</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">792</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">842</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3,263</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net Settlement on Financial Derivatives</FONT></U>&nbsp;
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Receipts</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Payments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward foreign exchange contracts:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Receipts</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Payments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-33</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF-34"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc
</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.&nbsp;</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
    Instruments </font></b></font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">c)</font></b></font></font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liquidity
    Risk </font></b></font></font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></font></font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD width=2% align=left>&nbsp;</TD>
  <TD colspan="7" align=center> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Settlement
    date</font></TD>
  <TD width=2% align=right>&nbsp;</TD>
  <TD width=10% align=left>&nbsp;</TD>
  <TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan="7" align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less than</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 1</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Between 2</FONT></TD>
	<TD width="2%" align=right>&nbsp;</TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">More than</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 year</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and 2 years</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and 5 years</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5 years</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross Settlement Receipts</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward foreign exchange contracts:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">786</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">786</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">192</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">192</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">68</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">199</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">110</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">477</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,839</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">68</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">199</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">110</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,216</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
    <TD align=right>&nbsp; </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gross Settlement Payments</FONT></U>&nbsp;
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bank borrowings and overdrafts</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">175</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">153</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">338</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">637</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">631</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">565</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">816</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,649</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance lease obligations</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accrued interest</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">91</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward foreign exchange contracts:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">764</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">764</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US dollars</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">131</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">131</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Polish zloty</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">68</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">185</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">89</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">407</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
    <TD align=right>&nbsp; </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,925</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">708</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">905</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">905</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4,443</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
    <TD align=right>&nbsp; </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net Settlement on Financial Derivatives</FONT></U>&nbsp;
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Receipts</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Payments</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward foreign exchange contracts:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Receipts</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Payments</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">d)</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair
    values of financial assets and liabilities</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The carrying amounts of cash and cash equivalents, trade and other receivables, bank borrowings and overdrafts, finance lease obligations, financial derivatives and trade and other
payables approximate to their fair value. The carrying amounts and fair values of other loans are as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD colspan="3" align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Carrying amount</FONT>	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD colspan="3" align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair value</FONT>	</TD>
	<TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD width=5% align=right><hr size="1" noshade></TD>
  <TD width=2% align=right><hr size="1" noshade></TD>
  <TD width=5% align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD width=5% align=right><hr size="1" noshade></TD>
  <TD width=2% align=right><hr size="1" noshade></TD>
  <TD width=5% align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other loans</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD width="8%" align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,999</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,673</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD width="8%" align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,054</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD width="8%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2,748</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The fair values of other loans are the amounts at which the financial instruments could be exchanged in a current transaction between willing parties. </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-34</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF-35"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><br>
    <br>
  <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
  <table width="100%" border="0" cellspacing="0" cellpadding="0">
    <tr>
      <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.</font></b></td>
      <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
      Instruments </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
    </tr>
    <tr>
      <td>&nbsp;</td>
      <td>&nbsp;</td>
    </tr>
    <tr>
      <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">e)</font></b></td>
      <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
      risk management</font></b> </td>
    </tr>
  </table>
  <p align="left"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">i)&nbsp;&nbsp;&nbsp;Interest
    rate risk<br>
  </font></b><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
    Group has both interest bearing financial assets and liabilities. As the
    Group&#146;s financial assets are only held for short periods before being used to repay financial
liabilities, the Group does not actively manage the interest rate risk on these assets. The Group&#146;s
policy in respect of financial liabilities is to maintain a target level of fixed
interest rate cover in the current and subsequent two years of between 40% and
80% of the level of core net financial liabilities. At the year-end, fixed interest
rate debt, after the impact of interest rate swaps, represented approximately
70% (2004: 70%) of net debt (as defined in note 30). </FONT></p>
</div>
<p><B><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps - fair value hedges</FONT></U></B></p>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group has a number of long-term bonds outstanding on which a fixed interest rate is payable. In order to manage the proportion of fixed and variable rate financial liabilities, the
    Group entered into interest rate swaps under which the Group receives a fixed interest rate equivalent to the fixed coupon payable on the bond and pays a variable interest rate based on a relevant market benchmark interest rate plus a fixed margin.
    This has the effect of replacing fixed rate debt with variable rate debt. Certain of these interest rate swaps have then been designated as fair value hedges of the corresponding fixed rate financial liability, i.e. the bond. The risk that is being
    hedged is the change in the fair value of the fixed rate financial liability due to changes in market interest rates. The changes in the value of these fixed rate financial liabilities and the corresponding interest rate swap are taken to the income
    statement, where they broadly offset. </FONT>
</p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details of the fixed interest rate receivable swaps that have been designated as fair value hedges are shown below. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan="7" align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hedged
      item</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=7 align=center> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hedging
      instrument</font> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left></TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan=7 align=center><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan=7 align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gain/(loss)</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan="3" align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gain/(loss)</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">in
      net</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair
      value</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">in
      net</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair
      value</FONT> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=center> &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hedged
      item</FONT></TD>
    <TD colspan="7" align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hedging
      instrument</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">finance
      costs </FONT> </TD>
    <TD align=right>&nbsp;</TD>
    <TD colspan=3 align=center><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">gain/(loss)</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">finance
      costs</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">gain/(loss)</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan="3" align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">adjustment</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan="3" align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">adjustment</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><hr size="1" noshade></TD>
    <TD colspan="23" align=center><hr size="1" noshade></TD>
    <TD align=center>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maturity</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Variable</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">date</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">rate</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">rate</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">principal</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
    <TD align=right>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="15" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;</font>&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">900m
      2005</FONT></TD>
    <TD width=8% align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT>
    </TD>
    <TD width=1% align=center>&nbsp; </TD>
    <TD width=8% align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.875%.</FONT>
    </TD>
    <TD width=1% align=center>&nbsp;</TD>
    <TD width=8% align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euribor
      plus</FONT> </TD>
    <TD width=1% align=center>&nbsp; </TD>
    <TD width=8% align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;900m</FONT>
    </TD>
    <TD width=1% align=left>&nbsp;</TD>
    <TD width=5% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
    </TD>
    <TD width=1% align=left>&nbsp; </TD>
    <TD width=5% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
    </TD>
    <TD width=1% align=left>&nbsp; </TD>
    <TD width=5% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
    </TD>
    <TD width=1% align=left>&nbsp; </TD>
    <TD width=5% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
    </TD>
    <TD width=1% align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD width=5% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD width=1% align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD width=5% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
    </TD>
    <TD width=1% align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD width=5% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD width=1% align=right>&nbsp;</TD>
    <TD width=5% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.875%
      Bond</FONT></TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.89%</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;</font>&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">119m
      2008</FONT></TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.875%.</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euribor
      plus</FONT> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;119m</FONT>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.875%
      Bond</FONT></TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.095%</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;</font>&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300m
      2009</FONT></TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2009</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.625%.</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Libor
      plus</FONT> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;300m</FONT>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.625%
      Bond</FONT></TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.26%</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;</font>&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">800m
      2011</FONT></TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2011</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.625%.</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euribor
      plus</FONT> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#128;800m</FONT>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(16</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(16</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.625%
      Bond</FONT></TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.7%</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;</font>&nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250m
      2013</FONT></TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2013</FONT>
    </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.75%.</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Libor
      plus</FONT> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;250m</FONT>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.75%
      Bond</FONT></TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.0125%</FONT>
    </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="15" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(11</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="15" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<p align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-35</FONT></p>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page>
<p><a name="pF-36"></a></p>
<p><a href="#contents"><font size="2">Back to Contents</font></a>
</p>
<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif"></FONT></B>    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
          Instruments </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">e)</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
          risk management</font></b> </td>
  </tr>
</table>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">  <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">i)&nbsp;&nbsp;&nbsp;</font></b><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest
    rate risk (continued)</font></b></font></p>
<P><U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest rate swaps - other<br>
</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following interest rate swaps do not meet the criteria for hedge accounting under IAS 39 and changes in their fair value are taken to the income statement. The fixed interest rate
payable swaps were undertaken when the Group had a higher level of floating rate bank debt, in order to hedge the cash flow risk. Subsequently, when the Group refinanced floating rate bank debt with fixed interest rate bonds, fixed interest rate
receivable swaps were entered into to maintain the overall level of fixed interest rate cover within the target range of 40% to 80%. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan=3 align=center> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gain/(loss)
      in net</font> </TD>
    <TD align=center>&nbsp;</TD>
    <TD colspan="3" align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair
      value</FONT> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD colspan=3 align=center> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notional
      principal</font> </TD>
    <TD align=right>&nbsp;</TD>
    <TD colspan=3 align=center> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">finance
      costs</font> </TD>
    <TD align=center>&nbsp;</TD>
    <TD colspan=3 align=center> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">asset/(liability)</font>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="11" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Maturity</FONT></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Variable</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date</FONT></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="11" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD colspan=3 align=left> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed
      interest rate payable swaps</FONT></U>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
    <TD width=1% align=left>&nbsp;</TD>
    <TD width=10% align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008</FONT></TD>
    <TD width=1% align=center>&nbsp;</TD>
    <TD width=10% align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.9</FONT><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>
    </TD>
    <TD width=1% align=left>&nbsp;</TD>
    <TD width=10% align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Libor</FONT>
    </TD>
    <TD width=1% align=left>&nbsp; </TD>
    <TD width=8% align=right> <B><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1
      </FONT></SUP></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">470</FONT></B></TD>
    <TD width=1% align=right>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">470</FONT></TD>
    <TD width=1% align=right>&nbsp;</TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
    </TD>
    <TD width=1% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
    <TD width=1% align=right>&nbsp;</TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(21</FONT></B>
    </TD>
    <TD width=1% align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT>
    </TD>
    <TD width=2% align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2006</FONT></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.8</FONT><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euribor</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">114</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="11" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">525</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">584</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(25</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="11" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD colspan=3 align=left> <U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fixed
      interest rate receivable swaps</FONT></U> </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008</FONT></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6.6</FONT><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Libor
      plus</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.26</FONT><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sterling</FONT></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2008</FONT></TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.7</FONT><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Libor
      plus</FONT> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp; </TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.0</FONT><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</font>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD colspan=3 align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center></TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="12" align=left><hr size="1" noshade> </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=center> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">550</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">550</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=center>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD colspan="11" align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 </FONT></SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Included in this balance is an interest rate swap contract of &#163;50m maturing in December 2008 with a
fixed interest rate payable of 5.6% where the counterparty has the option to extend the contract for a further five years. </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-36</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf37"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP
  Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the
  Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="top"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> Financial
      Instruments </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">e)</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial
    risk management </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ii)&nbsp;Foreign
  exchange risk<br>
  </font></b><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
  Group has operations in the UK, the Republic of Ireland, Europe, the CIS, Asia
  and Africa. The Group is exposed to foreign exchange risks arising from future
  commercial transactions, recognised assets and liabilities, and net investments
  in foreign operations, mainly with respect to the euro, US dollars, Russian
  rouble, Polish zloty, Kazakhstan tenge, Ukrainean hryvnia and the UK pound sterling.
  </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, companies in the Group use forward contracts, transacted with
Group Treasury or external counterparties. The Group also enters into forward exchange contracts to hedge the foreign exchange exposure in respect of intra-Group loans to and from its overseas subsidiaries. Group Treasury is responsible for managing
the overall net position of the Group in each foreign currency. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group has
  investments in foreign operations whose net assets are exposed to foreign currency
  translation risk. The Group finances certain overseas investments in the euro
  and US dollar through the use of foreign currency borrowings and forward exchange
  contracts to hedge the net foreign currency investment including the post-acquisition
  retained reserves. The Group hedges the foreign exchange risk on a post-tax
  basis. As the exchange differences arising on the post acquisition retained
  profits are not subject to taxation, the value of the foreign currency liabilities
  used to hedge these profits is grossed up at the prevailing UK corporation tax
  rate. The Group does not hedge the foreign exchange risk in respect of the translation
  of the results of overseas operations into sterling.</FONT></P>
<P><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">iii)&nbsp;Net
  investment hedges</font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="4" align=left>&nbsp; </TD>
    <TD colspan="3" align=center> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="4" align=left>&nbsp;</TD>
    <TD colspan="3" align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</font>
    </TD>
    <TD rowspan="4" align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="3" align=center> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD colspan="3" align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</font>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US
      Dollar</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Euro</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US
      Dollar</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hedging
      instruments:</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Foreign
      currency borrowings</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,323</FONT></B></TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,363</FONT></TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD width=2% align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forward
      foreign exchange contracts</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">106</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">247</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">110</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total
      value of hedging instruments</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,429</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">247</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,473</FONT></TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<P> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">f)&nbsp;&nbsp;&nbsp;Credit
      Risk<br>
  </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
  Group has some significant concentrations of credit risk with trading customers
  and financial institutions. It has policies in place to ensure that sales of
  products are made to customers with an appropriate credit history and obtains
  guarantees or other means of credit support to reduce the risk, where this is
  considered to be necessary. Derivative and other financial transactions are
  undertaken only with counterparties that have an investment grade credit rating.
</FONT></P>
<hr noshade align="center" size="2">
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-37</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf38"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
  to the Financial Statements</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR>
    <TD width="3%" align="left" valign=top> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21.</FONT></B>
    </TD>
    <TD> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement
      benefit obligations</FONT></B> </TD>
  </TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">i)
      Balance sheet obligations:</FONT></B></TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left> </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension
      benefits - net (assets)/liabilities</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(36</FONT></B>
    </TD>
    <TD width=2% align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other
      post-employment benefits</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
</table>

<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other post-employment
  benefits comprise medical benefits (&#147;healthcare&#148;), product gratuities
  and severance payments.</font> </p>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The amounts
  recognised in the balance sheet are determined as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Present
      value of funded obligations</FONT></TD>
    <TD width="8%" align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">972</FONT></B>
    </TD>
    <TD width="2%" align=left>&nbsp; </TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">905</FONT>
    </TD>
    <TD width="2%" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Present
      value of unfunded obligations</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">66</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total
      defined benefit obligation</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,039</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">971</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair
      value of plan assets</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,024</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(899</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
</table>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The movement
  in the defined benefit obligation is as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At
      1 January</FONT></TD>
    <TD width="8%" align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">971</FONT></B>
    </TD>
    <TD width="2%" align=left>&nbsp; </TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">915</FONT>
    </TD>
    <TD width="2%" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employer
      service cost</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Past
      service cost</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Curtailment
      gains</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest
      cost</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">48</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">47</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actuarial
      losses</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contributions
      by plan participants</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benefits
      paid</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(55</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(50</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Settlements</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange
      differences</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At
      31 December</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,039</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">971</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
  </TR>
</table>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The movement
  in the fair value of the plan assets is as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At
      1 January</FONT></TD>
    <TD width="8%" align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(899</FONT></B>
    </TD>
    <TD width="2%" align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD width="8%" align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(835</FONT>
    </TD>
    <TD width="2%" align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expected
      return on plan assets</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(57</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(54</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actuarial
      gains</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(90</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(30</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employer
      contributions</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(34</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(36</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contributions
      by plan participants</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benefits
      paid</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Settlements</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange
      differences</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At
      31 December</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,024</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(899</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="5" align=left><hr size="2" noshade></TD>
  </TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-38</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf39"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center"> <B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER
  GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes
  to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="top"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">21.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement
      benefit obligations </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ii)&nbsp;Pension
  benefits</font></b><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">
  </FONT><br>
  <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group operates
  defined benefit retirement arrangements in the UK, Austria, Republic of Ireland
  and Germany. All of these plans are administered and financed in accordance
  with local legislation and practice. In the UK and Irish schemes, assets are
  held in trust separately from the assets of the subsidiaries. In Austria, book
  reserves are established in respect of the liabilities and, in line with Austrian
  legislation, the corresponding assets are held by the respective subsidiary
  (the subsidiary has no legal right to the use of the assets for any purpose
  other than the provision of pension benefits). Book reserves are also established
  in respect of German liabilities, which are unfunded. </FONT>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The pension costs of these arrangements are assessed in accordance with the advice of independent qualified actuaries using the projected unit method. The latest actuarial valuations of
the UK and Republic of Ireland pension schemes were undertaken as at 31 March 2005 and 1 January 2004 respectively, and the results of these valuations have been updated to 31 December 2005. Formal valuations of the Austrian and German plans are
undertaken annually, as at 31 December. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The latest agreed contribution rates (as a percentage of pensionable pay) for the material funded schemes are as follows: UK: 31% plus &#163;10m per annum, Austria: 13.9% per annum and
Republic of Ireland: 6.0% per annum. </FONT></P>
<P> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The UK defined
  benefit pension scheme was closed to new entrants on 30 June 2003. The main
  Austrian pension plan was closed to new entrants on 31 December 2002. Because
  the plans are closed, the average age of the active members is likely to increase
  in future, leading to an increasing current service contribution rate. This
  may be offset by a falling total pensionable salary resulting from leavers and
  retirements.</FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The amounts
  recognised in the balance sheet are determined as follows:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
    <TD rowspan="2" align=left>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD rowspan="2" align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
    </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
    </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Present
      value of funded obligations</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">972</FONT></B>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">905</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Present
      value of unfunded obligations</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></B>
    </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair
      value of plan assets</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,024</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(899</FONT>
    </TD>
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(36</FONT></B>
    </TD>
    <TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Comprising:</font></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Plans
      in net surplus (non-current assets)</FONT></TD>
    <TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(56</FONT></B>
    </TD>
    <TD style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
    </TD>
    <TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Plans
      in net deficit (non-current liabilities)</FONT></TD>
    <TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black"> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT></B>
    </TD>
    <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-bottom-color:black; border-right-color:black">&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black"> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT>
    </TD>
    <TD align=left style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-bottom-color:black; border-right-color:black">&nbsp; </TD>
  </TR>
</table>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The principal
  weighted average actuarial assumptions used in the valuation of the Group&#146;s
  pension liabilities are as follows:</font> </p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></B>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Discount
      rate</FONT></TD>
    <TD width=8% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.7</FONT></B>
    </TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=2% align=left>&nbsp; </TD>
    <TD width=8% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.2</FONT>
    </TD>
    <TD width=2% align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate
      of increase in salaries</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.6</FONT></B>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.6</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate
      of increase of pensions in payment</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></B>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate
      of price inflation</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></B>
    </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.7</FONT>
    </TD>
    <TD align=left>&nbsp; </TD>
  </TR>
</TABLE>
<p> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group&#146;s
  pension plan assets and weighted average expected rates of return are as follows:
  </FONT></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR valign="bottom">
    <TD rowspan="6" align=left>&nbsp;  </TD>
    <TD colspan="3" align=center> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31
      December 2005</FONT></B> </TD>
    <TD rowspan="6" align=left>&nbsp;</TD>
    <TD colspan="3" align=center> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31
      December 2004</FONT> </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=left><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expected</FONT></B></TD>
    <TD rowspan="4" align=right>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expected</FONT></TD>
    <TD rowspan="4" align=right>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">return</FONT></B></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">return</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">per
      annum</FONT></B></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">per
      annum</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></B></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right>&nbsp;</TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equities</FONT></TD>
    <TD width=10% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7.9</FONT></B></TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=10% align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">579</FONT></B></TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7.4</FONT></TD>
    <TD width=2% align=left>&nbsp;</TD>
    <TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">546</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bonds</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.4</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">421</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.9</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">343</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Property</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.6</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other
      (including cash)</FONT></TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.2</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.8</FONT></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,024</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp; </TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">899</FONT></TD>
  </TR>
  <TR valign="bottom">
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
    <TD align=right>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=left>&nbsp;</TD>
    <TD align=right><hr size="1" noshade></TD>
  </TR>
  <TR valign="bottom">
    <TD colspan="8" align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-39</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF40"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">21. </font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement
    benefit obligations </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ii) Pension benefits </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest
investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets. </FONT></p>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The amounts
recognised in the income statement are as follows:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD width=80% align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employer service cost</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Past service cost</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Curtailment gains</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charge included in staff costs within operating profit (note 5)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest on retirement benefit liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">46</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expected return on pension plan assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(57</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(54</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net credit included in finance costs</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(11</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net charge recognised in the income statement</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The actual return
on pension plan assets was &#163;147m (2004: &#163;84m).</font></p>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Costs in respect
    of defined benefit pension plans are charged to operating profit in the income
statement as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cost of goods sold</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution, advertising and selling costs</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Administrative expenses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Movement in
the net pension (asset)/liability recognised in the balance sheet:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total expense charged in the income statement</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actuarial (gains)/losses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(31</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contributions paid</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(30</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(31</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(36</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-40</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF41"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">21.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement
    benefit obligations </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ii) Pension benefits</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> (continued)</FONT><U><FONT size=2 face="TimesNewRoman,Times New
Roman,Times,serif"><br>
UK pension plan<br>
</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
Group&#146;s principal defined benefit pension plan is in the UK. The amounts
recognised in the balance sheet in respect of the UK plan are as follows: </FONT></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Present value of funded obligations</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">850</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">789</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair value of plan assets</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(899</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(777</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net (surplus)/deficit</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(49</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The principal
    actuarial assumptions used in the valuation of the UK pension liabilities
are as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Discount rate</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.80</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.30</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate of increase in salaries</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.75</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.80</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate of increase of pensions in payment</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.75</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.80</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Rate of price inflation</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.75</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.80</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A detailed investigation into the mortality experience of the UK plan was carried out as part of the 2005 actuarial valuations. The life expectancies underlying the value of the pension
liabilities of the UK plan at 31 December 2005 are as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Life expectancy at age 60 (years):</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Male</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Female</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Member currently aged 60</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20.3</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23.3</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Member currently aged 45</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22.1</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25.1</FONT></TD>
</TR>
</TABLE>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The UK pension
plan assets and expected rates of return are as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD colspan="3" valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 December 2005</FONT></B>	</TD>
	<TD valign="bottom">&nbsp;</TD>
	<TD colspan="3" valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 December 2004</FONT>	</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
</TR>
<TR>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD colspan="3" valign="bottom"><hr size="1" noshade></TD>
  <TD valign="bottom">&nbsp;</TD>
  <TD colspan="3" valign="bottom"><hr size="1" noshade></TD>
  <TD align=left valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expected</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Expected</FONT></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
    <TD align=left valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">return</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">return</FONT></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair</FONT></TD>
    <TD align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">per annum</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">per annum</FONT></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">value</FONT></TD>
    <TD align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">%</FONT></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equities</FONT></TD>
	<TD width=8% align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8.0</FONT></B></TD>
	<TD width=2% align=right valign="bottom">&nbsp;</TD>
	<TD width=8% align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">522</FONT></B></TD>
	<TD width=2% align=right valign="bottom">&nbsp;</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7.5</FONT></TD>
	<TD width=2% align=right valign="bottom">&nbsp;</TD>
	<TD width=8% align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">484</FONT></TD>
    <TD width=2% align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Bonds</FONT></TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.5</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">377</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5.0</FONT></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">293</FONT></TD>
    <TD align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom"><hr size="1" noshade></TD>
  <TD align=right valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom"><hr size="1" noshade></TD>
  <TD align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">899</FONT></B></TD>
	<TD align=right valign="bottom">&nbsp;</TD>
	<TD align=left valign="bottom">&nbsp;

	</TD>
	<TD align=left valign="bottom">&nbsp;</TD>
	<TD align=right valign="bottom">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">777</FONT></TD>
    <TD align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom"><hr size="1" noshade></TD>
  <TD align=right valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom"><hr size="1" noshade></TD>
  <TD align=right valign="bottom">&nbsp;</TD>
</TR>
<TR>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=left valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom">&nbsp;</TD>
  <TD align=right valign="bottom">&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-41</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF42"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">21.&nbsp;</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement
    benefit obligations </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">iii) &nbsp;&nbsp;Other post-employment benefits<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other post-employment benefits comprise healthcare, product gratuities and severance plans provided by certain subsidiaries of the Group to some retirees. The method of accounting,
assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The main actuarial assumption is the weighted average medical expense inflation of 4.4% per annum (2004: 4.3%) used in the valuation of UK healthcare liabilities. </FONT></P>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The liabilities
recognised in the balance sheet are determined as follows:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liabilities: present value of unfunded obligations</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The amounts recognised in the income statement are as follows:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
    <TD width=2% align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employer service cost</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Past service cost</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charge included in staff costs within operating profit (note 5)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Interest on liabilities - included in finance costs</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charge recognised in the income statement</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Of the total charge of &#163;3m (2004: &#163;3m) included in staff costs within operating profit, &#163;2m (2004: &#163;1m) is included in cost of goods sold and &#163;1m (2004: &#163;2m)
is included in administrative expenses. </FONT></P>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Movement in
the liability recognised in the balance sheet:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">52</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total expense charged in the income statement</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actuarial losses/(gains)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contributions paid</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">50</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">iv) &nbsp;&nbsp;Experience
gains and losses in the year <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
experience gains and losses recognised in relation to the Group&#146;s retirement
benefit plans during the year are analysed as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Difference between expected and actual return on scheme assets</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">90</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Experience gains and losses on retirement benefit liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(19</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Changes in actuarial assumptions</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(41</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(58</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total amount recognised in the statement of recognised income and expense</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(14</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Comprising:</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension benefits</FONT></TD>
	<TD align=right  style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></B>
	</TD>
	<TD align=left   style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right  style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left   style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other post-employment benefits</FONT></TD>
	<TD align=right  style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left  style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right  style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
	</TD>
	<TD align=left  style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total amount recognised in the statement of recognised income and expense expressed as a percentage</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of the present value of retirement benefit liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.9%</FONT></B>
	</TD>
	<TD align=left>
<B></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1.5%</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The cumulative actuarial gain recognised in the statement of recognised income and expense at 31 December 2005 amounted to &#163;16m (2004: loss of &#163;14m). </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-42</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf43"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">22.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
    tax</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax is calculated in full on temporary differences under the liability method using the tax rate applicable in the relevant fiscal territory. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to
the same fiscal authority. The offset amounts are as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax assets:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- deferred tax asset to be recovered after more than 12 months</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(24</FONT></B>
	</TD>
	<TD width=2% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- deferred tax asset to be recovered within 12 months</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(33</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax liabilities:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- deferred tax liability to be recovered after more than 12 months</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">60</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- deferred tax liability to be recovered within 12 months</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net deferred tax liability</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The gross movement
on the deferred income tax account is as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Income statement charge (note 8)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax charged/(credited) to equity (note 25)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left><hr size="1" noshade>
  </TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets because it is probable that these assets will be
recovered. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The movement in deferred tax assets and liabilities during the year, taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows: </FONT></P>
<P><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
tax liabilities:</font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Accelerated</FONT></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">tax</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair value</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">depreciation</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">gains</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">benefits</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January 2004</FONT></B></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">23</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charged to the income statement</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Credited to equity</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">26</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charged/(credited) to the income statement</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charged to equity</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD height="20" align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-43</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf44"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements </FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">22. </font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
    tax </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P align="left"><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
tax assets:</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tax</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">assets</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">benefits</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">losses</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January 2004</FONT></B></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(16</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(26</FONT></B>
	</TD>
	<TD width=2% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charged/(credited) to the income statement</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Credited to equity</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(12</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(33</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charged/(credited) to the income statement</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Credited to equity</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
</TABLE>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The deferred tax charged to equity during the year of &#163;9m (2004: credit of &#163;5m) relates to tax on actuarial gains/losses recognised on retirement benefits.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through the future taxable profits is probable. The Group has
not recognised deferred tax assets of &#163;5m (2004: &#163;2m) in respect of losses amounting to &#163;22m (2004: &#163;12m) that can be carried forward against future taxable income. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax is recognised on the unremitted earnings of certain overseas subsidiaries. In other instances, where the earnings are continually reinvested by the group, no tax is expected
to be payable on them in the foreseeable future and hence no deferred tax liability is recognised. If these earnings were remitted, unprovided tax of &#163;34m (2004: &#163;21m) would be payable. </FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-44</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf45"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">23.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Provisions
    for liabilities and charges</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employment</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Restructuring</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">benefits</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">provisions</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
  <TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January 2005</FONT></TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
	</TD>
	<TD width="2%" align=left>&nbsp;

	</TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT>
	</TD>
	<TD width="2%" align=left>&nbsp;

	</TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD width="2%" align=left>&nbsp;

	</TD>
	<TD width="10%" align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT>
	</TD>
	<TD width="2%" align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Charged to consolidated income statement:</FONT></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- additional provisions</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">20</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- unused amounts reversed</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
 &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp;<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Used during the year</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(11</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Analysis of
total provisions:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
	<TD align=left><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font>

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</font></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Non current</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Current</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">14</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD width=1% align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">With the exception of vacant property obligations (see below) and on-going employment benefits, management expect the non current portion of provisions to be utilised within five years of
the balance sheet date. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Restructuring <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Restructuring
provisions at 31 December 2005 mainly relate to charges associated with the restructuring
of the Group&#146;s European operations and administration in Austria and Sweden
(note 4) and depot closures in the German vending business. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employment benefits <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employment
benefits relate mainly to contractual &#145;jubilee&#146; one-off cash payments
due after a certain service period to employees in Austria, the provision of
paid leave prior to severance in Germany and employment benefits relating to
the acquisition of Austria Tabak. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other provisions <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other provisions at 31 December 2005 relate to vacant property obligations, costs associated with the requirement to remove vending machines in compliance with German legislation and
deferred consideration relating to the acquisition of Gallaher Snus AB. The property obligations relate to two offices in the UK where the Group has head lease commitments until 2013 and 2014 respectively. Provisions have been made for the residual
lease commitments, after taking into account existing sub-tenant arrangements. </FONT></P>
<hr size="2" noshade>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-45</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf46"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR>
    <TD width="3%" valign=top> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">24.</FONT></B></TD>
    <TD> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share
          capital</FONT></B></TD>
  </TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share</font></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">of shares</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">capital</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">premium</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">millions</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January 2004</FONT></B></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">653.6</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">125</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee share option schemes - shares issued</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.4</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right><font size="2" face="TimesNewRoman,Times New Roman,Times,serif">-</font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">655.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">129</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee share option schemes - shares issued</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>      <font size="2" face="TimesNewRoman,Times New Roman,Times,serif">-</font></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">656.0</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">65</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">134</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The total authorised number of ordinary shares is 1,050 million shares (2004: 1,050 million shares) with a par value of 10p per share (2004: 10p per share). All shares issued are fully
paid. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share Options <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
total expense recognised in the year arising from equity-settled share-based
payment transactions was &#163;5m (2004: &#163;1m). </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Savings related share option scheme (&#147;SRSOS&#148;) <br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under
the terms of the Gallaher Group Plc Inland Revenue approved SRSOS the Board may
offer options to purchase ordinary shares in the Company to eligible employees
who apply to enter into a SRSOS savings contract. Options may be offered at a
maximum discount of 20% of the share price as quoted on the London Stock Exchange
at or around the date of the offer. The options may normally be exercised during
the period of six months
after the expiry of the SRSOS contract, three, five or seven years after entering
the scheme, or on leaving the Group&#146;s employment, other than by resignation,
early retirement or dismissal.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD colspan=3 align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=center>&nbsp;</TD>
	<TD colspan="3" align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</font></TD>
	<TD align=center>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD colspan="3" align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD colspan="3" align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average</FONT></B>
	</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>

	</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Average</FONT>
	</TD>
	<TD align=right></TD>
	<TD align=right>

	</TD>
	<TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">exercise</FONT></B>
	</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Options</FONT></B>
	</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">exercise</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Options</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">price</FONT></B></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(millions)</FONT></B>
	</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">price</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(millions)</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">436p</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.9</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">378p</FONT>
	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4.7</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Granted</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">681p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">505p</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.8</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forfeited</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">665p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(0.1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">455p</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(0.2</FONT>
	</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exercised</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(0.9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">277p</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1.4</FONT>
	</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">485p</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"></FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.3</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">436p</FONT>
	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.9</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Out of the 3.3m outstanding options (2004: 3.9m), 0.1m options were exercisable (2004: 0.1m options). During the year, 0.9m shares (2004: 1.4m) were allocated to employees in satisfaction
of options exercised under the Gallaher Group Plc SRSOS at a weighted average of 369p each (2004: 277p). Options are exercised on a regular basis throughout the year, with the weighted average share price during the period being 830p (2004:
669p).</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following options over ordinary shares have been granted and are outstanding at 31 December 2005: </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD colspan=5 align=center><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number
    of shares (millions)</font></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD colspan="5" align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exercise</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date of grant</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date exercisable</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">price</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">July 1997</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=45% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sep 2002 - Feb 2005</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">234p</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.0</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 1998</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2001 - May 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">330p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.2</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 1999</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2002 - May 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">350p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 2000</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2003 - May 2008</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">297p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.4</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 2001</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2004 - May 2009</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">367p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.2</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.2</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 2002</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2005 - May 2010</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">559p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.4</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 2003</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2006 - May 2011</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">443p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.6</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 2004</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2007 - May 2012</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">505p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.7</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.8</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">October 2005</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dec 2008 - May 2013</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">681p</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.5</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.9</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<hr noshade size="2">
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-46</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf47"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>



  <p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
  <p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
  <table width="100%%" border="0" cellspacing="0" cellpadding="0">
    <tr>
      <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">24.</font></b></td>
      <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share
      capital </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
    </tr>
  </table>

<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exercise of an option is subject to continued employment. The fair value of options granted during the period determined using the Black-Scholes valuation model was 226p (2004: 150p). The
significant inputs into the model were share price of 877p (2004: 631p), at the grant date, exercise price (see table), standard deviations of expected share price returns for the 3, 5 and 7 year schemes of 20%, 24% and 29% respectively (2004: 24%,
30% and 30%), option life, and annual risk-free interest rate of 5% (2004: 5%). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three, five or
seven years, a period matching the duration of the scheme in question. The expected dividend yield at the date of grant was 4% (2004: 4%), being the available market consensus rate at that time. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance share plan and deferred bonus plan <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Details of these plans, which are available to senior executives and executive directors, are given in the remuneration report in Item 6B of the Annual Report. The vesting of these awards
is conditional upon the achievement of certain targets.</FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Movements in
the number of share options outstanding are as follows:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Options</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Options</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(millions)</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(millions)</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.9</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.4</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Granted</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.2</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Forfeited</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(0.2</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exercised</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(0.4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(0.5</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Lapsed</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(0.4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.3</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.9</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Out of the 3.3m outstanding options (2004: 2.9m options), nil options were exercisable (2004: nil). During the year, 0.4m shares vested under the two plans in respect of the three-year
performance period ended 31 December 2004 (2004: 0.5m shares vested in respect of the three-year performance period ended 31 December 2003). Options vest in March of each year, with the weighted average share price for this month being 766p (2004:
664p).</FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The following
    options over ordinary shares have been granted and are outstanding at 31
December 2005:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=center>&nbsp;</TD>
	<TD colspan="3" align=center>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Number of shares</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD colspan="3" align=center><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(millions)</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD colspan="3" align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Date of grant</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Performance period</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2002</FONT></TD>
	<TD width=55% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Jan 2002-Dec 2004</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">0.8</FONT></TD>
	<TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2003</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Jan 2003-Dec 2005</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.0</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2004</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Jan 2004-Dec 2006</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.1</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">March 2005</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Jan 2005-Dec 2007</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1.2</FONT></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=center>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3.3</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.9</FONT></TD>
	<TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The vesting of these awards is conditional on the achievement of certain targets. The weighted average fair value of options granted during the period determined using the Black-Scholes
valuation model was 691p (2004: 586p). The significant inputs into the model were a weighted average share price of 779p (2004: 680p), at the grant date, a standard deviation of expected share price returns for the 3 year schemes of 24% (2004: 25%),
option life of three years, and annual risk-free interest rate of 5% (2004: 5%). Multiples of 58% and 52%, calculated using an actuarial TSR pricing model, have been applied to the Black-Scholes-derived fair values to reflect the impact of the TSR
criteria against the FTSE 100 Comparator Group and Industry Comparator Group respectively (2004: 58% and 52%). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices
over the last three years. The expected dividend yield at the date of grant was 4% (2004: 4%), being the available market consensus rate at that time.</FONT></P>
<hr noshade size="2">
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-47</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf48"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements </FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
  <TR>
    <TD width="3%" valign=top> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">25.</FONT></B> </TD>
    <TD> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reserves</FONT></B></TD>
  </TR>
</TABLE>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=right></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Currency</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">redemption</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Merger</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">translation</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retained</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reserve</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reserve</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reserve</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reserve</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">earnings</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January 2004</FONT></TD>
	<TD width=8% align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">146</FONT></TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(911</FONT>
	</TD>
	<TD width=2% align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">332</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actuarial
	    loss recognised on retirement benefits</font>

	</TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(14</FONT>
	</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=right></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
tax relating to actuarial loss on </font>retirement benefits</FONT></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Currency translation differences</FONT></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT>
	</TD>
	<TD align=left><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the
year attributable to equity shareholders</FONT></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee share option schemes:</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- value of employee services</FONT></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Increase in own shares held by the Employee</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benefit Trust</FONT></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends paid to equity shareholders</FONT></TD>
	<TD align=right><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(196</FONT>
	</TD>
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2004</FONT></B></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">146</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(911</FONT></B>
	</TD>
	<TD align=left><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></b></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(13</FONT></B>
	</TD>
	<TD align=left><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></b></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">485</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Actuarial
	    gain recognised on retirement benefits</font>

	</TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">30</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax relating
to actuarial gain on retirement benefits</FONT></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT></B>
	</TD>
	<TD align=left><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></b></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Currency translation differences</FONT></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the
year attributable to equity shareholders</FONT></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee share option schemes:</FONT></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- value of employee services</FONT></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Increase in own shares held by the Employee</FONT></TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>

	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benefit Trust</FONT></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends paid to equity shareholders</FONT></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(210</FONT></B>
	</TD>
	<TD align=left> <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December 2005</FONT></B></TD>
	<TD align=right><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">146</FONT></B></TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(911</FONT></B>
	</TD>
	<TD align=left><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></b></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT></B>
	</TD>
	<TD align=left><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</font></b></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">667</FONT></B>
	</TD>
	<TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=left>&nbsp;  </TD>
  </TR>
</TABLE>

<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital redemption reserve <br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Upon the buy back of its own shares by the Company, the nominal value of the shares cancelled is transferred to a capital redemption reserve in accordance with Section 170(1) of the
Companies Act 1985. </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Merger reserve <br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In 2001, the Company completed a private placing of 35.7 million ordinary shares of 10p in connection with the acquisition of Austria Tabak. This capital reorganisation gave rise to a
merger reserve. </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other reserve <br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">On demerger from Fortune Brands, Inc. in 1997, the Company underwent a capital reorganisation that included a purchase of own shares out of capital resulting in the creation of the other
reserve. </FONT></P>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee benefit trust<br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
employee benefit trust (&#147;EBT&#148;) has been established to acquire ordinary shares in Gallaher Group Plc, by subscription or purchase, from funds provided by the Group to
satisfy rights to shares arising on the vesting of awards under the performance share plan and deferred bonus plan. All finance costs and administration expenses connected with the EBT are charged to the profit and loss account as they accrue. The
trust has waived its voting and dividend rights and the shares held by the trust are excluded from the calculation of basic, adjusted and diluted earnings per share. At 31 December 2005, the trust holds 2,084,089 shares (2004: 2,108,602 shares) with
an original cost of &#163;14m (2004: &#163;13m) and a market value of &#163;18m (2004: &#163;17m). </FONT></P>
<hr noshade size="2">
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-48</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf49"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">26.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Consolidated
    statement of changes in equity attributable to shareholders</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Opening equity attributable to shareholders</FONT></B></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(91</FONT></B>
	</TD>
	<TD width=2% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(235</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income/(expense) recognised directly in equity</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(22</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the year attributable to equity shareholders</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total recognised income for the year</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">398</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">336</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Employee share option schemes:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- value of employee services</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- issue of ordinary shares</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Increase in own shares held by the Employee Benefit Trust</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends paid to equity shareholders</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(210</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(196</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Closing equity attributable to shareholders</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(91</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<table width="100%%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="3%">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">27.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority
    interests</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 1 January</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share of net profit of subsidiaries</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Dividends</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At 31 December</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-49</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf50"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">28.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash
    generated from operations</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the year</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">372</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">362</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustments for:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Tax (note 8)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">144</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">142</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Finance costs - net (note 6)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">100</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">114</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Share of post-tax results of joint ventures and associates (note 3)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(19</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Exceptional items (note 4)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Depreciation (excluding exceptional items)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">79</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">77</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Amortization of government grants</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Amortization of intangible assets included in subsidiaries</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Loss/(profit) on sale of property, plant and equipment (excluding exceptional items)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Charge in respect of employee share schemes</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Other non-cash adjustments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Changes in working capital (excluding the effects of acquisitions, exceptional items</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and exchange differences):</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Inventories</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">27</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Trade and other receivables</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(49</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Financial assets at fair value through profit and loss</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Trade and other payables</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Retirement benefits assets and liabilities</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(16</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(18</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash generated from operations before exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">733</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">770</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash outflow from exceptional items</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(33</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(15</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash generated from operations</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">700</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">755</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr width="100%" size="2" noshade>
<table width="100%%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">29.&nbsp;</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;Proceeds
    from sale of property, plant and equipment</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional item - proceeds from sale of Dublin factory site (note 4)</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">All other proceeds</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Proceeds from sale of property, plant and equipment</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">21</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-50</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf51"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
<table width="100%%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">30.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reconciliation
    of movements in net debt</font></b></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt comprises current and non current borrowings, derivative financial instrument assets and liabilities and cash and cash equivalents, excluding all accrued interest. </FONT></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Decrease)/increase in cash and cash equivalents</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(536</FONT></B>
	</TD>
	<TD width=2% align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">621</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Decrease/(increase) in borrowings</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">626</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(371</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Change in net debt resulting from cash flows</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">90</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">250</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exchange differences</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other non-cash movements including revaluation of derivative financial instruments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Decrease in net debt in the year</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">98</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">256</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt at 1 January</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,234</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,490</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt at 31 December</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,136</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,234</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt in
the cash flow is reconciled to the balance sheet as follows:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Non current assets:</FONT></I></B>&nbsp;
	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Derivative financial instruments</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Current assets:</FONT></I></B>&nbsp;
	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Derivative financial instruments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">84</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Cash and cash equivalents</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Non current liabilities:</FONT></I></B>&nbsp;
	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Borrowings</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1,594</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,215</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Derivative financial instruments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<B><I><FONT size=2 face="TimesNewRoman,BoldTimes New Roman,Times,serif">Current liabilities:</FONT></I></B>&nbsp;
	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Borrowings</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(816</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(892</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Derivative financial instruments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(43</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(37</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt including accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,164</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,269</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less: accrued interest included within the above headings</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">28</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">35</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net debt in the cash flow</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,136</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2,234</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash
equivalents in the cash flow statement comprise:</font></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents per balance sheet</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">221</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">761</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Less: accrued interest</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(5</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cash and cash equivalents in the cash flow statement</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">219</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">756</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
  </TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  </TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-51</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf52"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<div align="center">
  <p><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
  <p>    <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>
  <table width="100%" border="0" cellspacing="0" cellpadding="0">
    <tr>
      <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">31.</font></b></td>
      <td><b><font size=2 face="TimesNewRoman,Times New
Roman,Times,serif">Contingencies</font></b></td>
    </tr>
  </table>
</div>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group has contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business. It is not anticipated that any material
liabilities will arise from the contingent liabilities. The Group has given guarantees in the ordinary course of business amounting to &#163;23m (2004: &#163;9m) to third parties.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group is subject
to a number of legal and regulatory risks which are described in Item 4 part
B and Item 8 part A of this Annual Report.</FONT></P>
<hr size="2" noshade>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">32.&nbsp;</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Commitments</font></b></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
</table>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capital commitments</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Contracts placed but not yet provided for in the financial statements</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">These commitments
mainly relate to plant and machinery and merchandising units.</font></P>
<P><I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating lease commitments - where a Group company is the lessee<br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group leases various offices, warehouses and factory sites under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The
Group also leases various machinery, vehicles and equipment under non-cancellable operating lease agreements. The lease expenditure charged to the income statement during the year is disclosed in note 7. </FONT></P>
<P> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The future
    aggregate minimum lease payments under non-cancellable operating leases are
as follows:</font></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Not later than one year</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Later than one year and not later than five years</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Later than five years</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">43</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">69</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">68</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%">&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
        fair value of the Group&#146;s minimum obligations under non-cancellable
        operating leases at 31 December 2005 amounted to &#163;35m (2004: &#163;34m).
        The fair values are based on cash flows discounted using a rate based
    on the borrowings rate of 5% (2004: 5%). </font></td>
  </tr>
  <tr>
    <td>&nbsp;</td>
    <td>&nbsp;</td>
  </tr>
  <tr>
    <td colspan="2"><hr size="2" noshade></td>
  </tr>
</table>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-52</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf53"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B>    </p>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">33.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Business
    combinations</font></b></td>
  </tr>
</table>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">There were no business combinations in 2005. See note 35 for disclosures regarding an acquisition that took place after the balance sheet but before the approval of these financial
statements. </FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004<br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In
January 2004 the Group&#146;s associate, Lekkerland GmbH &amp; Co. KG (&#147;L-T&#148;), purchased 100% of Lekkerland Europa Holding GmbH (&#147;LEH&#148;), for a total consideration
of &#163;110m, which was funded from L-T&#146;s own financial resources. LEH is a German company engaged in the wholesale distribution of tobacco and other products and operates principally in EU countries. Following this business combination, L-T
changed its name to Lekkerland GmbH &amp; Co. KG. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In January 2004, the Group purchased from management the 15% of Gallaher (Ukraine) Limited that it did not already own. The fair value of the equity stake amounted to &#163;4m. Goodwill
of &#163;4m was recognised on this acquisition. </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td><hr size="2" noshade></td>
  </tr>
</table>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-53</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf54"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements </FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">34.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Related
    party transactions</font></b></td>
  </tr>
</table>
<P align="left"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
following transactions were carried out with related parties:</font></P>
<P align="left"> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">i)&nbsp;Sales
      of goods and services</font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales of goods:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">To associates</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">36</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">To joint ventures</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">47</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales of services:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">To joint ventures</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">18</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">68</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">96</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
</TABLE>
<p> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">ii)&nbsp;Purchases
of goods and services</font></b></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Purchases of goods:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">From associates</FONT></TD>
	<TD width=10% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></B></TD>
	<TD width=1% align=right>&nbsp;</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=10% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">From joint ventures</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">39</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">47</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">62</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
</TABLE>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goods are sold on the basis of the price lists in force with non-related parties. Services are usually negotiated with related parties on a cost-plus basis, allowing a margin ranging from
0% to 10%. </FONT></P>
<P> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">iii)&nbsp;Year-end
balances arising from sales/purchases of goods/services</font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Receivables from related third parties (note 15)</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Associates</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Joint ventures</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Payables to related parties (note 19)</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- Joint ventures</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">22</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right><hr size="1" noshade>
  </TD>
</TR>
</TABLE>
<p> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">There are no
commitments and contingencies in respect of associates and joint ventures.</font></p>
<p> <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">iv)&nbsp;Key
management compensation</font></b></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Salaries and other short-term employee benefits</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Post-employment benefits</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share-based payments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade>
  </TD>
  <TD align=right>&nbsp;  </TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<hr size="1" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-54</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF55"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<p align="center"><B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></p>
<p align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></p>

<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">35.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Events
          after
the balance sheet date</font></b></td>
  </tr>
</table>
<P>
<I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Business combinations<br>
</FONT></I><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">On
2 January 2006, Gallaher Group Plc acquired 100% of Cita Tabacos de Canarias
SL and its group companies (&#147;CITA&#148;). As part of the transaction, Gallaher also acquired 100% of
both Tabacos Canary Islands SA (&#147;TACISA&#148;) and Tabacos La Nubia SL (&#147;La Nubia&#148;).</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">CITA&#146;s principal interests comprise the manufacture, distribution and sale of cigarettes and cigars in the Canary Islands, Spanish Peninsula and Portugal. TACISA is a cigarette
manufacturing operation based in the Canary Islands, principally conducting contract manufacture for third parties. La Nubia is a small cigar manufacturer based in the Canary Islands. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">At acquisition, the expected consideration for the transaction was approximately &#128;85m in cash, with Gallaher assuming approximately &#128;20m of CITA&#146;s debt. The final purchase
price is subject to the determination of the closing balance sheet. Due to the timing of the transaction, the final calculation of the purchase price and a review of fair values have not yet been completed. Therefore, at this stage, it is
impracticable to disclose an analysis of the assets and liabilities acquired and any fair value adjustments relating to the acquisition.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As at 31 December 2005, the Group had paid &#128;12m (&#163;8m) of the above consideration into an escrow account in advance of this acquisition. These funds were partially released to
the vendor on the acquisition date, 2 January 2006.</FONT></P>
<hr size="2" noshade>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS
    transition disclosures</font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The 2005 financial statements are Gallaher Group Plc&#146;s first consolidated financial statements prepared under International Financial Reporting Standards (&#147;IFRS&#148;). For
accounting periods up to and including the year ended 31 December 2004, the Group prepared its financial statements under UK Generally Accepted Accounting Principles (&#147;UK GAAP&#148;).</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In accordance with IFRS 1 First Time Adoption of International Reporting Standards (&#147;IFRS 1&#148;), certain transitional disclosures have been given in this note. These disclosures
have been prepared under IFRS as outlined in the &#145;Basis of preparation&#146;. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The transition date to IFRS was 1 January 2004. To enable users of the financial statements to understand the impact of the adoption of IFRS, the following reconciliations have been
provided: </FONT></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" valign="top">-</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reconciliation of consolidated profits for the year ended 31 December 2004 from UK GAAP to IFRS;</FONT></td>
  </tr>
  <tr>
    <td valign="top">-</td>
    <td>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reconciliation of shareholders&#146; deficit as at 31 December 2004 and 1 January 2004 from UK GAAP to IFRS.</FONT></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Explanations of the significant adjustments have been provided in the notes following the reconciliations. These notes should be read in conjunction with the reconciliations. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The adoption of IFRS did not have any impact on Gallaher&#146;s reported net cash flows and therefore no reconciliation of the 2004 cash flow statement has been provided. However, under
IFRS (in accordance with IAS 1 Presentation of Financial Statements and IAS 7 Cash Flow Statements), the presentation of the cash flow statement has changed.</FONT></P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-55</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF56"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements </FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">36. &nbsp;</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS
    transition disclosures </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P><u><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reconciliation
of consolidated profits from UK GAAP to IFRS - Year ended 31 December 2004</font></u></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD colspan="9" align=center>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS adjustments</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD colspan="9" align=center><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share of</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">results of</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">joint</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amort-</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reported</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">ventures</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">isation of</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">reported</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">under</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">purchased</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">under</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">UK GAAP</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">associates</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">goodwill</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">instruments</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">taxation</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">E</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sales</FONT></B></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=left>&nbsp;

	</TD>
	<TD width=2% align=left>&nbsp;</TD>
	<TD width=8% align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=left>

	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8,115</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Operating profit before</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">551</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">67</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">616</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">exceptional charges</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional charges</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(17</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Share of results of joint ventures</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">17</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">19</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">and associates</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total profit from operations</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">551</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">618</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net interest and other financing</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(128</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(127</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">charges</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net retirement benefits financing</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">7</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">income</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial instruments mark to</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">n/a</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">6</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">market adjustments</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Finance costs - net</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(122</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(114</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit before taxation</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">429</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">504</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Taxation</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(135</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(142</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the year</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">294</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(1</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">362</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Attributable to:</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity shareholders</FONT></TD>
	<TD align=right  style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">290</FONT></B>
	</TD>
	<TD align=left  style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-top:solid 1pt;border-top-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT></B>
	</TD>
	<TD align=left style="border-top:solid 1pt;border-top-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Minority interests</FONT></TD>
	<TD align=right  style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left  style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right style="border-bottom:solid 1pt;border-bottom-color:black; border-left:solid 1pt;border-left-color:black">
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left  style="border-bottom:solid 1pt;border-bottom-color:black; border-right:solid 1pt;border-right-color:black">&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Earnings per share</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">basic</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44.5</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">55.0</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">diluted</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">44.4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">54.9</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">adjusted*</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58.9</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">58.7</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">p</FONT></B></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;
</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
</TABLE>
<P><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">* Before amortization
of intangible assets and exceptional items.</font> </P>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-56</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pF57"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center">
<B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">IFRS
    transition disclosures </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<P><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reconciliation
of shareholders&#146; deficit from UK GAAP to IFRS</font></b></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As at</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">As at</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">31 December</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1 January</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Note</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity shareholders&#146; deficit under UK GAAP</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(251</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(315</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD width=6% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">A</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Associates and joint ventures</FONT></TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">3</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">B</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Write back of goodwill amortization</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">73</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">C</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Fair value of financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(27</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(33</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">D</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- on financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">10</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- on unremitted earnings</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(28</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(18</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- on acquisition fair values</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">- other items</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(7</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">E</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Proposed dividend adjustment</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">141</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">131</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity shareholders&#146; deficit under IFRS</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(91</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(235</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<hr size="2" noshade>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-57</FONT></P>
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<div style="page-break-before:always"></div><page><a name="pf58"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> IFRS
    transition disclosures </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><font size="2">
  <B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Explanation of the key differences between UK GAAP and IFRS impacting Gallaher</FONT></B>  </font></p>
<p><font size="2"><FONT face="TimesNewRoman,Times New Roman,Times,serif">The following notes highlight the key differences between UK GAAP and IFRS that had a material effect on the financial reporting of the Group.</FONT></font></p>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" valign="top"><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">A</font></b></font></td>
    <td align="left" valign="bottom"><p><font size="2"><B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Associates
              and joint ventures </FONT></B></font></p>
    </td>
  </tr>
  <tr>
    <td colspan="2" valign="top"><font size="2"> <font face="TimesNewRoman,Times New Roman,Times,serif">Under
          UK GAAP, Gallaher accounted for joint ventures using the &#145;gross
          equity&#146; method, showing Gallaher&#146;s share of joint venture
          turnover as part of total turnover and Gallaher&#146;s share of joint
          venture operating profit separately following the Group&#146;s operating
          profit . Associates were accounted for using the &#145;equity&#146; method,
          whereby Gallaher&#146;s share of associates&#146; operating profit
          was shown separately following the Group operating profit. The Group&#146;s
          share of associates&#146; and joint ventures&#146; interest and tax
    were included in the Group&#146;s totals for those amounts.</font></font></td>
  </tr>
</table>

<font size="2">
<P>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Under IFRS, Gallaher now accounts for both joint ventures and associates using the equity method. The presentation of the results of joint ventures and associates has changed however as
  IAS 1 &#145;Presentation of financial statements&#146; requires that the share of post-tax profits from joint ventures and associates is presented as a separate item on the face of the income statement.  A reclassification adjustment of &#163;3m was
  made to deduct the associates and joint ventures&#146; interest and tax from the &#145;share of results&#146; line. The share of associates and joint ventures turnover is no longer presented on the face of the profit and loss account, but instead it
is disclosed in the notes to the accounts. There is no impact on the net profit or earnings per share of Gallaher as a result of this change; however, segmental turnover, results and operating margins are all impacted.</FONT></P>
<P>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">The accounting policies of the Group&#146;s associates and joint ventures (principally Lekkerland Tobaccoland) were also impacted by the adoption of IFRS. The net impact on the opening
balance sheet was an increase in the Group&#146;s investments in associates and joint ventures of &#163;4m. The adjustment mainly related to the recognition of deferred tax assets. </FONT></P>
</font>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" valign="top"><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">B</font></b></font></td>
    <td align="left" valign="bottom"><p><font size="2"> <b><font face="TimesNewRoman,Times New Roman,Times,serif">Goodwill
              amortization and business combinations </font></b></font></p>
    </td>
  </tr>
  <tr>
    <td colspan="2" valign="top"><font size="2"> <font face="TimesNewRoman,Times New Roman,Times,serif">IFRS
          3 &#145;Business Combinations&#146; introduced significant changes
          to accounting for acquisitions compared to UK GAAP. In particular,
          more separable intangibles will be recognised on acquisition of a business,
          and goodwill arising on acquisition is not amortised, but instead is
    subject to an annual impairment review. </font></font></td>
  </tr>
</table>
<font size="2">
<P>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">IFRS 1 allows that IFRS 3 may be applied prospectively from the IFRS transition date. Gallaher utilised this exemption. The impact of IFRS 3 and the associated transition arrangements on
Gallaher were: </FONT></P>
</font>
<table width="100%" border="0" cellpadding="0" cellspacing="0">
  <tr>
    <td width="3%" align="left" valign="top"><font size="2">-</font></td>
    <td valign="top"><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">the accounting for acquisitions made before 1 January 2004 has not been restated as a result of the IFRS transition; and,</FONT></font></td>
  </tr>
  <tr>
    <td align="left" valign="top">&nbsp;</td>
    <td valign="top">&nbsp;</td>
  </tr>
  <tr>
    <td align="left" valign="top"><font size="2">-</font></td>
    <td valign="top"><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">the goodwill balance recorded as at 1 January 2004, including that recorded in the investment in associates line, is no longer amortised.</FONT></font></td>
  </tr>
</table>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The
      results for the year ended 31 December 2004 have been restated to reverse
      the goodwill amortization
charge of &#163;72m recorded under UK GAAP. </FONT></p>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">The reversal of the goodwill amortization charge did not impact the Group&#146;s tax charge. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">In the future, the goodwill balance will be subject to reviews for impairment performed annually, or more regularly if events prove it to be necessary. Impairment reviews were carried out
as at 1 January 2004 and 31 December 2004 in accordance with IAS 36 &#145;Impairment of Assets&#146;. No impairments were identified.</FONT></font></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%"><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">C</font></b></font></td>
    <td align="left" valign="bottom"><p><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">Financial
              instruments </font></b></font></p>
    </td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2"><font face="TimesNewRoman,Times New Roman,Times,serif">IAS
          32 &#145;Financial instruments: Disclosure and presentation&#146; and
          IAS 39 &#145;Financial instruments: Recognition and Measurement&#146; address
          the accounting for, and financial reporting of, financial instruments.
          At the time the 2004 financial statements were published, there was
          no equivalent UK standard that comprehensively addressed accounting
    for financial instruments and hedge accounting. </font></font></td>
  </tr>
</table>
<P><font size="2"><FONT face="TimesNewRoman,Times New Roman,Times,serif">Gallaher uses certain derivative financial instruments for the purposes of hedging foreign exchange and interest rate risk. Under UK GAAP, a form of hedge accounting was applied to these
derivative financial instruments meaning that changes in the market value of the derivative instrument were matched against changes in the value of the underlying hedged exposure.  Some of these derivative instruments were held off balance sheet for
at least part of their lives with their impact disclosed in the notes to the accounts. </FONT></font></P>
<P><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">IAS 39 requires that all derivative financial instruments must be recognised on the balance sheet and measured at fair value. The standard places significant restrictions on the use of
hedge accounting as specific designation and effectiveness criteria must be satisfied; the hedge accounting methodology is also different. </FONT></font></P>
<hr size="2" noshade>
<P align="center"><font size="2">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">F-58</FONT></font></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf59"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%" align="left" valign="bottom"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.</font></b></td>
    <td align="left" valign="bottom"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> IFRS
    transition disclosures </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<font size="2">
<P>
<B><FONT face="TimesNewRoman,Times New Roman,Times,serif">Explanation of the key differences between UK GAAP and IFRS impacting Gallaher </FONT></B><FONT face="TimesNewRoman,Times New Roman,Times,serif">(continued)<B> </B></FONT></P>
</font>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%"><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">C</font></b></font></td>
    <td align="left" valign="bottom"><p><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">Financial
              Instruments </font></b><font face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font><b><font face="TimesNewRoman,Times New
Roman,Times,serif"> </font></b></font></p>
    </td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2"> <font face="TimesNewRoman,Times New Roman,Times,serif">Gallaher
          has applied IAS 32 and IAS 39 from 1 January 2004 onwards. Gallaher
          has hedged and continues to hedge underlying exposures in an effective
          manner with a medium-term perspective, although market values can be
          volatile in the short-term. However, some of Gallaher&#146;s hedged
          positions failed to meet the strict hedging criteria under IAS 39 and
          as a consequence, the reported annual financing charge under IFRS has
    become m<font size="2">ore volatile.</font></font></font></td>
  </tr>
</table>
<font size="2">
<P><FONT face="TimesNewRoman,Times New Roman,Times,serif">The balance sheet impact
    of the implementation of IAS 39 was to recognise a charge to equity of &#163;33m in the opening IFRS balance sheet as at 1 January 2004; this represented the fair
  value of all derivatives brought onto the balance sheet for the first time and the adjustment to the carrying value of borrowings which were hedged. A related deferred tax liability of &#163;10m was recorded in the opening balance sheet. The
transition to the new standards also impacted the 2004 finance charge which benefited from a credit of &#163;6m, representing the change in fair value of these derivatives during 2004. The related tax charge was &#163;2m. </FONT></P>
</font>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%"><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">D</font></b></font></td>
    <td align="left" valign="bottom"><p><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">Taxation </font></b></font></p>
    </td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2"> <font face="TimesNewRoman,Times New Roman,Times,serif">IAS12 &#145;Income
          taxes&#146; covers accounting for both current and deferred taxation.
          There is no difference in the accounting for current taxation between
    IAS 12 and the existing UK standard FRS 16 &#145;Current tax&#146;.</font></font></td>
  </tr>
</table>
<font size="2"><P><FONT face="TimesNewRoman,Times New Roman,Times,serif">The
    basis of recognising deferred tax is significantly different under IAS 12
    compared to the UK standard, FRS 19 &#145;Deferred taxation&#146;. Under
    UK GAAP, deferred tax was recognised only on timing differences that arose
    from the inclusion of gains and losses in tax assessments in periods different
    from those in which they were recognised in the financial statements. Under
    IFRS, deferred tax must be recognised in respect of all
  taxable temporary differences arising between the tax base and the accounting
    base of balance sheet items. This means that deferred tax is recognised on
    certain temporary differences that would not have given rise to deferred
    tax under UK GAAP. </FONT></P>
</font><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Specific differences relevant to Gallaher include:</FONT><font size="2"><BR>
<P>
<FONT face="TimesNewRoman,Times New Roman,Times,serif">deferred tax is recognised on unremitted earnings of foreign subsidiaries where it is not probable that the temporary difference will not reverse in the foreseeable future; this treatment
gave rise to an adjustment compared to UK GAAP of &#163;18m in the opening balance sheet. There was a &#163;10m deferred tax charge to the 2004 profit and loss account relating to the unremitted amounts earned during the year. No deferred tax
liability was recognised in respect of temporary differences relating to investments in subsidiaries since realisation of such differences is controlled and therefore is not probable in the foreseeable future; </FONT></P>
<P>
<FONT face="TimesNewRoman,Times New Roman,Times,serif">deferred tax is recognised on all step-ups to fair values made as a result of acquisitions. This resulted in an additional deferred tax liability of &#163;4m in the opening balance sheet;
and, </FONT></P>
<P>
<FONT face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;a further &#163;10m deferred tax liability was recognised in the opening balance sheet which related to various small valuation and temporary timing differences.<B> </B></FONT></P>
</font>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr valign="top">
    <td width="3%"><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">E</font></b></font></td>
    <td align="left" valign="bottom"><p><font size="2"><b><font face="TimesNewRoman,Times New Roman,Times,serif">Other
              adjustments </font></b></font></p>
    </td>
  </tr>
  <tr valign="top">
    <td colspan="2"><font size="2"> <font face="TimesNewRoman,Times New Roman,Times,serif">The
          following points list those areas of IFRS that have had an impact on
    Gallaher, but did not result in any significant financial adjustments. </font></font></td>
  </tr>
</table>
<font size="2">
<P><U><FONT face="TimesNewRoman,Times New Roman,Times,serif">Share-based payments</FONT></U><FONT face="TimesNewRoman,Times New Roman,Times,serif"> </FONT><br>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">Under UK GAAP, Gallaher recognised a profit and loss account charge in respect of employee share options based on the difference between the exercise price of the option and the market
value of a Gallaher share at the option grant date. This charge was often small or zero. </FONT></P>
<P>
  <FONT face="TimesNewRoman,Times New Roman,Times,serif">IFRS 2 &#145;Share-based payment&#146; requires that Gallaher recognise a charge representing the fair value of employee share options awarded. The fair value is calculated using the
  Black-Scholes options valuation model and is charged to income over the relevant option vesting periods, adjusted to reflect actual and expected levels of vesting. A charge has been recognised from 1 January 2004 onwards in respect of options
  granted to employees on or after 7 November 2002. </FONT></P>
</font>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The operating
profit impact in 2004 was a charge of &#163;1m.</FONT></p>
<hr size="2" noshade>
<font size="2"></font><font size="2">
<P align="center">
<FONT face="TimesNewRoman,Times New Roman,Times,serif">F-59</FONT></P>
</font>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf60"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%"  border="0" cellspacing="0" cellpadding="0">
  <tr align="left" valign="bottom">
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">36.</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif"> IFRS
    transition disclosures </font></b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)</font></td>
  </tr>
</table>
<p><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Explanation of the key differences between UK GAAP and IFRS impacting Gallaher </FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(continued)<B> </B></FONT></p>
<P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pensions and other post-employment benefits</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under
UK GAAP, Gallaher accounted for pensions and other post-employment benefits in
accordance with FRS 17 &#145;Retirement benefits&#146;, which it adopted in the
year ended 31 December
2002. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In accordance with FRS 17, the full surplus or deficit for each retirement benefit scheme, representing the difference between the market value of the scheme assets and the present value
of the accrued liabilities, is recognised as an asset or liability on the balance sheet, net of deferred tax where appropriate. Actuarial gains and losses arising from differences between the assumptions and actual experience (e.g., the difference
between expected and actual returns on assets) and differences arising from changes in assumptions are recognised in full in the statement of total recognised gains and losses. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IFRS, retirement benefits fall within the scope of IAS 19 &#145;Employee benefits&#146;. Like FRS 17, this standard requires retirement benefit liabilities to be valued using the
projected unit actuarial method, but IAS 19 gives a number of options for the treatment of actuarial gains and losses. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group elected to early adopt the amendment to IAS 19 issued by the IASB on 16 December 2004, which allows all actuarial gains and losses to be immediately charged or credited to
equity through the statement of recognised income and expense. This amendment brings IAS 19 methodology substantially in to line with FRS 17.  This amendment has now been fully endorsed by the European Commission. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Despite some valuation differences between the standards still remaining, there is no material net difference between the balance sheet surpluses or deficits computed under FRS 17 at 1
January 2004 and 31 December 2004 and the equivalent assets or liabilities recognised under IAS 19 (amended). </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IAS 19, plan surpluses are classified as non current assets, plan deficits are classified as non-current liabilities and any associated deferred tax balances are disclosed
separately. This gross presentation contrasts with FRS 17, under which the net retirement benefit surplus or deficit is presented below net assets in the balance sheet, net of associated deferred tax. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Additionally, under IFRS there is a change in the presentation of interest relating to the employer service cost. This interest has been charged against operating profit as per IAS 19,
whereas under UK GAAP, it had been charged as a financing cost. In the 2004 profit and loss account, this adjustment resulted in a &#163;1m reclassification from interest to operating profit. </FONT></P>
<P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Reclassification of computer software <br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under
UK GAAP, all computer software was included within tangible fixed assets in the
balance sheet, but under IFRS only computer software that is integral to another
fixed asset may be included in tangible fixed assets. All other separately identifiable
computer software must be recorded separately as an intangible asset. The charge
to profit in respect of such computer software under IFRS is classified as amortization
of
intangible assets rather than depreciation of tangible fixed assets. The depreciation
of such software for the year ended 31 December 2004 of &#163;2m has been reclassified
from depreciation to amortization. </FONT></P>
<P>
<U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Proposed dividends</FONT></U><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <br>
</FONT><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under
UK Company Law, it was normal practice for companies to provide for dividends
approved subsequent to the year-end. This practice is not permitted under IFRS.
Therefore, under IFRS,
the final dividend of &#163;141m for the year ended 31 December 2004 could not be provided for in the 2004 income statement. Similarly, there was an adjustment to the opening balance sheet as at 1 January 2004 of &#163;131m. </FONT></P>
<hr size="2" noshade>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-60</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf61"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center">  <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<table width="100%" border="0" cellspacing="0" cellpadding="0">
  <tr>
    <td width="3%"><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">37</font></b></td>
    <td><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Summary
    of differences between IFRS and US Generally accepted accounting principles </font></b></td>
  </tr>
</table>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The Group prepares its financial statements in accordance with IFRS which differ from those generally accepted in the United States of America (&#147;US GAAP&#148;). The following
statements summarise the adjustments reconciling profit for the year attributable to equity shareholders and equity shareholders&#146; funds under IFRS to the amounts reported had US GAAP been applied in respect of the years ended 31 December 2005
and 2004. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notes</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the years</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Profit for the years ended 31 December attributable to equity shareholders</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">as reported in the consolidated income statements under IFRS</FONT></TD>
	<TD width=8% align=left>&nbsp;

	</TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">369</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">358</FONT>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US GAAP adjustments:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD width=3% align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension costs</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(18</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(10</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(20</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amortization of other intangible assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(26</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(25</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Restructuring costs</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(d)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Long-term incentive plans and share option scheme</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(f)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(3</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(9</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred taxation</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(g)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(6</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">16</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income under US GAAP</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">339</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Amounts in accordance with US GAAP:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net income under US GAAP</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">339</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net Income per ordinary share - basic (pence)</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45.8</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">52.0</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net Income per ADS &#150; basic (pence) **</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">183.2</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">208.0</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net Income per ordinary share &#150; diluted (pence)</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">45.7</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">51.8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Net Income per ADS &#150; diluted (pence)**</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">182.8</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">207.2</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">** each ADS represents four ordinary shares</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity shareholders&#146; funds/(deficit)</FONT></B></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity/(deficit) attributable to the shareholders as reported in the</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">consolidated balance sheets under IFRS</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">104</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(91</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US GAAP adjustments;</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension costs</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">232</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">275</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capitalised interest</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(e)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial instruments</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">32</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">29</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other intangible assets</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">49</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">72</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Restructuring costs</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(d)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred taxation</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(g)</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(42</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(23</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Equity shareholders&#146; funds under US GAAP</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">383</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">267</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD colspan="2" align=left>&nbsp;    </TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
</TABLE>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-61</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf62"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center">  <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2005</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2004</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US GAAP deficit roll forward</FONT></B></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Shareholders&#146; deficit roll forward prepared in accordance with US</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">GAAP is as follows:</FONT></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Balance at beginning of year</FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">267</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(50</FONT>
	</TD>
	<TD width=2% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left> <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Net income</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">300</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">339</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Proposed dividends</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(210</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(196</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Issue of ordinary shares</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">5</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">4</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Shares held by the employee benefit trust</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Savings related share option schemes</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Additional minimum pension liability</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(4</FONT></B>
	</TD>
	<TD align=left>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></B></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">171</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Other gains and losses</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(8</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Exchange adjustments</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">9</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(2</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&nbsp;&nbsp;&nbsp;Balance at end of year</FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">383</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">267</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right><hr size="1" noshade></TD>
  <TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notes</FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)&nbsp;&nbsp;&nbsp;</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pension costs</FONT></B><br>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under
IFRS, pension and other post-retirement benefits costs and net liabilities are
determined in accordance with the International Accounting Standard IAS 19 &#147;Employee
Benefits&#148; (&#147;IAS 19&#148;), whereas under US GAAP these costs and liabilities are determined primarily in accordance with the requirements of Financial Accounting Standards Board (&#147;FASB&#148;) Statement of Financial Accounting Standard
(&#147;FAS&#148;) No. 87, &#147;Employers&#146; Accounting for Pension&#148;, FAS No. 88, &#147;Employers&#146; Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits&#148;, and FAS No. 106
&#147;Employers&#146; Accounting for Post Retirement Benefits other than Pensions&#148;. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">The group has adopted the exemption allowed in IFRS 1 to recognise all cumulative actuarial gains and losses at the transition date (January 1, 2004) in reserves. Actuarial gains and
losses are recognised under IAS 19 Amended, in full in the period in which they occur. They are recognised outside of the income statement in retained earnings and presented in the statement of recognised income and expense. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP the Group applies the &#147;corridor approach&#148; whereby variations from expected costs are recognised in the income statement and balance sheet over the expected service
lives of the employees. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IFRS the actuarial valuations of the pension plan are carried out at the balance sheet date, whereas for US GAAP the valuations are performed as at 30 September for the principal
defined benefit plans. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IAS 19, the expected costs of providing retirement benefits are charged to the income statement over the period benefiting from the employee&#146;s service based upon actuarial
methodologies that are similar to those applied under US GAAP. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(b)&nbsp;&nbsp;&nbsp;</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Financial Instruments</FONT></B><br>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IFRS the carrying value of non-derivative financial liabilities has been adjusted for changes in their fair value, with the change recognised in earnings, where subject to effective
fair value hedges. Changes in the fair value of foreign exchange derivatives are recognised immediately in earnings except where they are an effective hedge of a net investment in foreign operations in which case the changes are taken direct to
equity.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP, FAS No. 133 &#147;Accounting for Derivative Instruments and Hedging Activities&#148; (&#147;FAS 133&#148;), the requirements for determining whether a fair value or net
investment hedge is effective differ from the rules provided by relevant standards under IFRS and the Group has decided not to apply the FAS 133 requirements to hedge account for any derivative financial instrument and accordingly, changes in the
fair values of these instruments have been recognised in earnings. In addition to this no changes in the fair values of non-derivative financial liabilities have been recognised under US GAAP.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-62</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf63"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center">  <B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(c)&nbsp;&nbsp;&nbsp;</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other
intangible assets<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under UK GAAP, prior to transition to IFRS, intangible assets acquired in business combinations, such as brands, were regarded as indistinguishable from goodwill and were subsumed within
the goodwill balance. On transition to IFRS, such UK GAAP amounts remain within goodwill. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">US GAAP requires that the cost of investment is allocated to the acquired entity&#146;s assets and liabilities based on fair values to the acquirer at the date of acquisition. SFAS 141
&#147;Business Combinations&#148; provides specific criteria for the initial recognition and measurement of intangible assets separately from goodwill. Brands worth &#128;723 million would be classified separately from goodwill as being definite
lived intangible assets in accordance with US GAAP. The Group has identified no indefinite lived intangibles.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Previously under UK GAAP, the Group had amortised goodwill over its useful economic life. On transition to IFRS such goodwill is no longer amortised and its transition value is, as under
US GAAP, tested annually for impairment and whenever events or circumstances occur that would more likely than not reduce the fair value of the reporting unit to below its carrying value. We amortise the separately identifiable additional definite
lived brands under US GAAP over 20 years.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP an impairment loss is indicated only when the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustments to intangible assets prepared in accordance with US GAAP</FONT><SUP><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></SUP><FONT size=2
face="TimesNewRoman,Times New Roman,Times,serif">as at 31 December 2005 are as follows:</FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR align="right" valign="bottom">
	<TD>&nbsp;

	</TD>
	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Total</FONT></B></TD>
	<TD align=center>&nbsp;</TD>
	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill</FONT></B>
	</TD>
	<TD align=center>&nbsp;

	</TD>
	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Other</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR align="right" valign="bottom">
	<TD>&nbsp;

	</TD>
	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangibles</FONT></B></TD>
	<TD align=center></TD>
	<TD align=center>

	</TD>
	<TD align=center>&nbsp;

	</TD>
	<TD align=center>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">intangibles</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR align="right" valign="bottom">
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR align="right" valign="bottom">
	<TD>&nbsp;

	</TD>
	<TD>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
	<TD>&nbsp;</TD>
	<TD>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B>
	</TD>
	<TD>&nbsp;

	</TD>
	<TD>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">&#163;m</FONT></B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill and intangibles,
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">under IFRS as at
31 December 2005</font></FONT></TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,452</FONT></B></TD>
	<TD width=2% align=right>&nbsp;</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,205</FONT></B>
	</TD>
	<TD width=2% align=left>&nbsp;

	</TD>
	<TD width=8% align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">247</FONT></B></TD>
    <TD width=2% align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left></TD>
  <TD align=left></TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Adjustments:</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left></TD>
	<TD align=left>

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
    <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible asset adjustment to equity under US GAAP</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">49</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(342</FONT>
	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">)</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">391</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Intangible asset adjustment not affecting equity under US GAAP</FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">161</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">161</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">-</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill and intangibles,
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">under US GAAP as
at 31 December 2005</font></FONT></TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,662</FONT></B></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,024</FONT></B>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">638</FONT></B></TD>
    <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
  <TD align=right>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Goodwill and intangibles,
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">under US GAAP as
at 31 December 2004</font></FONT></TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,628</FONT></TD>
	<TD align=right>&nbsp;</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1,030</FONT>
	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=right>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">598</FONT></TD>
    <TD align=right>&nbsp;</TD>
</TR>
</TABLE>
<p><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(d)&nbsp;&nbsp;&nbsp;</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Restructuring
      costs</FONT></B><br>
      <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under
      IFRS a provision for restructuring costs is recognised when an entity meets
      a number of specific criteria, indicating a present obligation as a result
      of a past event; it being probable that an outflow of resources will be
      required to settle the obligation; and, that a reliable estimate can be
      made of the amount of the obligation, in accordance with IAS 37 &#147;Provisions, Contingent Liabilities and Contingent
Assets&#148;.</FONT></p>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP, FAS 146, &#147;Accounting for Costs Associated with Exit or Disposal Activities&#148;, requires the company to recognise certain costs associated with restructuring
activities when they are incurred, or in the case of redundancies, rateably over any future service period required in order to receive termination benefits for the employees rather than at the date of commitment to a restructuring plan.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(e)&nbsp;&nbsp;&nbsp;</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Capitalised
interest</FONT></B><br>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IFRS, the group has chosen not to capitalise interest incurred as part of the cost of constructing fixed assets.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP, the interest incurred is required to be capitalised and amortised over the useful economic lives of the qualifying assets in accordance with FAS 34, &#147;Capitalisation of
Interest Costs&#148;.</FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-63</FONT></P>

<hr noshade align="center" width="100%" size="2">

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<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(f)&nbsp;&nbsp;&nbsp;</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Long-term
incentive plans and share option scheme<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under
IFRS 2 &#147;Share-based payments&#148;, an expense is recognised in the income
statement for all share-based payments (both awards of options and award of shares)
granted after 7 November 2002. This expense is calculated based on the fair value
at the date of grant of the award, using option pricing models, and is charged
over the related performance period.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP, Accounting Principles Board Opinion No. 25 &#147;Accounting for Stock Issued to Employees&#148;, the estimated intrinsic value of benefits accruing to individuals during
the period from share awards held by the EBT to satisfy rights to shares arising from Gallaher&#146;s long term share incentive plans, is remeasured each reporting period and charged to the income statement over the remaining vesting period of the
share awards.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under US GAAP, the difference between the share price at the date of the option grant and the option exercise for any benefits accruing to individuals under its savings related share
option scheme, must be charged to the income statement over the option period being three, five or seven years. </FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(g)&nbsp;&nbsp;&nbsp;</FONT><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred
taxation<br>
</FONT></B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Deferred tax is provided on the US GAAP adjustments and on other items for which there are timing differences in recognition between US GAAP and IFRS.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In the year ended 31 December 2005, the Group reviewed its deferred tax provision in respect of unremitted earnings of certain foreign subsidiaries and recorded a charge of &#163;28m
under US GAAP. Previously under US GAAP, no deferred taxation on unremitted earnings had been recognised due to judgements regarding the Group&#146;s ability and intent to remit such earnings and the potential tax liabilities related
thereto.</FONT></P>
<B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exceptional items</FONT></B><BR>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">In addition to the differences stated above it should be noted that &#145;exceptional items&#146; under IFRS do not have the same definition as &#145;extraordinary items&#146; under US
GAAP.</FONT></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Under IFRS and US GAAP, &#145;exceptional items&#146; are not defined; however significant material items must be disclosed separately although under US GAAP this disclosure must be on
the face of the income statement. US GAAP defines and requires presentation of &#145;extraordinary items&#146;, which are items that are deemed both unusual in nature and infrequent in occurrence (not reasonably expected to recur in the foreseeable
future). Such US GAAP extraordinary items must be presented net of tax effects in the income statement below income before extraordinary items. Under IFRS there is no definition for extraordinary items. </FONT></P>
<P align="center">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-64</FONT></P>

<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="pf65"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>


<P align="center">
<B><FONT size=5 face="TimesNewRoman,Times New Roman,Times,serif">GALLAHER GROUP Plc</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> </FONT></B></P>
<P align="center"><B><FONT size=4 face="TimesNewRoman,Times New Roman,Times,serif">Notes to the Financial Statements</FONT></B></P>
<P align="left"><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">38.&nbsp;&nbsp;&nbsp;</FONT></B><B><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Principal
subsidiaries</FONT></B></P>
<P>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Group Plc is the beneficial owner of all (unless specified) of the equity share capital of its principal subsidiaries, either itself or through subsidiary undertakings. The
principal subsidiaries, all of which are unlisted, are shown below. A full list of subsidiaries is attached to the annual return of the Company. </FONT></P>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR valign="bottom">
	<TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Name</font>

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Country of
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Incorporation</font></FONT></TD>
	<TD align=left> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Principal
	    activity</font>

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left><hr size="1" noshade></TD>
	<TD align=left><hr size="1" noshade></TD>
	<TD align=left><hr size="1" noshade></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Limited (a)</FONT></TD>
	<TD width=12% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">England</FONT></TD>
	<TD width=52% align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture, marketing and distribution of tobacco products in the UK</FONT></TD>
</TR>
<TR valign="bottom">
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
  <TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Benson &amp; Hedges Limited</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">England</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ownership of trademarks of tobacco products</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Asia Limited</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Hong Kong</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and importation of tobacco products in Asia Pacific markets</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Belgium SA</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Belgium</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and importation of tobacco products in Benelux markets</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Canarias SA</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Spain</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and importation of tobacco products in the Canary Islands</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher (Dublin) Limited</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Republic of
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ireland</font></FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and distribution of tobacco products in the Republic of <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ireland</font></FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher France EURL</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">France</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing of tobacco products in France</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Hellas SA</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Greece</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and importation of tobacco products in Greece</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher International Limited</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">England</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing of tobacco products outside the UK</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Italia SRL</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Italy</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and importation of tobacco products in Italy</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Kazakhstan LLC</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Kazakhstan</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture, marketing and distribution of tobacco products in
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Kazakhstan</font></FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Nederlands B.V.</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Netherlands</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and importation of tobacco products in the Netherlands</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Polska Sp z.o.o.</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Poland</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture, marketing and distribution of tobacco products in Poland</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Spain SA</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Spain</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing of tobacco products in Spain</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Switzerland SA</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Switzerland</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and distribution of tobacco products in developing markets</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">(Africa, Middle East and South America)</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">OOO Gallaher Liggett-Ducat</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russia</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and distribution of tobacco products in Russia</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Liggett-Ducat CJSC</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Russia</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture of tobacco products in Russia</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Ukraine CJSC</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Ukraine</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture, marketing
and distribution of tobacco products in Ukraine</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=center colspan=3>&nbsp;
</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria Tabak GmbH &amp; Co KG</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture of tobacco products in Austria</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria Tabak GmbH</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Germany</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and distribution of tobacco products in Germany</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Austria Tabak Europe GmbH &amp; Co.</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and distribution of tobacco products in Europe</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">KG</FONT></TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Sweden AB</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sweden</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Marketing and importation of tobacco products in Scandinavia</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Snus AB</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Sweden</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture, marketing and distribution of snuff tobacco in Sweden</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobaccoland Handels GmbH &amp; Co. KG</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Austria</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Distribution of tobacco and non-tobacco products in Austria</FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobaccoland Automatengesellschaft mbH
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">&amp; Co. KG (63.9%)</font></FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Germany</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Tobacco vending operations in Germany</FONT></TD>
</TR>
<TR valign="top">
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Cita Tabacos de Canarias SL</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Spain</FONT></TD>
	<TD align=left>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Manufacture, marketing and distribution of tobacco products in the
<font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Canary Islands,
Spanish Peninsular and Portugal</font></FONT></TD>
</TR>
<TR valign="bottom">
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;

	</TD>
	<TD align=left>&nbsp;</TD>
</TR>
</TABLE>
<P align="left">
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif"> <font size=2 face="TimesNewRoman,Times New Roman,Times,serif">(a)
Shares held directly by Gallaher Group Plc.</font></FONT></P>
<P align="center"><FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">F-65</FONT></P>
<hr noshade align="center" width="100%" size="2">

<div style="page-break-before:always"></div><page><a name="p??"></a><p><a href="#contents"><font size="2">Back to Contents</font></a></p>
<TABLE width="100%" border=0 cellpadding=0 cellspacing=0>
<TR>
  <TD valign=top><b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Exhibit
    no.</font></b></TD>
  <TD align="center">&nbsp;</TD>
  <TD align="center">    <b><font size=2 face="TimesNewRoman,Times New Roman,Times,serif">Description
    of Exhibits</font></b></TD>
</TR>
<TR>
  <TD valign=top><hr size="1" noshade></TD>
  <TD>&nbsp;</TD>
  <TD><hr align="center" width="130" size="1" noshade></TD>
</TR>
<TR>
	<TD width="8%" valign=top><a href="b825957ex1.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">1</FONT></a></TD>
	<TD width="2%">&nbsp;</TD>
	<TD><a href="b825957ex1.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Memorandum and Articles of Association.</FONT>	</a></TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.1</FONT></TD>
	<TD>&nbsp;</TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trust Deed dated 21 May 1999 for Guaranteed Bonds due 2009 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.</FONT>	</TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.2</FONT></TD>
	<TD>&nbsp;</TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Trust Deed dated 6 August 1998 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.</FONT>	</TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">First Supplemental Trust Deed dated 24 May 2001 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated
herein by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.3</FONT></TD>
	<TD>&nbsp;</TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pricing Supplement dated 28 September 2001 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Pricing Supplement dated 21 May 2004 was filed with the SEC on June 8, 2004 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.4</FONT></TD>
	<TD>&nbsp;</TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Offering Circular dated 4 February 2003 for Guaranteed Bonds due 2013 was filed with the SEC on May 30, 2003 under Form 20-F, file registration number 1-14602, and is incorporated herein
by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top><a href="b825957ex2-5.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.5</FONT></a></TD>
	<TD>&nbsp;</TD>
	<TD><a href="b825957ex2-5.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Gallaher Group
    Plc - &#163;650,000,000 Facility Agreement dated 11 March 2003 as amended, restated and increased to &#163;1,000,000,000
pursuant to an amendment and restatement agreement
dated 16 June 2005 (the &#147;Agreement&#148;).</FONT>	</a></TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top><a href="b825957ex2-6.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">2.6</FONT></a></TD>
	<TD>&nbsp;</TD>
	<TD><a href="b825957ex2-6.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Offering Circular
    by Gallaher Group Plc for &#163;2,000,000,000 Medium Term Note Programme,
    unconditionally and irrevocably guaranteed by Gallaher Limited dated 21 May
    2004.</FONT>	</a></TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top><a href="b825957ex8.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">8</FONT></a></TD>
	<TD>&nbsp;</TD>
	<TD><a href="b825957ex8.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">List of Subsidiaries</FONT>	</a></TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">11</FONT></TD>
	<TD>&nbsp;</TD>
	<TD>
<FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Code of Ethics was filed with the SEC on April 8, 2004 under Form 20-F, file registration number 1-14602 and is incorporated by reference.</FONT>	</TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top><a href="b825957ex12.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">12</FONT></a></TD>
	<TD>&nbsp;</TD>
	<TD><a href="b825957ex12.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Section 302 Certification</FONT>	</a></TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR><TR>
	<TD valign=top><a href="b825957ex13.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">13</FONT></a></TD>
	<TD>&nbsp;</TD>
	<TD><a href="b825957ex13.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Section 906 Certification</FONT>	</a></TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR>
<TR>
  <TD valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
  <TD valign=top>&nbsp;</TD>
  <TD>&nbsp;</TD>
  <TD>&nbsp;</TD>
</TR>
<TR>
	<TD valign=top><a href="b825957ex15-1.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">15.1</FONT></a></TD>
	<TD>&nbsp;</TD>
	<TD><a href="b825957ex15-1.htm">
    <FONT size=2 face="TimesNewRoman,Times New Roman,Times,serif">Notice of annual general meeting 2006 to be held on 10 May 2006.</FONT>	</a></TD>
</TR>
<TR><TD colspan=3>&nbsp;</TD></TR></TABLE>

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</body>

</html>
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{"company-data": {"conformed-name": "GALLAHER GROUP PLC", "cik": "0001037333", "assigned-sic": "2111", "irs-number": "000000000"}, "filing-values": {"form-type": "20-F", "act": "34", "file-number": "001-14602", "film-number": "06771233"}, "business-address": {"street1": "MEMBERS HILL BROOKLANDS RD", "street2": "WEYBRIDGE", "city": "SURRAY KT13 OQU ENGL", "state": "X0", "zip": "00000"}, "former-company": {"former-conformed-name": "GALLAHER GROUP LTD", "date-changed": "19970408"}}
Prepared and filed by St Ives Financial
GALLAHER GROUP Plc
Form 20-F 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
(Mark One)
REGISTRATION
          STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
          ACT OF 1934
or
ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For
    the fiscal year ended: 31 December 2005
or
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-14602
GALLAHER GROUP Plc
(Exact name of Registrant as specified in its charter)
England
and Wales
(Jurisdiction of incorporation or organisation)
Members Hill, Brooklands Road, Weybridge, Surrey KT13 0QU, England
(Address of principal executive office)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class
on which registered
American Depositary Shares
New York Stock Exchange
Ordinary Shares nominal value 10p per share
New York Stock Exchange
*
*Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate
          the number of outstanding shares of each of the issuer's classes of
      capital or common
stock as of the close of 31 December 2005:
Ordinary
      Shares nominal value 10p per share
656.0
      million shares
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:
Yes
No
If this report is an annual or transition report, indicate by check mark if the Registrant is not required to file reports pursuant to to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Yes
No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or
for such shorter period that the Registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days:
Yes
No
Indicate by
    check mark whether the Registrant is a large accelerated filer, an accelerated
    filer, or a non-accelerated filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filer
Accelerated filer
Non-accelerated
filer
Indicate by check mark which financial statement items the Registrant has elected to follow:
Item 17
Item 18
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
GALLAHER
      GROUP Plc
Form
        20-F 2005
ITEM 1
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT and ADVISERS
6
A
Directors and Senior Management
6
B
Advisers
6
C
Auditors
6
ITEM 2
OFFER STATISTICS and EXPECTED TIMETABLE
7
A
Offer Statistics
7
B
Method and Expected Timetable
7
ITEM 3
KEY INFORMATION
8
A
Selected Financial Information
8
B
Capitalisation and Indebtedness
14
C
Reasons for the Offer and Use of Proceeds
14
D
Risk Factors
14
ITEM 4
INFORMATION ON THE COMPANY
20
A
History and Development of the Company
20
B
Business Overview
22
C
Organisational Structure
32
D
Property, Plant and Equipment
33
ITEM 4A
Unresolved Staff
Comments
35
ITEM 5
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
36
ITEM 6
DIRECTORS, SENIOR MANAGEMENT and EMPLOYEES
51
A
Directors and Senior Management
51
B
Compensation
52
C
Board Practices
64
D
Employees
75
E
Share Ownership
76
ITEM 7
MAJOR SHAREHOLDERS and RELATED PARTY TRANSACTIONS
77
A
Major Shareholders
77
B
Related Party Transactions
77
C
Interests of Experts and Counsel
78
ITEM 8
FINANCIAL INFORMATION
79
A
Consolidated Statements and Other Financial Information
79
B
Significant Changes
80
ITEM 9
THE OFFER AND LISTING
81
A
Offer and Listing Details
81
B
Plan of Distribution
82
C
Markets
82
D
Selling Shareholders
82
E
Dilution
82
F
Expenses of the Issue
82
ITEM 10
ADDITIONAL INFORMATION
83
A
Share Capital
83
B
Memorandum and Articles of Association
83
C
Material Contracts
86
D
Exchange
      Controls
86
E
Taxation
87
F
Dividends
      and Paying Agents
90
G
Statement
      by Experts
91
H
Documents
      on Display
91
I
Subsidiary
      Information
91
ITEM 11
QUANTITATIVE
      and QUALITATIVE DISCLOSURE about MARKET RISK
92
ITEM 12
DESCRIPTION
      OF SECURITIES other than EQUITY SECURITIES
96
A
Debt
      Securities
96
B
Warrants
      and Rights
96
C
Other
      Securities
96
D
American Depositary Shares
96
ITEM 13
DEFAULTS,
      DIVIDEND ARREARAGES and DELINQUENCIES
97
ITEM 14
MATERIAL MODIFICATIONS
to the RIGHTS OF SECURITY HOLDERS and
USE
OF PROCEEDS
98
ITEM 15
CONTROLS
      AND PROCEDURES
99
ITEM 16
DISCLOSURE
      ON AUDIT COMMITTEE FINANCIAL EXPERT
100
A
Disclosure
      On Audit Committee Financial Expert
100
B
Code
      Of Ethics
101
C
Principal
      Accountant Fees And Services
102
Exemption
      from the Listing Standards for the Audit Committees
102
E
Purchases
      of Equity Securities by the Issuer and Affiliated Purchasers
102
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GALLAHER
      GROUP Plc
Form 20-F 2005
ITEM
      17
FINANCIAL
      STATEMENTS
102
ITEM
      18
FINANCIAL
      STATEMENTS
104
ITEM
      19
EXHIBITS
105
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GALLAHER
GROUP Plc
Form 20-F 2005
INTRODUCTION
We publish our consolidated financial statements expressed in United Kingdom pounds sterling. "US dollars", "US $" or "$" refer to United States currency, "Euro" or "€" refer
to the currency of European states who have adopted the currency and "pounds sterling", "sterling", "£" or "p" refer to UK currency, and "£m" refers to millions of pounds sterling. Solely for convenience, translations of certain pounds
sterling amounts into US dollars have been made at specified rates. These translations should not be taken to be that the pound sterling amounts actually represent such US dollar amounts or could be converted into US dollars at the rates indicated.
Translations of pounds sterling into US dollars have been made as of 31 December 2005 rate of £1.00 = $1.717 being the "noon buying rate" in New York City for cable transfers in foreign currencies as announced for customs purposes by the
Federal Reserve Bank of New York.
Our fiscal year ends on 31 December of each year. References to a particular year are to the fiscal year unless otherwise indicated.
"Companies Act" refers to the UK Companies Act of 1985, as amended, and "EU" refers to the European Union.
Except as indicated otherwise, market share information in respect of the UK reflects unit sales to consumers, and is based on information compiled by A.C. Nielsen Company Limited, and
applies to the year ended 31 December 2005. Nielsen's information reflects the results of surveys conducted by it and represents best estimates only. A.C. Nielsen data relating to the UK cigarette market quoted in Item 5 'Operating and
financial review and prospects -Results of Operations – Year 2005 compared with Year 2004', refers to the total cigarette market, unless otherwise specified. A.C. Nielsen data relating to the UK cigarette market quoted elsewhere refers to
the retail cigarette market. We believe that the latter measure provides a better reflection of our performance and thus adopted it during 2003. Trade sales in the UK for 2005 are based on information compiled, from data supplied by UK tobacco
manufacturers and importers, by Stretch Statistical Services for the period from 1 January 2005 to 20 October 2005, and thereafter from data complied by A.C. Nielsen Company Limited and HM Customs and Revenue. Market share information for the
Republic of Ireland reflects unit sales to the trade in the year ended 31 December 2005 and is based on information compiled by KPMG, Dublin, which reflects the results of the compilation of data supplied by the industry. Market share information
for Russia and Ukraine reflects audit information compiled by Business Analytica. Market share information for Kazakhstan reflects retail audit information compiled by A.C. Nielsen. Other market share information is mainly obtained from the
distributors in the country concerned and represents sales in each country's market. This type of data has been used in all other markets where our competitive position is discussed. In some cases it may not be as robust as that supplied by
recognised corporate market data collectors and the reader should not place undue reliance on the accuracy of any disclosure made.
We furnish The Bank of New York, as depositary for our American Depositary Shares, with annual reviews containing audited consolidated financial statements. These financial statements are
prepared in accordance with International Financial Reporting Standards as endorsed by the EU ("IFRS"). We also furnish the depositary with semi-annual reports. This information has not been audited. The depositary mails these reports to
record holders of American Depositary Receipts evidencing American Depositary Shares.
We also furnish to the depositary all notices of shareholders' meetings and other reports and communications that are made generally available to our shareholders. The depositary, to the
extent permitted by law, makes such notices, reports and communications available for inspection by record holders of ADRs and mails to all record holders of ADRs the notice of a shareholders' meeting received by the depositary. We are not required
to report quarterly financial information. Further information on us is available on our website (www.gallaher-group.com). Information included on our website is not incorporated by reference in this Form 20-F.
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GALLAHER
      GROUP Plc
Form 20-F 2005
Cautionary
Statement
This Annual Report includes 'forward-looking statements' within the meaning of the US securities laws. All statements other than statements of historical fact included in this
Annual Report, including, without limitation, statements regarding our future financial position, strategy, market trends and price increases, dividend policy, exchange rates, anticipated investments, future capital expenditure, 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, objectives of management for future operations and
effects of restructuring activities, may be deemed to be forward-looking statements.  Although we believe that the expectations reflected in such forward-looking statements are reasonable, we 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
our expectations including, without limitation, changes in general economic, political or commercial conditions, foreign exchange rate fluctuations, 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 our 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.
Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to them any material non-public information
or other confidential commercial information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, we have a policy against
issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.
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GALLAHER GROUP Plc
Form 20-F 2005
Definitions
The terms 'Gallaher', 'Group' and 'Company' refer to Gallaher Group Plc and its subsidiaries. The term 'Liggett-Ducat' refers to the Liggett-Ducat
  group of companies.  The term 'ATG' refers to Tobaccoland Automatengesellschaft mbH & Co KG. The term 'Lekkerland' refers to Lekkerland GmbH & Co KG. The term 'Lekkerland Europa' refers to Lekkerland-Europa
  Holding GmbH. The terms 'Tobaccoland Austria' and 'TOBA' refer to Tobaccoland Austria (Tobaccoland Handels GmbH).  The term 'KT Merkury' refers to Kompania Tytoniowa Sp.z.o.o. The terms 'Reynolds-Gallaher
  International' and 'RGI' refer to the joint venture company, R.J. Reynolds-Gallaher International SARL. The term 'Reynolds-American' refers to Reynolds American, Inc. and its subsidiaries. The term 'CNTC' refers to
  the China National Tobacco Corporation. The term 'Shanghai Tobacco Group' refers to the Shanghai Tobacco (Group) Corp. The term 'Altria' refers to Altria Group, Inc. The terms 'British American Tobacco' and
'BAT' refer to British American Tobacco plc. The term 'Japan Tobacco' refers
to Japan Tobacco, Inc. and its subsidiaries.
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GALLAHER
GROUP Plc
Form 20-F 2005
Part
I
ITEM
1
IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
A
Directors and Senior
Management
This
    section is not applicable.
B
Advisers
This
    section is not applicable.
C
Auditors
This
    section is not applicable.
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GALLAHER
GROUP Plc
Form 20-F 2005
ITEM
2   OFFER STATISTICS AND EXPECTED TIMETABLE
A
Offer Statistics
This
    section is not applicable.
B
Method
    and Expected Timetable
This
    section is not applicable.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM
3
KEY INFORMATION
A
Selected Financial Information
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"),. As there are
no material differences between IFRS as adopted by the EU and complied with in the preparation of these financial statements these statements also comply with IFRS as published by the IASB.
The 2005 financial statements are the Group's first consolidated financial statements prepared under IFRS, with a transition date of 1 January 2004. Consequently, the comparative
figures for 2004 and the Group's balance sheet as at 1 January 2004 have been restated to comply with IFRS.
The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and financial liabilities (including derivative
instruments) at fair value through profit and loss.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those
estimates.
You are requested to read the data in conjunction with our financial statements, the notes to the financial statements and "Item 5. Operating and Financial Review and
Prospects".
We prepare our financial statements in accordance with IFRS, which differs in certain respects from US GAAP. A description of the significant differences, and reconciliations of net
income and shareholders' equity, are set out in note 37 of the notes to the financial statements.
Following a board management restructure and the transition to IFRS for the year ending 31 December 2005, the financial information for the period is reported under the new segmental
structure and the financial information for year ending 31 December 2004 has been restated accordingly.
Selected
Financial Data
.
IFRS
Year ended 31 December
2005(a)
2005
2004
Operating Data
$m
£m
£m
Sales (including duty) (b)
Continuing operations:
UK
6,281
3,658
3,680
Europe
6,514
3,794
3,836
CIS
817
476
409
Rest of World
491
286
190
14,103
8,214
8,115
Sales (excluding duty)
Continuing operations:
UK
982
572
568
Europe
2,656
1,547
1,553
CIS
611
356
307
Rest of World
220
128
119
4,469
2,603
2,547
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GALLAHER GROUP Plc
Form 20-F 2005
Total Profit from Operations (c)
Continuing operations:
UK
525
306
299
Europe
419
244
250
CIS
115
67
57
Rest of World
58
34
29
Exceptional cost of goods sold
(23
)
(13
)
(8
)
Other exceptional items
(37
)
(22
)
(9
)
1,057
616
618
IFRS
Year ended 31 December
2005(a)
2005
2004
$m
£m
£m
Minority interests
(5
)
(3
)
(4
)
Profit for the year (d)
638
372
362
IFRS
Year ended 31 December
2005(a)
2005
2004
Operating Data
Earnings per share
for profit
attributable to equity shareholders:
Basic (e)
97.0
c
56.5
p
55.0
p
Diluted (f)
96.8
c
56.4
p
54.9
p
Dividends per share (g)
55.1
c
32.1
p
30.15
p
IFRS
Year ended 31 December
2005(a)
2005
2004
Supplementary Data
EBITAE (h)
$
1,150
m
£
670
m
£
648
m
Adjusted EPS (i)
108.3
c
63.1
58.7
Actual dividend proposed/paid (j)
57.5
c
33.5
p
31.5
p
IFRS
Year
    ended 31 December
2005(a)
2005
2004
Balance Sheet Data
$m
£m
£m
Current assets
2,652
1,545
2,129
Net current assets (k)
(724
)
(421
)
117
Non current liabilities
3,043
1,772
2,380
Total assets
6,651
3,874
4,332
Net assets/(liabilities)
232
136
(60
)
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GALLAHER GROUP Plc
Form 20-F 2005
Year ended 31 December
US
	    GAAP
2005(a)
2005
2004
2003
2002
2001
Operating Data (l)
$m
£m
£m
£m
£m
£m
Net sales
14,103
8,214
9,553
9,048
8,422
5,719
Total profit from operations
970
565
586
535
567
414
Income
520
303
343
271
318
235
Minority interest
(5
)
(3
(4
)
(5
)
(4
)
(6
)
Net income (m)
515
300
339
266
314
229
Net income per ordinary share - basic
78.6
c
45
52.0
p
41.0
p
48.6
p
36.5
p
Net income per ADS - basic (n)
314.6
c
183
208.0
p
164.0
p
194.3
p
146.0
p
Net income per ordinary share - diluted
78.5
c
45
51.8
p
40.9
p
48.4
p
36.4
p
Net income per ADS - diluted (n)
313.9
c
182
207.2
p
163.6
p
193.6
p
145.6
p
Year
    ended 31 December
2005(a)
2005
2004
2003
2002
2001
Balance
          Sheet Data
$m
£m
£m
£m
£m
£m
Total
        assets
7,125
4,150
4,522
3,797
3,649
3,603
Equity
        shareholders' funds/(deficit)
658
383
267
(50
)
(168
)
(137
)
Notes
(a)
The pound sterling amounts presented for the year ended 31 December 2005, and as that date, have been translated into US dollars at the rate of $1.717 to the pound sterling, which was
the noon buying rate in New York City on 31 December 2005.
(b)
Sales represents amounts charged to external customers for goods sold, services supplied and licence fees, and includes excise duties paid by group companies but not VAT or its
equivalent. Sales incentives payable to distributors and vendors of the group's products are deducted from sales. These incentives primarily comprise the following – retrospective payments made to customers for specific performance,
normally targeted volume sales, ranging and stock availability, and payments to customers to support shelf price reduction in relation to promotional activity.
(c)
Total profit from operations (which includes profits from joint ventures) represents sales less cost of sales, duty and all expenses (including exceptional items) and excluding net
interest, investment income and taxes.
For
clarity we have disclosed exceptional items separately.
(d)
Profit for the year represents net income.
(e)
Basic earnings per equity share are calculated on the profit on ordinary activities after taxation, divided by the weighted average number of ordinary shares in issue during the year
(2005: 653.3 million shares, 2004: 651.9 million shares, 2003: 650.0 million shares, 2002: 648.4 million shares, 2001: 628.0 million shares).
(f)
Diluted earnings per equity share are calculated on the profit on ordinary activities after taxation, divided by the weighted average number of ordinary shares in issue during the year
plus potentially dilutive share options (2005: 654.9 million shares, 2004: 653.5 million shares, 2003: 651.7 million shares, 2002: 650.7 million shares, 2001: 629.9 million shares).
(g)
Dividends per equity share are calculated on total dividends, divided by the number of shares reported in note (e) above.
(h)
EBITAE represents earnings before interest, taxation, amortization of intangible assets and exceptionals.
(i)
Adjusted EPS (adjusted earnings per share) represents basic earnings per share adjusted to remove amortization of intangible assets and exceptional charges.
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GALLAHER GROUP Plc
Form 20-F 2005
(j)
Dividends proposed/paid are dividends paid in the year and proposed at the year end.
(k)
Net current assets is equivalent to working capital.
(l)
All operations
are continuing.
(m)
For a reconciliation of net income between IFRS and US GAAP for each of the two years in the period ended 31 December 2005, see note 37 of the notes to the financial
statements.
(n)
Basic earnings per equity share under US GAAP are calculated on the net income for the year divided by the weighted average number of ordinary shares in issue during the year (See note
(e) above). Each ADS represents four ordinary shares. The amounts shown are in cents ("c") and pence ("p").
Diluted earnings per equity share under US GAAP are calculated on the net income for the year divided by the weighted average number of ordinary shares in issue during the year plus
potentially dilutive share options (See note (f) above). Each ADS represents four ordinary shares. The amounts shown are in cents ("c") and pence ("p").
Exchange rates
The following table sets out the exchange rates between the pound sterling and US dollar for the periods shown. We have used the noon buying rates in New York City for cable transfers in
foreign currencies, as announced for customs purposes by the Federal Reserve Bank of New York.
Year ended 31 December
US dollars per £1.00
2005
2004
2003
2002
2001
$
$
$
$
$
Exchange rate at end of period
1.717
1.920
1.790
1.610
1.455
Average exchange
rate for period
*
1.819
1.833
1.635
1.504
1.438
Highest exchange rate during period
1.931
1.949
1.790
1.610
1.505
Lowest exchange rate during period
1.711
1.756
1.550
1.408
1.373
*: The average exchange rate for the period is calculated by using the average of the noon buying rates on the last business day of each month during the period.
The highest and lowest rates for the last six months for US dollars per £1.00 were:
High
Low
October 2005
1.785
1.747
November 2005
1.776
1.711
December 2005
1.774
1.717
January 2006
1.787
1.739
February 2006
1.780
1.729
March 2006
1.755
1.726
The exchange rate at 31 March 2006 was 1.735. We make no representation that the pound sterling amounts actually represent such dollar amounts or that such amounts have been or could be
converted into dollars at such rate or any other rate. We do not use these rates in the preparation of our financial statements.
Fluctuations in these rates in the past are not necessarily indicative of fluctuations that may occur in the future. Translations contained in this Annual Report do not constitute
representations that:
(a)
The stated pound sterling amounts actually represent the stated US dollar amounts or vice versa; or
(b)
The amounts could be or could have been converted into US dollars or pounds sterling, as the case may be, at any particular rate.
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GALLAHER GROUP Plc
Form 20-F 2005
Reconciliation of Non-GAAP Financial Measures
Reconciliation
of Net sales/sales excluding duty to Gross sales
In this document we use net sales / sales excluding duty as a performance measure. The most directly comparable GAAP measure to net sales / sales excluding duty is gross sales, as shown
in the table below.
The net sales / sales excluding duty measure is a common performance indicator within the tobacco industry (both in the UK and internationally), which is utilised by us in managing our
business and for performance reporting in financial statements. Analysts and investors also commonly use operating margin data derived from sales excluding duty to assess individual company and sector relative performance across the industry.
Reconciliation
of net sales / sales excluding duty to gross sales:
2005
2004
£m
£m
Net sales/sales excluding duty
2,603
2,547
Duty
5,611
5,568
Gross sales
8,214
8,115
Reconciliation of Earnings before Interest, Tax, Amortization and Exceptional Items (EBITAE) to Profit for the financial year.
In this document we use earnings before interest, tax, amortization and exceptional items (EBITAE) as a performance measure.
EBITAE is a measure that our board considers to be a key performance indicator and monitoring tool when discussing interest cover together with our underlying performance.
We also believe that non-recurring exceptional items and amortization of intangible assets can distort the underlying operating trends of our business and as such discuss them separately
when they arise. We believe this approach gives the user of our accounts greater transparency.
The most directly comparable GAAP measure to EBITAE is total profit from operations.
2005
EBITAE
Amortization
Exceptional
Total
Net
Taxation
Profit for
Equity
charges
Profit from
interest
the year
minority
Operations
and other
interests
finance
£m
£m
£m
£m
£m
£m
£m
£m
Group
670
(19
)
(35
)
616
(100
)
(144
)
372
(3
)
2004
EBITAE
Amortization
Exceptional
Total
Net
    interest
Taxation
Profit for
Equity
charges
Profit from
and other
the year
minority
Operations
finance
interests
charges
£m
£m
£m
£m
£m
£m
£m
£m
Group
648
(13
)
(17
)
618
(114
)
(142
)
362
(4
)
EBITAE is used by management to monitor performance of its segments. Below we have set forth this data by segment with a reconciliation to Total Profit from Operations.
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GALLAHER GROUP Plc
Form
        20-F 2005
Primary
        reporting format - geographical segments
The Group is organised into four distinct, independently managed, geographic segments: United Kingdom ("UK"), Europe, Commonwealth of Independent States ("CIS") and
Rest of World (principally comprising: Africa; Asia Pacific; the Baltics; the Middle East; Poland; and Scandinavia).
The segment
results are as follows:
2005
Rest of
UK
Europe
CIS
World
Total
£m
£m
£m
£m
£m
EBITAE
310
259
67
34
670
Amortization of intangible assets
(4
)
(15
)
–
–
(19
)
Exceptional items
(22
)
(10
)
–
(3
)
(35
)
Total profit
from operations
284
234
67
31
616
2004
Rest of
UK
Europe
CIS
World
Total
£m
£m
£m
£m
£m
EBITAE
302
260
57
29
648
Amortization of intangible assets
(3
)
(10
)
–
–
(13
)
Exceptional items
(9
)
(5
)
–
(3
)
(17
)
Total profit
from operations
290
245
57
26
618
Reconciliation of Basic Earnings per Share to Adjusted Earnings per Share
In this document we use adjusted earnings per share ("adjusted EPS") as a performance measure. Adjusted EPS represents basic earnings per share adjusted to remove amortization
and exceptional charges. Adjusted EPS, excluding such items, contains useful information as it offers our investors an additional measure to evaluate our operating trends. It is also consistent with how we and the industry present our results to the
analyst community, particularly in the UK. We also use adjusted EPS as a performance indicator for certain management remuneration incentive programmes. The most directly comparable GAAP measure to adjusted EPS is basic earnings per ordinary share.
2005
2004
Earnings per share:
Pence
Pence
Basic
56.5
55.0
Adjustment for exceptional charges (net of tax)
3.7
1.7
Adjustment for intangible asset
2.9
2.0
Adjusted
63.1
58.7
2005
2004
Earnings:
£m
£m
Net income
369
358
Adjustment for exceptional charges (net of tax)
25
11
Adjustment for intangible asset
19
13
Adjusted earnings
413
382
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GALLAHER GROUP Plc
Form 20-F 2005
2005
2004
millions
millions
Weighted average number of shares:
Ordinary shares in issue
655.3
654.1
Shares held by employee share trusts
(2.0
)
(2.2
)
Shares used in the calculation of basic and adjusted earnings per share
653.3
651.9
Potentially dilutive share options
1.6
1.6
Shares used in the calculation of diluted earnings per share
654.9
653.5
B
Capitalisation and Indebtedness
This section is not applicable.
C
Reasons for the Offer and Use of Proceeds
This section is not applicable.
D
Risk Factors
Investors in our company should be aware of a number of risk factors that could prevent us from achieving our stated goals, a number of which are set out below. We are subject to the same
risks as any other multinational fast moving consumer goods organisation doing business; including changes in general economic conditions, regulatory changes, political instability and the impact of any unforeseen natural disasters.
•
Integration
    of acquisitions and joint ventures
Acquisitions and joint ventures continue to be a component of our business strategy and we intend to achieve the anticipated benefits of such transactions when they arise.  However,
failure to adequately manage the integration processes and coordinate the strategies of such entities with our own could affect our total profit from operations.
•
Reliance
    on tobacco supply
Tobacco is the most important raw material in the manufacture of tobacco products. We are not directly involved in the cultivation of tobacco leaf. As with other agricultural commodities,
the price of tobacco leaf tends to be cyclical, with imbalances in supply and demand influencing future production levels. Different regions also experience variations in weather patterns, which may affect crop quality. Political unrest in any of
the countries where tobacco leaf is cultivated (such as in Zimbabwe) could also significantly increase the price of these materials. Presently this situation is not materially affecting our average tobacco cost and in general terms, the effect of
price fluctuations on our operating performance may be limited by the geographic spread of our tobacco leaf sources and by our practice of holding approximately between three months and one year average inventory of tobacco leaf across our
locations. However, any significant change in tobacco leaf prices could affect our total profit from operations.
•
Increased
    regulation of the tobacco sector
Tobacco markets are subject to significant regulatory influence from governments. These include:
a)
the levying of substantial and increasing tax or substantial changes to duty structures and duty charges;
b)
the introduction of minimum tax and minimum price legislation for cigarettes;
c)
restrictions such as the prohibition of smoking in many public and work places;
d)
restrictions on advertising and marketing;
e)
the display of larger health warnings, graphic pictorial warnings and statements of tar, nicotine and carbon monoxide smoke yields on product packaging;
f)
the prohibition of certain descriptors such as 'light' and 'mild';
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GALLAHER GROUP Plc
Form 20-F 2005
g)
restrictions on the minimum number of cigarettes in packs; on the display of cigarettes at the point of sale; and on access to vending machines;
h)
regulations on the maximum tar, nicotine and carbon monoxide smoke yields of cigarettes;
i)
the effect of other regulations relating to the manufacturing, presentation and sale of tobacco products;
j)
the provision of tobacco ingredients information to regulators;
k)
requirements regarding the potentially costly analysis of ingredients and the potential for publication of proprietary brand formula information; and
l)
changes in duty paid allowances.
Partly because of these measures, unit sales of tobacco products in certain principal markets have declined in recent years and we expect this trend to continue. Any significant decrease
in demand for our products could significantly affect our total profit from operations, together with our cost of complying with increased regulatory requirements.
Regulations on tobacco marketing could significantly reduce our ability to compete and therefore have an adverse
effect on our sales and total profit from operations
Advertising, promotion and brand building continue to play a key role in our business, with significant expenditure on programmes to support key brands and to develop our performance in
markets for new brands and brand extensions. However, the regulation of advertising and marketing of tobacco products is significant and increasingly restrictive. Present and proposed regulations restrict the manner in which our products may be
marketed, including restrictions on advertising, sponsorship, promotion, point of sale display and sampling of tobacco products. Additional regulations restricting these and other aspects of tobacco marketing may be proposed and come into force in
the future.
We will use the full range of advertising, promotion and sponsorship opportunities allowed to us for as long as these are available and will continue to explore other methods through
which we can continue to build our brands. It is possible that the present and proposed regulations, as well as future regulations, may have a material adverse affect on our ability to advertise, promote and build our brands, to promote and
introduce new brands and products and to maintain the proprietary nature of our owned and licensed brands and thus materially adversely affect our sales and total profit from operations.
This important risk factor is discussed further in the regulation section in "Item 4B. Business Overview" of this Annual Report.
Regulations and voluntary agreements on smoking in public places and the workplace could have an adverse effect on
our sales and total profit from operations
At a global level, the World Health Organisation's Framework Convention on Tobacco Control ("WHO FCTC") came into force in February 2005. Countries that have ratified the
convention will be legally bound by the provisions of the treaty which include measures relating to environmental tobacco smoke. In addition, a number of countries have recently established, or are considering, further legislation and/or volunatary
agreements that restrict or prohibit smoking in public places and the workplace, which may also include bars and restaurants. These countries include Austria, Belgium, France, Germany, Italy, Norway, Republic of Ireland, Spain, Sweden and the UK.
These and other current and potential restrictions on smoking in public places and the workplace may reduce the opportunities available for smoking and may reduce the demand for tobacco
products. This potential reduction in demand for tobacco products may materially adversely affect our sales and total profit from operations.
This important risk factor is discussed further in the regulation section in "Item 4B. Business Overview" of this Annual Report.
Excise tax increases/changes and minimum price legislation reduce sales volumes
Governments in markets where we operate have imposed considerable excise taxes on tobacco products, and some have indicated that these will continue to increase. The continuing impact of
price increases in these markets, principally due to substantial duty increases in recent years, has resulted in:
a)
pressure on manufacturing and vending margins;
b)
reduced annual industry volumes;
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GALLAHER GROUP Plc
Form 20-F 2005
c)
greater price competition;
d)
accelerated trading down by consumers to lower price cigarette brands or to handrolling tobacco;
e)
increased legitimate cross border purchasing by consumers;
f)
an illegal trade in tobacco products; and
g)
a growth in smuggled counterfeit tobacco products.
These changes have affected us and are expected to continue to affect us. For instance we have, in particular, been impacted by the UK Government's policy of maintaining duty levels
in excess of the duty levels of Europe. This has led to the cross border purchasing of cigarettes by travellers returning to the UK and illegal smuggling of cigarettes into the UK. Partly because of the black market, our UK sales have been reduced.
The entry of 'Accession Countries' into the European Union has exacerbated the issue of price differentials provoked by different duty structures in adjacent markets. Furthermore, any shortfall in control arrangements at the borders of the
Accession Countries and Eastern Europe may impact on the legitimate EU market for tobacco products. Any of these could adversely affect our total profit from operations.
In addition, some EU member states, including Ireland, France, Belgium and Italy have introduced minimum price legislation and the Austrian government has indicated that it will implement
price legislation in April 2006. This may affect the sales mix of our brands.
This important risk factor is discussed further in the regulation section in "Item 4B. Business Overview" of this Annual Report.
•
Declining
    demand for tobacco products
Developed markets
  for tobacco products including cigarettes, have been generally declining since
  the 1970s. This
adverse trend has been encouraged by consistent and substantial
  increases in the excise duty on tobacco products,
increasing
  governmental regulation, government-funded anti-smoking campaigns and heightened
  public awareness of
smoking-related
health concerns.
Any future substantial
  decline in sales could have a materially adverse effect on our total profit from
  operations.
•
Increasing
          dependence on sales in the Commonwealth of Independent States and other
    emerging markets
We continue
    to increase our sales in the Commonwealth of Independent States ("CIS")
    and other emerging markets.
The economic conditions in these countries have in the past
    suffered from substantially depressed economies,
devaluation
    of currencies and an unstable political and commercial environment. Any deterioration
    in the current
conditions
may affect the profitability of our operations in these countries.
•
Cost
    of compliance with regulatory requirements
We are subject
    to increasing costs associated with regulatory requirements, eg the US Sarbanes-Oxley
    of 2002
("SOX"), pension funding obligations and compliance
    with enhanced corporate governance and specific regulations
impacting
    upon the tobacco sector
within Europe and elsewhere.
•
Highly
    competitive business
We must compete
    with other tobacco companies whose business plans and objectives may be similar
    to ours. Our
principal
    competitors are Philip Morris International, British American Tobacco, Japan
    Tobacco International, Imperial
Tobacco
    Group and Altadis Group. Some of these companies have greater resources than
    we have, including R&D
facilities.
    Action by any of our principal competitors or any other manufacturers could
    lead to competitive product
differentiation and pricing
pressure on our products.
•
Potential
    credit risk with our distributors
In some of our
    markets we make the majority of our sales to small numbers of independent
    distributors. This can mean
that we have large credit exposures with a relatively limited
    number of customers. Whilst we have robust credit control
procedures
    in place throughout our business, the failure of one of these customers to
    pay receivables due to us could
have
    a material effect on our total profit from operations and on the cash flow
    of our business.
In addition, our business
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GALLAHER
GROUP Plc
Form 20-F 2005
relationships
      with distributors internationally are governed by our sales and distribution
      policy, which regulates selling practices and has been developed in co-operation
      with the UK customs authorities. While we closely monitor adherence to this
      policy, a material breach by any distributor could require us to discontinue
      trade or incur financial penalties, which could have a material effect on
    our total profit from operations and cashflow.
•
Risks
      to our facilities
Our
      production and distribution capacity is generated from facilities strategically
      located principally to supply markets geographically near our factories.
      Accordingly, a significant disruption in any of these facilities may have
      a material adverse effect on the production and distribution of our tobacco
      products and therefore on our operating results. Whilst we have the ability
      to produce different products in different factories the lead time to transfer
      to an alternative location and the corresponding difficulty in arranging
    distribution could cause a financial loss to our business.
•
Currency
      fluctuations affecting our financial reporting and debt levels
Our
      financial statements are prepared in accordance with IFRS, and are stated
      in pounds sterling. As a result our financial reporting could be adversely
      affected by currency fluctuations, such as a significant increase in the
      value of the pound sterling against the currencies in which our sales is
      denominated for example, the euro and the US dollar. As at 31 December 2005,
      approximately 33% of our net debt was denominated in pounds sterling, 51%
      in euro, 12% in US dollars and 4% in Polish zlotys. Accordingly, our financial
      results are exposed to gains or losses arising from fluctuations in pound
      sterling and euro exchange rates. We are also exposed to currency risk when
      our expenses are in a currency other than the currency used for the sale
    of our products.
•
Interest
      rate fluctuations
We
      are exposed to fluctuations in interest rates on our net debt. In order
      to manage the impact of adverse variations in interest rates on our profits,
      we borrow a portion of our funds at fixed rates of interest and, where necessary,
      use interest rate derivatives to maintain a target level of fixed interest
      rate cover in the current and subsequent two years of between 40% and 80%
    of the level of core debt.
For
      additional information about our exposure to interest rate fluctuations,
      please see Item 11:"Quantative and Qualitative Disclosure about Market
    Risk."
•
Difficulty
      in developing and managing growth
Part
      of our business strategy is to pursue growth and start-up operations in
      new and existing markets. Our ability to achieve our planned growth depends
    on a number of factors, including:
1.
our
      ability to compete in existing markets and identify new markets in which
      we can successfully operate;
2.
the
      access to additional financial resources;
3.
our
      ability to hire, train and retain appropriately skilled management and other
      employees; and
4.
the
      increased cost to the business of pension funding and regulations relating
      to employees.
We
      will also need to adapt our operating systems to accommodate the expanded
      operations. Such planned expansion may not be achieved or we may not be
      able to successfully manage the expanded operations. Failure to manage such
      growth effectively could adversely affect our financial condition, the results
    of our operations and our prospects.
•
Likelihood
      of identifying further acquisition opportunities
Historically,
      we have engaged in acquisitions, which have been complementary to the organic
      growth of the Group. The continuation of this expansion strategy is dependent
      on, among other things, identifying suitable acquisition or investment opportunities
      and successfully consummating those transactions. Anti-trust or similar
      laws may make it difficult for us to make additional acquisitions if regulators
      in countries where we and potential acquisition targets operate believe
      that a proposed transaction will have an adverse effect on competition in
      the relevant market or economic region. Even if we are able to identify
      candidates for acquisition, it may be difficult to complete transactions.
      We have historically faced competition for acquisitions, and in the future
      this could limit our ability to grow by this method or could raise the price
      of acquisitions and make them less attractive to us. In addition, if we
      are unable to secure necessary financing, we may not be able to grow our
    business through acquisition.
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GALLAHER
GROUP Plc
Form 20-F 2005
Typically,
      when we acquire a business we acquire all of its liabilities as well as
      its assets. Although we try to investigate each business thoroughly prior
      to acquisition and to obtain appropriate representations and warranties
      as to its assets and liabilities, there can be no assurance that we will
      be able to identify all actual or potential liabilities of a company prior
      to its acquisition or thereafter pursue claims against vendors within the
      limitation periods within which such claims can be made against vendors.
•
Adverse
      litigation and regulatory results could have an impact on profits
There
      are a number of instances where litigation or regulatory proceedings, hearings
      or claims are actual, pending or prospective or otherwise threatened against
      us. Historically, such claims have focussed upon smoking and health related
      matters. More recently, regulatory, anti-trust and tax related claims have
    become more prevalent.
To
      date, there has been no recovery of damages against any of our companies
      in any action alleging that our tobacco products have resulted in human
      illnesses. It is not possible to predict the outcome of the pending litigation.
      We believe that there are meritorious defences or suitable indemnities from
      prior risks to the actions and claims we currently face and based upon what
      is known to us actual, pending or prospective actions will not have a material
      adverse effect upon the results of our operations, our cash flow or our
    financial condition. There can be no assurance that:
a)
favourable
      decisions will be achieved in the proceedings pending against us;
b)
additional
      proceedings will not be commenced in the UK or elsewhere against us;
c)
we will
      not incur damages; or
d)
if we incur
      damages, such damages will not have a material impact on our operating performance
      or financial condition.
Regardless
      of the outcome of the pending litigation, the costs of defending actions
      and claims could be substantial and will not be fully recoverable from the
      plaintiffs, irrespective of whether or not we are successful. Details of
      the current position are found at Item 4: "Information on the company
    – Regulation and Litigation".
•
The
          effect of fluctuations in the pound sterling/US dollar exchange rate
          price
      on our ADSs and the US dollar value of any dividends
Our
      ADSs trade in US dollars. Therefore, a decline in the value of the pound
      sterling against the US dollar would reduce the value of our ADSs as reported
      in US dollars. This could adversely affect the price at which the ADSs trade
      on the US securities markets. Any dividend we might pay in the future will
      be denominated in pounds sterling. A decline in the value of the pound sterling
      against the US dollar would reduce the US dollar equivalent of any such
    dividend.
•
Potential
      volatility of the price of our ordinary shares and ADSs, and the extent
      to which an investor may lose all or part of their investment
The
      market price for our ordinary shares and ADSs could be volatile and subject
      to fluctuations in response to a variety of factors, which could lead to
      losses for our shareholders and ADS holders. These factors include, but
    are not limited to, the following:
a)
fluctuations
      in our operating results;
b)
changes
      in earnings estimates by analysts;
c)
announcements
      by us or our competitors relating to new products, brands or marketing campaigns,
      or relating to acquisitions, strategic partnerships or joint ventures;
d)
regulations
      on the production, distribution or marketing of tobacco products;
e)
additions
      or departures of key personnel;
f)
potential
      litigation, particularly relating to actions which might be brought against
      us by parties seeking damages for ailments claimed to have resulted from
      tobacco use;
g)
anti-trust
      claims or alleged claims or claims or alleged claims relating to tax liabilities;
      or
h)
press,
      newspaper and other media reports including rumours and speculation in the
      tobacco sector on potential future consolidation within the industry.
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GALLAHER
GROUP Plc
Form 20-F 2005
•
Holders
      of ADSs do not hold their ordinary shares directly and as such may be subject
      to the following additional risks relating to ADSs rather than ordinary
      shares
(a)
In the
      event of a fluctuation in exchange rates during any period of time when
      the depositary cannot convert pounds sterling into US dollars for purposes
      of a dividend or other distribution, an ADS holder may lose some of the
      dividend or distribution. There can be no assurance that the depositary
      will be able to convert any currency at a specified exchange rate or sell
      any property, rights, shares or other securities at a specified price, or
      that any such transaction can be completed within a specified time period.
(b)
Upon receipt
      of a notice from us of a shareholders' meeting, the depositary has
      agreed to provide the holders of ADSs registered on the books of the depositary
      with any materials that we have distributed, along with a notice as to how
      each registered ADS holder can instruct the depositary on the voting of
      the ordinary shares underlying that holder's ADSs. We cannot guarantee
      that ADS holders will receive voting materials in time to instruct the depositary
      how to vote. It is possible that ADS holders, or persons who hold their
      ADSs through brokers, dealers or third parties, will not receive notice
      of a shareholders' meeting or have the opportunity to exercise a right
      to vote at all.
(c)
ADS holders
      may not receive copies of all reports from the depositary or us. An ADS
      holder may need to go to the depositary's offices to inspect any reports
      issued.
(d)
ADS holders
      may not receive all of the benefits of a holder of ordinary shares, such
      as rights to participate in any capital increase.
(e)
Ourselves
      and the depositary may amend or terminate the deposit agreement without
      the consent of the ADS holders in a manner that could prejudice ADS holders.
•
The
      ability of an ADS holder to bring an action against us may be limited under
      English law
We
      are a public limited company incorporated under the laws of England and
      Wales. The rights of holders of ordinary shares and, therefore, many of
      the rights of ADS holders, are governed by English law, regulatory and non-regulatory
      requirements and by our Memorandum and Articles of Association. These rights
      differ from the rights of shareholders in typical US corporations. In particular,
      English law significantly limits the circumstances under which shareholders
      of English companies may bring derivative actions. Under English law generally,
      only our company can be the proper plaintiff in a proceeding in respect
      of wrongful acts committed against it or claimed to be committed against
      it. In addition without prejudice, it may be difficult for a US holder to
      prevail in a claim against us under, or to enforce liabilities predicated
      upon, US securities laws or doctrines of US laws more generally.
•
A
      US holder of ADSs may not be able to enforce a judgment against some of
      our directors and officers
All
      of our directors and executive officers are residents of countries other
      than the United States. Consequently, it may not be possible for a US holder
      to effect service of process within the United States upon them or to enforce
      against them judgments of courts of the United States based on civil liabilities
      under the US securities laws. We cannot assure that a US holder will be
      able to enforce any judgments in civil and commercial matters against our
      directors or executive officers who are residents of the United Kingdom
      or other countries other than the United States. We also cannot assure that
      a US holder will be able to enforce any judgments under the US securities
      laws against our directors or executive officers who are residents of the
    United Kingdom or other countries other than the United States.
In
      addition, English or other courts outside the United States may not impose
      civil liability on our directors or executive officers in any original action
      based solely on the US securities laws brought against us or our directors
      in a court of competent jurisdiction in England or other countries outside
    the United States.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM 4     INFORMATION ON THE COMPANY
Registered Office and Group Headquarters
Gallaher Group Plc
Members Hill
Brooklands Road
Weybridge
Surrey, KT13 0QU, England
Telephone number: +44 (0)1932 372000
Facsimile number: +44 (0)1932 372792
Website: www.gallaher-group.com
Gallaher Group Plc is a public limited company, registered in England, and operates under the legislation and regulation of England and Wales. The registered company number is 3299793.
A
History
          and
Development of the Company
Our business was established in 1857 in Londonderry for the manufacture of Irish Roll pipe tobacco, and we manufactured our first machine-made cigarettes at around the beginning of the
20
th
century.
In 1955, we acquired Benson & Hedges Limited, through which we acquired the right to use the
Benson
& Hedges
trademark in the UK and the Republic of Ireland.
In 1964, we identified an opportunity for a lower tar cigarette and launched
Silk Cut
. The brand was developed through a series of successful advertising and promotional campaigns and is currently the leading low tar cigarette house in the UK.
In the 1980s, we began to give greater focus to our international operations, particularly in western Europe. The acquisition in 1993 of the rights to the
Benson & Hedges
trademark in other European countries, other than duty free markets, supplemented our existing
rights in the UK and the Republic of Ireland and significantly increased our presence in western Europe.
The American Tobacco Company, a former subsidiary of Fortune Brands, Inc. (formerly American Brands, Inc.), became a 13% shareholder in Gallaher Limited in 1962 and that shareholding
increased to 100% in 1975. Gallaher Limited was an indirect wholly owned subsidiary of Fortune Brands until Gallaher Limited was spun-off on 30 May 1997. Gallaher Group Plc (which was incorporated on 2 January 1997 and reregistered in England as a
public limited company on 12 May 1997) was formed to acquire the business of Gallaher Limited as part of a reorganisation undertaken prior to this spin-off.
Our subsequent ability to raise funds in the capital markets has allowed us to begin following a strategy to transform ourselves from a successful UK and Irish entity with a small export
business to an international player with specific interests throughout Europe, CIS and developing markets.
In 1998 we completed construction of a factory on a greenfield site in Kazakhstan. Post completion, the business has grown rapidly.
In 1999, we completed
the purchase of part of the UK tobacco business of the R.J. Reynolds group of
companies. The business acquired included the worldwide trademarks of
Dorchester
,
excluding some Middle East countries, and
Dickens &
Grant
.
In 2000, we acquired the Liggett-Ducat group of companies to develop our operations in the Commonwealth of Independent States.
Also, in 2000, we acquired the
Benson & Hedges
and
Silk Cut
trademarks in certain European Union accession countries
including Hungary, Poland, Slovakia, Slovenia, Latvia and the Czech Republic.
In 2001, we acquired 41.13% Austria Tabak AG from the Austrian Republic and completed the purchase of the remaining shares in early 2002. The acquisition of Austria Tabak has enabled us
to significantly expand our European business.
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GALLAHER GROUP Plc
Form 20-F 2005
Also, in 2001, we acquired a factory in Cherkassy, Ukraine from Reemtsma Cigarettenfabriken GmbH. This acquisition has enabled us to launch Liggett-Ducat Ukraine in 2002, a strategic
venture to further our growth in the CIS. In January 2004, we purchased from management the 15% of Gallaher (Ukraine) Limited that we did not already own.
In 2002, we formed a joint venture with the R.J. Reynolds Tobacco Company (now part of the Reynolds American Group) in Europe - initially in France, Spain, the Canary Islands and Italy -
to manufacture, market and sell a limited portfolio of "American blend" cigarette brands. Certain markets are excluded from this agreement, including Austria. We have licensed
Benson & Hedges American Blend
and
Benson & Hedges Red
to the joint venture company, R.J. Reynolds – Gallaher International SARL, and the R.J. Reynolds Tobacco Company has licensed
Reynolds
and
Austin
. We have entered into sales distribution, marketing and manufacturing agreements with the joint venture.
We gained the manufacturing capability to enter the Swedish snus market through the acquisition of Gustavus, a local producer of both loose and portioned snus in July 2002.
In 2003, we acquired Kompania Tytoniowa Merkury Sp.z.o.o. (subsequently renamed Gallaher Polska Sp.z.o.o.), a Polish company engaged in the manufacture of cigarettes.
Also, in 2003 we signed reciprocal trademark agreements with Shanghai Tobacco (Group) Corp. ("STG") to manufacture, distribute and sell one of each other's brands in China
and Russia. This followed the signing of a cooperative Letter of Intent in 2002 with the China National Tobacco Corporation, together with the State Tobacco Monopoly Administration. Under the licence agreements, STG nominated one of its key brands,
Golden Deer
, to be manufactured, distributed and sold in Russia by us, through Ligget-Ducat, and
we nominated one of our key brands,
Memphis
, to be manufactured, distributed and sold by STG in
China. The products were launched in the first half of 2004.
In January 2004 our associate,
Lekkerland GmbH & Co. KG ("L-T"), purchased 100% of Lekkerland
Europa Holding GmbH ("LEH"). LEH is a German company engaged in the
 wholesale distribution of tobacco and other products and operates principally
in EU and EU accession countries.
As part of our on-going drive for efficiency, in January 2005, we announced proposals for a further restructuring of our European operations. These proposals included the closure of the
Schwaz cigarette and Fürstenfeld cigar factories in Austria during 2005.
In April 2005, we acquired the
Benson & Hedges
and
Silk Cut
trademarks in Malta and Cyprus, and
Silk Cut
in Lithuania, from British American Tobacco.
We acquired 100% of Cita Tabacos de Canarias SL and its group companies ("CITA") on 2 January 2006. As part of the transaction, we agreed to acquire 100% of Tabacos Canary
Islands SA and Tabacos La Nubia SL.
Please see Item 5 "Operating and Financial Review and Prospects - Liquidity and Capital Resources - Cash Flow Analysis for a discussion of our significant capital expenditures and
method of financing.
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GALLAHER GROUP Plc
Form 20-F 2005
B
Business
    Overview
Introduction
We are one of the largest international manufacturers of tobacco products in the world. We manufacture and market a wide range of cigarettes, cigars and hand rolling and pipe tobacco
products and snus. We operate primarily in the United Kingdom, other European countries and the Commonwealth of Independent States. We are also involved in the distribution of tobacco and other products in certain markets in Europe as a result of
our acquisition of Austria Tabak.
The following table shows our approximate market positions and market shares for our principal products in the primary countries in which we operate:
UK
Market position
Market share in 2005
Cigarette
(1)
2
nd
38.6
%
Cigar
1
st
46.1
%
Hand rolling tobacco
2
nd
28.7
%
Pipe tobacco
1
st
48.6
%
Austria
Cigarette
1
st
42.9
%
Cigar
2
nd
12.8
%
Hand rolling tobacco
1
st
34.0
%
Pipe tobacco
1
st
51.6
%
Ireland
Cigarette
(4)
1
st
49.0
%
Cigars
(5)
1
st
47.0
%
Germany
Cigarette
(2)
4
th
8.3
%
Sweden
Cigarette
(3)
1
st
39.1
%
Russia
Cigarette
3
rd
16.9
%
Kazakhstan
Cigarette
2
nd
37.1
%
Ukraine
Cigarette
4
th
16.2
%
Note: The UK, Sweden, Russia, Kazakhstan and Ukraine are based on retail audit data.
(1)
Excluding vending and distribution of JTI brands.
(2)
Factory made cigarettes
only. Our branded share of the German cigarette market was 0.6% and our share
of the
market
held through generic cigarettes, which we manufacture for retailers, was 7.7%.
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GALLAHER GROUP Plc
Form 20-F 2005
(3)
Excluding
      distributed and marketed JTI brands; based on latest available estimate
      of the market.
(4)
Excluding
      distributed JTI brands.
(5)
Excluding
      distributed Ritmeester brands.
Principal Markets
At the end of 2004 our operations were re-organised as follows: United Kingdom, Europe (which includes Republic of Ireland but excludes Scandinavia, Baltics and Poland) Commonwealth of
Independent States and the Rest of World (which includes our operations in Scandinavia, Baltics, Poland, Asia Pacific, Africa and the Middle East).
2005(a)
2005
2004
$m
£m
£m
Operating
      Data
Sales
      (including duty)
Continuing
      operations:
UK
6,281
3,658
3,680
Europe
6,514
3,794
3,836
CIS
817
476
409
Rest
      of World
491
286
190
14,103
8,214
8,115
Sales
      (excluding duty)
Continuing
      operations:
UK
982
572
568
Europe
2,656
1,547
1,553
CIS
611
356
307
Rest
      of World
220
128
119
4,469
2,603
2,547
(a) The pound sterling amounts presented for the year ended 31 December 2005 have been translated into US dollars at the rate of $1.717 to the pound sterling, which was the noon
buying rate in New York City on 31 December 2005.
United Kingdom
In the United Kingdom, we manufacture and market a wide range of cigarettes, cigars and hand rolling and pipe tobacco products. We have the leading market position in the cigar and pipe
tobacco product markets, and the second-leading position in the cigarette and hand rolling tobacco product markets.
We sold 19.5
  bn cigarettes in the UK in 2005 comprising various brands names and compete
  in the premium, mid-price and value sectors. Our
Benson & Hedges Gold
brand is the leading premium brand cigarette in the premium market sector, which
  together with
Benson
  & Hedges Silver
had a retail market share of 9.1% in 2005. Our share of the premium cigarette
  sector in 2005 was 45.2% excluding distributed JTI brands
.
Our
Mayfair
house had an overall market share of 13.3% and has a strong presence in the
  value sector. Our other cigarette brands include
Silk
  Cut
,
Dorchester
and
Sterling
.
We have a strong lead of the UK cigar market with a 46.1% share of sales to consumers in 2005. We market our cigars in the UK under the Hamlet brand, which includes
Hamlet
,
Hamlet Miniatures
,
Hamlet Miniatures Filter
and
Hamlet Aromatic
.
Hamlet
has a 54.6% market share in the large whiff sector, while
Hamlet
Miniatures
had a 30.9% market share in the small whiff sector in 2005 (35.7% including Filter and Aromatic).
We have a strong position in the hand rolling tobacco market, where our market share in 2005 was 28.7% . We sell hand rolling tobacco products in the UK under the
Amber Leaf
and
Old
Holborn
brands. In addition, we achieved a 48.6% market share of the UK pipe tobacco market in 2005. Three of our key pipe tobacco brands hold three of the five leading brand
positions in the pipe tobacco sector.
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GALLAHER GROUP Plc
Form 20-F 2005
Europe
Our Europe division is headquartered in Vienna, Austria and includes the markets of Austria, Germany, Republic of Ireland France, Italy, Spain, Greece, Central Europe, and the Balkans. We
mainly sell cigarettes in these markets, although we also sell other tobacco products in some of these countries. In addition to our tobacco operations we operate a distribution business in certain European markets, which includes the sales of
tobacco and non-tobacco products, such as food and pre-paid phone cards and sales through cigarette vending machines.
Cigarette volume sales totalled 42.5 billion sticks in our Europe division in 2005. In Austria, we have a leading position in the cigarette market, with a 42.9% market share and sell our
products under the
Memphis
and
Meine Sorte
brand houses, as well as under traditional local brands.
In Germany we hold a leading position in German generic cigarette sector and we market our own products primarily under the
Benson & Hedges
and
Nil
brand houses.
We also hold a leading position in the Republic of Ireland with a 49.0% market share excluding distributed JTI brands Our
Benson & Hedges Gold
brand is the leading brand in this market with a 20.4% market share. We have the leading position in the Irish cigar market, with a
market share of 47.0% excluding distributed Ritmeester brands.
We primarily sell our cigarettes in France, Italy and Spain under the
Benson & Hedges
brands. We have also introduced
Austin
an American blend cigarette brand in these markets following the formation of our joint venture with R.J. Reynolds Tobacco Company (now part of Reynolds American).
We also export our products to Central Europe (Hungary, Czech Republic, Slovenia and Slovakia) and the Balkans (Romania, Serbia, Kosovo and Bosnia). We have enhanced our position in
Central Europe with the launching of the
Benson & Hedges Metal
range in Hungary, the Czech
Republic, Slovenia and Slovakia. Our sales in the Balkans have been driven by the success of our
Memphis
and
Ronson
brands.
We also have a distribution business within our Europe division. In Austria and Germany, we sell tobacco and non-tobacco products, including food and pre-paid phone cards, through our
Tobaccoland business and also operate a cigarette vending machine business in Germany.
The wholesale/distribution business is predominantly based in Austria and Germany with smaller operations in Estonia and Hungary. The wholesale and distribution systems within Europe
differ widely by country from the former monopoly markets such as Italy, Spain, Austria and France (characterised by a single wholesaler often representing 100% of annual cigarette volumes) to unregulated markets such as Germany and Belgium, where
multiple wholesalers service retailers.
Commonwealth of Independent States
Our operations in the Commonwealth of Independent States (CIS) region includes the countries comprising the former Soviet Union. Russia, Kazakhstan and Ukraine are the most significant
markets for us in this division, where we mainly sell cigarettes. We sold 97.0 billion sticks in the CIS market in 2005.
In Russia, where we sold 68.5 billion sticks in 2005, we had a market share of 16.9% . Our cigarettes compete predominantly in the low / intermediate price sectors, with brands such as
LD
and
Troika, St
George, Ducat
and
Novost
. In 2005 we had an approximate 4.7% market share in the premium price sector.
Sales from our Kazakhstan factory, including exports, totalled 11.8bn in 2005. Our cigarette sales in this market are predominantly in the higher and intermediate price sectors. We had a
market share of 37.1% in 2005. Our
Sovereign
brand is the leading cigarette in Kazakhstan, with a
market share of 17.4%, and
LD,
which was launched in 2001, has a market share of approximately
10.3% .
In the Ukraine, our brands accounted for 16.2% of sales to consumers in 2005. We sold 16.7 billion sticks in Ukraine, led by sales of our
LD
brand, which had a 3.8% market share in 2005. Higher and intermediate price brands accounted for some 92% of our
invoiced volume sales in this market.
Rest of World
Our operations in the Rest of World division include Scandinavia, the Baltic Region, Poland, Asia Pacific, Africa, Middle East and Latin America. We sold 14.8 billion sticks in 2005 in
our Rest of World operations.
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GALLAHER GROUP Plc
Form 20-F 2005
In Sweden, we have a leading position in the cigarette market, with a 39.1% market share excluding distributed brands which is led by our
Blend
brand. We also sell snus tobacco in Sweden using the
Gustavus
and
LD
brands.
In Poland we own the rights to the
Benson & Hedges, Silk Cut, LD
and
Sobranie
brands and have acquired KT
Merkury, a domestic Polish cigarette manufacturer, in order to strengthen our position in the Polish market. We grew our share of the total industry shipments to 7.3% . In May 2005, we launched
Ronson
into the low-price sector such that for the full year the brand achieved a 1.3% share of the market. Our share of the premium sector is now around
1%.
In Asia, we sold 540 million sticks in 2005, driven by sales of our
Sobranie
brands in Asian Duty Free markets. We have also strengthened our relationships in the region and have signed reciprocal trademark agreements with STG to manufacture, distribute and sell one of each
other's brands in China and Russia.
Our sales in Africa, the Middle East and Latin America totalled 3.8 billion sticks in 2005 consisting of our
Ronson
brand, in addition to our
Sovereign
and
Dorchester International
brands.
Industry Overview and Competition
We operate in a highly competitive business in all of our operating jurisdictions. Globally our principal competitors are Philip Morris International, British American Tobacco Plc, Japan
Tobacco International, Imperial Tobacco Group Plc and Altadis Group S.A.. In addition to these there are other local competitors in the markets in which we operate. We compete on the basis of price, quality, product and a range of brands and tobacco
blends. We also seek to maintain brand loyalty. In 2005 an estimated 5.5 trillion cigarettes were sold throughout the world, including approximately 640 billion in the EU (including the UK and Republic of Ireland). Demand has increased in the
emerging markets of eastern Europe, the Commonwealth of Independent States (CIS) and Asia, but sales in western Europe, including the UK, and North America have generally declined. We expect these trends to continue. Major international cigarette
manufacturers are competing to establish their brands in the emerging markets.
There are significant differences between each of our principal markets due to:
•
duty structures;
•
distribution
      mechanisms;
•
the degree
      of government regulation; and
•
local preferences
      for tobacco blends in each market.
The principal western European markets are led by a limited number of international brands. By contrast in eastern Europe, CIS
and Asian markets a proliferation of brands exists. In the CIS and many other markets in which we operate, sales prices and profit margins are typically
lower than those achieved in the UK and western European markets.
United Kingdom
The UK market accounted for an estimated 50.5 billion cigarettes in 2005, according to the UK Tobacco Manufacturers Association, which made it the fifth largest market in western Europe.
We estimate that there are approximately 12.4 million adult smokers in the UK, with approximately 9.2 million being cigarette smokers. In 2005, the UK tobacco market had an estimated retail value, including excise duties and value added tax, of
approximately £12 billion. Approximately £11 billion of this consisted of cigarette sales.
The volumes of tobacco products sold in the UK have declined since the 1970s. Total cigarette consumer sales over the period from 1990 to 1997 fell by an average of 3-4% per annum.
Between 1997 and 2000 this trend accelerated, with a decline of approximately 7% per annum, reflecting an increasing trend for UK smokers to source their purchases from outside the UK market. Since this time the trend has slowed to approximately 3%
per annum on average over the period from 2001 to 2005, primarily a result of stricter border controls and customs activity. Over recent years, competition between manufacturers based on pricing has intensified and there was downtrading from the
premium and mid price sectors into value price cigarettes. The UK government's decision in 2002 to increase the indicative limit of cigarettes for travellers returning from within the EU from 800 to 3200 (the amount of cigarettes deemed
acceptable for personal consumption) could continue to affect the amount of tobacco product sourced outside of the UK.
Europe
With certain regional exceptions, tobacco consumption in Europe consists principally of cigarettes, with a total estimated annual consumption of 715 billion cigarettes (including EU,
central and eastern European markets not in the
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GALLAHER
GROUP Plc
Form 20-F 2005
EU but excluding UK, Poland, Scandinavian countries and the Baltics region). Turkey is the largest market, with an estimated annual consumption of 114 billion cigarettes, followed by
Germany (97 billion), Italy (92 billion) and Spain (91 billion). The western European markets have, until relatively recently, been broadly stable. However, consumer sales in recent years are beginning to decline and there is a greater degree of
price competition. In 2003 and 2004 above inflation duty increases had a negative impact on total market volumes in European states including France and Germany.
Commonwealth
  of Independent States
We estimate that
  there are around 45 million adult smokers in Russia. Over 99% of these are cigarette
  smokers. In 2005, the cigarette market in Russia had an estimated retail value
  including excise duties and sales taxes of $7.4 billion. The volume of cigarettes
  sold in Russia has continued to grow but the growth rate is slowing down. The
  growth rate in 2005 compared to 2004 was 1%. The proportion of the market accounted
  for by higher priced international brands has increased in association with
  economic growth and improved financial stability. There are around 350 cigarette
  brands sold in the Russian market. Leading international brands account for
  approximately 35% of volume sales. The remainder of volume sales are attributable
  to local brands.
We estimate that the total retail value of the Ukrainian and Kazakhstan tobacco markets in 2005 was $1.8 billion and $0.5 billion respectively. The volume of cigarettes sold in
Ukraine increased by some 8% between 1997 and 2002 and is experiencing a current growth rate of approximately 1-2%. The volume of cigarettes sold in the Kazakhstan market increased by around 38% in the same period with a current growth rate of 4%.
Rest of World
Our principal
  market in the Rest of World segment is the Swedish market.
We estimate that there are around 2.5 million adult tobacco users in Sweden, with around 1.5 million being cigarette smokers and 1.0 million Snus users. In 2005 the total estimated
cigarette consumption was around 7.1 billion cigarettes and the tobacco market in Sweden had an estimated retail value including excise duties and sales taxes of some €1.4 billion.
Marketing,
  Sales and Distribution
Marketing
  and Sales
Advertising, promotion and brand building continue to play a key role in our business, with significant expenditure on programmes to support key brands and to develop our performance in
markets for new brands and brand extensions.
Regulation of advertising and marketing of tobacco products is significant and increasingly restrictive. We will use the full range of advertising, promotion and sponsorship opportunities
allowed to us for as long as these are available and will continue to explore other methods through which we can continue to build our brands. It is possible that the present and proposed regulations, as well as future regulations, may have a
material adverse affect on our ability to advertise, promote and build our brands, to promote and introduce new brands and products and to maintain the proprietary nature of our owned and licensed brands and thus materially adversely affect our
sales and total profit from operations.
We employ sales support staff throughout our markets and, where we have expanded our business, we have kept and utilised sales expertise specific to new markets. We also try to ensure the
leveraging of skills and marketing techniques across our businesses and have a group marketing team to facilitate this.
This is discussed further in the regulation section in "Item 4B. Business Overview" of this Annual Report.
Distribution
Other than in
  the German vending business we do not sell directly to consumers in any of our
  markets.
In 2005 two distributors together accounted for 40% of our sales in the UK. Due to the established presence of these two distributors throughout the industry we do not believe that there
will be any interruption in their provision of distribution services for our products.
Distribution within the Europe division is achieved through a combination of the distribution businesses owned or associated with the Group and a network of third party
distributors.
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GALLAHER
GROUP Plc
Form 20-F 2005
In 2005, in
  the CIS one distributor accounted for over 99% of our sales in Russia. In Kazakhstan
  all of our sales are to a single distributor. Both of these distributors are
  well established in their respective markets and we do not believe that there
  will be any interruption in their provision of distribution services for our
  products.
Distribution
  in the Rest of World is primarily achieved through an independent network of
  distributors, although there are certain markets where 100% of our sales are
  made to single distributors.
Manufacturing
Raw Materials
Our principal
  materials are tobacco leaf, additives, cigarette paper, acetate tow (for the
  production of cigarette filter tips), cardboard and other packaging materials,
  which are purchased from a number of suppliers. We are not unduly reliant on
  any one supplier and have not suffered any significant production losses as
  a result of an interruption in the supply of raw materials. We believe that
  the loss of any one supplier would not be material.
We purchase tobacco leaf from a number of world markets, principally Brazil, Zimbabwe, Southern Europe and Asia.
As with other agricultural commodities, the price of tobacco leaf tends to be cyclical, with imbalances in supply and demand influencing future production levels. Different regions also
experience variations in weather patterns, which may affect crop quality. Further, political unrest in any of the countries where tobacco leaf is cultivated, as is occurring in Zimbabwe, could also significantly increase the price of these
materials. Though the effect of price fluctuations on our operating performance may be limited by the geographic spread of our tobacco leaf sources and by our policy of holding approximately three months to a year inventory of tobacco leaf, any
significant change in tobacco leaf prices could affect our total profit from operations.
Production
The production of tobacco products is a process in which tobacco leaves are dried, cut and then blended before being manufactured and packaged either into cigarettes, cigars or pipe and
rolling tobacco. We use modern manufacturing processes and regularly update our machinery pool to ensure that the efficiency of our factories is amongst the best in the world.
We produce our tobacco products in the UK, Austria, Sweden, Russia, Kazakhstan, Poland, Romania, Ukraine, South Africa and the Canary Islands, with new production facilities in Turkey and
Singapore currently being built. The geographic spread of our manufacturing sites allows us to respond quickly to changes in market drivers and to operate efficient "in country distribution networks". The use of multiple manufacturing
locations also reduces the risk to supply in the event of a disaster at one of our sites and protects against potential tariff barriers.
Seasonality
There is some
  seasonal fluctuation in tobacco consumption; however there may be occasions
  when factors such as duty increases can impact on invoiced sales patterns from
  one interim period to another.
Regulation
  and Litigation
We are subject to significant legal restrictions, regulations and local non-statutory requirements in the jurisdictions in which we operate. We believe that we are in compliance in all
material respects with applicable laws, regulations and other requirements.
The global tobacco market is subject to significant regulatory influence, including: the levying of substantial tax and duty charges; legislation related to minimum taxes and prices for
cigarettes; restrictions on advertising and marketing; the introduction of minimum cigarette pack sizes; the display of larger health warnings (including pictorial health warnings) and statements of tar, nicotine and carbon monoxide smoke yields on
product packaging; regulations on the smoke yields of cigarettes; the provision of tobacco ingredients information to regulators; the prohibition of certain descriptors such as 'light' and 'mild'; increased restrictions such as
the prohibition of smoking in many public places; and, raising the ages at which cigarettes may be purchased.
We have a long history of managing our business successfully within a regulatory climate and have reduced our susceptibility to regulatory changes in any single country by expanding our
international operations. However, it is possible that regulations could have an adverse effect on our sales and profit from operations.
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GALLAHER
       GROUP Plc
Form
  20-F 2005
Regulation
At a global level,
  the World Health Organisation Framework Convention on Tobacco Control ("WHO
  FCTC") came into force in February 2005. Countries that have ratified the
  convention will be legally bound by the provisions of the treaty which include
  measures relating to: price and tax to reduce the demand for tobacco; environmental
  tobacco smoke; regulation of the contents of tobacco products; regulation of
  tobacco product disclosures; packaging and labelling of tobacco products; tobacco
  advertising, promotion and sponsorship; illicit trade in tobacco products; and,
  sales to and by minors. The WHO FCTC Conference of the Parties is determining
  further procedural and technical issues relating to the future development of
  the treaty during 2006 and, specifically, is developing protocols for cross-border
  advertising and illicit trade, and guidelines for smoke-free places and ways
  of regulating tobacco products.
Within the EU, a directive concerning the manufacture, presentation and sale of tobacco products was adopted in 2001 and has been implemented into EU member states' national law. In
July 2005, the EU published its report on the application of the directive which included smoke yield measurement, labelling, colour images and ingredients. The Commission has also requested the scientific committee on emerging and newly-identified
health risks to prepare an opinion on the 'health effects of smokeless tobacco products' by November 2006.  Separately, the commission is considering possible initiatives regarding 'low ignition propensity' cigarettes.
In 2003, the commission adopted a decision that establishes the rules for the use of colour photographs or other illustrations to depict and explain the health consequences of smoking. It
is for member states to decide whether or not to introduce such pictorial health warnings and on which product groups. In November 2005, Belgium legislated for the introduction of pictorial health warnings on cigarette packs although a transitional
period for the manufacture and marketing of packs with the existing health warning has been granted. Other member states are also considering the introduction of pictorial health warnings, including the UK.
The EU is currently considering a proposal for a regulation concerning the registration, evaluation, authorisation and restriction of chemicals which may include the ingredients used in
the manufacture of tobacco products.
In 2003, an EU directive relating to the advertising and sponsorship of tobacco products was adopted. Its provisions include the prohibition of tobacco advertising: in the press and other
printed publications; in radio broadcasting; in information society services; and, tobacco sponsorship of cross-border events or activities.  Member states were required to comply with this directive by 31 July 2005. However, the commission has sent
'reasoned opinions' to Germany and Luxembourg for failing to transpose the directive into national law. The commission is also investigating situations in countries where transposition has not been made correctly. The European Court of
Justice ("ECJ") is currently considering Germany's legal challenge to the directive but a final judgement is not expected until May 2006.
A number of European countries have recently established, or are considering, further legislation and/or voluntary agreements that restrict or prohibit smoking in public places and the
workplace, which may also include bars and restaurants. These countries include Austria, Belgium, France, Germany, Italy, Norway, Republic of Ireland, Spain, Sweden and the UK.
In Austria, amendments to the Tobacco Act prohibited smoking in public places with certain exceptions from January 2005.  Additionally, in 2004, the hotel, restaurant and catering sector
("HORECA") and the ministry of health concluded a voluntary agreement establishing designated smoking and non-smoking zones by the end of 2006. The Act also prohibited the sale of cigarette packs of less than 20 cigarettes from January
2005, and advertising in the press from August 2005. Billboard and cinema advertising, and national sponsorships will be prohibited from January 2007. Also, by 2007, cigarettes may only be sold in vending machines which have youth protection
technology installed.
In Germany, from 2007, vending machines – in which cigarettes are sold – must have youth protection technology installed. Also, the HORECA sector and the ministry of health have
concluded a voluntary agreement establishing designated smoking and non-smoking zones by 2008.
In the Netherlands,
  the state has introduced tobacco ingredient information regulations. In August
  2003, we and two Altria subsidiaries commenced a joint legal challenge to the
  Dutch regulations, which, we believe, do not provide adequate protection for
  brand recipes. Other tobacco companies also brought similar claims. In December
  2005, the court concluded that the Dutch state's ingredients legislation
  is consistent with the underlying articles of the EU directive concerning the
  manufacture, presentation and sale of tobacco products. However, the court accepted
  that the ingredient information in an individual brand can constitute a 'trade
  secret'. We believe that issues surrounding tobacco ingredient reporting
  in the Netherlands remain unresolved. Accordingly, on 20 March 2006, we together
  with the Altria subsidiaries filed an appeal against the initial ruling of the
  courts. Separately, we, together with other manufacturers, are in discussion
  with the commission concerning ingredient reporting across the EU.
In the Republic of Ireland, the Public Health (Tobacco) (Amendment) Act 2004 was signed into law in March 2004, purporting to give effect to two EU directives and an EU recommendation
relating to tobacco.  The Act includes
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GALLAHER GROUP Plc
Form 20-F 2005
provision for: a comprehensive ban on tobacco advertising and sponsorship; measures relating to the manufacture, presentation and sale of tobacco products; and, a ban on smoking in all
public places with certain limited exceptions. We, along with seven other plaintiffs, have begun legal proceedings which challenge certain parts of both the repealed Public Health (Tobacco) Act 2002 and the Public Health (Tobacco) (Amendment) Act
2004. The case is likely to be heard in 2006.
In Spain, legislation came into effect from January 2006 which prohibits: tobacco advertising, sponsorship and promotion, except at point-of-sale and in the trade press; sampling and free
distribution of tobacco products; and, smoking in enclosed public and private work places with certain limited exceptions. The sale of cigarette and cigarillo packs of less than 20 sticks is prohibited from April 2006. In addition, with the
exception of vending and travel retail, sales of tobacco products are restricted to estancos (licensed retail outlets) only.
In Sweden, smoking in public places was prohibited with certain limited exceptions from June 2005.  Also, amendments to the Tobacco Act were passed in May 2005 which included the
prohibition of advertising and sponsorship from July 2005, and existing outdoor advertising and the sale of packs of less than 19 cigarettes from January 2006.
In the UK, the House of Commons has approved legislation which will prohibit smoking in all enclosed public places and workplaces in England, with certain limited exceptions, from summer
2007.  The legislation also contains provisions for the Welsh Assembly to establish legislation for smoking in public places in Wales.  Separately, in Scotland smoking in all public places and workplaces will be prohibited again with certain limited
exceptions from 26 March 2006. The UK government also plans to consult on raising the legal age of sale of tobacco and tobacco products from 16 to 18 years.
In August 2003, the UK Office of Fair Trading ("OFT") notified us of an enquiry into vertical agreements between manufacturers and retailers in the UK cigarette, tobacco and
tobacco-related markets. We are co-operating with the enquiry that remains at an information gathering stage. At this stage, it is not possible to assess whether or not the OFT will reach an adverse decision. Similarly, it is not possible, in the
event that an adverse decision is reached, to assess the extent (if any) of any fines. However, in the event that the OFT considers a company has infringed UK competition law, it has the authority to levy a fine against the infringing company. Until
30 April 2004, the maximum fine could not exceed 10% of that company's UK turnover during the relevant period. As from 1 May 2004, that limit is set by reference to worldwide turnover although it is unclear whether this new limit applies
retrospectively. We have been advised that any fine would be net of duty payments. In the three years ended 31 December 2003, our aggregate UK net turnover was £1,776m (and our worldwide turnover was £8,701m). In the event of an adverse
decision by the OFT, however, we would have significant rights of appeal. As at 31 March 2006, no notice has been filed by the OFT indicating its intention to reach an adverse decision in relation to this matter. In any event, we intend to defend
our position vigorously.
In Russia, amendments to the federal law on restrictions on tobacco smoking came into force in June 2005. These include restrictions on the retail sale of tobacco products and the
prohibition of tobacco smoking in certain public places and transport. In addition, amendments to the federal law abolishing tobacco manufacturing licensing were enacted in July 2005. A new advertising law will come into force on 1 July 2006 that
bans outdoor tobacco advertising from 1 January 2007. Separately, draft legislation has been developed concerning the size of health warnings on tobacco products and the ingredients used in the manufacture of tobacco.
In Ukraine, legislation has been enacted requiring the labelling of cigarette packs with a production date and maximum retail price from July 2005.  Also, maximum tar and nicotine smoke
yields for cigarettes have been introduced. Additional legislation was adopted in October 2005, including: prohibition of the sale of tobacco products to those under the age of 18 years, tobacco pack inserts, and disclosure of tobacco ingredients
information from October 2005; prohibition of smoking in workplaces and public places with certain exceptions from October 2005; new packaging and labelling from January 2007; and, maximum tar and nicotine smoke yields for cigarettes from January
2009. Separately, a draft law is being considered which further restricts tobacco advertising and promotion.
In South Africa, the government plans to introduce legislation in 2006 that would, if enacted, prohibit certain marketing practices and product descriptors such as 'light' and
'mild'; introduce pictorial health warnings; prohibit the sale of loose cigarettes; restrict the display of tobacco products at point-of-sale; prohibit smoking in certain public places; raise the minimum age for purchasing tobacco products
to 18 years; and, require companies to disclose product and ingredient information.
Tobacco taxation and pricing legislation
The EU commission is currently reviewing the directives governing the structure and rates of excise applied to all tobacco products in the EU.  The commission is planning to report to the
council and parliament with its recommendations in 2006.
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Form 20-F 2005
Many new EU countries are required to implement significant duty increases in order to comply with the current minimum cigarette excise tax requirements. Eight countries have been allowed
transitional periods – the longest until January 2010 – in which to comply. Personal imports from new EU states into the previous 15 member states are having a significant negative impact on sales in neighbouring countries in the
transitional periods.
In certain European markets, excise duty increases continue to have an impact on prices, sales and margins. These include large tax increases in Austria, Germany, France, Netherlands and
changes in cigarette taxation in Italy and Spain. Also, Belgium, France, Italy and
Ireland have
minimum cigarette price legislation. Other member states are also considering or have decided to introduce similar legislation. The Austrian government has indicated that it will implement minimum price legislation for cigarettes in April 2006.
We believe that the wide price differentials between high and low taxed countries both inside western Europe and other parts of the world have led to an increase in legitimate
cross-border trade. They have also led to an illicit market for genuine and counterfeit cigarettes in a number of EU countries.  We are totally opposed to cigarette and tobacco smuggling and we continue to support and endorse regulatory
authorities' activities to stop smuggling of tobacco products. We have a policy of co-operating with regulatory authorities with whom we readily exchange information to seek to combat illicit trade. In the UK, we have signed an updated
Memorandum of Understanding – an anti-smuggling co-operation agreement – with HM Customs & Revenue.  We are discussing similar agreements with customs authorities in other countries. The UK government announced in March 2006 that it
will introduce legislation aimed at preventing cigarette smuggling which would, if enacted, introduce penalties against manufacturers who are deemed by the UK government to have failed to exercise reasonable control over their supply chain.
In November 2005, the ECJ ruled that in Germany 'singles' (cylinders of tobacco sold for use with a paper shell) should be taxed as cigarettes. 'Singles' will continue
to be taxed as fine cut tobacco until 31 March 2006 and as cigarettes thereafter.
Outside of the EU, in Russia the mixed tobacco excise system has been confirmed and from January 2006, cigarette excise rose by approximately 20% for filter cigarettes and 25% for
non-filter cigarettes. At present, tobacco excise duty is levied on the ex-factory price. However, there is a proposal to change the basis of the excise duty calculation to the maximum retail price in 2007. In Kazakhstan, cigarette excise was
increased by approximately 30% for filter and oval cigarettes from 1 January 2006.
Litigation
The only jurisdiction in which we are currently defendants to actions where plaintiffs are seeking damages for ailments claimed to have resulted from tobacco use or exposure to tobacco
smoke is in the Republic of Ireland. As at 31 March 2006, 163 claims have been dismissed or abandoned since 1997. Currently, there are eight individual claims against our subsidiaries. Statements of claim have been delivered making wide-ranging
allegations against our subsidiaries and other tobacco companies, and against the Republic of Ireland, the attorney general and the minister for health and children, who are also named as defendants in some of those cases. Each of these claims is
subject to a procedural application or challenge by us. No defence will be delivered by us pending the conclusion of all of these procedural matters.
We are not a party to smoking and health litigation anywhere else in the world and there has been no recovery of damages against any of our companies in any action alleging that our
tobacco products have resulted in human illness.
On 4 March 2005, we terminated the distribution contract of a Middle Eastern distributor and commenced proceedings on the same date in the English High Court, seeking a declaration that
the contract had been validly terminated for numerous material breaches. On this basis there was no compensation payable in respect of the termination. By its defence and counterclaim served on 1 July 2005, the distributor asserted that the
termination was unlawful and claimed significant, but wholly un-particularised losses. In an amended claim received on 24 February 2006, the distributor set out some details of its alleged losses, of around $500m, which primarily relate to
hypothetical future profits. We believe these claims to be without substance, and will vigorously contest them through the court process.
Liggett-Ducat continues to be involved in court processes relating to payments allegedly due for unpaid taxes, penalties and fines claimed by the Russian tax authorities. Based upon the
facts and matters currently known, management considers that there are meritorious defences against these claims. They will be vigorously defended.
It is not possible to predict the outcome of pending litigation or the regulatory matters that are subject to investigation or court actions. We believe that there are meritorious
defences to these actions and claims and that the pending actions will not have a material adverse effect upon the results of our operations, our cash flow or our financial condition. These pending actions and any prospective 'smoking and
health' claims will continue to be robustly contested. There can, however, be no assurance that favourable decisions will be achieved in the proceedings and actions involving us,
30
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GALLAHER GROUP Plc
Form 20-F 2005
that additional proceedings will not be commenced in the UK or elsewhere against our companies, that those companies will not incur damages, or that, if incurred, such damages will not
have a material impact on our operating performance or financial condition. Regardless of the outcome of the pending litigation, the costs of defending these actions and claims could be substantial and will not be fully recoverable from the
plaintiffs, irrespective of whether or not they are successful.
Intellectual Property
We are the owners
of the cigarette, cigar and tobacco brands listed in Item 4B under "Principal
Markets", with the exception of
Reynolds
and
Austin
and for which appropriate
trademark protection is in place. Our brands are key to our profitability and
growth, and are among the market leaders in the cigarette, cigar, hand rolling
tobacco  and pipe tobacco sectors in the UK, the Republic of Ireland, Austria,
Sweden, Greece, Estonia, Kazakhstan and Russia. We have established positions
in other markets in western Europe. Our ability to compete effectively with other
companies depends,
to a significant extent, on our ability to maintain the proprietary nature of
our owned and licensed brands. If we were unable to maintain the proprietary
nature of our brands with respect to our significant current or proposed products,
our
business could be materially adversely affected.
We also have other intellectual property relating to our manufacturing process.
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GALLAHER
  GROUP Plc
Form
  20-F 2005
C
Organisational
      structure
Gallaher Group Plc is the beneficial owner of all (unless specified) of the equity share capital of its principal subsidiaries, either itself or through subsidiary undertakings. The
principal subsidiaries, all of which are unlisted, are shown below.
Country
      of
Name
Incorporation
Principal
      activity
Gallaher
      Limited
(a)
England
Manufacture,
      marketing and distribution of tobacco products in the UK
Benson
      & Hedges Limited
England
Ownership
      of trademarks of tobacco products
Gallaher
      Asia Limited
Hong
      Kong
Marketing
      and importation of tobacco products in Asia Pacific markets
Gallaher
      Belgium SA
Belgium
Marketing
      and importation of tobacco products in Benelux markets
Gallaher
      Canarias SA
Spain
Marketing
      and distribution of tobacco products in the Canary Islands
Gallaher
      (Dublin) Limited
Republic
      of Ireland
Marketing
      and distribution of tobacco products in the Republic of Ireland
Gallaher
      France EURL
France
Marketing
      of tobacco products in France
Gallaher
      Hellas SA
Greece
Marketing
      and distribution of tobacco products in Greece
Gallaher
      International Limited
England
Marketing
      of tobacco products outside the UK
Gallaher
      Italia SRL
Italy
Marketing
      and importation of tobacco products in Italy
Gallaher
      Kazakhstan LLC
Kazakhstan
Manufacture,
      marketing and distribution of tobacco products in Kazakhstan
Gallaher
      Nederlands B.V.
Netherlands
Marketing
      and importation of tobacco products in the Netherlands
Gallaher
      Polska Sp z.o.o.
Poland
Manufacture,
      marketing and distribution of tobacco products in Poland
Gallaher
      Spain SA
Spain
Marketing
      of tobacco products in Spain
Gallaher
      Switzerland SA
Switzerland
Marketing
      and distribution of tobacco products in developing markets (Africa, Middle
      East and South America)
OOO
      Gallaher Liggett-Ducat
Russia
Marketing
      and distribution of tobacco products in Russia
Liggett-Ducat
      CJSC
Russia
Manufacture
      of tobacco products in Russia
Gallaher
      Ukraine CJSC
Ukraine
Manufacture,
      marketing and distribution of tobacco products in Ukraine
Austria
      Tabak GmbH & Co KG
Austria
Manufacture
      of tobacco products in Austria
Austria
      Tabak GmbH
Germany
Marketing
      and distribution of tobacco products in Germany
Gallaher
      Austria Tabak Europe GmbH & Co. KG
Austria
Marketing
      and distribution of tobacco products in Europe
Gallaher
      Sweden AB
Sweden
Marketing
      and importation of tobacco products in Scandinavia
Gallaher
      Snus AB
Sweden
Manufacture,
      marketing and distribution of snuff tobacco in Sweden
Tobaccoland
      Handels GmbH & Co. KG
Austria
Distribution
      of tobacco and non-tobacco products in Austria
Tobaccoland
      Automatengesellschaft mbH & Co. KG (63.9%)
Germany
Tobacco
      vending operations in Germany
Cita
      Tabacos de Canarias SL
Spain
Manufacture,
      marketing and distribution of tobacco products in the Canary Islands, Spanish
      Peninsular and Portugal
(a)
      Shares held directly by Gallaher Group Plc.
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GALLAHER GROUP Plc
Form
  20-F 2005
D
Property,
      plant and equipment
Our principal properties are:
•
Our international
      headquarters at Weybridge, Surrey, England.
•
A factory
      at Lisnafillan, Northern Ireland, with a capacity for the annual manufacture
      of 40 billion cigarettes
and
      3,500 tonnes of pipe and hand rolling tobacco.
•
A factory
      at Cardiff, Wales, with a capacity for the annual manufacture of 600 million
      cigars.
•
A distribution
      warehouse at Crewe, Cheshire, England with a capacity to store over 8 billion
      cigarettes. An
additional
      8,630 square metre warehouse exists in Crewe which we rent to a third party.
•
A factory
      in, Moscow, Russia, with a current approval for the annual manufacture of
      65 billion cigarettes. In
Russia
      we lease 18 warehouses used for raw material storage or distribution purposes.
•
A factory
      at Almaty, Kazakhstan, with a capacity for the annual manufacture of 16.6
      billion cigarettes.
•
A factory
      at Cherkassy, Ukraine, with a capacity for the annual manufacture of 22.3
      billion cigarettes.
•
A factory
      in Poland with capacity for the annual manufacture of 15 billion cigarettes.
•
A factory
      in Sweden with capacity for the annual manufacture of 21 million cans of
      snus.
•
Two factories
      in Linz and Hainburg, Austria. These factories have a combined capacity
      of approximately 70
billion
      units (cigarettes).
•
A factory
      in Romania with capacity for the annual manufacture of 2.9 billion cigarettes.
•
A factory
      in South Africa with a capacity for the annual manufacture of 3.2 billion
      cigarettes.
•
Wholesale
      depots in Austria and Germany.
•
European
      headquarters in Vienna, Austria.
•
Two factories
      in the Canary Islands.
We have continued to upgrade and maintain our properties. These improvements are primarily financed from the retained earnings of the businesses involved and, where additional short term
financing is required, our existing bank facilities. The costs involved are detailed in note 11 of the financial statements accompanying this Annual Report. Our current facilities are utilised below the capacities listed above.
In 2005 our factories overall operated in the range of 80-90% of their core manufacturing capacity. We are not presently aware of any environmental issues that may affect the existing
utilisation of our assets. We lease part of the Lisnafillan factory, certain of the Austrian wholesale branches and the Russian warehouses. We own the freehold of the remaining properties.
None of our properties are pledged as collateral.
We also own approximately 140,000 vending machines in Germany as part of our vending business, Tobaccoland Automatengesellschaft mbH & Co. KG.
In December 2005, we further announced a restructuring of our German vending operation, ATG, reducing its machine park in recognition of new legislation coming into effect in 2007. In
addition, we sold our Dublin former factory site.
Operations
Our European operations and administration restructuring programmes continued in 2005. Details of the combined exceptional charges and savings from the respective projects are detailed in
Item 5.
In spite of lower manufacturing volumes in the UK and western Europe, and the near-term disruption caused by more recent stages of the operations restructuring, we have increased overall
cigarette manufacturing productivity (defined as output per worked hour) by 6.5% in the year. This overall performance was largely driven by improvements in the CIS, Poland and Austria with further benefits of the restructuring programme in the UK
and Europe expected in 2006.
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GALLAHER GROUP Plc
Form 20-F 2005
Our continuing commitment to remain at the forefront of operational efficiency – including the effective utilisation of raw materials – and the improvement in manufacturing
productivity, underpinned a real term reduction of 2.7% in our cigarette unit costs.
United Kingdom
Cigarette productivity in the UK declined by 5.0%, due to lower production volume driven by the market declines for virginia product, the transfer of some developing markets'
manufacturing volume to Poland and a planned reduction in UK finished goods stock levels. These adverse factors were partly offset by job losses emanating from the restructuring programmes and improvements to working practices. Management expects
the full benefits of the proposals announced in January 2005 to be reflected in 2006.
Cigarette real term unit costs reduced by 1.8% in 2005.
We increased our tobacco (pipe and HRT) productivity by 6.6%, mainly as a result of increased efficiencies following the installation of a new primary processing line at the end of 2004
and improvements to working practices.
Tobacco real term unit costs increased by 2.8%, primarily reflecting higher non-tobacco materials costs attributed to increased demand for
Amber Leaf
and higher depreciation for the new primary
.
Cigar productivity increased by 11.6%, in spite of the overall reduction in the UK medium-cigar market and an increase in the number of brand pack variations manufactured for export
markets. This improvement was driven by the transfer of production following the closure of the Fürstenfeld factory and restructuring of manufacturing at the Cardiff factory – identified as part of the restructuring programmes.
Cigar real term
  unit costs reduced by 7.1% in the year.
Europe
Cigarette productivity in Austria increased by 2.4%, in spite of lower western European volumes and the planned closure of the Schwaz factory at the end of August 2005. This strong
performance was driven by the initial benefits of the restructuring programme and improved efficiencies as a result of further investment.  Additional productivity benefits from the restructuring programmes are expected in 2006.
Austrian real term cigarette unit costs reduced by 4.7% .
Commonwealth of Independent States
Cigarette productivity in the CIS increased 8.4%, driven by higher production volumes, improved our working practices and investment in new technology. Arising from our holistic approach
to the management of our assets, further re-deployment of machinery – made possible by new investment elsewhere in the Group – took place during the year.
In Ukraine and Russia, we continued to invest in new capacity to both drive improved performance and meet market demand.
The increased productivity meant that real term CIS cigarette unit costs reduced by 1.1%, even after the impact of higher raw materials costs resulting from the improved mix of sales in
the region.
Rest of the World
Our factory in Poland increased productivity by 90.9%, driven by higher domestic and export volumes, ongoing improvements in working practices and investment in new plant and machinery.
The increase in productivity was partly offset by higher depreciation associated with the new machinery, which resulted in a reduction in real term unit costs of 9.2% .
In accordance with our policy to re-deploy displaced equipment – resulting from investment in new machinery for mature facilities – the South African production facility was
established though the use of surplus equipment, including from Dublin, Russia and Ukraine.
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GALLAHER
GROUP Plc
Form 20-F
2005
ITEM
4A   UNRESOLVED STAFF COMMENTS
None
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM
5    OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
The Operating and Financial review and prospects discusses the operating and financial performance, the financial outlook and the financial resources of the Group. The results for the
year ended 31 December 2005, which have been prepared under IFRS, as adopted for use in the EU, are compared primarily with the results for the preceding year.
As there are no material differences between IFRS as adopted by the EU and complied with in the preparation of these financial statements these statements also comply with IFRS as
published by the IASB.
Accounting presentation
With effect from 1 January 2005, Gallaher Group Plc has moved to reporting its financial results in accordance with IFRS as required by the European Union Regulation issued in 2002. The
review is prepared under IFRS, as adopted for use in the EU. Comparative figures for 2004 are presented on this basis. Full details of the major differences from UK GAAP as they apply to Gallaher Group plc are given in Note 36 to the financial
statements, IFRS transition disclosures. Information prepared under IFRS is not directly comparable with that prepared under UK GAAP.
Overview
We made good progress in the year, in spite of challenging conditions arising from increased taxation and competition in certain western European markets including the UK. The successful
execution of our strategy – to maximise cash flow from key EU markets to fund international expansion through exports, investing 'on the ground' and joint ventures and alliances – meant that we delivered good organic growth in
2005. These results reflect both the cost of investments in new opportunities and the benefit of returns from investments in previous years.
We grew 2005 cigarette
volumes, excluding German 'singles', by 2.0% to 173.8bn (2004: 170.3bn).
Including the sales of singles, our cigarette volumes increased by 3.0% to  175.8bn
(2004: 170.6bn). This growth was driven by market share gains in our longer-established
markets of Russia, Kazakhstan and Spain. In addition, we made good progress in
our more recent on the ground investments in Ukraine, Poland (which moved
into profit) and Romania and our export markets – including the Czech Republic,
Slovakia, Hungary, and Lithuania. These strong performances more than offset
the adverse conditions in some key western European markets including the UK.
We grew our strategic
cigarette brands' volume sales by 11.5% . These brands –
Benson &
Hedges, Silk Cut, Sobranie, Sovereign, Memphis, Mayfair, LD
and
Ronson
– totalled 83.8bn (2004:
75.1bn) cigarettes, accounting for 48.2% of our total volume sales (2004: 44.1%).
In April 2005, we acquired the
Benson & Hedges
and
Silk Cut
trademarks in Malta and Cyprus, and the
Silk Cut
trademark in Lithuania, from British American Tobacco for a total cash consideration of £70m.
Later in the year we announced that we had agreed to acquire 100% of Cita Tabacos de Canarias SL and its group companies ("CITA") for an enterprise value of some €105m. As
part of the transaction, we agreed to acquire 100% of Tabacos Canary Islands SA and Tabacos La Nubia SL. The acquisition completed on 2 January 2006.
We increased overall
cigarette manufacturing productivity by 6.5%, which underpinned a real term reduction
in our cigarette unit costs of 2.7%. This performance was assisted by the  European
operations restructuring programme, which continued during the year.
Our segmental
results are summarised below:
UK
Europe
CIS
Rest of World
Total
(£m)
(£m)
(£m)
(£m)
(£m)
Gross sales
2005
3,658
3,794
476
286
8,214
2004
3,680
3,836
409
190
8,115
Net sales
(1)
2005
572
1,547
356
128
2,603
2004
568
1,553
307
119
2,547
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GALLAHER
      GROUP Plc
Form
      20-F 2005
UK
Europe
CIS
Rest of World
Total
(£m)
(£m)
(£m)
(£m)
(£m)
Total profit from
operations
2005
284
234
67
31
616
2004
290
245
57
26
618
(1)
Gross
sales less duty paid by Group companies
European
  Operations' Restructuring Programme
In 2003 and early 2004, we announced the restructuring of our European operations and administration. We ceased all manufacturing in the Republic of Ireland by the end of 2003, and
reduced jobs in the UK, Austria and Sweden.
In early 2005, we announced proposals for a further restructuring of our European operations. These proposals comprised: the closure of the Schwaz cigarette and Fürstenfeld cigar
factories in Austria; the restructuring of production at the cigarette and cigar factories at Lisnafillan and Cardiff in the UK; and, reorganisation of some aspects of the distribution network in Europe. This activity commenced in 2005.
In December 2005, we further announced a restructuring of our German vending operation, ATG, reducing its machine park in recognition of new legislation coming into effect in 2007. In
addition, we sold our Dublin former factory site.
Net exceptional charges of £35m are included in the income statement for the year ended 31 December 2005 in respect of these restructuring programmes, comprising: £13m charged
in cost of goods sold (net of the gain on disposal of the Dublin former factory site); £13m charged in distribution, advertising and selling costs; and, £9m charged in administrative expenses. Of this total, £18m related to the
impairment of operational plant and machinery, £15m related to a gain on disposal of the Dublin former factory site and the balance of £88m primarily related to redundancy costs.
The total cost of the restructuring is expected to be in the region of £95m, and once completed, by the end of 2007, we expect to achieve annualised savings of at least £30m.
The tax credit associated with the 2005 net exceptional charge is £8m (2004: £6m). The restructuring gave rise to a net cash outflow in 2005 of £18m (2004: £15m).
The table below
reflects the restructuring programme's liability balance:
2005
2004
£m
£m
Liability at beginning of period
10
11
Cash paid
(18
)
(15
)
Non-cash
(9
)
(4
)
Exceptional charges
35
17
Other
(2
)
1
Liability at end of period
16
10
The majority of liabilities at 31 December 2005 are expected to crystallize in cash payments throughout 2006.
Changes to segmental disclosure from 2005
Following the changes in board responsibilities effective from October 2004, and in line with IFRS' principles regarding segmental reporting, we reviewed the segments under which we
report our financial results. As a result of this review, the financial information for the year ended 31 December 2005 is being reported under a revised segmental structure, and 2004 comparatives have been restated accordingly.
Further details, and IFRS reconciliations between the previous and current segmental structures for the year ended 31 December 2004, were set out in the 2004 annual report and financial
statements. This information is also available on our website (www.gallahergroup.com)
.
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GALLAHER GROUP Plc
Form 20-F 2005
Differences Between IFRS and US Generally Accepted Accounting Principles
The following discussion and analysis is based on our consolidated financial statements, which we prepare in accordance with international financial reporting standards as adopted by the
EU ("IFRS"). These differ from those generally accepted in the United States ("US GAAP"). We discuss the principal differences between IFRS and US GAAP, as they relate to us, in note 37
of the notes to the financial statements.
Results of Operations - Year 2005 compared with Year 2004
Group Income Statement Analysis
Total sales
for 2005 increased 1.2% to £8,214m (2004: £8,115m) while sales
excluding duty ("net sales") grew 2.2% to £2,603m (2004: £2,547m) in spite of the impact of increased sales incentives (which are deducted from reported sales) versus 2004.
Duty
paid increased 0.8% in 2005 to £5,611m, compared to £5,568m in 2004. This
movement arises as a result of duty increases in most of our key markets as discussed in our performance factors above and the impact of increased volume sales across the business, offset partially by a change in mix towards lower duty
environments.
Exceptional charges.
Net exceptional charges of £35m are included in the income
statement for the year ended 31 December 2005 in respect of restructuring programmes, detailed earlier in this section.
Other costs of sales
increased £14m or 0.9%
in 2005 to £1,510m, compared to £1,496m in 2004 including exceptional charges. After adjusting for
exceptional items the underlying item increased 0.6% to £1,497m from £1,488m in 2004 mainly reflecting increased volume sales across the business.
Total costs of sales
increased £57m or 0.8% in 2005 to £7,121m, compared to
£7,064m in 2004. Total costs of sales decreased slightly as a percentage of total sales to 86.7% for fiscal year 2005 from 87.0% for fiscal year 2004. The variance mainly reflected
the increase in total sales and the change in sales mix towards relatively lower duty environments.
Distribution,
advertising and selling
costs
increased £19m or 5.9% in 2005 to
£340m, compared to £321m in 2004. This financial statement caption
excludes costs reported in our joint venture, RGI, for which results are reported
separately. Distribution, advertising and selling costs were 4.1% of sales in
2005 and  3.9% in 2004. After adjusting for exceptional items the underlying
item increased 1.9%. Increased selling costs mainly occurred due to higher volumes
in CIS, Denmark, central Europe and Balkan regions. Increased advertising costs
represent
increased investment in CIS, Europe, Asia Pacific, Poland, Africa and the Middle
East. Distribution costs are lower due to savings across Europe driven by greater
operational cost efficiency at ATG.
Administrative
expenses
increased £24m
or 17.9% in 2005 to £158m, compared to £134m in 2004. Administrative
expenses marginally changed as a percentage  of total sales to 1.9% in 2004 from
1.7% in 2004. After adjusting for exceptional items the underlying item increased
19.2%. This increase was driven by inflationary pressures across all regions,
together with new on-shore facilities in Romania and
South Africa.
Other gains and losses
increased
by £1m in 2005 to £4m
.
Share of post tax results of joint ventures and associates
decreased £2m or 10.5%,
driven by slightly lower profits in R.J. Reynolds – Gallaher International SARL and higher amortization charges within Lekkerland, which offset the improved contribution of Lekkerland Europa.
Total profit from operations
reduced £2m or 0.3% to £616m in 2005, compared to
£618m in 2004. This reflects trading improvements offset partially by higher exceptional charges of £35m (2004: £17m). Underlying Total profit from operations, excluding the impact of this charge increased 2.5% to £651m from
£635m in 2004.
Segmental Analysis
United Kingdom
It is estimated that the UK duty-paid cigarette market declined by around 4% during the year.  Downtrading by consumers from higher-priced brands into the value sector continued, although
at a slightly slower rate than in 2004.
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GALLAHER GROUP Plc
Form 20-F 2005
In the UK, the House of Commons has approved legislation which will prohibit smoking in all enclosed public places and workplaces in England, with certain limited exceptions, from summer
2007. We believe the proposed legislation is disproportionate and fails to accommodate smokers and non-smokers alike. We expect that the proposals, if enacted, would have a moderately negative incremental impact on duty-paid market
volumes.
The shares of cigarette
market retail sales accounted for by each price sector in 2005 were: value: 61.4%
(2004: 59.1%); mid-price: 8.9% (2004: 10.1%); and, premium: 29.7% (2004: 30.8%).
Our UK volume sales
declined by 3.7% to 19.5bn cigarettes (2004: 20.2bn) . Our cigarette market share
(excluding distributed brands) was stable at 38.6% (2004: 38.6%).
UK sales decreased to £3,658m (2004: £3,680m) largely reflecting lower cigarette volume sales and downtrading, partially offset by price increases. UK net sales increased 0.7%
to £572m (2004: £568m) in spite of the impact of increased sales incentives (which are deducted from reported sales) versus 2004.
UK profit from operations was £284m (2004: £290m) – the increase in net sales through price increases, which offset lower volumes and downtrading, is further aided by lower
operating costs arising from the lower volumes, restructuring savings and reduced sponsorship costs. This improvement is, however, more than offset by the higher UK exceptional charge in 2005 of £22m (2004: £9m).
-
Cigarette
Mayfair
,
        which sells at a slight premium to competing value brands, continues
        to outperform in the
growing
value
cigarette sector. Together with
Benson & Hedges
Silver
and
Sterling
our
value-for-money portfolio
has
grown
its share of the value sector to 36.2% (2004: 35.2%). Stemming from the success
of
Sterling
in
the
multiple
grocers' channel, we extended the distribution of the brand to the convenience
and
independent
channels
in January 2006.
In September,
        we introduced
Benson
        and Hedges Gold 14s
which has assisted in arresting the more recent
share
        declines of the brand in the premium sector.
Silk Cut's
share
        of the premium sector grew slightly to
19.4%
        (2004: 19.3%), following the introduction of new product packaging. Our
        leading share of the
premium
    sector was 45.2% (2004: 46.5%).
The successful execution of our value sector strategy in recent years means that our sales profile by price
sector
– value: 57.6% (2004: 53.9%), mid-price: 7.7% (2004: 9.0%) and premium: 34.7% (2004: 37.1%) –
was broadly in line with the market in 2005.
-
Cigar
Based on
        estimates of customs clearance data, total UK cigar market volumes declined
        by 6.5%, tempered by
growth
        in the miniature cigar sector, which increased its share of the total
    market to 43.2% (2004: 41.1%).
We maintained
        our overall lead of the UK cigar market with a share of 46.1%. Merchandising
        and
packaging
innovations
have grown our share of the miniature cigar sector to 35.8% (2004: 35.1%). In
December, we
introduced
a new shelf-ready
Hamlet
merchandiser,
which includes five tins each of
Hamlet
Miniatures,
Hamlet
Smooth, Hamlet Fine Aroma
and
Hamlet Filters
.
Hamlet
Smooth
,
with new '10s in a tin' packaging,
was
also launched during the year.
-
Tobacco
The UK
        handrolling tobacco market ("HRT") grew by 5.0% (2004: 4.0%)
        in 2005, based on estimates
provided
        by
the Tobacco Manufacturers Association.
Our share
        of the HRT market reduced to 28.7% (2004: 29.7%), albeit at a more moderate
        rate of decline than
in
        previous
years
.
A
slower rate of decline in market share of
Old Holborn
to
7.4% (2004: 8.8%) was partly
offset
by
Amber
Leaf
– the
market's fastest growing HRT brand – which grew its share of the market
to
18.5%
(2004: 17.0%). The limited edition
Amber
Leaf
'tins' packaging assisted
in re-affirming the brand's
innovative
characteristics.
The small UK pipe tobacco market reduced by 4.1%. We continued to lead this market with 48.6% of
consumer sales (2004:
48.6%).
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GALLAHER GROUP Plc
Form 20-F 2005
Europe
Our
      European cigarette volume sales declined by 6.1% to 42.5bn (2004: 45.3bn).
  Including the sales of singles in Germany, the division's volumes
      were 44.5bn (2004: 45.6bn). The decline in cigarette sales is largely
  attributed to substantial market declines in Austria, Germany, Italy and Benelux
  as
      a result of increased taxation, an escalation of cross-border trade, lower
      UK tourist volumes and workplace smoking bans. These
  declines were, however, partially offset by volume growth in the Republic of
      Ireland, Spain and a number of markets within central and eastern Europe
      and sales following the acquisition of trademarks in Cyprus and Malta.
  Since the fourth quarter, some western European markets have experienced an
  increase
      in competitor activity in the value sectors, which has also led to an increase
  in downtrading. Management expects that these trends will continue in 2006.
In spite of these challenging conditions, our European operations delivered a robust performance in 2005, benefiting from price increases and reduced operating costs.
In the tobacco operations, market declines were largely mitigated by price increases and developing businesses in newer markets.  We also gained through the significant success of our
singles business in Germany, although the production of singles will be taxed as factory-made cigarettes from April 2006.
Total sales were £3,794m (2004: £3,836m) and net sales were £1,547m (2004: £1,553m), comprising: tobacco net sales – which increased 0.9% – of £448m
(2004: £444m); and, distribution net sales – which declined 0.9% – of £1,099m (2004: £1,109m).
Europe profit from
operations was £234m (2004: £245m) of which £186m (2004: £186m)
arose from tobacco operations and £48m (2004: £59m) come from the
distribution business.
Tobacco – Profit from operations reflects the trading position and the reduced level of exceptional charge of £0m (2004: £5m). The weaker trading reflects lower overall
volumes as well as the change in mix of sales. In particular, 2005 has seen increased lower-margin volumes (particularly in EU accession and Balkan markets) and lower volumes in the higher-margin western European markets.
Distribution – Profit from operations reflects the trading position, offset by the increased level of exceptional charge of £10m (2004: £0m). The optical pricing parity for
most of 2005 between vending and retail in Germany, together with lower operating costs, has alleviated some pressure on the lower-margin vending business. In addition, our associate, Lekkerland, has delivered stronger results before amortization of
intangible assets. In spite of the reduced market size in Austria, earnings from the Austrian distribution business grew slightly, driven by increased operational efficiency and manufacturer price increases.
-
Tobacco
In spite
        of intensified competitor activity in some markets across the region,
        we outperformed cigarette
market
        trends in a number of countries, notably in: Spain; Czech Republic; Romania;
        and, other EU accession
markets,
    including Slovakia and Hungary.
The underlying
        duty-paid Austrian cigarette market – after eliminating the impact
        of the phasing of trade
sales – declined
        by around 10%, primarily due to increased cross-border trade from new
    EU member states.
We maintained
        our leading position in Austria, but with an anticipated reduction in
        market share to 42.9%
(2004:
        45.2%). Following the repositioning of
Memphis
        Classic
to
        a higher price point,
Memphis
house's
market
        share declined to 25.4% (2004: 27.0%). However, in January 2006, competition
        in the value price
sector
        increased sharply. We reduced the prices of
Ronson
,
B&H
        Red
and
Smart
.
        The Austrian government
is
    currently reviewing the duty regime.
The total
        cigarette market in the Republic of Ireland increased by 1.8%, partly
        assisted by the phasing of trade
sales
        ahead of price increases. We estimate that the underlying market was
        broadly flat, reflecting a return to
more
        stable market conditions following the initial nine-month impact of the
        ban on workplace smoking that
was
        introduced in March 2004. We maintained our lead of the cigarette market
        with a share of 49.0% (2004:
49.1%), underpinned by a strong
        performance from
Benson & Hedges
        Gold
, which grew its share to 20.4%
(2004:
    19.8%).
In Germany,
        the total duty-paid factory-made cigarette market declined by 14.7% due
        to substantial excise
tax
    increases, heightened cross-border trade and the growth of singles.
Our share of the singles sector was 9.1% in December 2005 (2004: 2.1%). Management does not expect the
removal of the
tax advantage, this year, to have a material negative impact on our profitability.
40
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GALLAHER
GROUP Plc
Form
  20-F 2005
The private
      label cigarette sector's share of the total market declined to 15.3%
      (2004: 16.9%), mainly as a result of the growth of singles. We maintained
      our lead of the sector with a share of 50.5% (2004: 50.1%) . Our branded
      cigarette market share declined moderately to 0.6% (2004: 0.7%).
The French
      total duty-paid cigarette market broadly stabilised, following the substantial
      tax hikes in the preceding year, with volumes down 0.2% . Our share of the
      market reduced to 2.8% (2004: 3.1%) . Our higher-margin
Benson
      & Hedges Metal
range maintained its share stable at 1.6%, which partly offset share losses
      in the value sector from the Reynolds-Gallaher International brand portfolio.
Following
      the successful introduction of
Benson
      & Hedges
cigars earlier in the year, we
      increased our share of the French cigar market to 1.5% (2004: 1.2%) .
In Italy,
      increased smoking restrictions, which came into effect in January 2005,
      were a factor in the 6.5% decline of the total duty-paid cigarette market.
      Increased competition in the value sector meant that our market share reduced
      to 4.0% (2004: 4.9%) . However, our share improved in the second half of
      the year owing to
Benson
      & Hedges American Blend
share gains.
Old
      Holborn
grew its share of the growing tobacco market to 11.6% (2004:
      10.3%), increasing its volume sales by 33.7% .
In Spain,
      the duty-paid cigarette market remained broadly stable. However, during
      2005 there was an acceleration in consumers downtrading to lower-priced
      cigarettes. Our market share – driven by brands such as
Austin
,
Benson & Hedges American Blend
and
Ronson
– increased to 2.2% (2004:
      1.7%) . CITA, led by its main brand
Coronas
      Blond
, grew its share to 4.1% (2004:
      3.6%) . Competition has further intensified, however, following significant
      price movements, repositioning of brands and duty absorption by a number
      of competitors in 2006.
In the Canary
      Islands, our share of the cigarette market declined to 7.6% (2004: 8.1%)
      and CITA grew its share to 22.4% (2004: 20.3%) .
Western
      European tourist volumes were significantly lower in the year and it is
      unlikely that they will fully return to previous levels. For instance, in
      Belgium, sales to UK tourists were down by as much as 40.7%, and in the
      Netherlands, UK tourist sales were down by 28.2% . Our lower volumes were,
      however, largely offset by incremental sales of
Benson & Hedges
and
Silk
      Cut
in Malta and Cyprus, following
      the acquisition of the trademarks from BAT in April.
We made
      further advancements in central and eastern Europe, growing our EU accession
      and Balkan market volumes by 29.5% to 9.5bn (2004: 7.3bn) .
In the
      Czech Republic, we increased our share to 6.6% (2004: 1.8%) . Our moderate
      share decline in the second half (to 6.2% from 7.0% in 2005 H1) was attributed
      to management's decision to raise the price of
Ronson
.
LD
,
      which was launched earlier in the year, continues to make good progress.
In Hungary,
      we have quickly established an estimated share of 1.8% following
LD's
launch in May. In Slovakia,
      the successful introduction of
Smart
in the value sector has driven our estimated total market
      share to 6.4% (2004: 1.6%) .
In Romania,
      where we have established an on-shore manufacturing facility at the end
      of 2004, we grew cigarette volume sales (including duty-free) by 34.0% .
      Our share of the domestic market (excluding duty free) reached 3.2% in December,
      driven by the success of
St
      George
,
Ronson
and
LD
.
We recently
      acquired land and buildings in Turkey for the purpose of establishing on-shore
      manufacture.
-
Distribution
Our distribution
      businesses – Tobaccoland Austria ("TOBA"), ATG and the associate
      Lekkerland (primarily
made up of the German convenience business) – were affected
      by cigarette market declines in both Austria
and
      Germany.
In Austria,
      the ongoing focus on operational costs at TOBA and price increases in the
      premium cigarette
sector
      offset the impact of the total market decline.
ATG –
      the German vending company in which we have a 63.9% holding – was also
      affected by unfavourable
market
      conditions. These were, however, partly mitigated by an outperformance of
      the branded cigarette
41
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GALLAHER
  GROUP Plc
Form 20-F 2005
sector (decline
      of 13.0%) versus the market (decline of 14.7%), optical pricing parity between
vending and retail channels for
      premium brands for eight months of the year and by a continued focus on
      operational cost reduction.
In recognition
      of new legislation being introduced in 2007, it is planned that the ATG
      vending machine park will be rationalised from c.140,000 to c.100,000 machines.
In spite
      of the lower German cigarette market, Lekkerland – the associate in
      which we have a 25.1% holding – had a robust performance, boosted by
      the contribution of Lekkerland Europa.
Commonwealth
      of Independent States
Commonwealth
      of Independent States ("CIS") sales increased 16.3% to £476m
      (2004: £409m), and net sales increased 15.9% to £356m (2004: £307m),
      in spite of increased sales incentives, reflecting the increased volume
      sales, price increases and continued sales mix improvements.
The
      CIS is a region of strengthening economies and our strategy to exploit our
      strategic brand portfolio – with an ongoing focus on lowest cost production
      and improved product mix – continues to deliver profitable volume growth.
Our
      CIS volume sales increased by 6.5% to 97.0bn cigarettes (2004: 91.0bn),
      in spite of excise duty increases in both Russia and Ukraine and manufacturer
      price increases across the region.
We
      grew our strategic cigarette brands' volume sales in the region by
      30.5% to 36.6bn (2004: 28.0bn) .
LD
increased its volume sales by 24.5%,
Sovereign
by 21.4% and
Sobranie
by 47.8% . After identifying
Ronson
as
      a key regional value proposition at the end of the first half, the brand
      grew in-market sales to 1.4bn cigarettes.
We
      grew our estimated total CIS region market share to 16.9% (2004: 16.1%).
CIS
      profit from operations increased 17.9% to £67m (2004: £57m), with
      the Group's significant increase in investment behind its brands and
      sales forces partly offsetting the increase in volumes, price increases
      and continued sales mix improvements.
-
Russia
We estimate
      that the total Russian cigarette market grew by 1% in the year.
The shares
      of retail sales accounted for by each price sector were: higher-priced:
      33.6% (2004: 30.2%);
intermediate-priced: 57.9% (2004: 58.7%); and, lower-priced:
      8.5% (2004: 11.1%).
We grew
      our share of the total cigarette market to 16.9% (2004: 16.4%). This share
      gain was driven by the
success
      of a variety of our brands across all price sectors. In spite of price increases,
LD
delivered
      a robust
performance
      in the value sector, with its share of the market stable at 5.3% (2004:
      5.3%).
Due to increased
      marketing efforts, mid-priced
Sovereign
increased its share of the market to 0.5% (2004:
0.4%).
Golden
      Deer
,
      Shanghai Tobacco Group's brand which we produce under license, continues
      to
perform
      in line with expectations.
Sobranie
      Slims
drove
      our share of the premium sector to 4.7% (2004: 4.0%). Following the successful
      launch
of
Sobranie
      Red
and
Sobranie
      Blue
in
      eight A-strata cities (where the population exceeds one million people),
a full national
      roll-out is planned for March 2006.
Reflecting
      our improvement in sales mix, our share of the higher-priced sector grew
      to 4.2% (2004: 3.7%)
and
      our share of the intermediate-priced sector grew to 25.9% (2004: 24.5%).
-
Kazakhstan
In Kazakhstan,
      we grew our share of the total cigarette market to 37.1% (2004: 35.1%).
Sovereign
reaffirmed
its position
      as the leading brand in the market, attaining a record share of 17.9% in
      December 2005 (2004:
16.0%)
      – underpinned by the ongoing success of the 'Golden Fever'
      campaign which is reaching more cities
across the country.
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GALLAHER
GROUP Plc
Form 20-F 2005
LD
maintained its position as the largest value-for-money brand, growing share
      to 10.3% (2004: 9.3%) . Higher-priced
Sobranie
achieved 4% market share for the first time in December 2005, assisted by
      the successful launch of
Sobranie
      Classic Slims
in the third quarter of the year.
Our
      export volumes to neighbouring countries – including Kyrgyzstan, Mongolia
      and Armenia – reached a record 1.6bn cigarettes in the year. In Kyrgyzstan,
      we grew our estimated share of the market to 17.7% (2004: 15.5%), further
      leveraging the 'Golden Fever' campaign and
Sovereign's
English heritage.
-
Ukraine
The
      overall cigarette market continued to benefit from improved product mix
      during the year. The shares of
retail
      sales accounted for by each price sector were: higher-priced: 26.7% (2004:
      24.7%); intermediate-priced:
63.8%
      (2004: 63.2%); and, lower-priced: 9.5% (2004: 12.1%).
We
      grew our share of the total cigarette market in Ukraine to 16.2% (2004:
      14.5%). LD, Level and Ducat
delivered
      strong performances in the intermediate-priced sector, and the successful
      launch of Ronson assisted
in
      increasing our share of the sector to 22.9% (2004: 20.0%).
Our
      share of the higher-priced sector increased to 1.6% (2004: 1.4%), driven
      by a good performance from
Sobranie
      Slims.
Rest
      of World
Rest
      of World ("RoW") sales grew by 50.6% to £286m (2004: £190m),
      and RoW net sales increased 7.8% to £128m (2004: £119m), in spite
      of increased sales incentives. These movements reflect the increased volumes,
      a change in sales mix and price increases.
In
      the RoW division, we defended our mature position in Sweden and enhanced
      our presence in northern Europe and Asia Pacific.
We
      achieved strong cigarette volume growth in Poland, Denmark, Lithuania and
      Nigeria, more than offsetting weaker volumes in the Middle East and Guinea.
      With Swedish cigarette volumes some 4% higher due to the phasing of trade
      sales ahead of a tax increase in January 2006, RoW total volume sales increased
      7.0% to 14.8bn cigarettes (2004: 13.8bn) .
RoW
      profit from operations was £31m (2004: £26m) – the increase
      reflecting trading improvements and a stable exceptional charge of £3m
      (2004: £3m).
In
      Poland, the operation moved into profit in 2005 in line with expectations.
      This, along with a good performance in Sweden and some manufacturer price
      increases, has more than offset the initial investments in Denmark, Lithuania
      and South Africa.
-
Scandinavia
      and the Baltics
In
      Sweden, the underlying market for duty-paid cigarettes declined by around
      1%. Although a nationwide
public
      smoking ban came into force on 1 June 2005, it is still too early to ascertain
      the effect on the total
cigarette
      market.
We
      defended our leading position with market share (excluding distributed brands)
      of 39.1% (2004: 39.5%).
The
25s
variant
      continues to bolster
Level's
performance,
      which increased its share of the market to 6.4%
(2004:
      4.9%). As anticipated,
Blend
reduced
      its share to 17.6% (2004: 18.5%) and
Right
maintained
      share
broadly
      stable.
We
      estimate that the snus market in Sweden was broadly stable. According to
      official customs data, our
share
      of the market grew to 5.4% in December 2005 (2004: 2.7%), following the
      successful introduction of
LD
      Red
in August. Since then, we have launched
LD
      Blue
(Juniper
      flavour) and
LD
      Gold
(traditional
flavour) at the same price point as
LD
      Red,
offering
      a fuller portfolio of flavours to the value snus consumer.
In
      the first quarter of 2005, we launched
LD
into the Danish cigarette market. Our share of the market in
      the
three
      months to November was 5.1%.
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GALLAHER GROUP Plc
Form 20-F 2005
We consolidated
        our position in the Estonian cigarette market, maintaining share broadly
        stable at 27.2% (2004: 27.3%) .
LD
and
Vermont
both delivered excellent performances, offset by declines
        from our local brand –
Leek
. In Lithuania,
St
        George
has
        successfully driven our share to 14.9% (2004: less than 1%) of the total
    cigarette market.
-
Poland
In Poland, we grew our share of total industry shipments to 7.3% (2004: 5.6%).
LD
continued to take share
at higher prices, and we further developed the brand's image through a consumer loyalty promotion that
was
run over the summer months. In May, we launched
Ronson
into the low-price sector such that for the full
year the brand achieved a 1.3% share of the market. After launching the slims
variants
LD Blue
and
LD Red
at the end of 2004,
LD Slims
achieved a 1.8% share of the value sector in 2005. Our share of the premium
sector is now around 1%.
-
Africa
    and the Middle East
Our Africa
        and Middle Eastern volumes declined to 3.4bn cigarettes compared to 4.9bn
        in 2004, owing to the
reduction
        in sales in Guinea and the termination of a distribution agreement in
    the Middle East.
In Nigeria,
        we grew our cigarette volume sales by 58.3%, largely attributed to an
        excellent performance from
Dorchester
    Menthol
.
In South Africa – less than one year into the venture – we are establishing a meaningful sales and distribution
infrastructure. With a sales weighted distribution of only 20%, we attained a total market share of 1% in
December, primarily through our
LD
brand.
-
Asia
    Pacific
Including
        the China licensed brand, our Asian cigarette volumes increased 9.3%
        to 540m (2004: 494m) with
notable
        gains
in Japan, Singapore and regional duty-free.
In China,
Memphis
,
      produced under license by Shanghai Tobacco Group, is performing in line
      with
expectations.
      The China National Tobacco Import Export Company granted permission for
      Gallaher to
import
LD
into
      the market – alongside
existing imports of
Sobranie
– during
the year, and both brands are
performing well.
In Singapore, we have begun construction of a small manufacturing facility that is due for completion by the
end of
2006.
Analysis of other Group Income Statement Headings
Finance costs
Lower
net finance costs of £100m (2004: £114m) reflect: positive cash flows; lower average borrowing costs; a net financing credit on retirement benefit schemes of £9m
(2004: £7m); and, an IAS 39 mark-to-market credit on interest rate derivatives of £6m (2004: £6m). The average borrowing cost during 2005 was 5.6% (2004: 5.8%) – the
reduction brought about primarily through incremental costs in 2004 associated
with bond refinancing and a change in the currency mix towards cheaper dollar-denominated
debt in 2005.
Profit before tax
Profit before tax was £516m (2004: £504m). The positive impact of trading improvements and lower interest charges were partly offset by higher exceptional charges of £35m
(2004: £17m) relating to the restructuring of our European operations.
Taxation
The tax charge of £144m (2004: £142m), which excludes tax attributable to joint ventures and associates, represents an effective rate of 28.0% (2004: 28.1%) . This rate is
distorted through the low effective tax credit applicable to the higher exceptional charges in 2005. Removal of intangible amortization charges and exceptional charges (net of tax)
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GALLAHER GROUP Plc
Form 20-F 2005
result in an adjusted effective rate of 26.8% (2004: 27.6%) . This reduction is primarily a result of the change in the corporate tax rate in Austria, reducing from 34% to 25% from 1
January 2005.
Returns to shareholders (Profit After Tax and Minority Interests)
After minority interests of £3m (2004: £4m), reported earnings attributable to equity shareholders were £369m (2004: £358m), and – following a 0.2% increase in
the weighted average number of shares in issue – basic earnings per share were 56.5p (2004: 55.0p) .
Dividends
Our board recommends a final dividend of 22.9p per ordinary share, amounting to a total dividend for the full year of 33.5p per ordinary share (134.0p per ADS). This represents an
increase of 6.3% over the 2004 dividend of 31.5p per ordinary share (126.0p per ADS). Subject to shareholders' approval at our AGM on 10 May 2006, the final dividend will be paid on 23 May 2006 to all ordinary shareholders on the register at
close of business on 17 March 2006. For ADS holders, The Bank of New York will convert the 91.6p ADS final dividend into US dollars, and distribute it to ADS holders on 30 May 2006.
Our board declared an interim dividend of 10.6p per ordinary share, an increase of 6.0% over the 2004 interim dividend of 10.0p. This dividend was paid on 22 November 2005, to all
shareholders on the register at close of business on 23 September 2005. For ADS shareholders, The Bank of New York converted the 42.4p ADS dividend into US dollars, and distributed it to ADS holders on 30 November 2005.
Liquidity and Capital Resources
Cash Flow Analysis
Other than changes to operating results, fluctuations in operating cash flows are caused primarily by changes in the level of working capital. This in the main is due to changes in the
country specific rules and regulations governing the timing, level and nature of tobacco duty payments, and our actions to respond to these changes.
2005 v 2004
Cash generated from operations before exceptional items was £733m (2004: £770m) including a reduction in working capital of £16m, compared to a reduction of £82m
during 2004.
In total, inventories fell by £5m, mainly reflecting further reductions in leaf stocks, with a reduction in work in progress offset by an increase in finished goods – reflecting
timing differences in usage of duty-paid tax stamps. Trade and other receivables increased by £10m, largely resulting from higher selling prices partially offset by lower volumes in higher duty markets. Trade and other payables increased by
£21m, mainly reflecting improved supplier payment terms and higher accruals.
After cash costs relating to the exceptional charges of £33m (2004: £15m), taxation payments of £143m (2004: £90m) and dividends received from joint ventures and
associates of £15m (2004: £10m), net cash from operating activities totalled £572m (2004: £675m).
The increase in taxation payments primarily reflects tax assessments in Austria being brought into line with current levels of profitability.
Net interest payments of £119m were £5m lower than 2004, mainly due to lower average borrowings.
Capital expenditure of £103m reflects the continuing investment in production machinery and merchandising equipment. Disposal proceeds of £21m include £15m received from
the sale of the Dublin former factory site.
Expenditure on intangible assets and acquisitions of £75m mainly reflects the purchase of
Benson &
Hedges
and
Silk Cut
trademarks in Malta and Cyprus and
Silk Cut
trademark in Lithuania, which the Group acquired from
British American Tobacco in April 2005.
Net debt at 31 December 2005 was £2,136m – a reduction of £98m compared to the position at 31 December 2004. The decrease was attributable to a cash inflow of £90m,
favourable exchange rate movements – amounting to £4m – on Gallaher's euro and US dollar denominated financial liabilities, and IAS 39 fair value adjustments of £4m.
The Group's average net debt during the year was £2,077m (2004: £2,229m).
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GALLAHER GROUP Plc
Form 20-F 2005
In January 2005, the Group repaid a €900m bond using the proceeds of an €800m bond issued in June 2004 and internal cash flow.
In June 2005, the Group increased the amount of its committed syndicated revolving bank facility from £500m to £1,000m and extended the maturity date to June 2010. The financial
covenants under the facility remain unchanged.
The weighted average maturity of committed debt at the end of 2005 was 3.7 years (2004 year-end: 4.1 years).
The Group's debt ratings from Moody's Investor Service Limited and Standard & Poor's remain unchanged at Baa3 with stable outlook and BBB with stable outlook
respectively.
Treasury
We have a centralised treasury function that is responsible for the management of our financial risks, liquidity and financing requirements. The treasury function is not a profit centre
and its objective is to manage risk at optimum cost. Treasury operations are conducted within a framework of policies and guidelines authorised by the Board, and are monitored by the Treasury Committee, consisting of senior executives, including the
Finance Director and Chief Executive. This framework provides flexibility for the best execution of Board approved strategies. Summaries of treasury activities and exposures are reported on a regular basis to our Board and the internal control
environment is reviewed regularly.
We hold or issue financial instruments to finance our operations and to manage the interest rate and foreign exchange risks arising from operations and from our sources of finance.
Details of the financial instruments we held at the year end are disclosed in note 20 to the financial statements.
Financing and Liquidity
Historical financing arrangements
Our principal sources of external debt financing are syndicated committed revolving credit facilities from banks and public bond issues. Our syndicated bank facilities usually have an
initial term of 5 years. They are available for general corporate purposes and although they have been used to finance corporate acquisitions initially, their main purpose is to finance working capital requirements. We have issued six public bonds
since 1998: two sterling bonds totalling £550m and four Euro bonds totalling Euro 2,825m. These public bond issues have provided us with longer term funding to finance our core debt requirements.
Current financing arrangements
Our principal sources of financing in 2005 have been bond issues, bank borrowings and retained profits. It is our policy to maintain sufficient committed borrowing facilities, with a mix
of long and short term debt, to enable us to meet our business objectives.
At the year end, bond issues amounted to £1,999m, comprising a £250m bond maturing in February 2013, a £300m bond maturing in May 2009, a €375m bond maturing in August
2008, a €750m bond maturing in October 2006, a €800m bond maturing in June 2011, and a European medium term note amounting to £100m maturing in March 2006. In addition, at the year end, the Group's committed bank facilities
comprised amortising term loans of €231m with a final repayment date in 2007 and a syndicated revolving facility of £1,000m maturing in June 2010.
The weighted average maturity of committed debt at the year end was 3.7 years (2004: 4.1 years). The available headroom under the committed bank facilities at the year end was £925m.
Our credit ratings are BBB (Stable Outlook) and Baa3 (Stable Outlook) from Standard & Poor's, a Division of the McGraw-Hill Companies, and Moody's Investors Service Limited
respectively. These ratings allow us to access the international capital markets and issue debt to a global investor base which would be restricted in the event of a rating reduction to below investment grade.
Certain of our debt instruments contain covenants that if our credit rating is downgraded below BBB minus in the case of Standard & Poor's or below Baa3 in the case of
Moody's, additional interest accrues from the next interest period at the rate of 1.25 percentage points, in the case of the following bonds issued by ourselves: €750m in October 2001, €900 m in January/March 2002, £250m in
February 2003 and €800m in June 2004, and 1.0 percentage point in the case of
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GALLAHER
GROUP Plc
Form
  20-F 2005
the committed syndicated bank facility. In the event that both credit ratings are subsequently raised or reaffirmed to BBB minus and Baa3, respectively, the additional interest no longer
accrues from the next interest period.
We look to maintain stable credit ratings by closely monitoring cash flow to net debt ratios which we regularly reviewed against rating agency guidelines.
IAS 19 adjusted
  EBITAE interest cover (a key performance measure for our senior management)
  – combining both interest and operating components of IAS 19 into a net
  pension expense within EBITAE – was 5.9 times.
Reconciliation
  of IAS 19 adjusted EBITAE interest cover
2005
£'m
Operating
        profit
599
Profit
      before taxation of joint ventures and associates
20
Net
      retirement benefits financing income
9
Amortization
      – excluding amortization of investment in own shares
19
Exceptional
      charges
35
Earnings
      before interest, tax and amortization, and exceptional charge (EBITAE)
682
Net
      finance costs
115
IAS
      19 adjusted EBITAE / Interest cover
5.9
      times
The only financial
  covenants applying to our facilities relate to the committed revolving bank
  facilities. These require us to maintain interest cover above 3.5 times based
  on IAS 19 adjusted EBITDAE and net debt below a multiple of IAS 19 adjusted
  EBITDAE of 3.5 times. We continue to comply with all borrowing obligations and
  financial covenants have been satisfied with an IAS 19 adjusted EBITDAE interest
  cover at 6.5 times and a net debt multiple of 2.8 times at 31 December 2005.
Reconciliation
  of IAS 19 adjusted EBITDAE interest cover and net debt multiple
2005
£'m
Operating
    profit
599
Profit
      from operations of joint ventures and associates
22
Depreciation
79
Net
      retirement benefits financing income
9
Amortization
      – excluding amortization of investment in own shares
19
Exceptional
      charges
35
Earnings
      before interest, tax,depreciation, amortization and exceptional charges
      (EBITDAE)
763
Net
      finance costs
115
Interest
      in joint ventures and associates
2
Total
      net finance costs
117
IAS
      19 adjusted EBITDAE / Interest cover
6.5
      times
Net
      Debt excluding derivative financial instruments, fair value adjustments
      and accrued interest
2,104
Net
      Debt / IAS 19 adjusted EBITDAE
2.8
      times
The following table summarises certain of our contractual obligations at 31 December 2005 and the effect such obligations are expected to have on our liquidity and cash flow in future
periods.
Payments
      Due
Later
Contractual
      Obligations
2006
2007
2008
2009
2010
Years
Total
Long
      Term Debt
Sterling
      (£m)
100
-
1
300
75
250
726
Euros
      (€m)
750
146
375
15
-
800
2,086
Swedish
      Krona (SEKm)
125
125
-
-
-
-
250
Operating
      Leases
Sterling
      (£m)
9
5
5
3
3
44
69
Unconditional
      Obligations
Sterling
      (£m)
17
-
-
-
-
-
17
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GALLAHER
GROUP Plc
Form
  20-F 2005
We do not have a contractual obligation to fund pension contributions. However, we do and have made payments in the past. The latest agreed contribution rates (as a percentage of
pensionable pay) for the material funded schemes are as follows: UK: 31% plus £10m per annum, Austria: 13.9% per annum and Republic of Ireland: 6.0% per annum. The additional £10m contribution in the UK scheme relates to a current deficit
in the scheme. Additional payments will be made to the schemes, where necessary, to address any funding strains.
In summary we believe that we have adequate financial resources to satisfy current operational requirements. Please refer to Note 20 of our financial statements for full details of the
maturity profile of our borrowings and information on our material undrawn sources of capital.
Capital commitments
As at 31 December
  2005 contracts placed but not provided for in the financial statements were
  £17.0m (2004: £1m). These commitments relate mainly to plant and machinery
  and merchandising units. We expect to meet future capital commitments from our
  internal cashflows and existing facilities.
We expect our capital expenditure to be between £140m and £170m in 2006.
Off balance
  sheet arrangements
Under IFRS, guarantees
  that are disclosed as contingent liabilities, are not normally regarded as 'off
  balance sheet arrangements'.
We have not engaged in any off balance sheet arrangements that would have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity,
capital expenditure or capital resources.
Interest Rate
  Risk
We are exposed
  to fluctuations in interest rates on our net debt. In order to manage the impact
  of adverse variations in interest rates on our profits, the Group borrows at
  fixed and floating rates of interest and, where necessary, uses interest rate
  derivatives to maintain a target level of fixed interest rate cover in the current
  and subsequent two years of between 40% and 80% of the level of core debt. At
  the year-end, fixed interest rate debt represented approximately 70% of total
  gross debt. The sale of an interest rate swap option has lowered the effective
  fixed interest rate payable. All interest rate derivative transactions have
  been accounted for as hedges.
Foreign Currency
  Risk
Due to the international
  nature of our operations, we are exposed to exchange rate fluctuations on the
  translation of the results of overseas subsidiaries into sterling and trading
  transactions in foreign currencies.
We have continued a policy of only hedging balance sheet translation exposures to the extent that foreign currency liabilities, including borrowings, provide a natural hedge. On
significant acquisitions of overseas companies, borrowings are raised in the functional currency of the operations to minimise translation risk. It remains our policy not to hedge profit and loss account translation exposures.
Transaction exposures are hedged where deemed appropriate and where they can be reliably forecast with the use of forward exchange rate contracts.
Bank Counter-party
  Risk
We have cash and bank deposits and other financial instruments that give rise to credit risks in the event of non-performance by counter-parties. Credit risk is managed by limiting the
aggregate amount of exposure to any one entity and our policy of only transacting with major international financial institutions with an investment grade credit rating.
Research and
  Development, Patents and Licences
Due to the nature
  of our business, the majority of our expenditure on research and development
  is not separately classified. The development of new brands and markets and
  market research is included in marketing and advertising expenditure. Costs
  in respect of improved manufacturing efficiency and tobacco leaf blend development
  are included in production overheads.
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GALLAHER
GROUP Plc
Form 20-F 2005
As well as assisting in these projects, the research and development facilities are used for the quality control of our production and the monitoring of our environmental and health and
safety obligations.
All of these ongoing costs are charged in our profit and loss account as they are incurred.
Critical
  Accounting Policies
We have identified
  those policies which we consider involve complex or subjective decisions or
  assessments. Certain of the policies identified are discussed here, but you
  should read the following in conjunction with our principal accounting policies
  which are discussed in note 1 to the financial statements included in this Annual
  Report.
(a) Estimated
  impairment of goodwill and other intangible assets
The Group tests
  annually whether goodwill and other long-lived intangible assets have suffered
  any impairment in accordance with the accounting policy stated in note 1 of
  the consolidated financial statements. The recoverable amounts of cash-generating
  units have been determined based on value-in-use calculations. These calculations
  require the use of estimates (note 12 of the consolidated financial statements).
  As at 31 December 2005, the headroom for value-in-use above the carrying value
  of goodwill on each material unit of acquired goodwill exceeds 10%. As such,
  it is not felt that a reasonably possible change in any single assumption on
  which management has based its determination of the value-in-use would cause
  the material units' carrying amounts to exceed their recoverable amounts.
Under US GAAP an impairment loss is indicated only when the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows.
(b) Income taxes
The Group is subject
  to tax in numerous jurisdictions and significant judgement is exercised in determining
  the provision for taxes in each fiscal territory. There are many transactions
  and calculations for which the ultimate tax determination is uncertain during
  the ordinary course of business. The group recognises probable liabilities for
  anticipated tax issues based upon an estimate of whether additional tax will
  be due. Where the final outcome of these matters is different from the amounts
  that were initially recorded, such differences will impact the income tax and
  deferred tax provisions in the period in which such determination is made.
(c) Retirement
  Benefits
Costs relating
  to the various defined benefit pension schemes operating within the group are
  accounted for using methods that rely on actuarial estimates and assumptions
  to arrive at costs and assets or liabilities for inclusion in the accounts.
  The assets and liabilities of the scheme are included in the balance sheets
  of the entities to which the schemes relate and, on consolidation, in the Group
  balance sheet. The income statement components of the annual pension scheme
  movements are derived from the increase in the liability to pension scheme members
  of a further year of service, an interest cost relating to the unwinding of
  the discount used in arriving at the present value of that expected liability
  and an estimated return on the assets held by the scheme based on assumptions
  taken at the previous year end.
At the end of each year, the value of the assets and liabilities that comprise the scheme is ascertained and the difference between the actual and expected position (as derived from the
income statement entries) is taken through the Statement of Recognised Income and Expense and hence the reserves of the entity that operates the scheme. If the markets in which assets held by the pension scheme decline, substantial deficits may
arise and may reduce the ability of a company to pay dividends.
The Group takes advice from independent actuaries as to the appropriateness of the assumptions we use. However, it is important to note that relatively small changes in the assumptions we
use can have a significant effect on the income statement and balance sheet pension components.
Details of the key assumptions used to derive the amounts disclosed in relation to retirement benefits are set out in note 21 to the financial statements. Management regards the key
valuation driver to be the discount rate, which over the last three years has moved by less than 1% in aggregate. As at 31 December 2005, a movement of 0.1% on the discount rate would give rise to a movement of £16m on the present value of
accrued retirement benefit liabilities.
Recently issued
  US accounting pronouncements
SFAS123(R):
  Share-based payment
SFAS123(R) was issued in December 2004 and is effective for the first annual reporting period that starts after 15 June 2005. It supersedes APB Opinion 25, Accounting for Stock Issued to
Employees. SFAS123(R) is concerned with how
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GALLAHER GROUP Plc
Form 20-F 2005
to account for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. The main effect of this revised standard is a move from an intrinsic value method to a
fair value based method. We currently use the Black-Scholes model for disclosure in Note 24, "Share Capital". We will use the modified prospective application transition method. We are still studying the impact of applying the various
provisions of SFAS No. 123(R).
In March 2005, the SEC issued Staff Accounting Bulletin No. 107, "Share-Based Payment" ("SAB No. 107"). SAB No. 107 provides guidance on the initial implementation of
SFAS No. 123(R). In particular, the statement includes guidance related to share based payment awards with non-employees, valuation methods and selecting underlying assumptions such as expected volatility and expected term. It also gives guidance on
the classification of compensation expense associated with SBP awards and accounting for the income tax effects of SBP awards upon the adoption of SFAS No. 123(R). We are currently assessing the guidance provided in SAB No. 107 in connection with
the implementation of SFAS No. 123(R).
SFAS154: Accounting changes and error corrections
SFAS154 was issued in May 2005 and is effective for fiscal years beginning after 15 December 2005. This statement replaces APB Opinion 20, Accounting Changes, and SFAS 3, Reporting
Accounting Changes in Interim Financial Statements. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a
change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. SFAS
No. 154 also addresses the reporting of a correction of an error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.
We will be adopting this pronouncement beginning in our fiscal year 2006.
SFAS155: Accounting for certain hybrid financial instruments
In February 2006, the FASB issued SFAS 155 'Accounting for certain hybrid financial instruments' an amendment of SFAS 133 and 140. SFAS 155 nullifies the guidance from the
FASB's Derivatives Implementation Group (DIG) in Issue D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets, which deferred the application of the bifurcation requirements of SFAS 133 for certain beneficial
interests. SFAS 155 provides a fair value measurement option for certain hybrid financial instruments that contain an embedded derivative that would otherwise require bifurcation and requires that beneficial interests in securitized financial assets
be analysed to determine whether they are freestanding derivatives or whether they are hybrid instruments that contain embedded derivatives requiring bifurcation. SFAS 155 also provides clarification on specific points related to derivative
accounting. SFAS 155 is effective for fiscal years beginning after 15 September 2006. The Group does not currently expect SFAS 155 to have a material impact on its financial position, results of operations or cash flows.
Recently issued IFRS accounting pronouncements
At the date of authorisation of these financial statements there were a number of international standards and interpretations that, although issued, were not yet effective or applied by
the Group. These were IFRS 6 'Exploration for and Evaluation of Mineral Resources', IFRS 7 'Financial Instruments: Disclosures' and the related amendments to IAS 1 'Presentation of Financial Statements' on capital
disclosures, IFRIC 4 'Determining whether an Arrangement contains a Lease', IFRIC 5 'Right to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds', IFRIC 6 'Liabilities Arising from
Participating in a Specific Market – Waste Electrical and Electronic Equipment', IFRIC 7 'Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies', IFRIC 8 'Scope of IFRS 2' and
IFRIC 9 'Reassessment of Embedded Derivatives'.
The changes arising from the adoption of these standards and interpretations in future periods are not expected to have a material impact on the financial statements of the Group.
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GALLAHER
GROUP Plc
Form 20-F 2005
ITEM
6   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A
Directors and Senior Management
The following is a list of executive and non-executive directors
.
John Gildersleeve
, aged 61
(2)
Chairman
Appointed in May 1997, he became non-executive chairman in March 2004. As the former commercial and trading director of Tesco PLC (from which he retired in March 2004) he has extensive
international commercial experience. He is also non-executive chairman of The Carphone Warehouse Group PLC and non-executive deputy chairman of EMI Group plc.
Sir Graham Hearne CBE
, aged 68
(1) (2) (3)
Non-executive deputy chairman and senior independent director
Appointed
in May 1997. He is non-executive chairman of Braemar Seascope Group PLC and Catlin
Group Limited and a non-executive director of N.M. Rothschild & Sons Ltd
and Rowan
Companies, Inc.
Nigel Northridge
, aged 50
(5)
Chief executive
Joined
Gallaher in 1976 and held a number of senior positions, including that of sales
and marketing director, before his appointment as chief executive in 2000. He
has extensive
experience across all aspects of the Group's business and has played a key role in the development of general strategy and the Group's
expansion. He is a non-executive director of Aggreko plc and Paddy Power Plc.
Ronnie Bell
, aged 56
(3)
(4)
Non-executive director
Appointed in March 2004.  His executive career was spent with Kraft Foods, Inc., where he gained extensive experience in international brand development and distribution, with a European
focus. He is a non-executive director of Northern Foods Plc, The Edrington Group Limited and Ansell Limited.
Alison Carnwath
, aged 53
(1) (2)
(3)
Non-executive director
Appointed in January 2003.  She is a chartered accountant with extensive experience in merchant banking and commerce. She is a non-executive director of Land Securities Group PLC, Man
Group Plc, Friends Provident Plc and Dwr Cymru Cyfyngedig.
Richard Delbridge
, aged 63
(1)
(3)
Non-executive director
Appointed
in January 2002, having been finance director of National Westminster Bank plc,
and prior to that group finance director of HSBC Holdings plc. He is a chartered
accountant and was a member of the Smith Committee, which was responsible for
the recommendations that led to audit-related changes in the combined code in
2003. He is a non-executive director of JP Morgan Cazenove Holdings, Tate & Lyle
PLC and Fortis Group.
James Hogan
, aged 49
Non-executive director
Appointed in May 2005, he is president and chief executive of Gulf Air and vice chairman of the Bahrain Hotels Company. Prior to that, he has worked for, amongst others, Hertz
International, Forte Hotels Limited and BMI British Midland.
Nigel Dunlop
, aged 49
(4)
(5)
Group operations director
Appointed
a director in January 2003, having held a variety of senior operational positions
since joining Gallaher in 1980. He has been responsible for operational restructurings,
and the
Group's focus on cost and cash efficiency.
Neil England
, aged 51
(5)
Group commercial director
Joined
Gallaher in January 2002, having previously held a number of senior positions
at Mars, Inc., latterly as vice president of the CIS region. Initially having
responsibility for the UK and Republic of Ireland markets, in October 2004 he
also assumed responsibility for the Group's mainstream European business.
He is a non-executive director of The Eastern European Trust PLC.
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GALLAHER GROUP Plc
Form 20-F 2005
Stewart Hainsworth
, aged 37
(5)
Group
commercial director
Joined
Gallaher in 2000 upon the Company's acquisition of Liggett-Ducat, of which
he was general director. He was appointed to the board on 1 October 2004 and
has responsibility for the CIS, developing markets and the northern European
region. He qualified as an accountant with BDO Stoy Hayward in 1993.
Mark Rolfe
, aged 47
(5)
Group finance director
Joined
the Company in 1986 and held a number of senior finance positions before being
appointed a director in 2000. He is a chartered accountant and was previously
with Coopers & Lybrand.
Key (use symbols as appropriate):
(1)
Audit committee
(2)
Nomination committee
(3)
Remuneration committee
(4)
Corporate responsibility committee
(5)
Management committee
B
Compensation
Introduction
This report from the remuneration committee (the "committee") sets out our
remuneration policy, and details the remuneration of our directors for the year ended 31 December 2005. It has been prepared in accordance with the Companies Act 1985, directors' remuneration report regulations 2002 (the
"regulations") and to meet the relevant requirements of the listing rules of the UK Listing Authority. The report also describes how the principles of good governance, which the committee has adopted, relating to directors'
remuneration contained in the combined code published in July 2003 (the "code") have been applied. The committee has also taken account of the recent guidelines and principles published by organisations representing institutional
shareholders as appropriate. The report has been approved without amendment by the board for submission to shareholders. It should be read in conjunction with our corporate governance statement.
The committee
The
committee is chaired by Sir Graham Hearne and during 2005 comprised the following
 independent non-executive directors (code, supporting principle B.2.1): Ronnie
Bell (from 3 May 2005); Alison Carnwath; Richard Delbridge; and Tony Portno (until
his retirement on 11 May 2005). No member of the committee has any personal financial

interest, other than as shareholders, in the matters addressed in this report.
During the year the committee met five times. There was full attendance at all
meetings.
Terms of reference
(code,
main principle B.2) These comply with the code and are published on our website
 (code, supporting principle B.2.1) . They provide clear guidance, establish
formally the constitution of the committee, and set out the framework within
which the committee operates.
While the board is ultimately responsible for the framework and scale of executive remuneration, the committee has responsibility, delegated by the board, for determining the salaries,
incentives and other benefit arrangements of executive directors, including pension provision and any severance payments. It is also responsible for monitoring the level and structure of remuneration for our heads of business units below board level
(code, supporting principle B.2.2) . The committee's approach is to be fully consistent with the our overall philosophy that all employees globally should be competitively rewarded to attract and retain their valued skills in the business, and
to support our corporate strategy, by directly aligning executive and senior management's remuneration with our strategic business goals. In doing so, the committee has paid careful regard to the appropriate balance between the fixed and
variable elements of pay (code, main principle B.2). The committee also oversees our employee share schemes.
Attendees
Our chairman, John Gildersleeve, and chief executive, Nigel Northridge, attend meetings by
invitation to address questions raised by the committee, together with the company secretary and general counsel, Tom Keevil, who acts as secretary to the committee. However, they are specifically excluded from any discussions concerning details of
their own remuneration (code, main principle B.2).
Assistance
Following the review of its advisers in 2004, the committee decided for 2005 onwards to retain
Deloitte & Touche ("Deloitte") to provide independent remuneration advice on an ongoing basis (code, supporting principle B.2). The committee sets the remuneration package principally, but not solely, based upon the advice that it
receives. Representatives from Deloitte attend committee meetings when required and this occurred on one occasion in 2005. During 2005, a comprehensive benchmarking exercise relating to all senior executives' remuneration was undertaken
to
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GALLAHER GROUP Plc
Form 20-F 2005
ensure the overall remuneration package reflected not only the committee's policy on remuneration but was not inconsistent with current market practice. The review was underpinned
via participation in four surveys undertaken by: Hays; Monks; Towers Perrin; and, Mercers. Deloitte were then retained to help interpret, analyse and provide advice on the outcome as appropriate.  Support and advice was also provided in relation to
this exercise, amongst other matters, by the group human resources function working with the group head of performance and reward. During 2006, this review process is to be extended further into the global organisation. When reviewing its policy
during 2006 the committee will take account of the outcome of that process. Deloitte also advised us on a number of unrelated tax matters and provided organisational consulting services in 2005.
Remuneration policy statement
In an ever increasingly competitive environment and with an enlarged
international spread of operations, it is of paramount importance that we should be able to attract, retain and motivate people of the highest quality throughout the Company. We believe that the level of remuneration and other benefits must be set
appropriately to achieve this in each commercial and operational division. The committee's approach is to maintain a remuneration policy which is consistent with our objectives and which is kept under review in light of emerging best practice
and market conditions.  Accordingly, the policy aims to attract, retain and motivate high calibre senior executives, align executive rewards with shareholder value creation, motivate executives to achieve appropriate performance levels and take into
account both individual and company performance. Accordingly, the committee's view is that performance targets that would enable the achievement of maximum performance related payouts in any one year under bonus schemes and long-term incentive
plans ("LTIPs") not only have to reflect the creation of significant shareholder value but need to be robust. Accordingly, the committee liases closely with the audit committee members when evaluating proposed performance targets (in
accordance with ABI guidelines, principle 4).
We also seek to align the interests of shareholders and employees at all levels by giving employees opportunities and encouragement to build up shareholdings in Gallaher Group Plc.
Employees are encouraged to build up shareholdings in Gallaher Group Plc through participation in our savings related share option scheme.  This scheme or similar arrangements are open to the majority of European employees and share participation
was extended to employees within the CIS during 2004. UK employees can also participate in an Inland Revenue approved share incentive plan (the "SIP") and a bonus scheme related to earnings per share ("EPS") performance.  A
significant proportion of employees eligible to participate in these schemes take advantage of the opportunity to do so. The committee believes this policy is in compliance with that laid down under code, main and supporting principles B.1.
Policy on executive remuneration
As defined in the remuneration policy statement, the remuneration package
for executive directors and heads of business units below board level is intended to attract and retain high quality executives, instil loyalty and motivate them to achieve a high level of corporate performance in line with the best interests of
shareholders and the principles of the code while not being excessive. It is also intended to be in line with our overall policy on pay and benefits and, as we continue to extend our business internationally, account is taken of market practices
outside the UK where the scope of a particular executive's role warrants this approach. It is the present intention of the committee that, for 2006 and subsequent years, our policy on the remuneration of senior executives will remain within the
above guidelines, but this will be kept under review.
In addition to reviewing market data provided by the senior executive surveys referred to above, the committee also took into account the levels of awards to our UK employees, managers
and our heads of business units below board level in determining senior executive remuneration levels.
In determining policy and giving effect to it, the committee currently also reviews the remuneration practices of other FTSE-100 companies of a similar size and complexity, including an
industry comparator group of companies operating in the tobacco and consumer goods sectors. The make up of that group is reviewed by the committee, at least annually, with the assistance of Deloitte, to ensure that our practice remains aligned with
the appropriate comparator group (code, supporting principle B.1).
Summary of executive benefits
The remuneration package for executive directors and heads of business units
below board level consists of basic salary, annual bonus, LTIPs and pension and other benefits. The basic salary, pension, medical and life assurance elements of the executive remuneration package are fixed. By contrast, annual cash bonuses and
awards under the long-term incentive plans are related to our performance and of the directors and the heads of the business units.  It is our policy to ensure that a significant portion of the total potential reward is earned via the
performance-based schemes.  For executive directors, during 2005 approximately 60% of the total value of the remuneration package was targeted to be performance related with the ratio rising to approximately 75% for outperformance (code, supporting
principle B.1.1) .
Base salary
Base
salary is reviewed annually and determined by reference to individual responsibilities,
 performance, the challenging nature of the sector within which we operate and
external market data. Accordingly, it is targeted within a range around the market
median for the comparator group, although the committee recognises the comparisons

should be treated with caution to avoid the risk of an upward ratcheting of remuneration
levels in accordance with ABI guidelines, principle 5. Salary levels also reflect
the experience, responsibilities, effectiveness and market value of
the
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GALLAHER GROUP Plc
Form 20-F 2005
executives. In determining salary levels, the committee also assesses our overall performance and the impact on any associated benefits, e.g., pension, potential long-term incentive plan
awards and annual bonuses. Basic salary is the only element of the package used to determine pensionable earnings (in accordance with the code, paragraphs 6 and 7 of schedule A).  In 2004, executive directors' salaries were demonstrated to be
below median for similarly sized comparator companies. The adjustment was confirmed as appropriate as a result of the benchmarking exercise.
Annual cash
bonus
Payments
under the annual cash bonus arrangements for executive directors and heads of

business units are dependant on the achievement of profit before tax "PBT" targets
set at the beginning of each financial year by the committee. These targets are
directly related to our rolling business plans which include stretching  targets
and which are annually approved by the board. In addition, the committee's
view of performance related factors such as productivity, management of capital
expenditure and other financial matters, business and management development,

based on a 'balanced scorecard' approach, are taken into account (in
accordance with the code, paragraph 1 of schedule A). The committee aims to deliver
bonus levels of around 50% of the maximum for delivering target performance,
but the  committee retains an absolute discretion as to what level of bonus,
if any, to award senior executives (including executive board members). Failure
to achieve the performance criteria set annually by the committee can result
in no bonus being
awarded and the committee vigorously assesses performance.  Indeed, in spite
of the successful performance of the Company since listing in 1997, at no time
to date has any annual bonus award been made at the maximum level available.
In respect of 2005, approximately 70% of the annual bonus target was PBT based (60% for the chief executive). The remaining circa 30% (40% for the chief executive) was dependant upon the
committee's view of the balanced scorecard. The maximum possible bonus for all executive directors was 85% of basic salary (for the chief executive a further 15% additional incentive award, related to the balanced scorecard element, was
available). The actual bonus awarded in 2005 to directors amounted to 63% of basic salary, with the chief executive receiving 78%. Heads of business units below board level admitted to the annual bonus scheme had the same PBT and scorecard targets,
but with lower targeted and maximum payout levels. PBT targets are not published as they are commercially sensitive.
Other benefits
All executive directors are provided with a company mobile phone, a company car (or an
allowance in lieu), personal accident insurance and medical insurance.  The taxable value of the benefits are included in the directors' emoluments table.
External appointments
The
board supports executive directors taking up non-executive directorships as part
 of their continued development that will ultimately benefit us. As a matter
of policy, such appointments are normally limited to two in number, only one
of which can be in another FTSE-100 company and under no circumstances can an
executive director
serve as chairman of such a company (code, supporting principle A.4.5) . Currently,
Nigel Northridge is a non-executive director of Aggreko plc and Paddy Power Plc
and received fees for 2005 of £36,250 and €40,000 respectively. Neil
 England is a non-executive director of The Eastern European Trust PLC for which
he received fees of US$20,000 in 2005.  During 2005 Stewart Hainsworth retained
his interests in some family businesses
1
.
The committee is satisfied that these interests do not detract in any way from
each individual's ability to remain
focused on the Group's business and has further determined that these directors
may retain any fees from these directorships (code, supporting principle B.1.4)
..
Executive directors' service contracts
The service contracts of all executive directors are with
Gallaher Limited, although Stewart Hainsworth has two contracts, the second of which reflects his overseas location and day-to-day duties as an executive director of the Group's Swiss operations.  However, his Gallaher Limited contract takes
precedence and his remuneration is considered in aggregate by the committee.
Our policy is that all executive directors have a one-year notice provision in their contracts (code, supporting principle B.1.6), such notice period not extending beyond their current
normal retirement age of 60 years.
Severance
We
are unequivocally against rewards for failure and fully aware of the need to
ensure that an
appropriate settlement is reached should a director's employment be terminated
with or without notice (code, supporting principle B.1.5) . In such circumstances,
it would take account of the circumstances and opportunities to mitigate loss
when  assessing any severance payment. So far as entitlements under the long-term
incentive plans are concerned, in normal circumstances they vest at the end of
the relevant performance period but on a pro-rata basis to the date of termination
(except in
the case of a change of control, when pro-rata vesting would happen at the time
of that event).
Non-executive directors
The non-executive directors have letters of appointment specifying three-year
fixed terms of office, with three-month notice periods (code, supporting principle A.4.4 of the code).  They are not eligible for
1
At
        the time Mr Hainsworth joined the Group in 2001 he disclosed his interests
        in some family businesses. It was agreed that he could retain those interests,
        given his confirmation that those interests would not impinge upon his
        existing obligations as a full time employee of the Group. At the time
        of his appointment to the Group board, Mr Hainsworth reconfirmed this
    position.
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GALLAHER GROUP Plc
Form 20-F 2005
company pension scheme membership, nor do they participate in any of our bonus plans or LTIPs. In addition to the requirements relating to re-election by shareholders contained in their
letters of appointment and the code, non-executive directors must, in any event, retire at the first annual general meeting after reaching 70 years of age.
In accordance with the provisions of the code, the board determines the fees paid to the non-executive directors (including the chairman). In determining the fee levels, account is taken
of the time commitment and scale of the roles that the non-executive directors perform, market norms and comparisons with companies of equivalent size based on information provided by Deloitte. Details of the fees that were paid to the chairman and
other non–executive directors during 2005 are set out below. Fees are reviewed annually, and were increased in June 2005 to reflect the increased preparatory work they are required to undertake for committee and board meetings, along with the
importance of retaining high-calibre non-executive directors.
Periods of service
Details of the contracts of service or letters of appointment of each person who has
served as a director of the Company at any time during the 2005 financial year are set out below:
Date of appointment
to board
Date of current
contract/letter
of appointment
Period
	    to retirement/term
of appointment
  at 31 Dec 2005
Notice period under
contract/
appointment letter
Executive directors
Nigel Northridge
15 Apr 1997
27 April 2004
10 years 1 month
12 months
Nigel Dunlop
1 Jan 2003
27 April 2004
10 years 10 months
12 months
Neil England
1 Jan 2002
27 April 2004
8 years 5 months
12 months
Stewart Hainsworth (a)
1 Oct 2004
1 Oct 2004
23 years 2 months
12 months
Mark Rolfe
1 July 2000
27 April 2004
12 years 11 months
12 months
Non-executive directors
John Gildersleeve
13 May 1997
8 September 2003
1 year 2 months
3 months
Sir Graham Hearne
13 May 1997
24 August 2004
4 months 2 weeks
3 months
Ronnie Bell
8 Mar 2004
8 March 2004
1 year 2 months
3 months
Alison Carnwath (b)
1 Jan 2003
24 August 2004
3 years
3 months
Richard Delbridge (c)
24 Jan 2002
24 August 2004
2 years 3 weeks
3 months
James Hogan
3 May 2005
3 March 2005
2 years 4 months
3 months
Tony Portno (d)
13 May 1997
24 August 2004
expired 11 May 2005
3 months
(a)
Stewart Hainsworth's contract with Gallaher Switzerland SA was amended on 18 February 2006 to reflect an adjustment in pension arrangements; all other terms remain the
same.
(b)
A letter extending Alison Carnwath's appointment for a further three years was issued on 15 December 2005.
(c)
A letter extending Richard Delbridge's appointment for a further three years was issued on 4 January 2005.
(d)
Tony Portno retired as a director on 11 May 2005.
Directors' interests in shares
The register kept by us pursuant to section 325 of the Companies Act
1985 shows that the directors in office at 31 December 2005, and their families, had the following interests in our ordinary shares. No such interests were held in any other Group company.
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GALLAHER GROUP Plc
Form 20-F 2005
Directors' interests in shares
(beneficial and family interests)
At 31 Mar 2006
At 31 Dec 2005
At 31 Dec 2004
Executive directors
Nigel Northridge
(a)
299,946
254,031
216,976
Nigel Dunlop
(a)
61,051
45,456
38,477
Neil England
(a)
73,352
63,697
45,620
Stewart Hainsworth
168,279
160,860
220,062
Mark Rolfe
(a)
140,028
111,130
78,710
Non-executive directors
John Gildersleeve
27,901
27,901
26,582
Sir Graham Hearne
6,013
6,013
5,796
Ronnie Bell
5,000
5,000
-
Alison Carnwath
4,000
4,000
4,000
Richard Delbridge
10,000
10,000
10,000
James Hogan
(b)
4,000
4,000
n/a
Tony Portno
(c)
n/a
n/a
5,000
Total
799,570
692,088
651,223
(a)
Participates in the SIP with a contribution of £125 per month.
(b)
James Hogan was appointed a director with effect from 3 May 2005.
(c)
Tony Portno retired as a director on 11 May 2005.
The interests of the directors in office at the date of this report have not changed from those shown above. Directors hold no options over shares in the Company, other than those under
the SRSOS, details of which are set out below.
Executive share retention
To ensure the interests of management remain aligned with those of
shareholders, executive directors and heads of business units are encouraged to establish substantial shareholdings in us over time through cash purchases and/or participation in the LTIPs (code, paragraph 2 of schedule A). Executive directors are
encouraged to build up and maintain shareholdings to, at least, the value of their annual salaries.
Directors' emoluments
The total salaries, fees and benefits paid to or receivable by each person who
served as a director of the Company at any time during the year appear below. These include all payments for services as a director of the Company, its subsidiaries or otherwise in connection with the management of our business and any other
directorship he/she holds because of our nomination.
Directors' emoluments in aggregate and by individual director for the year ended 31 December 2005
2005
(a)
2004
(b)
£'000
£'
000
Executive directors
Total salary
2,305
2,040
Benefits – value of any other non-cash benefits
222
154
Bonus
1,561
1,089
LTIP annual vesting
(c)
1,198
1,488
Termination payment
-
312
5,286
5,083
Non-executive directors
Fees
610
507
Benefits
1
4
611
511
Total
    remuneration
5,897
5,594
(a)
Includes directors who retired during 2005.
(b)
Includes directors who retired during 2004.
(c)
Value of LTIP shares vesting in the year, based on the mid-market share price at 12 noon on the day of
vesting.
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GALLAHER GROUP Plc
Form 20-F 2005
Directors' emoluments in aggregate and by individual director for the year ended 31 December 2005 (cont.)
Total
Fees
Bonus
Value of
Sub-total of
Incentive
Total
Total
salary
(a)
any other
salary, fees,
plans
(c)
remuneration
remuneration for
non-cash
bonus and
for 2005
2004
benefits
value of
(b)
non-cash
benefits
£000
£000
£000
£
000
£000
£000
£000
£000
Executive directors
Nigel Northridge
725
-
566
13
1,304
483
1,787
1,595
Nigel Dunlop
340
-
214
19
573
89
662
524
Neil England
(d)
400
-
252
63
715
230
945
569
Stewart Hainsworth
400
-
252
112
764
83
847
213
Mark Rolfe
440
-
277
15
732
313
1,045
968
Non-executive directors
John Gildersleeve
-
279
-
-
279
-
279
211
Sir Graham Hearne
-
96
-
-
96
-
96
80
Ronnie Bell
-
56
-
-
56
-
56
36
Alison Carnwath
-
56
-
-
56
-
56
43
Richard Delbridge
-
66
-
-
66
-
66
53
James Hogan(e)
-
39
-
-
39
-
39
n/a
Tony Portno
-
18
-
1
19
-
19
43
Total
2,305
610
1,561
223
4,699
1,198
5,897
4,335
Notes:
a)
The annual fees of the non-executive directors (including the chairman) were revised with effect from 1 June 2005: board/committee members £60,000; chairman of the audit committee
£70,002; deputy chairman £100,002; chairman £300,000.
b)
The value of non-cash benefits, where received, relate to the following benefits: company car, mobile phone, private health care, limited supplies of tobacco products and in one instance,
a retirement gift. In addition, directors are covered by personal accident and life insurance while on company business. There are no expense allowances chargeable to UK income tax.
c)
The value of the incentive plan awards reflect the performance of our shares over the last three years, during which time the share price increased 44% in respect of the DBP and 54% in
respect of the PSP.
d)
Included in Neil England's non-cash benefits is the value of the contributions accrued for his funded unapproved retirement benefits scheme ("FURB") resulting from the
restrictions imposed by the Inland Revenue earnings cap.
e)
James Hogan joined the Board on 3 May 2005.
Long-term incentive plans
The LTIPs comprise a deferred bonus plan ("DBP") and a performance
share plan ("PSP"). The plans are designed to align the interests of the participants with those of the shareholders over the long-term through the allocation of ordinary shares in the Group, contingent upon our performance (code, main
principle B.1 and schedule A). The incentive plan targets are applied uniformly to all executive directors, the company secretary and heads of business units reporting to them invited by the committee to participate in the scheme.
Incentive measures
In accordance with the code, schedule A, and following a full review of the LTIPs, at
the May 2005 AGM shareholders approved a move from a single performance measure of adjusted EPS for the PSP for performance periods starting in 2004. This has been replaced by a combination of total shareholder return ("TSR") and return on
capital employed ("ROCE" – see the footnote to performance conditions table). Real growth in adjusted EPS remains the performance measure for the DBP.
In using these performance criteria for the LTIPs, the remuneration committee's assessment is that EPS, ROCE and TSR are the most important measures that drive or measure sustainable
improvements in shareholder value thereby further aligning the interests of management with those of shareholders. The TSR performance condition measures comparative performance, while EPS and ROCE reflect core elements of our business strategy,
which are to seek to enhance earnings growth and to improve further capital efficiency.
Rewards under the 2003-2005 LTIPs related to achievement of EPS targets set by the committee. Participation in the DBP is voluntary and is dependent upon the availability of an annual
bonus that, in turn, is contingent upon performance factors.
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GALLAHER GROUP Plc
Form 20-F 2005
During the transition from UK GAAP to International Financial Reporting Standards, to the extent that any adjustments are necessary to ensure a like-for-like comparison, these will be
reviewed and adjudicated upon by the committee. It should be noted that currently three members of the committee also sit on the audit committee. The committee expects to use the audited, adjusted EPS numbers reported in accordance with the
principal accounting framework adopted by us in each of the relevant plan years. The committee is satisfied that this approach has not had a significant impact upon the level of the award that is payable.
Deferred bonus plan
The purpose of the DBP is to encourage those senior executives invited to participate
to invest in us and increase commitment to our growth and future performance. The plan also acts as a retention tool in a business sector in which the recruitment and retention of high-calibre individuals can be challenging. If, upon invitation, a
participant voluntarily pledges shares up to a maximum value equal to 100% of his/her annual bonus (which shares must be held throughout the three-year performance period) we will award, at no cost to the participant (other than taxation and
national insurance charges), additional shares. The minimum number that the participant will receive, having held shares for the full three-year cycle, will be one half of the number originally pledged. If our predetermined targets for real growth
in adjusted EPS over a three-year period (as set by the committee) are met the participant will receive shares up to a maximum of one and a half times the number originally pledged. Awards between the minimum and maximum targets are calculated on a
linear basis. Details of the shares awarded to directors under the DBP are set out below.
Real growth in adjusted EPS over the 2003-2005 performance period was 4.5% per annum against a target range of between 2% and 10%, and thus 81.6% of the original conditional award was
payable. The calculation of the percentage vesting of the DBP is independently certified by the auditors. The gain attributable to each director will be disclosed in the 2006 remuneration report.
Performance share plan
The PSP is designed to reward executives for delivering growth in shareholder value
through an annual award of shares. In the case of executive directors, such awards are based on a maximum potential value of 100% of salary at the discretion of the committee.
For the cycle ending 2005, performance was determined by the real growth in adjusted EPS over the measurement period compared with the target range set by the committee. Achievement at or
above the top of the range would have produced vesting of 100% of the total award. Achievement of the bottom of the target range would have resulted in 20% of the original award. The proportion vesting for achievement between the top and bottom of
the range was calculated on a linear basis. No award would have been made if performance was below the bottom of the range.
Real growth in adjusted EPS over the 2003-2005 performance period was 4.5% per annum against a target range of 2% - 10% and therefore 45.3% of the total award was payable. The gain
attributable to each director will be disclosed as remuneration in 2006. Details of awards to directors under the PSP are detailed in the table below.
Target: DBP
The
committee has discretion to set targets for each performance period. The targets
set for  real growth in adjusted EPS for the DBP for each of the performance
periods, 2004-2006, 2005-2007 and 2006-2008 are adjusted EPS over the three-year
period equal to an annual compound growth rate above inflation (using the retail
price index) of 2%
per annum for the minimum threshold, and 10% per annum if the maximum applicable
award is to be achieved (audited information). A minimum of 2% real annual compound
growth in EPS is considered an appropriate target given the maturity of the sector
 within which the Company operates, the consolidation that has taken place in
recent years, the nature of the challenges faced by tobacco companies and the
prevailing UK retail price inflationary environment.
Targets: PSP
In respect of the PSP for performance periods from 2004-2006 onwards the targets
are:
50%
            ROCE
:
The
            ROCE target ranges are: 27.1% to 28.3% for 2004-2006; 27.5% to 29.3%
            for 2005-2007; and, 28.3% to 30.0% for 2006-2008. Under IFRS the
            ROCE for the year ended 31 December 2005 was 27.4%, before exceptional
            items. Performance at the top end of the range would deliver maximum
            vesting i.e., 50% of the total award, and performance at the bottom
            end of the range would deliver 15% of the total award, with straight-line
            vesting in between. No payout will be made if performance is below
            the
lower end of the range.
The committee
        reviews the appropriate ROCE performance range for each annual grant
        of awards to be made under the PSP, taking account of the business' future
        plans and prospects. In order to mitigate the risk of fluctuations in
        the ROCE calculation, the committee retains discretion to make adjustments
        for significant events (e.g. exceptional items, major mergers and acquisitions
        or changes in accounting principles). Any amendment to target ranges
        would be explained in the annual report and financial statements. The
        target range is always expected to be in excess of our weighted average
    cost of capital.
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GALLAHER GROUP Plc
Form 20-F 2005
50%
            TSR:
The
            TSR element is measured against two comparator groups. Recognising
            the UK listing of our shares, half of this element of the award is
            measured against the performance of members of the FTSE 100 index
            at the beginning of the period. The remaining half is measured against
            a comparator group which reflects the international nature of the
            business comprising tobacco and other consumer companies, namely:
            Allied Domecq; Altadis; Altria; Associated British Foods; British
            American Tobacco; Cadbury Schweppes; Danone; Diageo; Heineken; Imperial
            Tobacco Group; InBev; Morrison Supermarkets; Nestle; Reckitt Benckiser;
            Reynolds American; SABMiller; J Sainsbury; Scottish & Newcastle;
    Smith & Nephew; Tesco; and, Unilever.
A median
        TSR return for each comparator group will deliver 7½% of the total
        award. An upper quartile performance would deliver a maximum payout of
        the award (i.e., 25% for each TSR element of the award) with a straight
        line payout in between and no payout of this element for performance
    below the median.
The committee believes that in accordance with the code, provisions of schedule A these targets represent challenging and stretching targets for delivering continued improvement in
capital efficiency and shareholder value. Taken together with the DBP EPS measure, the ROCE and TSR 50 : 50 combination comprise a well balanced and focused package of long-term performance related remuneration aimed at incentivising management to
deliver continuing shareholder value.
Performance
conditions relating to LTIP awards:
Calculation
    of award
Adjusted
TSR target
ROCE
Plan
real
Comparator
target
(1)
period
PSP
DBP
EPS target
FTSE 100
companies
2003-2005
100% EPS
100% EPS
2% to 10%
-
-
-
2004-2006
50%
    ROCE
50% TSR
100%
	    EPS
2%
	    to 10%
Median 7½%
Upper quartile
25%
Median
	    7½%
Upper quartile
25%
ROCE of
27.1= 15%
ROCE
of
28.3=
    50%
2005-2007
50%
	    ROCE
50% TSR
100%
	    EPS
2%
	    to 10%
Median 7½%
Upper quartile
25%
Median 7½%
Upper quartile
25%
ROCE of
27.5= 15%
ROCE
of
29.3=
50%
2006-2008
50%
	    ROCE
50% TSR
100%
	    EPS
2%
	    to 10%
Median 7½%
Upper quartile
25%
Median 7½%
Upper quartile
25%
ROCE of
28.3= 15%
ROCE
of
30.0=
50%
(1) The calculation of the ROCE on an IFRS basis for each performance period is based on a three-year annual average:
ROCE % =
Earnings before interest and tax
X
100
Average
    capital employed*
* Average capital employed is calculated by taking the opening capital employed and the closing capital employed (as defined below) from our accounts for the relevant financial year and
dividing by two.
Capital employed consists of total equity + net debt (including accrued interest) + net retirement benefit liabilities + net deferred tax liabilities + other long-term liabilities.
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GALLAHER GROUP Plc
Form 20-F 2005
Deferred bonus plan : conditional share awards
Performance
Maximum
Awards vesting
during
Lapsed
Maximum
Maximum
period
potential share
2005 (vesting share
during the
potential
potential
awards
price £7.7275 on 7
2005 year
share awards
share awards
outstanding at 1
March 2005; share
(see note
granted during
outstanding at
January 2005
price at award on 26
below)
the 2005 year at
31 December
March 2002, £5.3608)
£7.9150 on 30
2005
March 2005
Nigel Northridge
2002 - 2004
9,189
(5,697
)
(3,492
)
-
-
2003 - 2005
57,178
-
-
-
57,178
2004 - 2006
71,348
-
-
-
71,348
2005 - 2007
-
-
-
62,825
62,825
Total
137,715
(5,697
)
(3,492
)
62,825
191,351
Nigel Dunlop
2002 - 2004
2,329
(1,444
)
(885
)
-
-
2003 - 2005
12,729
-
-
-
12,729
2004 - 2006
26,813
-
-
-
26,813
2005 - 2007
-
-
-
23,973
23,973
Total
41,871
(1,444
)
(885
)
23,973
63,515
Neil England
2003 - 2005
29,951
-
-
-
29,951
2004 - 2006
34,857
-
-
-
34,857
2005 - 2007
-
-
-
30,512
30,512
Total
64,808
-
-
30,512
95,320
Stewart Hainsworth
2003 - 2005
13,638
-
-
-
13,638
2004 - 2006
13,094
-
-
-
13,094
2005 - 2007
-
-
-
22,169
22,169
Total
26,732
-
-
22,169
48,901
Mark Rolfe
2002 - 2004
5,992
(3,715
)
(2,277
)
-
-
2003 - 2005
37,030
-
-
-
37,030
2004 - 2006
39,684
-
-
-
39,684
2005 - 2007
-
-
-
34,871
34,871
Total
82,706
(3,715
)
(2,277
)
34,871
111,585
Notes:    Lapses refer to those awards that did not vest under the 2002-2004 DBP.
Awards were made in 2005 to the participating heads of business units and the executive directors under the DBP. The vesting for the performance related parts of these awards is
conditional upon the achievement of targets set by the committee over the three financial years 2005-2007. These targets are set out above.
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GALLAHER
GROUP Plc
Form 20-F
  2005
Performance
share plan : conditional share awards
Performance
Maximum
Awards vesting
during
Lapsed
Maximum
Maximum
period
potential share
2005 (vesting share
during the
potential
potential
awards
price £7.7275 on 7
2005 year
share awards
share awards
outstanding at 1
March 2005; share
(see note
granted during
outstanding at
January 2005
price at award on 13
below)
the 2005 year at
31 December
March 2002, £5.0325)
£
7.7183on
9
2005
March 2005
Nigel Northridge
2002 - 2004
104,321
(56,750)
(47,571)
-
-
2003 - 2005
102,975
-
-
-
102,975
2004 - 2006
96,107
-
-
-
96,107
2005 - 2007
-
-
-
93,933
93,933
Total
303,403
(56,750)
(47,571)
93,933
293,015
Nigel Dunlop
2002 - 2004
18,527
(10,078)
(8,449)
-
-
2003 - 2005
42,907
-
-
-
42,907
2004 - 2006
40,661
-
-
-
40,661
2005 - 2007
-
-
-
44,051
44,051
Total
102,095
(10,078)
(8,449)
44,051
127,619
Neil England
2002 - 2004
54,645
(29,726)
(24,919)
-
-
2003 - 2005
55,778
-
-
-
55,778
2004 - 2006
51,011
-
-
-
51,011
2005 - 2007
-
-
-
51,825
51,825
Total
161,434
(29,726
)
(24,919)
51,825
158,614
Stewart Hainsworth
2002 - 2004
19,850
(10,798)
(9,052)
-
-
2003 - 2005
17,831
-
-
-
17,831
2004 - 2006
19,695
-
-
-
19,695
2005 - 2007
-
-
-
51,825
51,825
Total
57,376
(10,798)
(9,052)
51,825
89,351
Mark Rolfe
2002 - 2004
67,561
(36,753)
(30,808)
-
-
2003 - 2005
63,501
-
-
-
63,501
2004 - 2006
59,143
-
-
-
59,143
2005 - 2007
-
-
-
57,008
57,008
Total
190,205
(36,753)
(30,808)
57,008
179,652
Note:    Lapses
refer to those awards that did not vest under the 2002-2004 PSP.
Awards were made in 2005 to the participating heads of business units and the executive directors under the PSP. The vesting of these awards is conditional upon the achievement of targets
  set by the committee over the three financial years 2005-2007. These targets are set out above.
Total return indices
The graph shows, for our last five financial years, a calculation of the TSR on a
holding of shares in the Group, compared with that of a hypothetical holding of shares in the FTSE-100. The FTSE-100 is the most appropriate index against which to illustrate our performance because we are a constituent member and the FTSE-tobacco
index would not provide a broad enough comparator group (although details of the tobacco index is available on the website). The graph has been calculated in accordance with the Directors' Remuneration Report Regulations paragraph 4 of Schedule
7A.
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GALLAHER GROUP Plc
Form 20-F 2005
Savings related
share option scheme
The
executive directors may participate along with all eligible  employees in the
SRSOS. The SRSOS was established in 1997 for an initial 10-year term. During
the course of 2006 we will consider seeking Inland Revenue approval to extend
the SRSOS for a further 10-year period with a view to seeking shareholder
approval for this at the 2007 AGM. Participants, who enter into a savings contract
to a maximum level of £250 per month, are granted options to subscribe for
our shares. The board may determine that an option is to be granted at a discount.
The  maximum discount is 20% of the then prevailing share price. The options
held by directors under the SRSOS are set out below.
The dilutive effect of participation by directors and employees in the SRSOS and executives in the LTIPs is considered to be de-minimis.
Share options
Options under SRSOS (10p shares)
Number
of
Earliest
Number
	    of
shares
    at
exercise
Expiry
Option
shares
	    at
Exercised
	    in
Granted
31
    Dec
Date
      of grant
date
date
price
1
      Jan 2005
year
in
    year
2005
Executive directors
Nigel
6/10/2003
1/12/2008
31/5/2009
443p
3,577
-
-
3,577
Northridge
Nigel Dunlop
6/10/2003
1/12/2008
31/5/2009
443p
3,577
-
-
3,577
Neil England
6/10/2003
1/12/2006
31/5/2007
443p
2,082
-
-
2,082
Stewart
7/10/2005
1/12/2012
31/5/2013
681p
-
-
2,511
2,511
Hainsworth
Mark Rolfe
(a)
}
15/07/1997
1/9/2004
28/2/2005
234p
8,333
(8,333)
-
-
}
6/10/2003
1/12/2010
31/5/2011
443p
3,786
-
-
3,786
Total
-
-
-
-
21,355
(8,333)
2,511
15,533
(a)
Mark Rolfe exercised his option to acquire 8,333 shares at a price of £2.34 per share on 22 February 2005, at which date the market price was £8.02.
The share price at 31 December 2005 was 877.5p and the recorded highest and lowest prices in the year were 907.5p and 749.0p respectively.
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GALLAHER GROUP Plc
Form 20-F 2005
Share incentive plan
A SIP was launched in February 2002. UK employees have the opportunity to invest up
to £125 per month in our shares from their pre-tax income. These shares are then held in trust and each separate purchase of shares will become free of income tax and national insurance if held for five years. Employees can participate in the
SIP in addition to the SRSOS. The shares held by directors under the SIP are included in the disclosure of directors' interests in shares.
Pensions
Details of the executive directors' pensions are shown in the table and notes below. These
amounts exclude any benefits attributable to additional voluntary contributions ("AVCs"). The transfer values shown below represent our obligation, not a sum paid or due to the individual and cannot meaningfully be added to annual
remuneration. Under their service agreements, the UK-based executive directors are members of our management pension scheme. This is an Inland Revenue-approved, defined benefit occupational pension scheme based on final salary (excluding annual
bonus payments and awards under the long-term incentive plans). The fund allows members (depending upon length of service or seniority) to achieve a maximum pension of up to two-thirds of their salary at the normal retirement age. In common with all
other members, those directors who are members do not make contributions to the scheme, other than AVCs. Pension commutation to enable participants to receive a lump sum on retirement is permitted within Inland Revenue limits. In addition, the
scheme provides life cover of four times basic salary (again subject to Inland Revenue limits). In the event of death, a 50% spouse's pension is payable. Dependent children also receive allowances of up to a maximum of 50% of the member's
pension for two or more children.
With effect from April 2006, the new UK pensions regime will come into effect. The committee is currently finalising what adjustments, if any, should be made to the UK pension
arrangements to take account of these changes. However, there is no intention to compensate directors or other senior executives for any additional tax they may be required to pay as a result of these changes.
Currently, where a UK-based executive director is subject to the UK Inland Revenue earnings cap then 1/60th accrual per year of service is provided through the pension scheme with
additional benefits being provided through a FURB where appropriate (see note below). Life assurance in excess of that provided by the pension scheme, up to four times basic salary, is separately insured. There is a defined contribution arrangement
available to Mr Hainsworth (who is located overseas). A contribution of 5% is automatically made to a Swiss scheme. Mr Hainsworth is then able to elect to have the balance as a cash alternative subject to local taxes and national insurance. The
aggregate contribution rate in respect of his pension arrangements was raised from 16% of base salary to 34%, effective 1 October 2005 following a review of market practice and recognition that Mr Hainsworth is now established as a director. Mr
Hainsworth additionally has life cover of four times base salary.
Directors' pensions.
Note:
(1)
(3)
(3)
(2)
(4)
(5)
Gross
Increase in
Total
Transfer
Transfer
Transfer
Total
Money
increase in
accrued
accrued
value of
value of
value of
change in
purchase
accrued
pension net
pension at
net
accrued
accrued
transfer
schemes
pension
of inflation
31 Dec
increase in
pension at
pension at
value
£000
£000 (pa)
£000
2005
accrual
31 Dec
31 Dec
during
£000 (pa)
over period
2005
2004
period
£000
£
000
£000
£000
Nigel Northridge
48
39
360
805
7,522
5,760
1,762
-
Nigel Dunlop
35
32
159
669
3,368
2,316
1,052
-
Neil England
2
2
7
38
151
98
53
117
Stewart Hainsworth (6)
-
-
-
-
-
-
-
20
Mark Rolfe
26
21
193
413
3,846
2,963
883
-
Notes:
(1)
The increase in accrued pension during the year is net of any increase for inflation.
(2)
Transfer values have been calculated in accordance with version 8.1 of guidance note GN11 issued by the actuarial profession.
(3)
The value of net increase represents the incremental value to the director of his service during the year, calculated on the assumption service terminated at the year end. It is based on
the accrued pension increase (2) and the transfer value basis applicable at the year end.
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GALLAHER GROUP Plc
Form 20-F 2005
(4)
The change in the transfer value includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and directors, such as stock market movements
and the effects of increased service, age and base salaries.
(5)
Contributions due to Neil England's FURB resulting from the restrictions imposed by the Inland Revenue earnings cap.
(6)
In addition, under his Swiss contract, Stewart Hainsworth received £62,000 in respect of a cash alternative to pension.
(7)
Pension accruals shown are the amounts which would be paid annually on retirement based on service to the end of the year and exclude voluntary contributions paid by directors, the
resulting benefits associated with which are not shown.
C
Board
    Practices
Differences
between UK & US corporate governance
As well as
      being subject to UK legislation and regulation, Gallaher, as a company listed
      on the NYSE, is subject to the listing requirements of the NYSE and the rules
      of the SEC.
  Compliance with the provisions of the Sarbanes Oxley Act ("SOX") as it applies to foreign issuers, is continually monitored.  While the directors believe that our corporate governance policies are robust, changes have and will continue to
  be made to ensure compliance with the rules that are in place at any point in time. We follow UK corporate governance practice which does not differ significantly from the NYSE corporate governance standards for foreign issuers. Refer to – New
  York Stock Exchange corporate governance requirements later in this section.
This report for shareholders sets out our approach to and compliance with the principles contained in the combined code on corporate governance (the "code") and explains any
departure from its provisions.  This report has been prepared following the main principles of the code.
The board
Code, main principle A.1:
"Every
  company should be headed by an effective board, which is collectively responsible
for the success of the company."
Our board recognises its responsibility to provide entrepreneurial and responsible leadership to the Group within a framework of prudent and effective controls (described below) allowing
assessment and management of the key issues and risks impacting the business. The board sets our overall strategic direction, reviews management performance and ensures that we have the necessary financial and human resources in place to meet our
objectives.  The board is satisfied that the necessary controls and resources exist within the Group to enable these responsibilities to be met.
The board also ensures that our principal goal is to create shareholder value, while having regard to other stakeholder interests. Accordingly, the long-term interests of shareholders,
together with the wider community of interests represented by employees, customers and suppliers are factored into our management processes. Steps are also taken to ensure that account is also given to social, environmental and ethical issues within
our control and risk assessment processes.  The steps taken to achieve these goals are communicated to shareholders through a dedicated investor relations department, our website (www.gallaher-group.com), our corporate responsibility and
environment, health and safety publications and to employees via our intranet, formal and informal briefings and newsletters.  They are reinforced through employee participation in share ownership plans. Through formal policies (summaries of which
are published on our website) and the 'behaving responsibly' statement, which sets out our position on key issues surrounding tobacco products, the board seeks to engender a culture where business ethics, integrity and fairness are values
that all employees endorse and apply in their everyday conduct.
The board meets at least six times a year, with additional meetings as required. In 2005 it met six times, including a combined board and senior executive two-day strategic planning
workshop. All directors attended all formal board meetings.  Annually, one meeting is held at the site of an operational business unit.  In 2005, marking the third anniversary of our joint venture with Reynolds American, the board visited the
offices of Reynolds Gallaher International in Lausanne.
There is a documented schedule of matters reserved to the board including decisions on strategic and policy issues, approval of published financial statements, major acquisitions and
disposals, expenditure authority levels, treasury and risk management policies and succession plans for senior executives at and below board level. During 2005, the board received regular briefings upon our performance (including detailed commentary
and analysis) and key issues and risks affecting our business. Reports on our operations, human resources, governance and regulatory matters affecting the
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GALLAHER GROUP Plc
Form
  20-F 2005
Group
  were provided to the board on a regular and timely basis. Briefings on market
  activity, together with the views of shareholders and analysts on the Company,
  were also provided to the board. We also maintain appropriate insurance cover
  in respect of legal action for the directors.
Board committees
Summary
There
are five principal board committees: executive; audit; nomination; remuneration;
and,
corporate responsibility. The remit of the board's corporate responsibility committee now encapsulates not only environment, health and safety ("EHS")
policy, but also assessing and reporting to the board upon our approach to all
matters connected with corporate responsibility. The roles and responsibilities
of each of these committees (with the exception of the corporate responsibility
committee, whose report detailed later in this section) are detailed below. With
the
exception of the chairman (who chairs the nomination committee) all the audit,
nomination and remuneration committee members are independent non-executive directors
under the code. The committees are provided with sufficient resources via the
company secretariat and, where necessary, have direct access to independent professional
advisers to undertake their duties. During 2005, we also established a disclosure
committee (comprising the chairman, chief executive, finance director, company
secretary and director, investor relations) and implemented procedures to ensure
current and future compliance with the relevant disclosure provisions of the
listing rules that came into effect on 1 July 2005. The disclosure committee
meets as and
when required in addition to two scheduled meetings annually.
Executive committee
The chief executive chairs the executive committee which comprises the other
executive directors and company secretary and general counsel. Other senior executives, such as the chief marketing officer, group financial controller and head of the Asia business unit attend by invitation.  The executive committee is responsible,
amongst other matters, for implementing our strategic direction, monitoring the performance of the business and its control procedures on a day-to-day basis. Members normally meet weekly.
The remuneration committee
Sir Graham Hearne chairs the remuneration committee. That committee, whose
other members are Ronnie Bell, Alison Carnwath and Richard Delbridge, met five times in 2005. There was full attendance at each meeting. A detailed description of the committee's remit and work during 2005, including further information on our
application of the principles of the code, is contained in the compensation report (which was approved by the board). Its terms of reference comply with the code, are available on request and are published on our website. The full terms and
conditions of appointment of our non-executive directors are available for inspection at its registered office, and a summary is available on our website. Sir Graham provides a report to the board following each meeting of the remuneration
committee.
Nomination committee
The nomination committee is chaired by John Gildersleeve. Sir Graham Hearne (the
deputy chairman and senior independent director) and Alison Carnwath are the other members. It meets as and when required. The committee met twice in 2005 with full attendance at each meeting.  Company executives and advisers attend meetings by
invitation only. The chairman updates the board and makes recommendations as and when required.
The terms of reference of the nomination committee are available on request and are published on our website. In essence, this committee is responsible for succession planning at board
level, overseeing the selection and appointment of directors and making its recommendations to the board. It is also responsible, in conjunction with the chairman of the Group, for evaluating the commitments of individual directors and the balance
of skills, knowledge and experience on the board. It also ensures that the membership of the board and its principal committees are refreshed periodically. Where appropriate, the committee will prepare an outline of the role and capabilities
required for particular appointments and use an external search consultancy and/or advertising in relation to board appointments. During 2005, its focus was upon refreshment of the board and board committees. In line with its recommendations, James
Hogan was appointed to the board in May 2005 and he, together with Ronnie Bell, will be appointed to the audit committee in May 2006. In line with another recommendation, Ronnie Bell took over as chairman of the corporate responsibility committee in
2005.
Audit committee
Richard Delbridge is chairman of the audit committee. The other members are Alison
Carnwath and Sir Graham Hearne along with Tony Portno prior to his retirement from the board in May 2005. Ronnie Bell and James Hogan will join this committee in May 2006. Richard Delbridge and Alison Carnwath are chartered accountants. Richard
Delbridge is deemed by the board to be the audit committee financial expert with recent and relevant financial experience and independent not only for the purposes of the code but also in accordance with the New York Stock Exchange definition. All
of the committee members have extensive commercial experience (see Item 6A). Further information on our application of the code and on the audit committee and its work during 2005 is set out in its report later on in this section.
Corporate responsibility committee
Ronnie Bell chairs the corporate responsibility ("CR")
committee.  The committee, whose other members are Nigel Dunlop, Tom Keevil, and Richard Johnson, managing director, developing markets, met three times in 2005. The committee oversees our CR and EHS steering committees and ensures that key social,
ethical and environmental ("SEE") risks are identified, assessed and prioritised accordingly. Strategically, the
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GALLAHER GROUP Plc
Form 20-F 2005
committee is charged with ensuring that the philosophy of behaving responsibly is fully integrated into all areas of the business and that we strive for continual improvement in the key
SEE areas, as outlined in our CR report and EHS report 'Striding Ahead'. These reports and the terms of reference for the committee are available on request and are published on our website. The chairman updates the board and makes
recommendations as and when required.
Other committees
Our management committee, chaired by the chief executive, which consists of executive
board members and senior executives responsible for the key business units also meets regularly.  The management committee is used to cascade responsibilities for actions from the executive to the business units and to receive updates and
presentations on the performance of individual business and operational divisions. A Group operations committee chaired by the operations director, and otherwise consisting of senior operations executives below board level, also meets regularly to
consider primarily production, purchasing and logistics issues from a Group perspective. Details of the members of the management and operations committees are contained on our website.  Within each of our commercial divisions there are also
executive committees responsible for monitoring the performance of those business units. To ensure consistency of approach and cross-learning, members of the executive also chair Group committees responsible for the following areas: business
development; continuous improvement; corporate assurance; finance; information services; and, sales and marketing. Reports are provided from these various committees, as appropriate, to the executive and management committees and the board.
Chairman and chief executive
Code main principle
  A.2:
"There
  should be a clear division of responsibilities at the head of the company between
  the running of the board and the executive responsible for the running of the
  company's business. No one individual should have unfettered powers of
  decision."
There is a clear division of responsibilities between the roles of chairman (who serves in a non-executive capacity) and chief executive which is set out in writing and which has been
approved by the board.
Board balance
Code main principle
  A.3:
"The
  board should include a balance of executive and non-executive directors (and
  in particular independent non-executive directors) such that no individual or
  small group of individuals can dominate the board's decision taking."
The board currently comprises five executive directors and six non-executive directors (including the chairman). Sir Graham Hearne is the senior independent director.  Biographies of each
of the directors, their responsibilities and principal board committee memberships can be found in Item 6A.
During 2005, all the non-executive directors confirmed to the board that they have sufficient time available to fulfil their obligations as directors of the Group and, should any
individual's position change, they will inform the board. Details of the chairman's professional commitments are included in his biography (see Item 6A). In July 2005, the chairman became non-executive chairman of The Carphone Warehouse
Group PLC. There were no other changes to his commitments in 2005.
Following review of the provisions of the code by the nominations committee and the board, the board considers all the non-executive directors to be independent.
Appointments to the board
Code main principle
  A.4:
"There
  should be a formal, rigorous and transparent procedure for the appointment of
  new directors to the board."
Appointments to the board and its committees are reserved for the board, based on recommendations from the nomination committee (see above). The appointment and removal of the secretary
is a matter reserved to the board as a whole.
Information and professional development
Code main principle
  A.5:
"The
  board should be supplied in a timely manner with information in a form and of
  a quality appropriate to enable it to discharge its duties. All directors should
  receive induction on joining the board and should regularly update and refresh
  their skills and knowledge."
Under the stewardship of the chairman, the company secretary and general counsel, Tom Keevil, is responsible for advising the board on all governance matters, ensuring board procedures
are followed and applicable rules and regulations are complied with. During 2005, he ensured that board and board committee papers containing accurate, timely and clear information were circulated at least seven days before meetings. Periodic
updates were circulated as and when required. Procedures are in place to minute any unresolved concern that a director may have regarding a matter and to ensure that any departing non-executive director sets out any such concerns in a written
statement to the chairman, for circulation to the board.
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GALLAHER GROUP Plc
Form 20-F 2005
Training and briefings are available to all directors on appointment and thereafter directors keep abreast of our business through meetings with and presentations by senior management
below board level and through site visits to operating divisions. During 2005, a training programme was undertaken to ensure compliance with the revised 'insider dealing' regulations introduced in July 2005.
All non-executive directors undergo induction programmes upon appointment and have full access to management and to the internal and external auditors. The induction process includes the
provision of background materials on the Company, together with information on the responsibilities of directors under the listing rules, briefings by key senior executives at and below board level and the Company's head of internal audit and
site visits to the main operation locations. In addition to providing an overview of the business, its financial performance and the risk control matrix, areas covered by the process include: corporate responsibility, product stewardship; CR and SEE
issues; and legal, scientific and regulatory affairs. As part of his induction, before the strategic planning days in July, James Hogan undertook an intensive two day programme with, amongst others, senior executives in Weybridge. He subsequently
visited the Lisnafillan manufacturing facility to assist his understanding of tobacco manufacturing and our approach to research and development. The chairman has also organised a rolling programme of working suppers to enable non-executives to meet
informally and foster information exchange in advance of each board meeting. Executive directors attend by invitation only. Independently of the training facilitated by the Group, the non-executive directors variously receive independent training on
technical accounting and other governance related matters from professional service providers and institutions and bulletins from the Group on developments in the tobacco sector generally.
All directors individually, and each of the board committees, have access to the advice and services of the company secretariat and the secretary. There are also procedures in place
enabling any individual director in the furtherance of his or her duties to seek independent professional advice at the Company's expense.
The board supports executive directors taking up non-executive directorships as part of their continued development, which will ultimately benefit the Company. As a matter of policy, such
appointments are normally limited to two in number, but only one of which may be with another FTSE-100 company. Under no circumstances will an executive director be allowed to become the chairman of a FTSE-100 company. The nomination committee will
assess and makes recommendations to the board as to whether any proposed appointment would mean that the executive is unable to devote sufficient time to his duties to the Company.
Performance evaluation
Code main principle
  A.6:
"The
  board should undertake a formal and rigorous annual evaluation of its own performance
  and that of its committees and individual directors."
During 2005, the board, and each of the audit, nomination and remuneration committees, undertook performance/effectiveness evaluations. Using the Higgs 'Suggestions for Good
Practice' as guidance, the individual directors and/or committee members initially completed separate questionnaires.  The results were compiled and analysed by the secretary, who prepared reports to the board and each of the committees. The
areas covered included the role of the executive and non-executive directors and the board/board committees, preparation for and the performance at meetings, the effectiveness of the board/board committees, leadership, culture and corporate
governance. The results were then considered by the board and each of these committees in meetings as specific items of business. No major issues were identified, although a more structured training programme is being implemented to reflect the
requirements of the revised listing rules published in July 2005.  These exercises or similar ones will continue to be repeated annually.
During 2005, the chairman undertook individual appraisals of each director and the company secretary, again using the Higgs 'Suggestions for Good Practice' to assist him with
this exercise. He also convened a formal meeting of the non-executive directors to assess the effectiveness and performance of the board in the absence of the executive directors. When undertaking this exercise, the chairman and the non-executive
directors used the output of the individual appraisals and collective reviews, and amongst other matters, had regard to the principles in the code relating to the evaluation of the collective and individual performance of board members.
The deputy chairman and senior independent director also met with the non-executive directors, in the absence of the chairman, to assess the chairman's performance and effectiveness
(having taken soundings beforehand from the executive directors) and reported their findings for consideration to the board. The board was entirely satisfied with the chairman's performance and effectiveness.
Re-election
Code main principle
  A.7:
"All
  directors should be submitted for re-election at regular intervals, subject
  to continued satisfactory performance. The board should ensure planned and progressive
  refreshing of the board."
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GALLAHER
  GROUP Plc
Form
  20-F 2005
All directors
  are subject to election by shareholders at the first AGM following appointment
  and thereafter to re-election at least every three years.
John Gildersleeve, the non-executive chairman, Sir Graham Hearne, the non-executive deputy chairman and senior independent director, who were both appointed to the board in 1997, together
with Ronnie Bell and Mark Rolfe, the group finance director, are offering themselves for re-election.  As an executive director Mr Rolfe has a service agreement which requires us to give him 12 months' notice of termination.  As non-executive
directors, Messrs Gildersleeve and Bell and Sir Graham Hearne do not have service agreements but letters of appointment which are for three year fixed terms and require three months' notice of early termination. As detailed above under
'Performance evaluation' the contribution that each of the candidates seeking re-election by shareholders makes to the Group was evaluated.  The nomination committee's conclusion was that, having regard to the roles that they perform
and individual input and contribution they make, each candidate's performance more than justified nomination for reelection by shareholders. In the case of Sir Graham, account was taken that 2006 will mark his ninth anniversary as a
non-executive director. In considering his candidacy for re-election, regard was had to the refreshment of the board that has taken place since 1997, the need for continuity and the effective role that he performs as the senior independent director
and chairman of the remuneration committee. The nomination committee had no hesitation in concluding that he remained independent and recommended his re-appointment to the board. Moving forwards, Sir Graham will be subject to re-election annually.
The views of the nomination committee on all directors seeking re-election are unanimously endorsed by the board.
Risk management and internal controls
Code main principle
  C.2:
"The
  board should maintain a sound system of internal control to safeguard shareholders'
  investment and the company's assets."
Introduction
The board has overall responsibility for our system of risk management and internal
controls. The schedule of written matters reserved to the board ensures that the directors are responsible for the control of, amongst other matters, all significant strategic, financial and organisational risks.
We have an established risk management programme that assists management throughout the Group to identify, assess and mitigate business, financial, operational and compliance risks on a
continuous basis. The board views management of risk as integral to good business practice. The programme is designed to support management's decision making and to improve the reliability of business performance.
The risk management programme is supported by the dedicated team of internal risk specialists, including the internal auditors, who make up group risk assurance ("GRA"). As part
of the management of risk process, GRA (in addition to following annual audit plans) undertake rolling three year schedules of risk workshops across our divisions. In 2005, members of GRA conducted seven risk workshops within this programme,
culminating in an assessment by the management committee of key business risks and a review of them by the board. These risk assessments are wide ranging, including risks arising from the regulatory environment in which tobacco companies operate, in
strategy, with counter-parties and in organisational change associated with major projects and with acquisitions.  The risk management process operates throughout the Group, being applied to the main business divisions and corporate functions.
The output from each annual assessment is a list of key strategic, financial, operational and compliance risks. Associated action plans and controls to mitigate them have been put in
place where possible and to the extent thought appropriate by the board taking account of costs and benefits. Individual members of our management committee are responsible for these action plans and controls. The identified key risks, changes in
their status or the composition of the risk matrix are reviewed regularly by the executive and management committees and quarterly by the board. Accordingly, during 2005, the list of key risks reviewed at each management committee meeting were
revised as new risks emerged or existing ones receded.
Internal controls
The directors have overall responsibility for our system of internal control and for
reviewing its effectiveness. The board delegates to executive management the responsibility for designing, operating and monitoring both the system and the maintenance of effective internal control in each of the businesses which comprise the Group.
The systems of internal control are based on an ongoing process of identifying, evaluating and seeking to manage key risks and includes the risk management processes set out above. The systems of internal control were in place throughout the year
and up to the date of approval of the annual report and financial statements. The effectiveness of these systems has been regularly reviewed by the management committee and executive and was periodically reviewed by the audit committee and the
board, in accordance with the guidance in the Turnbull Report and the Internal Control Revised Guidance for Directors published by the Financial Reporting Council in October 2005. These systems are also refined as necessary, to meet changes in our
business and the associated risks. Joint venture arrangements with other companies and participations via shareholdings in other businesses, as is the case with some of our European wholesale operations, are outside our own formal control
procedures.  However, our exposure to them is assessed by line management (in most cases through representation on the boards of those operations) and formed part of the
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GALLAHER GROUP Plc
Form 20-F 2005
programme of reviews by GRA. Regular performance reports have been provided to our management committee, the executive and/or the audit committee or the board.
Control systems
The main components of the organisation for internal control are summarised below. Their
foundation is in the considerable value that we place, throughout our activities, on seeking to ensure that employees are of the highest quality and integrity. Formal control is exercised through a management structure, which includes clear lines of
responsibility and documented delegations of authority from the board. The systems of internal control include a series of Group policies, operating and procedural manuals and processes, with which all relevant employees are expected to comply.
Processes underpinning the financial reporting systems are managed and monitored by line and functional management and regular reporting. Separately, the effectiveness of these internal controls is reviewed by an internal audit function that
operates on a global basis. It reports its results to the executive management team and directly to the audit committee. The work of the internal auditors is focused and prioritised upon the areas of perceived greatest risk to us as determined by
internal risk assessments, senior management and the audit committee. The internal controls system also takes into account the compliance requirement of the Proceeds of Crime Act 2002 and money laundering regulations.
Function of controls
The systems of internal control are designed to manage rather than eliminate the risk
of failure to achieve business objectives. They can only provide reasonable and not absolute assurance against material errors, losses, fraud or breaches of laws and regulations.
Corporate assurance
To assist compliance with the requirements of the US Sarbanes-Oxley legislation
("SOX") which are applicable to foreign issuers and in furtherance of the principles of good corporate governance, we have a corporate assurance committee, which is chaired by the company secretary and general counsel.  That committee
(comprising senior executives at and below board level), amongst other matters, reviews proposed financial and trading statements and the assumptions, procedures and controls underpinning their preparation.  The chief executive and finance director
attend some of the committee meetings by invitation only. It reports the results of its review and recommendations to the chief executive, finance director, the audit committee and the board. In 2005, it met formally five times and is supported by
independent professional advisors in discharging its duties.
Processes underpinning the financial reporting systems have been reviewed in light of the requirements of SOX. The in-scope business units' key financial controls have been
documented for the purposes of section 404 of SOX and these have been subjected to trial testing during 2005.  We continue to make progress to meet the required compliance standards.
Control of major risks
The major risks that might hinder the achievement of our business objectives are
reported on, controlled and monitored in a variety of ways and in line with the revised internal control guidance published by the Financial Reporting Council in October 2005:
•
key strategic risks are addressed through our process of preparation of plans by each business unit and the
compilation of these risks in our strategic plan;
•
the process of preparing business operating and functional plans is supported by reviews of the key issues we
face and
the identification of material risks through the process of risk assessment workshops described
above. Major risks are reviewed at the appropriate level within the business and all
operating units are
involved in the risk assessment process. The review is ongoing and we have clear procedures for monitoring
and controlling the risks identified. Comparisons between the key risks and key issues are undertaken and
considered at the board's strategic two-day
workshop or by the board as special items of business, if
appropriate;
•
the executive committee monitors risk management, litigation risk and the insurance arrangements of the
Group, and
provides reports to the board;
•
the process of planning, budgeting and short-term forecasts ensures early warning of potential financial risks.
There
is a comprehensive budgeting system for all items of expenditure with appropriate and pre-determined
authority limits, and with an annual budget approved by the board. Actual
results are reported against budget
on a monthly basis. Revised financial forecasts for the year are prepared regularly and financial projections
for future years are prepared, at least, twice yearly. Guidelines are also in place covering the sanctioning of
new
investments;
•
resources are committed to ensure adequate arrangements are in place relating to security and environment,
health and
safety matters;
•
the activities of the treasury function are carried out within policies approved by the board. Compliance with
these
policies is monitored by a treasury committee that is chaired by the finance director and includes one
other executive director (generally the chief executive), the company
secretary, and other relevant senior
executive management, such as the group financial controller, together with the head of GRA. Financing
arrangements and management of currency risks are also subject to regular review by the treasury committee
and are approved by that
committee or the executive and are reported to the board. To assist in the
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GALLAHER GROUP Plc
Form 20-F 2005
management
        of our exposure to movements in interest and exchange rates the board
        has sanctioned the limited use of certain hedging instruments and receives
    regular reports on hedging activities and positions; and,
•
the internal audit team specifically, and GRA generally, follow a planned programme of reviews that are
aligned with
the risks existing in our business, and have the authority to review any relevant aspect of the
business should the need arise.
Annual review of risk management and internal control systems
In addition to the regular reports received
by the audit committee and the board on internal controls and key risks and periodic reviews, the board has conducted an annual review of the effectiveness of the systems of risk management and internal control in operation during the year and up to
the date of the approval of the annual report and financial statements. Controls required to mitigate such risks and any significant control failings are reviewed by the board through operational reports from management. The board, through the audit
committee, also controls the review that is conducted by GRA.  Management of all the business divisions of the Group are required to complete and sign-off control self-assessment questionnaires that confirm that the key internal controls are in
place and being operated effectively.  Where weaknesses have been identified plans and timetables for putting them right are also reported. GRA monitors and selectively checks the results of this exercise, ensuring that the representations made are
consistent with the results of the internal audit function's work during the year. The results of this exercise are summarised for the audit committee and the board. In the event that any significant losses were incurred during any year as a
result of the failure of internal controls, then an analysis would form part of the reports to the audit committee and the board and a plan would be implemented to take the necessary action to remedy any significant weaknesses. In 2005, there were
no such losses and the board was satisfied with:
•
the changes since the last annual assessment in the nature and extent of significant risks identified by
management;
•
our ability to respond to changes in our business and the external environment to the extent that such changes
are
events that management can materially influence;
•
the scope and quality of management's ongoing monitoring of risks and of the system of internal control, and,
where applicable, the work of its internal audit function and other providers of assurance;
•
the extent and frequency of the communication of the results of the monitoring to the board (or board
committee(s))
which enables it to build up a cumulative assessment of the state of controls in the Company
and the effectiveness with which risk is being managed; and,
•
our external reporting processes.
Report of the audit committee
Code main principle
  C.3:
"The
  board should establish formal and transparent arrangements for considering how
  they should apply the financial reporting and internal control principles and
  for maintaining an appropriate relationship with the company's auditors."
Members
The audit committee met five times in 2005. All members of the committee were present at each
meeting (other than Tony Portno, who was not present at the May meeting which marked his retirement from the board). The chairman of the audit committee provided a report on the work of the committee and any significant issues that may have arisen
at the board meeting following each committee meeting.
Attendees at meetings
The chief executive and finance director of the Group and other senior management
attend committee meetings by invitation of the committee. Representatives of our external auditors and the head of GRA, which includes insurance and internal audit, also attend these meetings by invitation. In 2005, the external and internal
auditors attended all meetings, had direct access to the committee during the meetings and time was also set aside for them to have private discussions with the committee, in the absence of management.
Audit committee compliance with the code
The audit committee's terms of reference (available on
request and published on our website) comply with the code. During 2005, the formal calendar of items (which were reviewed at each audit committee meeting and within each annual cycle) embraced the code requirements to:
•
monitor the integrity of our financial statements, and any formal announcements relating to our financial
performance,
including reviewing significant financial reporting judgements and any disclosures contained in
them;
•
review our internal financial controls and our internal control and risk management systems and to make
recommendations to the board;
•
monitor and review the effectiveness of our internal audit function;
•
make recommendations to the board, for it to put to the shareholders for their approval in general meeting, in
relation to the appointment, re-appointment and removal of the external auditors and to approve the
remuneration and terms of engagement of the external
auditors;
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GALLAHER GROUP Plc
Form 20-F 2005
•
review and monitor the external auditors' independence and objectivity and the effectiveness of the audit
process, taking into consideration relevant UK professional and regulatory requirements; and,
•
review our policy on the engagement of the external auditors to supply non-audit services. In doing so,
account is
taken of relevant ethical guidance regarding the provision of non-audit services by the external
auditors and the pre-approval requirements of SOX (as a US listed company). In this
context, the
committee's remit requires it to report to the board identifying any matters in respect of which it considers
that action or improvement is needed and to make recommendations as to the steps to be taken.
Audit committee activities
An overview of the work undertaken by the audit committee during 2005 is
described within the following sections of this report.
The audit committee has a formal policy, endorsed by the board, to safeguard the independence and objectivity of the external auditors. The policy complies with UK and US regulatory
requirements. The audit committee determined that it was satisfied that the independence of the external auditors had been maintained, having taken into account the external auditors' written representations and the committee's own
enquiries.  These were facilitated by a private meeting with the external auditors without executive management being present. The independence policy sets out certain disclosure requirements by the external auditors to the audit committee,
restrictions on mutual hiring of personnel, rules for rotation of audit partners and procedures for the approval of non-audit services provided by the external auditors. The audit committee has monitored the application of the policy both during
2005 and up to the date of this report.
The audit committee reviewed the external auditors' audit scope, plans and materiality levels and the resources proposed to execute the plans. Having done so, the committee approved
the terms of engagement and the audit fees. The committee also reviewed the findings of the external auditors, their management letters on internal financial controls and audit representation letters.
The audit committee also assessed the qualifications, expertise and resources and independence of the external auditors and the effectiveness of the audit process. As part of that
process, the committee has appointed Independent Audit Limited to assist it in assessing the effectiveness of the 2005 audit.
In the light of the assessments and review undertaken, the committee recommended to the board that PricewaterhouseCoopers LLP be retained as our auditors. This recommendation was endorsed
by the board and approved by shareholders in May 2005.
The policy relating to the provision of non-audit services by the external auditors specifies the types of work from which the external auditors are excluded; for which the external
auditors can be engaged without referral to the audit committee; and, for which a case-by-case decision is required. The ratio of non-audit fees to audit fees was monitored by the committee within an overall limit set by the board upon the
recommendation of the audit committee. In doing so, the committee took account of the work performed by other accounting firms and reviewed the level of fees paid to those firms. The audit committee is satisfied that this policy was applied in 2005
and up to the date of this report.
A statement of fees for services from the external auditors in relation to 2005 is set out below:
2005 £ million
2004 £ million
Audit services
1.4
1.3
Audit related fees
0.5
0.9
Tax services
compliance services
0.1
0.1
advisory services
0.8
0.6
Other services
0.0
0.1
Total
2.8
3.0
All non-audit services were pre-approved by the audit committee by category or on a case-by-case basis, as appropriate, depending upon the nature of the service and the circumstances.
Audit related fees primarily related to factual due diligence work undertaken in respect of actual and possible acquisitions. Tax services comprised compliance services and technical advice associated with relevant UK and international fiscal laws
and regulations and, in particular, in the context of assessing the potential implications of proposed corporate transactions or restructuring.
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GALLAHER GROUP Plc
Form 20-F 2005
Having undertaken a review of the nature and amount of non-audit related work, the audit committee has satisfied itself that the services undertaken during 2005 did not prejudice the
auditors' independence.
The audit committee met prior to the board meetings at which the interim financial statements and the annual report and financial statements were approved. The committee reviewed
significant accounting policies, financial reporting issues and judgements and, in conducting this review, considered reports from the external auditors, financial management and internal audit.
At each of its meetings, the committee reviewed and considered reports from the head of GRA. Those reports include the status of our risk management systems, findings from the internal
audit function concerning internal controls and reports on the status of the correction of any weaknesses in internal controls identified by the internal and the external auditors. The committee also received reports from our brand protection and
security unit, amongst other matters, on the steps being taken to combat illicit trade in our products.
The audit committee also reviewed and approved the remit, organisation, plans and resources of our internal audit function. The committee carried out a review of the effectiveness of the
internal audit function and met the head of that function without management being present.
Speaking
  up
The
  audit committee reviews annually the arrangements by which our employees may,
  in confidence, raise concerns about possible improprieties in matters of financial
  reporting or other respects, under the Group's 'Talk Openly'
  policy. The 'Talk Openly' team is led by the company secretary, in
  his capacity as the Group's general counsel. The audit committee is satisfied
  that these arrangements allow for appropriate independent investigations of
  any such matters and suitable follow up actions. (For further detail, see our
  corporate responsibility report which is available on request and is published
  on our website.)
Communication with investors
Code main principle D.1:
"There
should be a dialogue with shareholders based on the mutual understanding of objectives.
The board as a whole has responsibility for ensuring that a satisfactory dialogue
with shareholders takes place."
Introduction
We
  believe it is important to explain business developments and financial results
  to our shareholders and to understand any shareholder concerns.
We communicate to our shareholders through news releases (including results' announcements), publications and our website (see below 'Access to information'). During 2005,
our representatives also met with shareholders representing some 48% of the issued share capital of the Group. Responses were also given to letters and e-mails received from shareholders on a variety of subjects. In all such communications, care is
taken to ensure that no price sensitive inside information is released.
The chief executive and finance director have lead responsibility for investor relations.  They are supported by a dedicated investor relations department that, among other matters,
organises presentations for analysts and institutional investors. There is a full programme of regular dialogue with major institutional shareholders, fund managers, analysts, retail brokers and credit investors, upon which the chairman ensures that
the board receives regular updates at board meetings. In 2005, we commissioned our bi-annual comprehensive non-attributable perception audit which included interviews with 29 institutional investors (accounting for some 30% of our shares) and 11
sell-side analysts. This provided detailed feedback on the investment community's views of the Company. Our senior executives also meet annually with major shareholding institutions to enable them to ask questions relating to topics that are
not price sensitive. The board also receives periodic reports on investors' views of our performance. All the non-executive directors and, in particular, the chairman and senior independent director, are available to meet with major
shareholders, if such meetings are so required. Further financial and business information is available on the investor relations' section of our website.
Annual general meeting
Code main principle D.2:
"The
board should use the AGM to communicate with investors and to encourage their
participation."
We also communicate with shareholders through the AGM, at which the chairman gives an account of the progress of the business over the last year, a review of current issues and provides
the opportunity for shareholders to ask questions. Such addresses are published on our website and released to the stock exchanges upon which we are listed and to the media. The senior independent director (who chairs the remuneration committee),
together with the chairman of the audit committee and the other members of the board attend the AGM and so are on hand to answer questions raised by shareholders.
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GALLAHER
  GROUP Plc
Form
  20-F 2005
We count all proxy votes and indicates the level of proxies lodged on each resolution. We also publish the level of votes for and against resolutions and the number of abstentions. We
ensure that votes cast are properly received and recorded.
Separate resolutions are proposed on each substantially discrete subject and we do propose a resolution at the AGM relating to the report and accounts. Notices of the AGM and related
papers are sent to shareholders at least 21 working days before such meetings.
Access to
  information
Electronic
  communication has fast become the principal medium for shareholders, providing
  ready access to shareholder information and reports, and for voting purposes.
  Recognising this, annual reviews, annual reports and financial statements, Form
  20-F filings and interim reports are published on our website. Briefings on
  results are given at tele-conferences and at presentations, and the results
  are also accessible to shareholders via the website. All shareholders are automatically
  provided with copies of annual reviews and interim reports, amongst our other
  things, (unless they have requested that they are simply notified of the publication,
  so that they can view them on our website). They can also receive full annual
  reports and Form 20-F filings upon request. Other information which shareholders
  and third parties are entitled to access is made available in accordance with
  legislative and regulatory requirements.
Pension funds
Our
two main defined benefit UK pension funds are controlled by a corporate trustee,
Gallaher Pensions Limited, the board of which comprises five nominees from Gallaher
Limited and three employee members elected by all members whether active, deferred
or pensioners. The pension funds' assets are held separately from those
of the Group and can only be used in accordance with the rules of the schemes.
In 2003, the defined benefit schemes were closed to new employees and a defined
contribution scheme was established for new employees. There is a defined benefit
pension scheme in place for employees of the Irish subsidiary, operated upon
the same lines as the UK schemes.
We have additional pension schemes, principally in Austria, Germany and Sweden. The assets of these schemes are administered and maintained by pension scheme syndicates functioning in
accordance with the legal requirements of those countries. There are also a number of defined contribution schemes in place for employees in other parts of the world.
New York Stock Exchange corporate governance requirements
As a listed non-US issuer, we are only required to comply with some of the NYSE Corporate Governance Rules. Otherwise, we must disclose any significant ways in which our corporate
governance practices differ from those followed by US companies under the NYSE listing standards. We believe that our corporate governance practices do not differ in any significant ways from those followed by US companies under the NYSE corporate
governance standards, except that the nomination committee is not composed entirely of independent directors (given the code provision that deems the chairman of the Group to be non-independent following appointment). Two members of the audit
committee sat on the audit committees of more than three publicly quoted companies. Furthermore, the audit committee (which is composed entirely of independent directors) develops and recommends certain corporate governance principles related to the
scope of its activities to the board. The board nevertheless maintains the lead in the area of corporate governance. It should also be noted that the internal audit team is incorporated within the independent GRA function.
Compliance with the provisions contained within the combined code
Throughout
the year we were in compliance with the provisions of the code with one partial
exception relating to notice periods for executive directors which was addressed
in 2003. With the exception of Stewart Hainsworth (who, upon appointment to the
board in October 2004, received a service contract with a one year notice period
in all circumstances), until December 2005 the other executive directors' service
contracts contained an additional provision relating to the notice period during
the two years following a change of control of the Company. That entitlement
was removed in December 2005 without compensation. For further details see the
2004 annual report
and financial statements.
Corporate governance rating
In
terms of corporate governance ratings, we have been advised by GovernanceMetrics
International that the Group's rating is within the top 10% of companies
globally.
Corporate Responsibility
Commitment
We
  regard corporate responsibility as integral to how we conducts our business.
  We are committed to being a good corporate citizen and behaving responsibly
  with a demonstrated transparency of approach.
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GALLAHER GROUP Plc
Form 20-F 2005
CR committee
  of the board
During
  2005, Ronnie Bell, a non-executive director, was appointed chairman of the CR
  committee of the board. In recognition of our growth in developing markets,
  Richard Johnson, managing director, developing markets, also joined the committee.
  Other members include the group operations director and the company secretary
  and general counsel. The committee is charged with ensuring that significant
  social, ethical and environmental ("SEE") risks are identified, assessed
  and prioritised appropriately. It also monitors the integration of our CR agenda
  into all areas of the business and looks for evidence that we are striving for
  continual improvement in SEE performance. It exercises strategic oversight over
  both our Group CR committee and our EHS committee. It submits a formal report
  to the board each year.
Group CR
  committee and Group EHS committee
These
  operational committees are focused on both setting CR and EHS improvement targets
  against established objectives and monitoring progress to ensure they are achieved.
  Our system for managing CR and EHS matters follows established 'plan, do,
  check, act' principles, with a focus on continual improvement, as encouraged
  by internationally recognised standards. We are committed to ensuring our operations
  are carried out with proper respect for the environment and in a manner that
  secures the health and safety at work of its employees. Our policies on CR and
  EHS and further information is published on our website (www.gallaher-group.com).
Communication
  and reporting of performance
To
  demonstrate the importance that we attach to CR, we publish annual reports for
  both CR and EHS on our website. During 2005, we published our second CR review.
  This examines our activities in 2004, providing an update on performance against
  last year's targets and outlining new performance indicators for the future.
  We also published our fourth EHS report and statistics ('Striding Ahead')
  during the year.
Communication
with
  employees
To
  promote internal communication and raise the profile of both CR and EHS within
  the business, both the CR review and 'Striding Ahead' are published
  on our intranet. The intranet also provides an efficient and effective method
  for communicating our CR principles, practices and performance to employees.
  Additionally, use is made of employee surveys, publications, inductions, newsletters
  and briefings.
Performance
  benchmarking
We recognise the importance of internal and external benchmarking of our CR
  activities. We continue to participate in the Business in the Community ("BITC")
  Corporate Responsibility Index and the BITC Environment Index. These seek to
  measure the CR and environmental performance of FTSE companies and other organisations.
  In the CR Index published in March 2005 (addresses 2004 performance), we scored
  81% (previous year: 79.2%) and were ranked 69
th
in the 'Top 100 Companies
  that Count' (2004: 84
th
). In the Ninth Environment Index, our score increased to 84.62%
  (previous year: 76.73%), demonstrating significant progress along the 'continual
  improvement' path. We were placed 68
th
out of 168 (previous year: 113
th
out of 176) in the overall ranking of participants. In the interests of transparency,
  we have published on our website the 'confidential feedback reports'
  as received from BITC for both indices.
Environmental
  performance indicators
We pay particular attention to energy consumption, water consumption,
  greenhouse gas emissions, waste generation and reducing the proportion of its
  wastes which are disposed of to landfill, all being aspects where improvements
  offer commercial as well as environmental benefits. Group-wide performance indicators
  are collated by our Group EHS department and published on the intranet. Quantitative
  and qualitative performance is reported each year in the Group EHS report and
  statistics, published on our website.
Accidental
  injury statistics
Detailed Group-wide accidental injury statistics are collated by the Group
  EHS department and published on the intranet. Typically, the two most common
  categories of accidental injury in our manufacturing facilities comprise 'injured
  while handling, lifting and carrying' and 'slips, trips and falls'.
  An analysis of accidental injury performance and trends Group-wide is reported
  in the annual Group EHS report and statistics. During September 2005, the Health
  and Safety Executive published the third in a series of research studies investigating
  the level and quality of health and safety information made publicly available
  by the UK's top companies, Government departments and agencies, NHS Trusts and
  local authorities. The researchers looked at 288 of the UK's top companies,
  scoring each out of a maximum 11 points. With a score of 10, we were one of
  just 12 of the 288 which scored 10 or 11. The tobacco sector was top of the
  35 industry sectors for "quality of health and safety reporting", with a score
  of 8.7 out of a maximum 11.
Community
  giving
In
  2005, our total contribution to community projects totalled £814,236. Details
  of our approach are described in the CR review. As a matter of policy, we do
  not make political donations.
Assurance
We recognise that our external stakeholders are nowadays looking for independent
  assurance or verification that CR and EHS reports have been properly prepared.
  To this end, the internal audit function within our risk assurance department
  has been involved in auditing the content of both the CR report and the EHS
  report and statistics. Their assurance statements are included in those publications.
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GALLAHER GROUP Plc
Form 20-F 2005
D
Employees
In 2005, the average number of persons employed by the Group were 11,100, of which 1,761 were employed in the UK, 3,378 employed in our Europe division, 5,162 were employed in the CIS and
799 were employed in the ROW. In 2004, the average number of persons employed were 11,172, of which 1,836 were employed in the UK, 3,597 employed in our Europe division, 5,026 were employed in the CIS and 713 were employed in the ROW.
We consider
  relations with our employees to be good. Approximately 80% of our employees
  in the UK are members of trade unions including the Amalgamated Transport and
  General Workers Union and AMICUS. In Gallaher Dublin the majority of our employees
  are members of trade unions including the Services Industrial Professional Technical
  Union (SIPTU) and AMICUS.
In Europe trade unions representation varies due to different legal and cultural backgrounds. The highest levels of representation are in Austria, Germany and France.
In the CIS relations with employees are generally good. Representation through trade unions varies due to different jurisdictions, historical and legal backgrounds, with highest levels of
representation in Russia and the Ukraine. In Kazakhstan establishment of a trade union relationship is in development.
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GALLAHER GROUP Plc
Form 20-F 2005
E
Share
    Ownership
Directors'
  interests in shares
Our register kept pursuant to section 325 of the Companies Act 1985 shows that our directors in office at 31 March 2006 and their families had interests in our ordinary shares as detailed
in Item 6B (Compensation). No interests were held in any other Group company.
For details of share ownership under the Savings Related Share Option scheme see Item 6 "Directors, Senior Management and Employees – Compensation – Savings related option
scheme".
For a full description of our Savings Related Share Option Scheme, and details of the options over ordinary shares that had been granted and were outstanding at 31 December 2005, please
refer to note 24 (of the consolidated financial statements).
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GALLAHER
GROUP Plc
Form 20-F 2005
ITEM
  7
MAJOR
  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A
Major
    shareholders
As
  far as is known to our management, we are not directly or indirectly owned or
  controlled by another corporation or by any government. The Bank of New York,
  the depositary in respect of the ADSs, as a nominee, is the record owner of
approximately 25.2% of our issued share capital as at 31 March 2006.
The following shareholders notified us that they held the following interests in our share capital as at the dates shown:
31
    March 2006
31
    March 2005
19
    March 2004
Number
Percentage of
Number
Percentage of
Number
Percentage
of
issued share
of
issued share
of
of issued
ordinary
capital
ordinary
capital
ordinary
share
shares
shares
shares
capital
millions
millions
millions
The Capital Group
22.7
3.46
%
33.0
5.10
%
31.0
4.80
%
Companies, Inc
Legal and General
19.7
3.02
%
19.7
3.02
%
19.7
3.02
%
UBS AG
66.4
10.13
%
66.4
10.13
%
N/a
N/a
Barclays
26.4
4.01
%
N/a
Below
      3
%
N/a
Below 3
%
Each of our ordinary
  shares carries equal voting rights.
We do not know of any arrangements the operation of which may result in a change in control of the Company.
The total of
  the ordinary shares held by, or for the benefit of, our directors and officers
  and their families, as a group, as at 31 March 2006 was 0.8 million shares.
  This amounted to approximately 0.1% of our issued share capital. Please see
  "Item 6B.of this Annual Report for more details of our directors'
  interests in our shares.
B
Related
    party transactions
During the year, the Group purchased tobacco and non-tobacco products and services from its associate, Lekkerland GmbH & Co KG, to the value of £16m (2004: £15m). At 31
December 2005, there was no balance outstanding in respect of these transactions (2004: nil).
During the year, Lekkerland GmbH & Co KG purchased tobacco and non-tobacco products and services from the Group to the value of £36m (2004: £31m). At 31 December 2005, the
balance outstanding in respect of these transactions was £1m (2004: £1m).
During the year, the Group sold tobacco and non-tobacco products and services to its associate, Hungarotabak-Tobaccoland Rt, to the value of £2m (2004: £1m). At 31 December
2005, the balance outstanding in respect of these transactions was £1m (2004: nil).
During the year, the Group purchased tobacco products and non-tobacco products and services from its joint venture, R.J. Reynolds-Gallaher International SARL to the value of £39m
(2004: £47m). At 31 December 2005, the balance outstanding in respect of these transactions was £16m (2004: £14m). The Group also sold tobacco and non-tobacco products and services to the joint venture amounting to £30m (2004:
£53m). At 31 December 2005, the balance outstanding in respect of these transactions was £2m (2004: £9m).
During the year, the Group sold non-tobacco products to its joint venture, Gallaher Reynolds Equipment Company amounting to £0.1m (2004: £3m) At 31 December 2005, the balance
outstanding in respect of these transactions was £0.1m (2004: nil).  The Group also purchased non-tobacco products from it's joint venture, Gallaher Reynolds Equipment Company amounting to £0.5m (2004: nil). At 31 December 2005, there
was no balance outstanding in respect of these transactions (2004: nil).
Other than the transactions disclosed above, to the best knowledge of our management, there have been no transactions, nor are there any proposed transactions, with related parties that
are material to ourselves or to a related party. Except for the employment arrangements referred to under "Item 6B. Compensation of Directors, Senior Management and
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GALLAHER GROUP Plc
Form 20-F 2005
Employees",
  neither we nor any of our subsidiaries have been a party during the last fiscal
  year to any material transaction, or proposed transaction, in which any of our
  directors or officers, or any relative or spouse of such person, or any relative
  of any such spouse, has a direct or indirect material interest. None of our
  directors or officers, nor any associate of our directors or officers, is indebted
  to us or to any of our subsidiaries.
C
Interests
          of
experts and counsel
This section is not applicable.
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GALLAHER
GROUP Plc
Form 20-F 2005
ITEM
  8
FINANCIAL
  INFORMATION
A
Consolidated
    Statements and Other Financial Information
Please refer
    to "Item 17. Financial Statements" on which are listed the financial
    statements and notes to financial statements appended as pages F-01 to F-66
    to this Annual Report.
Dividend Distributions
Our board recommends a final dividend for 2005 of 22.9p per ordinary share. Subject to approval at the Gallaher AGM on 10 May the dividend will be paid on 23 May 2006.
We expect, subject to shareholders' approval where necessary, to continue to pay dividends. However, the payment of any future dividends will depend upon our earnings and financial
conditions and such other factors as our board deems relevant.
Dividend payments to ADS holders are made in US dollars by the ADR Depositary Bank.  Payment of the final dividend for the year ended 31 December 2005 will be forwarded on 30 May 2006 to
holders of record on 17 March 2006 converted at the £/US$ exchange rate on 23 May 2005.
Litigation
The only jurisdiction in which we are currently defendants to actions where plaintiffs are seeking damages for ailments claimed to have resulted from tobacco use or exposure to tobacco
smoke is in the Republic of Ireland. As at 24 February 2006, 163 claims have been dismissed or abandoned since 1997. Currently, there are eight individual claims against our subsidiaries.  Statements of claim have been delivered making wide-ranging
allegations against our subsidiaries and other tobacco companies, and against the Republic of Ireland, the attorney general and the minister for health and children, who are also named as defendants in some of those cases. Each of these claims is
subject to a procedural application or challenge by us. No defence will be delivered by us pending the conclusion of all of these procedural matters.
We are not a party to smoking and health litigation anywhere else in the world and there has been no recovery of damages against any of our companies in any action alleging that our
tobacco products have resulted in human illness.
On 4 March 2005, we terminated the distribution contract of a Middle Eastern distributor and commenced proceedings on the same date in the English High Court, seeking a declaration that
the contract had been validly terminated for numerous material breaches. On this basis there was no compensation payable in respect of the termination. By its defence and counterclaim served on 1 July 2005, the distributor asserted that the
termination was unlawful and claimed significant, but wholly un-particularised losses. In an amended claim received on 24 February 2006, the distributor set out some details of its alleged losses, of around $500m, which primarily relate to
hypothetical future profits. We believe these claims to be without substance, and will vigorously contest them through the court process.
Liggett-Ducat continues to be involved in court processes relating to payments allegedly due for unpaid taxes, penalties and fines claimed by the Russian tax authorities. Based upon the
facts and matters currently known, management considers that there are meritorious defences against these claims. They will be vigorously defended.
It is not possible to predict the outcome of pending litigation or the regulatory matters referred to in Item 4 part B of this Annual Report that are subject to investigation or court
actions. We believe that there are meritorious defences to these actions and claims and that the pending actions will not have a material adverse effect upon the results of our operations, our cash flow or our financial condition. These pending
actions and any prospective 'smoking and health' claims will continue to be robustly contested. There can, however, be no assurance that favourable decisions will be achieved in the proceedings and actions involving us, that additional
proceedings will not be commenced in the UK or elsewhere against our companies, that those companies will not incur damages, or that, if incurred, such damages will not have a material impact on our operating performance or financial condition.
Regardless of the outcome of the pending litigation, the costs of defending these actions and claims could be substantial and will not be fully recoverable from the plaintiffs, irrespective of whether or not they are successful.
Costs incurred to litigate claims related to tobacco use and exposure to tobacco smoke were less than 2% of our total administrative expenses in each of the years 2001 - 2005 and have
neither historically nor in the current fiscal year had a material impact on our results of operations.
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GALLAHER
GROUP Plc
Form
      20-F 2005
Export Sales
Please see note
  2 to the financial statements included in this Annual Report to review the significance
  of export sales to our business.
B
Significant
    Changes
Since 31 December
  2005, there have been no significant changes to our operations, financial position
  or company structure. Details of other changes since 31 December 2005 are detailed
  in note 35 to the consolidated financial statements.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM
  9       THE OFFER AND LISTING
A
Offer
    and Listing Details
The principal trading market for our ordinary shares is the London Stock Exchange (trading symbol "GLH"), where they were first listed on 30 May 1997. Our ordinary shares have a
nominal value of 10p each. Our ADSs, each representing four of our ordinary shares, are listed on the New York Stock Exchange (trading symbol "GLH"). The ADSs are evidenced by ADRs issued by The Bank of New York, as depositary, pursuant to
a Deposit Agreement, as amended and restated as at 8 May 1997.
The following table shows, for the calendar quarters indicated:
(a)
The reported high and low middle market quotations, which represent an average of closing bid and asked prices, for our ordinary shares on the London Stock Exchange, as derived from its
Daily Official List, and
(b)
The highest and lowest sales prices of the ADSs as reported on the New York Stock Exchange composite tape.
Pence
      per
Ordinary
      Share
$
      per ADS
Year
      ended 31 December
High
Low
High
Low
2001
First
      Quarter
477.00
365.00
27.62
20.88
Second
      Quarter
463.50
430.00
26.99
23.67
Third
      Quarter
495.00
433.75
28.53
24.29
Fourth
      Quarter
475.25
426.00
27.93
24.02
2002
First
      Quarter
540.00
444.75
30.86
25.50
Second
      Quarter
595.00
540.00
34.36
30.95
Third
      Quarter
712.15
526.00
44.05
32.90
Fourth
      Quarter
705.00
566.00
44.52
34.45
2003
First
      Quarter
634.08
543.68
40.79
35.15
Second
      Quarter
625.00
570.00
40.68
36.74
Third
      Quarter
599.00
545.50
40.29
34.45
Fourth
      Quarter
610.00
554.00
42.68
36.84
2004
First
      Quarter
697.00
587.90
50.50
42.60
Second
      Quarter
711.50
632.00
51.50
45.90
Third
      Quarter
683.50
630.60
50.80
44.60
Fourth
      Quarter
798.50
646.80
62.20
46.20
2005
First
      Quarter
861.50
746.50
64.50
55.90
Second
      Quarter
865.50
755.50
62.90
56.90
Third
      Quarter
898.00
790.50
64.20
55.00
Fourth
      Quarter
913.50
838.00
63.40
58.90
Last
      six months
October
      2005
891.00
838.00
62.50
58.90
November
      2005
913.50
866.00
63.40
60.50
December
      2005
902.00
854.00
63.20
59.90
January
      2006
889.50
835.00
63.50
59.00
February
      2006
920.00
859.50
64.00
60.80
March
      2006
925.50
834.00
63.70
57.60
During 2005 we issued 0.9 million ordinary shares in respect of share option schemes. As at 31 March 2006, we had 656.0 million ordinary shares in issue.
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GALLAHER GROUP Plc
Form
  20-F 2005
As at 31 March 2006, 41.3 million ADSs equivalent to 165.2 million of our ordinary shares, or approximately 25.2% of the total ordinary shares in issue, were outstanding and were held by
16,250 holders.
As at 31 March
  2006, there were a total of 4,777 record holders of our ordinary shares. Of
  these record holders, four had a registered address in the United States and
  held a total of 44,484 ordinary shares, less than 0.0068% of the total issued.
  Since some of our ordinary shares and ADS's are registered in the names
  of nominees, the number of shareholders of record may not be representative
  of the number of beneficial owners.
B
Plan
    of Distribution
This section
  is not applicable.
C
Markets
Please see "Item
  9A. Offer and Listing Details" above for information regarding the markets
  in which our securities are traded.
D
Selling
    Shareholders
This section
  is not applicable.
E
Dilution
This section
is not applicable.
F
Expenses
          of
the Issue
This section
is not applicable.
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GALLAHER
  GROUP Plc
Form
  20-F 2005
ITEM
  10
ADDITIONAL
  INFORMATION
A
Share
    Capital
This
  section is not applicable.
B
Memorandum
    and Articles of Association
The following discussion summarises certain provisions of Gallaher's Memorandum and Articles of Association ("the Articles") and relevant applicable English law. It is a
summary only and is qualified in its entirety by reference to the Companies Act 1985 of England and Wales, as amended (the "Companies Act") and by the Articles.
During 2004 we undertook a review of the Articles, which were adopted following our demerger in 1997.  The principal purpose of the exercise was to update and simplify them.  The proposed
Articles were approved by the shareholders at the AGM in May 2005. The revised Articles of Association are filed as an exhibit to this report.
Objects
Gallaher is a public limited company incorporated under the name Gallaher Group Plc, registered in England under registered number 3299793.
The object for which Gallaher is established is to carry on business as a general commercial company. Accordingly, generally speaking, it can carry on any trade or business whatsoever and
Gallaher has the power to do all such things as are incidental or conducive to the carrying on of any trade or business by it. A full description of Gallaher's objects is set out in Section 4 of its Memorandum.
Director Interests
A director must declare any direct or indirect interest in any transaction with Gallaher at the meeting of the board of directors (the "Board") at which the question of entering
into the transaction is first considered or, if the director did not at the date of that meeting know his interest existed in the transaction, at the first meeting of the Board after he knows that he is or has become so interested. A director shall
not vote (nor be counted in the quorum) on any resolution of the Board in respect of any transaction in which he has an interest which (together with any interest of any person connected with him) is to his knowledge a material interest, and if he
shall do so, his vote shall not be counted. In the absence of some other material interest, this restriction on voting does not apply to the following situations:
•
the giving
      of any guarantee, security or indemnity in respect of money lent or obligations
      undertaken at the
request
      or for the benefit of Gallaher;
•
the giving
      by Gallaher or any subsidiary of any guarantee, security or indemnity to
      a third party in respect of
a
      debt or obligation of Gallaher or any subsidiary in respect of which the
      director has also given an
indemnity,
      guarantee or security;
•
an offer
      of shares or debentures or other securities by Gallaher or any subsidiary
      in which the director may be
able
      to participate as a holder of securities or in the underwriting or sub-underwriting
      of which the director is
to
      participate;
•
any transaction
      concerning any other company in which a director does not own one percent
      or more of the
shares
      in which he is interested directly or indirectly as an officer, shareholder,
      creditor or otherwise;
•
any insurance
      which Gallaher is empowered to purchase and or maintain for the benefit
      of any directors of
Gallaher;
      and
•
any arrangement
      for the benefit of employees of Gallaher or any subsidiary which does not
      award any
director
      any privilege or benefit not generally awarded to the employees to whom
      such arrangement relates.
•
Remuneration
      of Gallaher's non-executive directors is determined in accordance with
      the limits set out in the
Articles, as such limits may be increased from time to time
      by ordinary resolution of the members.
Remuneration
      of Gallaher's executive directors is determined by its Remuneration
      Committee.
A director shall not vote or be counted in the quorum on any resolution of the Board concerning his own appointment as the holder of any office or place of profit with Gallaher or any
other company in which Gallaher is interested (including the arrangement or variation of the terms thereof, or the termination thereof).
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GALLAHER
  GROUP Plc
Form
  20-F 2005
Borrowing
  Powers
The Board may exercise all the powers of Gallaher to borrow money and to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled
capital of Gallaher and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of Gallaher or of any third party. The Board shall restrict the borrowings of Gallaher and exercise
all voting and other rights or powers of control exercisable by Gallaher in relation to its subsidiary undertakings (if any) so that (but as regards subsidiary undertakings only insofar as by the exercise of such rights or powers of control the
Board can secure) the aggregate principal amount from time to time outstanding of all borrowings by the Group (exclusive of certain intra-group borrowings) does not, without the previous sanction of an ordinary resolution of Gallaher, at any time
exceed an amount equal to the greater of £3.5 billion or two times Adjusted Capital and Reserves (as defined in Article 113.2 (B)(1)).
Age Limit
  Requirements
Any director attaining the age of 70 must retire at the next annual general meeting. Under the Companies Act, if, at a general meeting, a director who is 70 or more years is proposed for
election or re-election, that director's age must be set out in the notice of the meeting.
Shareholding
  for Director Qualification
No shareholding
  qualification for directors is required.
Rights Attaching
  to Shares
The issued share capital of Gallaher at the date hereof comprises ordinary shares only. The rights attaching to those ordinary shares include the following:
Dividends
Gallaher may by ordinary resolution from time to time declare dividends to be paid to the members according to their rights and interests in the profits available for distribution. No
dividend shall be declared in excess of the amount recommended by the Board.
Gallaher may, upon the recommendation of the Board, by ordinary resolution direct payment of a dividend in whole or in part by the distribution of specific assets (and in particular of
paid up shares or debentures of any other company) and the Board shall give effect to such resolution. The Board may, with the sanction of an ordinary resolution of Gallaher and subject to such conditions as the Board may determine, in respect of
any dividend declared or paid during such period as may be specified in that ordinary resolution, offer members the right to elect to receive shares, credited as fully paid, in whole or in part, instead of cash.
The payment by the Board of any unclaimed dividend or other moneys payable on or in respect of a share into a separate account shall not constitute Gallaher a trustee in respect thereof
and any dividend unclaimed after a period of 12 years from the date such dividend was declared or became due for payment shall be forfeited and shall revert to Gallaher.
Voting
Every member who is present in person (which expression shall include a person present as the duly authorised representative of a corporate member acting in that capacity) at a general
meeting of Gallaher shall have one vote and on a poll every member who is present in person or by proxy shall have one vote for every share of which he is the holder.
In the case of joint holders of a share the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint
holders and for this purpose seniority shall be determined by the order in which the names stand in the register in respect of the joint holding.
Members do not
  have cumulative voting rights.
The directors of Gallaher stand for re-election at staggered intervals. At each annual general meeting approximately one-third of the directors must retire from office by rotation.
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GALLAHER
  GROUP Plc
Form
  20-F 2005
Sharing in
  Profits
The holders of Gallaher's ordinary shares have a right to share in the profits of Gallaher to the extent of any dividends paid pursuant to the Articles, as summarised above.
Liquidation
  Event
In the event of a liquidation of Gallaher, after payment of all liabilities and applicable deductions under UK laws, the remaining assets of Gallaher would be shared equally among the
holders of the ordinary shares. The liquidator may however, with the authority of an extraordinary resolution, divide among the members in specie or kind the whole or any part of the assets of Gallaher (whether they shall consist of property of the
same kind or not) and may, for such purpose, set such values as he deems fair upon any assets to be so divided and may determine how such division shall be carried out as between the members or different classes of members.
Redemption
Gallaher does not currently have any redeemable shares in issue. However, subject to the provisions of the Companies Act, any shares may, with the sanction of a special resolution, be
issued on terms that they are, or at the option of Gallaher or the members are liable, to be redeemed on such terms and in such manner as may be provided for by the Articles.
Sinking Fund
Gallaher does not currently have any sinking fund provisions.
Capital Calls
The Board may from time to time make such calls upon the members in respect of any moneys unpaid on their shares (whether on account of the nominal amount of the shares or by way of
premium) save in respect of unpaid moneys which are made payable at a date fixed by or in accordance with such terms of issue, provided that fourteen days notice at least is given of each call.
Shareholding
  Restrictions
There are no provisions discriminating against any existing or prospective holder of Gallaher's shares as a result of such shareholder owning a substantial number of shares.
Modifications
  to Rights of Holders
All or any of the rights for the time being attached to any class of shares for the time being issued may from time to time (whether or not Gallaher is being wound up) be varied or
abrogated with the consent in writing of the holders of not less than three-quarters in nominal value of the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of the
shares of the class.
This restriction also applies to the variation or abrogation of the special rights attached to only some of the shares of any class as if each group of shares of the class differently
treated formed a separate class the separate rights of which are to be varied.
The above conditions are not more significant than is required by law.
Meetings
Gallaher shall hold a general meeting as its annual general meeting every year and no more than 15 months may elapse between annual general meetings. The Board may, whenever it thinks
fit, convene an extraordinary general meeting and, on the requisition of members under the Companies Acts, shall proceed to convene an extraordinary general meeting. If sufficient directors are not within the United Kingdom to call a general
meeting, any director or member may call a general meeting.
An annual general meeting or a meeting called for the passing of a special resolution or a resolution of which special notice has been given to Gallaher or a resolution appointing a
person as a director shall be called by not less than 21 clear days' notice in writing. A meeting other than either an annual general meeting or a meeting called for the passing
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GALLAHER GROUP Plc
Form 20-F 2005
of a special resolution or a resolution of which special notice has been given to Gallaher or a resolution appointing a person as a director shall be called by not less than 14 clear
days' notice in writing.
The notice convening the meeting must specify the place, date and time of meeting and, in the case of special business, including an annual general meeting or special or extraordinary
resolution, the general nature of that business, and there shall appear with reasonable prominence in every such notice a statement that a member entitled to attend and vote is entitled to appoint one or more proxies to attend and on a poll vote
instead of him and that a proxy need not be a member of Gallaher.
No business may be transacted at a general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum does not preclude the appointment, choice
or election of a chairman. Two members present in person or by proxy and entitled to vote constitute a quorum for all purposes.
Holders of our American Depository Shares are entitled to attend and speak (but not vote) at any general meeting or at any separate meeting of the holders of any class of shares in
Gallaher after providing evidence as to his identity to Gallaher.
Limitations on Rights
Holders of American Depository Shares may attend, but may not vote at general meetings of Gallaher. Except as described in the preceding sentence, there are no other limitations on the
rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights.
Change of Control
There are no provisions of the Articles, charter or bylaws that would have an effect of delaying, deferring or preventing a change in control of Gallaher and that would operate only with
respect to a merger, acquisition or corporate restructuring involving Gallaher (or any of its subsidiaries).
Disclosure of Share Ownership Interests
Article 39 governs the disclosure of share ownership interests. The Board may by notice in writing (a "Disclosure Notice") require any member or other person appearing to be
interested or appearing to have been interested in any shares in Gallaher to disclose to Gallaher in writing and within such reasonable period as is specified in the Disclosure Notice such information as the Board shall, pursuant to any provision of
the Companies Acts (but subject to the other provisions of the Articles), be entitled to require relating to interests in the shares in question.
Host Country Law
The laws applicable to Gallaher with respect to the matters described above are those of its host country
.
Changes in Capital
The conditions imposed by the Articles in relation to changes in Gallaher's capital are no more stringent than is required by law.
C
Material
    Contracts
We have not entered into any material contracts other than contracts entered into in the ordinary course of business, during the two years immediately preceding this Annual
Report.
D
Exchange
    Controls
Under current English law, there are no general restrictions on the import or export of capital that affect the remittance of dividends or other payments to non-UK resident holders of our
ordinary shares. However, there may be tax consequences of remitting dividends or other payments to non-UK resident holders of our shares, which are more fully discussed in below in "E. Taxation".
Under our Articles of Association and under current English law, there are no restrictions that limit the right of nonresident or foreign owners of our shares to hold or vote their
shares. However, our Articles of Association permit our directors to limit voting and other rights of any holder of our shares if our directors believe the holder's interests may be detrimental to Gallaher. We give ADS holders the right to
attend and speak at general meetings, but they cannot vote in person and do not count in the quorum. Unless we have received an address in the UK to which to send notices, non-UK holders of our shares will not be entitled to receive notices from us,
including notices of shareholder meetings.
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GALLAHER GROUP Plc
Form 20-F 2005
From time
    to time, the UK Treasury may impose restrictions:
(a)
on the import or export of capital to or from particular foreign governments or residents of particular foreign countries;
(b)
on the holding or voting of shares in the capital stock of an English company pursuant to The United Nations Act of 1946, the Emergency Laws of 1964 or other laws.
E
Taxation
The following summary discusses the material US federal income and UK tax consequences generally applicable to the acquisition, ownership and disposition by a beneficial owner of ADSs
representing ordinary shares, or of ordinary shares not in ADS form, that is:
•
resident in the US and is not (and has not ever been) resident in the UK for the purpose of the UK/US
(Income) Tax
Treaty of 24 July 2001 (as amended) (the "Treaty") and the UK/US (Death Duty) Treaty of 19
October 1978 (the "Estate Tax Treaty", and, together with the Treaty,
the "Treaties"),
•
otherwise qualified for full benefits under the Treaties,
•
a holder whose ordinary shares or ADSs are not, for the purposes of the Treaties, attributable to a permanent
establishment through which the holder carries on a business in the UK,
•
a citizen or individual resident of the US,
•
a corporation or partnership organised in or under the laws of the US or any State (other than any partnership
which
is treated as foreign under US Treasury regulations),
•
an estate the income of which is subject to US federal income taxation regardless of its source, or
•
a trust if (1) a US court can exercise primary supervision over the trust's administration and one or more
United
States persons (within the meaning of the US Internal Revenue Code) are authorized to control all
substantial decisions of the trust or (2) the trust has a valid election in effect
under applicable Treasury
regulations to be treated as a United States person.
Persons described above are referred to as "US Holders" in the following summary.
This summary, which primarily addresses the US federal income and UK tax consequences to a US Holder, is based on:
•
current US federal income and UK tax law, regulations, practice, rulings and court decisions, and
•
the Treaties,
all as of the date hereof and all of which are subject to change, possibly with retroactive
effect.
This summary assumes that the obligations and representations in the Deposit Agreement that we entered into with The Bank of New York and owners and beneficial owners of ADSs and any
related agreement will be performed and complied with in accordance with their terms.
This summary does not purport to address all material US federal and UK tax consequences of the acquisition, ownership and disposition of ordinary shares or ADSs. It does not take into
account the US federal income tax consequences to US Holders that may be subject to special US federal income tax rules. This latter category includes, but is not limited to:
•
tax-exempt entities,
•
US expatriates,
•
financial institutions,
•
insurance companies,
•
broker-dealers,
•
traders in securities,
•
investors liable for alternative minimum tax,
•
investors that own (directly, indirectly or by attribution) 5% or more of our voting shares,
•
investors that hold ordinary shares or ADSs as part of a straddle or a hedging, conversion or integrated
transaction,
and
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GALLAHER GROUP Plc
Form 20-F 2005
•
investors
    whose functional currency is not the US dollar.
Also, this summary does not address US state, local and other (such as US estate and gift) tax consequences of the acquisition, ownership and disposition of ordinary shares or ADSs.
Holders of ADSs or ordinary shares should consult their own tax advisers as to the particular UK tax and US federal, state and local income and other tax consequences to them of the acquisition, ownership and disposition of ordinary shares or ADSs.
The summary which follows is generally limited to US Holders that hold our ordinary shares or ADSs as capital assets for US federal income tax purposes. It does not apply to US holders that are resident in the United Kingdom for UK tax purposes or
for the purposes of the Treaties.
In general, for US federal income tax purposes, US Holders of ADSs will be treated as the beneficial owners of the underlying ordinary shares represented by the ADSs. Under the current
practice of the UK Inland Revenue, for UK tax purposes and for the purposes of the Treaties, US holders of ADSs should be treated as the beneficial owners of the underlying shares represented by those ADSs.
Taxation of Dividends
UK Taxation of Dividends
Under current UK tax legislation, we are not required to withhold any amounts in respect of UK tax from dividends.
US Taxation of Dividends
For US federal
income tax purposes, a US Holder will include in gross income the amount of a
dividend paid by us, to the extent paid out of our current or accumulated earnings
and profits  (as determined for US federal income tax purposes), as ordinary
income when the dividend is actually or constructively received by the US Holder,
in the case of ordinary shares, or by the Depositary, in the case of ADSs. The
amount of the dividend
included in the income of a US Holder will be the US dollar value of the dividend,
determined at the spot UK pound sterling/US dollar rate on the date such dividend
is included in the income of the US Holder, regardless of whether the payment
is in  fact converted into US dollars. For US foreign tax credit purposes, the
dividend included in a US Holder's income will generally constitute foreign source "passive
income" or, in the case of some US Holders, foreign source "financial

services income" or foreign source "general category income" for
taxable years beginning before 2007. The dividend will not be eligible for the
dividends-received deduction generally allowed to US corporations in respect
of dividends  received from other US corporations. Generally, any gain or loss
resulting from currency exchange fluctuations during the period from the date
the dividend payment is included in income to the date such payment is converted
into US dollars will be
treated as US source ordinary income or loss for US foreign tax credit purposes.
Distributions in excess of our current or accumulated earnings and profits, as
determined for US federal income tax purposes, will be treated as a non-taxable
return of
capital to the extent of the US Holder's tax basis in the ordinary shares
or ADSs and thereafter as capital gain recognised on a deemed sale or exchange
of the ordinary shares or ADSs.
Dividends received from us in taxable years beginning after December 31, 2002 and before January 1, 2009 by a non-corporate US Holder who meets certain eligibility requirements will
qualify for US federal income taxation at a reduced rate of 15% or lower if we are a "qualified foreign corporation". We generally will be a "qualified foreign corporation" if either (i) we are eligible for benefits under the
Treaty or (ii) our ordinary shares or ADSs are listed on an established securities market in the United States. As we are eligible for benefits under the Treaty and our ADSs are listed on the New York Stock Exchange, we presently are a
"qualified foreign corporation", and we generally expect to be a "qualified foreign corporation" during such taxable years, but no assurance can be given that a change in circumstances will not affect our treatment as a
"qualified foreign corporation" in any of such taxable years. A non-corporate US Holder will not be eligible for the reduced rate (a) if the US Holder has not held the ordinary shares or ADSs for at least 61 days of the 121-day period
beginning on the date which is 60 days before the ex-dividend date, (b) to the extent the US Holder is under an obligation to make related payments on substantially similar or related property or (c) with respect to any portion of a dividend that is
taken into account as investment income under Section 163(d)(4)(B) of the US Internal Revenue Code. Any days during which a US Holder has diminished the US Holder's risk of loss with respect to the ordinary shares or ADSs (for example, by
holding an option to sell such shares or ADSs) is not counted towards meeting the 61-day holding period. Special rules apply in determining the foreign tax credit limitation with respect to dividends subject to US federal income taxation at the
reduced rate. US Holders should consult their own tax advisors concerning whether dividends received by them qualify for the reduced rate.
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GALLAHER GROUP Plc
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Taxation of Capital Gains
UK Taxation of Capital Gains
US Holders will not be liable for UK tax on capital gains realised on the disposal of their ADSs or ordinary shares.
US Taxation of Capital Gains
A US Holder will, upon the sale, exchange or other taxable disposition of an ADS or an ordinary share, recognise a gain or loss for US federal income tax purposes. The amount to be
recognised will be the difference between the US dollar value of the amount realised and the US Holder's tax basis determined in US dollars in the ADS or ordinary share. Such gain or loss generally will be treated as from US sources for US
foreign tax credit purposes.
A gain or loss recognised upon the sale of an ADS or an ordinary share will be a capital gain or loss if such ADS or ordinary share is a capital asset in the hands of the US Holder. The
maximum non-corporate US federal income tax rate on net capital gains is generally 15% for capital assets sold on or after May 6, 2003 and 20% for capital assets sold on or after January 1, 2009 for capital assets held for more than one year. Net
capital gains on the sale of capital assets held for one year or less are subject to US federal income tax at ordinary income tax rates. For a corporate US Holder, all capital gains are currently taxed at the same rate as ordinary income. The
deductibility of capital losses is subject to limitations. For non-corporate US Holders other than married couples who file separate US federal income tax returns, net capital losses not in excess of US $3,000 are deductible against ordinary
income in the year incurred, with any excess carried forward indefinitely to offset (a) capital gains in such years and (b) other income not in excess of US $3,000. For married individuals who file separate US federal income tax returns, the
limitations on capital losses that may be deducted against ordinary income is reduced to $1,500. For corporate US Holders, capital losses can only be used to offset capital gains recognised during the year incurred or during the permitted
carryback and carryforward period. Ordinarily, corporations may carry capital losses back three years and forward five years.
The surrender of ADSs in exchange for the deposited ordinary shares represented by the surrendered ADSs, and the deposit of ordinary shares in exchange for ADSs representing the deposited
ordinary shares, will not be a taxable event for the purposes of US federal income tax, UK income and corporation tax or UK capital gains tax. Accordingly, US Holders will not recognise any gain or loss for such purposes upon such surrender or
deposit.
Estate and Gift Tax
A US Holder who is an individual domiciled in the US for the purposes of the Estate Tax Treaty generally will not be subject to UK inheritance tax with respect to ADSs or ordinary shares
on the individual's death or on a gift of such ADSs or ordinary shares made during the individual's lifetime, except where the ADSs or ordinary shares are part of the business property of the individual's UK permanent establishment.
The Estate Tax Treaty generally provides for tax paid in the UK to be credited against tax payable in the US, based on priority rules set forth in the Estate Tax Treaty, in a case where ADSs or ordinary shares are subject to both UK inheritance tax
and US federal gift or estate tax. There are special rules applying to trusts.
US Backup Withholding Tax and Information Reporting
Information reporting requirements will apply to dividends in respect of ordinary shares or ADSs and the proceeds received on the sale or disposition of the ordinary shares or ADSs paid
within the US, and in certain cases outside of the US, to a US Holder unless the US Holder is an exempt recipient, such as a corporation, and backup withholding may apply to such amounts if the US Holder fails to provide an accurate taxpayer
identification number or to report interest and dividends required to be shown on its federal income tax returns. The amount of any backup withholding from a payment to a US Holder will be allowed as a credit against the US Holder's US federal
income tax liability.
UK Stamp Duty and Stamp Duty Reserve Tax
UK stamp duty is charged in respect of certain documents and UK stamp duty reserve tax ("SDRT") is imposed in respect of certain transactions in securities.
Transfers of the ordinary shares will generally be subject to UK stamp duty at the rate of 50p for every £100 (or part thereof), rounded up to the next whole unit of £5, of the
full consideration given for the transfer. This is irrespective of the identity of the parties to the transfer and the place of execution of any instrument of transfer. There is generally no ad valorem stamp duty on an instrument of transfer made
which is neither on sale nor in contemplation of sale. In such cases, the instrument of transfer will be either exempt from stamp duty or a fixed stamp duty of £5 per instrument of transfer will be payable.
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GALLAHER GROUP Plc
Form 20-F 2005
An agreement to transfer ordinary shares or any interest therein for money or money's worth will normally give rise to a charge of SDRT at the rate of 0.5% of the amount or value of
the consideration given for the ordinary shares. The liability to SDRT will arise, in respect of conditional contracts, on the date the conditions are satisfied. The charge to SDRT will be cancelled if an agreement to transfer ordinary shares is
completed by a duly stamped transfer within six years of the conditions being satisfied (in the case of a conditional contract), or the contract being made (in the case of an unconditional contract). Where the SDRT charge has been paid, the SDRT
will be repaid, generally with interest, provided that a claim for repayment is made.
Transfers of ordinary shares through the electronic transfer system (known as "CREST") are exempt from UK stamp duty so long as the transferee is a member of CREST and the
transfer is in a form which will ensure that the securities become held in uncertificated form with CREST. Such transfers, however, if made for a consideration in money or money's worth are liable to SDRT rather than stamp duty. SDRT on
relevant transactions settled within the system or reported through it for regulatory purposes will be collected by CREST, and this will apply whether or not the transfer is effected in the UK, and whether or not the parties to it are resident or
situated in the UK.
A charge to stamp duty or SDRT respectively at the rates of £1.50 for every £100 (or part thereof), rounded up to the next whole unit of £5, or 1.5% of the amount or value
of the consideration. However, in some circumstances, the value of the ordinary shares concerned, a charge may arise on a transfer of ordinary shares to, or to the custodian of, the depositary or to certain persons providing a clearance service (or
their nominees or agents). Generally, these charges will be payable by the depositary or person providing the clearance service. In accordance with the terms of the deposit agreement, any tax or duty payable by the depositary, or the custodian of
the depositary, on deposits of ordinary shares will be charged by the depositary to the party to whom ADRs are delivered against such deposits.
No liability for stamp duty will arise on any transfer of, or agreement to transfer, an ADS or beneficial ownership of an ADS, provided that:
•
the ADS and any instrument of transfer or written agreement to transfer remains at all times outside the UK,
and
•
any instrument of transfer or written agreement to transfer is not executed in the UK, and
•
the transfer does not relate to any matter or thing done or to be done in the UK (the location of the custodian
as a
holder of an ordinary share not being relevant in this context).
In any other case, any transfer of, or agreement to transfer, an ADS or beneficial ownership of an ADS could, depending on all the circumstances of the transfer, give rise to a charge to
ad valorem stamp duty. The current rate of ad valorem stamp duty on a transfer of stock or marketable securities, which includes ADSs, is 50p for every £100 (or part thereof), rounded up to the next whole unit of £5, of the amount of value
of the consideration. A transfer in contemplation of sale would be stampable by reference to the value of the property transferred.
SDRT will not be payable on any agreement to transfer ADSs or beneficial ownership of ADSs.
A transfer of the underlying ordinary shares from the depositary other than on cancellation of the ADS, whether to the US Holder or directly from them to a purchaser, may give rise to a
liability to ad valorem stamp duty. However, on a transfer from the custodian to a US Holder or registered holder of an ADS upon cancellation of the ADS, a fixed UK stamp duty of £5 per instrument of transfer only would be payable.
F
Dividends
          and
Paying Agents
Our board recommends a final dividend for 2005 of 22.9p (net) per ordinary share. The dividend, if approved by our shareholders at our annual general meeting on 10 May 2006, will be paid
on 23 May 2006. The equivalent amount per ADS will be 91.6p and this will be distributed on 30 May 2006 to ADR holders of record on 17 March 2006. The dividend payable to ADR holders will be paid in US dollars converted at the £/US dollar rate
on 23 May 2006. These payments, together with the interim amounts already paid, amount to a total dividend of 33.50p per ordinary share (134.0p per ADS) for 2005.
We expect, subject to shareholders' approval where necessary, to continue to pay dividends. However, the payment of any future dividends will depend upon our earnings and financial
condition and such other factors as our board deems relevant.
Cash dividend payments will be made in pounds sterling. Exchange rate fluctuations will affect the US dollar amount received by holders of ADSs on conversion of such dividends.
Fluctuations in the exchange rate between pounds sterling and the US dollar will affect the dollar equivalent of the pounds sterling price of the ordinary shares on the
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GALLAHER GROUP Plc
Form 20-F 2005
London Stock Exchange. These fluctuations are likely to affect the market price of the ADSs on the New York Stock Exchange.
G
Statement
    by Experts
This section is not applicable.
H
Documents
    on Display
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and accordingly file reports, proxy statements and other
information with the SEC. You may read and copy any document filed by us with the SEC without charge at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Copies of documents may be obtained by mail from the Public
Reference Branch of the SEC at such address, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC also maintains an internet website that contains reports, proxy statements and
other information about issuers, including us, who file electronically with the SEC. The address of that site is http://www.sec.gov.
I
Subsidiary
    Information
This section is not applicable.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM
11   QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Sensitivity
We have entered into certain interest rate swap transactions with contractual maturities exceeding those of the underlying debt being hedged, in anticipation of there being additional
floating rate debt when the existing debt matures. In order to manage the impact of adverse variations in interest rates on our profits, the Group borrows at fixed and floating rates of interest and, where necessary, uses interest rate derivatives
to maintain a target level of fixed interest rate cover in the current and subsequent two years of between 40% and 80% of the level of core debt.
The expected cash flows on the variable legs of interest rate swaps are determined using implied rates for the appropriate period calculated by reference to the financial market's
yield curve for the relevant currency.
We recognise payments on derivative instruments and their fair value on an accrual basis. At 31 December 2005 we had net unrealised gains of £7 million on interest rate derivative
financial instruments (2004: net unrealised losses of £4 million). The £11 million net unrealised gain arising from the change in fair values of interest rate derivative financial instruments was accrued in the financial statements for the
year ended 31 December 2005. At 31 December 2005 we had unrealised losses of £82 million on long-term debt (2004: unrealised losses of £98 million). We make no provisions in our financial statements for unrealised gains or losses on long
term debt in respect of future accounting periods other than where the change in fair values are subject to effective hedges At 31 December 2005, £27 million of unrealised losses on long term debt was accrued in the financial statements (2004:
£22 million). The £5 million unrealised loss arising from the change in fair values of long term debt was accrued in the financial statements for the year ended 31 December 2005.
Liabilities
Maturity Dates
Later
Fair
£m Equivalent
2006
2007
2008
2009
2010
Years
Total
Value
Long Term Debt
Fixed Rate - Principal
616
101
260
301
-
823
2,101
2,154
Average rate
6.0
%
3.9
%
5.9
%
6.6
%
-
5.0
%
5.6
%
Variable Rate - Principal
9
9
1
10
75
-
104
104
Average rate
2.0
%
2.0
%
5.0
%
2.3
%
5.0
%
4.2
%
Other Borrowings
Variable Rate - Principal
147
-
-
-
-
-
147
147
Average
      rate
4.0
%
4.0
%
Accrued
    interest
44
-
-
-
-
14
58
58
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GALLAHER GROUP Plc
Form 20-F 2005
The following table presents the derivative financial instruments held by the Group at 31 December 2005, other than short-term forward foreign exchange contracts. We do not enter into any
market risk sensitive instruments for trading purposes.
Later
Fair
2006
2007
2008
2009
years
Total
value
2005
£m
£m
£m
£m
£m
£m
£m
Sterling interest rate derivatives
Interest rate swaps and swap options – pay fixed, receive variable:
Notional amount
-
-
420
50
470
(21
)
Weighted average interest rate payable (%)
-
-
6.3
5.6
6.2
Interest rate swaps – pay variable, receive fixed:
Notional amount
-
-
-
-
250
250
2
Weighted average interest rate receivable (%)
-
-
-
-
5.8
5.8
Margin over LIBOR payable (%)
-
-
-
-
1.0
1.0
Interest rate swaps – pay variable, receive fixed:
Notional amount
-
-
-
300
300
7
Weighted average interest rate receivable (%)
-
-
-
6.6
6.6
Margin over LIBOR payable (%)
-
-
-
1.3
1.3
Euro interest rate derivatives
:
Interest rate swaps – pay fixed, receive variable:
Notional amount
55
-
-
-
-
55
(1
)
Weighted average interest rate payable (%)
4.9
-
-
-
-
4.9
Interest rate swaps – pay variable, receive fixed:
Notional amount
-
-
82
-
82
3
Weighted average interest rate receivable (%)
5.9
-
-
5.9
Margin over LIBOR payable (%)
-
-
1.1
-
-
1.1
Interest rate swaps – pay variable, receive fixed:
Notional amount
550
550
17
Weighted average interest rate receivable (%)
4.6
4.9
Margin over LIBOR payable (%)
-
-
-
-
0.7
0.9
Tax equalisation swaps
:
Notional amount
94
69
-
-
-
163
(5
)
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GALLAHER GROUP Plc
Form 20-F 2005
Exchange Rate Sensitivity
Due to the international nature of our operations, we are exposed to exchange rate fluctuations on the translation of the results of overseas subsidiaries into sterling and the settlement
of commercial transactions in foreign currencies. We make limited use of derivative financial instruments to hedge balance sheet translation exposures.  On significant acquisitions of overseas companies, borrowings are raised in the local currency
to minimise the translation risk. It remains our policy not to hedge income statement translation exposures. Transaction exposures are hedged where deemed appropriate and where they can be reliably forecast with the use of forward exchange rate
contracts.
The table below provides information about our derivative financial instruments and firmly committed sales and purchases transactions at 31 December 2005. The table summarises information
on instruments and transactions that are sensitive to foreign currency exchange rates, namely firmly committed foreign currency denominated sales and purchases transactions and forward foreign exchange contracts. For firmly committed foreign
currency denominated sales and purchases transactions, sales and purchases amounts are presented by the expected transaction date. For forward foreign exchange contracts, the table presents the contractual amounts and weighted average exchange rates
by expected (contractual) maturity dates. The information is presented in pounds sterling equivalents, which is our reporting currency. We do not enter into any market risk sensitive instruments for trading purposes.
Contractual Transaction Date
Later
Fair
£m Equivalent
2005
2006
2007
2008
years
Total
value
Firmly Committed Sales Contracts:
Euros
2
-
-
-
-
2
-
US Dollars
12
-
-
-
-
12
-
Other
1
-
-
-
-
1
-
Firmly Committed Purchase Contracts:
Euros
21
-
-
-
-
21
-
US Dollars
10
-
-
-
-
10
-
Forward Contracts
:
Pay £, receive euros:
Contract amount
229
-
-
-
-
229
2
Average
    contractual exchange rate
0.682
-
-
-
-
0.682
Pay US$, receive £:
Contract amount
236
-
-
-
-
236
(6
)
Average
	    contractual
exchange
    rate
1.758
-
-
-
-
1.758
Pay Polish Zloty, receive £:
Contract amount
76
-
-
-
-
76
(1
)
Average
    contractual exchange rate
5.63
-
-
-
-
5.63
Pay South African Rand, receive £:
Contract amount
11
-
-
-
-
11
-
Average
	    contractual
exchange
    rate
11.25
-
-
-
-
11.25
Pay Singapore $, receive £:
Contract amount
1
-
-
-
-
1
-
Average
    contractual exchange rate
2.94
-
-
-
-
2.94
Pay
    Ukraine Hryvna,  receive US $:
Contract
    amount
6
-
-
-
-
6
-
Average
    contractual exchange rate
5.05
-
-
-
-
5.05
The fair value
of £5
million represents the net unrealised loss on forward foreign exchange contracts
at 31 December 2005, which was recognised in the financial statements for the
year ended 31 December 2005. At 31 December 2004 we had net unrealised gains
of £30
million on forward foreign exchange contracts.
Exposure to Commodity Fluctuations
Our financial results are exposed to fluctuations in the price of tobacco leaf. As with other agricultural commodities, the price of tobacco leaf tends to be cyclical as supply and demand
considerations influence tobacco plantings in those countries where tobacco is grown. Different regions may experience variations in weather patterns that may affect crop quality or supply and so lead to changes in price. The current political
situation in Zimbabwe has resulted and may
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GALLAHER
GROUP Plc
Form 20-F 2005
continue to result, in a significantly reduced tobacco crop. This may also lead to changes in price. We seek to reduce our exposure to individual markets by sourcing tobacco leaf from a
number of different countries, including Brazil, China, India, Italy, Spain and Zimbabwe.
In 2005, we purchased approximately 132,000 tonnes (2004: 138,000 tonnes) of tobacco leaf through a number of well-established international tobacco merchants. There is no futures market
for tobacco and there is limited ability to enter into long term contracts based on price. Based on 2005 purchase volumes, a 10% increase in the cost of tobacco leaf would result in an increase of approximately £12million (2004:
£13million) in tobacco leaf costs to the Group. We believe that, based on our ability to effect price increases and the relatively low proportion of the retail price represented by tobacco leaf costs, which represented approximately 12% of the
total UK duty - paid retail price of cigarettes in 2005, we are generally able to mitigate the effects of tobacco leaf price increases through manufacturers own price increases and thereby limit any related effect on our total profit from
operations.
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GALLAHER
  GROUP Plc
Form 20-F 2005
ITEM
12   DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
A
Debt
      Securities
This
      section is not applicable.
B
Warrants
      and Rights
This
      section is not applicable.
C
Other
      Securities
This
      section is not applicable.
D
American
      Depositary Shares
This
      section is not applicable.
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GALLAHER
GROUP Plc
Form 20-F 2005
Part
II
ITEM 13
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
There
      are no items to be reported in this section.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM 14   MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There are no items to be reported in this section.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM 15   CONTROLS
    AND PROCEDURES
Pursuant to rules adopted by the Securities and Exchange Commission as directed by Section 302 of the Sarbanes-Oxley Act of 2002, the Company is providing the following information:
As of the end of the period covered by this report (the "Evaluation Date") the Company conducted an evaluation (under the supervision and with the participation of the Company's
chief executive and finance director), pursuant to Rule 13a-15 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") of the effectiveness of design and operation of the Company's disclosure controls and procedures. Based
on this evaluation, the Company's chief executive officer and chief financial officer have concluded that as of the Evaluation Date such disclosure controls and procedures were reasonably designed to ensure that information required to be disclosed
by the Company in reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Since the last evaluation by the Company of the Company's internal controls there have been no changes in the internal controls that have materially affected, or are reasonably likely to
materially affect, the internal controls over financial reporting.
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GALLAHER
GROUP Plc
Form 20-F
2005
ITEM 16   DISCLOSURE
ON AUDIT COMMITTEE FINANCIAL EXPERT
A
Disclosure
    On Audit Committee Financial Expert
The board has determined that Richard Delbridge is the audit committee financial expert with recent and relevant financial experience and independent not only for the purposes of the
Combined Code but also in accordance with the definition under Section 10A-3 of the Exchange Act.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM
16
B
Code
    Of Ethics
Persuant to rules adopted by the Securities and Exchange Commission, we are providing the following information:
The Board of Directors confirm that senior management of the Company has adopted a Code of Ethics which also covers the responsibilities of the Chief Executive, Finance Director, and
Group Financial Controller.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM 16
C
Principal
    Accountant Fees And Services
Details
    of the aggregate fees billed for each of the last two fiscal years for professional
    services rendered by the independent auditors, PricewaterhouseCoopers LLP,
    for the audit of the
Group's annual financial statements together with procedures for approving
services by the auditor are set out below:
2005
2004
£ million
£ million
Audit fees
1.4
1.3
Audit related fees
0.5
0.9
Tax fees:
compliance services
0.1
0.1
advisory services
0.8
0.6
All other fees
0.0
0.1
Total
2.8
3.0
The policy relating to the provision of non-audit services by the external auditors specifies the types of work from which the external auditors are excluded; for which the external
auditors can be engaged without referral to the audit committee; and, for which a case-by-case decision is required. The ratio of non-audit fees to audit fees is monitored by the committee within an overall limit set by the board upon the
recommendation of the audit committee.
All non-audit services are pre-approved by the audit committee by category or on a case-by-case basis, as appropriate, depending upon the nature of the service and the circumstances.
Audit related fees primarily relate to factual due diligence work undertaken in respect of possible acquisitions and disposals. Tax services comprise compliance services and technical advice associated with relevant UK and international fiscal laws
and regulations and, in particular, in the context of assessing the potential implications of proposed corporate transactions or restructuring.
Having undertaken a review of the non-audit related work the audit committee has satisfied itself that the services undertaken during 2005 did not prejudice the auditors'
independence.
ITEM 16
D
Exemptions
    from the Listing Standards for Audit Committees
There are no items to be reported in this section.
ITEM 16
E
Purchases
          of
Equity Securities by the Issuer and Affiliated Purchasers
At the AGM in May 2005 shareholders reviewed the authority for us to purchase up to 10% of our own shares. We did not purchase any of our own shares in 2004 or 2005.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM 17   FINANCIAL
STATEMENTS
Our consolidated financial statements and notes to the financial statements, together with the report thereon by an independent registered public accounting firm, are filed as part of
this Annual Report as pages F-2 to F-66.
An index to these pages is given on page F-1.
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GALLAHER
GROUP Plc
Form
20-F 2005
ITEM 18
FINANCIAL
STATEMENTS
This section is not applicable.
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GALLAHER GROUP Plc
Form 20-F 2005
ITEM 19
EXHIBITS
Exhibit
    no.
Description
    of Exhibits
1
Memorandum and Articles of Association.
2.1
Trust Deed dated 21 May 1999 for Guaranteed Bonds due 2009 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.
2.2
Trust Deed dated 6 August 1998 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.
First Supplemental Trust Deed dated 24 May 2001 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated
herein by reference.
2.3
Pricing Supplement dated 28 September 2001 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.
Pricing Supplement dated 21 May 2004 was filed with the SEC on June 8, 2004 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.
2.4
Offering Circular dated 4 February 2003 for Guaranteed Bonds due 2013, was filed with the SEC on May 30, 2003 under Form 20-F, file registration number 1- 14602, and is incorporated
herein by reference.
2.5
Gallaher Group Plc - £650,000,000 Facility Agreement dated 11 March 2003 as amended, restated and increased to £1,000,000,000
pursuant to an amendment and restatement agreement
dated 16 June 2005 (the "Agreement").
2.6
Offering Circular by Gallaher Group Plc for £2,000,000,000 Medium Term Note Programme, unconditionally and irrevocably guaranteed by Gallaher Limited dated 21 May 2004.
8
List of Subsidiaries
11
Code of Ethics was filed with the SEC on April 8, 2004 under Form 20-F, file registration number 1-14602 and is incorporated by reference.
12
Section 302 Certification
13
Section 906 Certification
15.1
Notice of annual general meeting 2006 to be held on 10 May 2006.
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GALLAHER GROUP Plc
Form 20-F 2005
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorised the undersigned to sign this Annual Report on its
behalf.
GALLAHER
    GROUP Plc
(Registrant)
By:
/s/
M.
    E. Rolfe
Name: M. E. Rolfe
Title: Group Finance
Director
Date: 18 April,
2006
106
GALLAHER GROUP Plc
INDEX TO FINANCIAL STATEMENTS
The following consolidated financial statements, together with the report thereon by the independent registered public accounting firm, are filed as part of this Annual Report.
Page
Report of Independent
    Registered Public Accounting Firm – PricewaterhouseCoopers LLP
F-2
Financial Statements
Consolidated Income
Statements for the years ended 31 December 2005, and 2004
F-3
Consolidated Balance Sheets at 31 December 2005 and 2004
F-4
Consolidated
	    Cash Flow Statements for the years ended
31 December 2005
and 2004
F-6
Consolidated
	    Statements of Recognised Income and Expense
for the years ended
31 December 2005, and 2004
F-7
Notes to the Financial Statements
F-8 to F-66
F-1
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GALLAHER GROUP Plc
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Gallaher Group Plc:
In our opinion,
the accompanying consolidated balance sheets and the related consolidated statements
of income, of cashflows and of statements of recognised income and expenses present
fairly, in all material respects, the financial position of Gallaher Group Plc
and its subsidiaries at December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31,
2005, in conformity with International Financial Reporting Standards as adopted
by the European Union. These financial statements are the responsibility of the
Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States), which require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
Accounting principles under International Financial Reporting Standards, as adopted by the European Union, vary in certain significant respects from accounting principles generally
accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 37 to the consolidated financial statements.
PricewaterhouseCoopers LLP
London, United Kingdom
18
th
April 2006
F-2
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GALLAHER GROUP Plc
Consolidated Income Statements
2005
2004
Before
Exceptional
Total
Before
Exceptional
Total
exceptional
items
exceptional
items
items
(note
    4)
items
(note
	    4)
Note
£m
£m
£m
£m
£m
£m
Sales
3
8,214
-
8,214
8,115
-
8,115
Duty
3
(5,611
)
-
(5,611
)
(5,568
)
-
(5,568
)
Other cost of goods sold
(1,497
)
(13
)
(1,510
)
(1,488
)
(8
)
(1,496
)
Cost of goods sold
(7,108
)
(13
)
(7,121
)
(7,056
)
(8
)
(7,064
)
Gross profit
1,106
(13
)
1,093
1,059
(8
)
1,051
Distribution, advertising and selling costs
(327
)
(13
)
(340
)
(321
)
-
(321
)
Administrative expenses
(149
)
(9
)
(158
)
(125
)
(9
)
(134
)
Other gains and losses - net
4
-
4
3
-
3
Operating Profit
634
(35
)
599
616
(17
)
599
Share
of post tax results of joint ventures
and associates
3
17
-
17
19
-
19
Total profit from operations
3
651
(35
)
616
635
(17
)
618
Interest and other finance income
77
-
77
88
-
88
Interest and other finance expense
(177
)
-
(177
)
(202
)
-
(202
)
Finance costs - net
6
(100
)
-
(100
)
(114
)
-
(114
)
Profit before taxation
7
551
(35
)
516
521
(17
)
504
Taxation
8
(152
)
8
(144
)
(148
)
6
(142
)
Profit for the year
399
(27
)
372
373
(11
)
362
Attributable to:
Equity shareholders
394
(25
)
369
369
(11
)
358
Minority interests
5
(2
)
3
4
-
4
399
(27
)
372
373
(11
)
362
Earnings per share
for profit attributable to equity shareholders
Basic
9
56.5
p
55.0
p
Diluted
9
56.4
p
54.9
p
Note:
Details
of the exceptional items are set out in note 4 to the financial statements. Excluding
the impact of exceptional items and amortization of intangible assets of £19m (2004:
£13m), total profit from operations is £670m (2004: £648m).
The notes to the Financial Statements are an integral part of these Financial Statements
F-3
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GALLAHER GROUP Plc
Consolidated Balance Sheets
2005
2004
Note
£m
£m
ASSETS
Non current assets
Property, plant and equipment
11
622
588
Intangible assets
12
1,452
1,401
Investments in associates
13
116
122
Investments in joint ventures
14
9
8
Deferred tax assets
22
27
33
Retirement benefit assets
21
56
7
Trade and other receivables
15
4
4
Derivative financial instruments
20
36
32
Financial assets at fair value through profit or loss
17
7
8
2,329
2,203
Current assets
Inventories
16
474
484
Trade and other receivables
15
812
800
Derivative financial instruments
20
32
84
Cash and cash equivalents
20
221
761
1,539
2,129
Non current assets classified as held for sale
18
6
-
1,545
2,129
Total assets
3,874
4,332
LIABILITIES
Non current liabilities
Borrowings
20
1,594
2,215
Derivative financial instruments
20
-
2
Trade and other payables
19
6
5
Deferred tax liabilities
22
72
51
Retirement benefit liabilities
21
71
79
Provisions for liabilities and charges
23
29
28
1,772
2,380
Current liabilities
Borrowings
20
816
892
Derivative financial instruments
20
43
37
Trade and other payables
19
1,032
992
Current income tax liabilities
61
83
Provisions for liabilities and charges
23
14
8
1,966
2,012
Total liabilities
3,738
4,392
Net assets/(liabilities)
136
(60
)
F-4
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GALLAHER
        GROUP Plc
Consolidated
      Balance Sheets
2005
2004
Note
£m
£m
Equity
Share capital
24
65
65
Share premium account
24
134
129
Capital redemption reserve
25
8
8
Merger reserve
25
146
146
Other reserve
25
(911
)
(911
)
Currency translation reserve
25
(5
)
(13
)
Retained earnings
25
667
485
Equity attributable to shareholders
104
(91
)
Minority interests
27
32
31
Total equity
136
(60
)
The Notes to the Financial Statements are an integral part of these Financial Statements
F-5
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GALLAHER GROUP Plc
Consolidated Cash Flow Statements
2005
2004
Note
£m
£m
Cash flows from operating activities
Cash generated from operating activities
28
700
755
Dividends received from associates and joint ventures
15
10
Income tax paid
(143
)
(90
)
Net cash from operating activities
572
675
Cash flows from investing activities
Acquisition of subsidiaries, including minority interests
-
(5
)
Purchases of property, plant and equipment
(103
)
(103
)
Proceeds from sale of property, plant and equipment
29
21
8
Purchases of intangible assets
(75
)
(6
)
Decrease in investments in associates and joint ventures
2
3
Net cash from investing activities
(155
)
(103
)
Cash flows from financing activities
Interest paid
(163
)
(140
)
Interest received
44
16
Proceeds from issuance of ordinary shares
3
4
Purchase of ordinary shares
(1
)
(1
)
Proceeds from borrowings
75
586
Repayment of borrowings
(701
)
(215
)
Dividends paid to minority interests
-
(5
)
Dividends paid to the Company's shareholders
(210
)
(196
)
Net cash from financing activities
(953
)
49
Net (decrease)/increase in cash and cash equivalents
(536
)
621
Cash and cash equivalents at beginning of the year
756
134
Exchange (losses)/gains on cash and cash equivalents
(1
)
1
Cash and cash equivalents at the end of the year
30
219
756
The Notes to the Financial Statements are an integral part of these Financial Statements
F-6
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GALLAHER
  GROUP Plc
Consolidated
  Statements of Recognised Income and Expense
2005
2004
Note
£m
£m
Actuarial
      gain/(loss) recognised on retirement benefits
21
30
(14
)
Deferred
      tax relating to actuarial gain/(loss) on retirement benefits
(9
)
5
Currency
      translation differences
8
(13
)
Net
      income/(expense) recognised directly in equity
29
(22
)
Profit
      for the year
372
362
Total
      recognised income for the year
401
340
Attributable
      to:
Equity
      shareholders
398
336
Minority
      interests
3
4
401
340
The Notes to the Financial Statements are an integral part of these Financial Statements
F-7
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GALLAHER
  GROUP Plc
Notes
  to the Financial Statements
1.
Summary
      of significant accounting policies
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.
Basis of
  preparation
The
  consolidated financial statements have been prepared in accordance with International
  Financial Reporting Standards as adopted by the European Union ("IFRS").
  There are no material differences between IFRS as adopted by the EU and complied
  with in the preparation of these financial statements and IFRS as published
  by the IASB.
The 2005 financial statements are the Group's first consolidated financial statements prepared under IFRS, with a transition date of 1 January 2004. Consequently, the comparative
figures for 2004 and the Group's balance sheet as at 1 January 2004 have been restated to comply with IFRS.
The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and financial liabilities (including derivative
instruments) at fair value through profit and loss.
The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results ultimately may differ from those
estimates.
Basis of
  Consolidation
The
  consolidated financial statements incorporate the accounts of Gallaher Group
  Plc and all its subsidiaries together with the Group's share of the post
  tax results and net assets of its joint ventures and associates.
(a) Subsidiaries
Subsidiaries are all entities that are ultimately controlled by Gallaher Group Plc. Control is the power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The cost of an acquisition is measured as the fair value of the consideration given for assets acquired, equity instruments issued and liabilities incurred or assumed at the date of the
exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at their fair values at the acquisition date. The excess of the
cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred.
(b) Associates and joint ventures
Associates
are all entities over which the Group has significant influence but not control.
Joint ventures are contractual arrangements whereby the Group, together with
one or more parties, undertake an economic activity which is subject to joint
control. Investments in associates and joint ventures are accounted for using
the equity method of accounting and are initially recorded at cost. The Group's
investment in
associates and joint ventures includes goodwill identified on acquisition.
The Group's share of its associates' and joint ventures' post acquisition profits or losses are recognised in the income statement post tax, and its share of
post-acquisition movements in reserves are recognised in reserves. The cumulative post–acquisition movements are adjusted against the carrying amount of the investments.
Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group's interest in the associate or joint venture.
Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
F-8
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GALLAHER
  GROUP Plc
Notes
  to the Financial Statements
1.
Summary
      of significant accounting policies
(continued)
Segment reporting
The Group's management structure and internal reporting systems are focused on the geographic regions in which the Group operates. Therefore, the primary reporting format under IAS
14 Segment Reporting is by geographic segment. These segments reflect components of the Group that operate within particular economic environments which are subject to certain risks and returns that are different from those components operating in
other economic environments.
The secondary reporting format is by business segment. The Group distinguishes the results of its manufacturing and distribution operations within this format.
Costs are borne by geographic and business segments as incurred.
Foreign currencies
The
  income and cashflow statements of Group undertakings with a functional currency
  other than sterling are translated to sterling at average rates of exchange
  in each year. Assets and liabilities of these undertakings are translated at
  rates of exchange existing at the end of the accounting period.
The differences between retained profits of overseas subsidiaries, joint ventures and associates translated at average and closing rates of exchange are taken to reserves, as are the
differences arising on the retranslation to sterling (using closing rates of exchange) of overseas net assets at the beginning of the year. Any differences that have arisen since 1 January 2004 are presented as a separate component of equity. As
permitted under IFRS 1 First time Adoption of International Financial Reporting Standards, any differences prior to that date are not included in this separate component of equity.
Foreign currency transactions are initially recorded in the functional currency of the transacting entities at the exchange rate ruling at the date of the transaction. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the translation at period end rates of exchange are recognised in the income statement, except when deferred in equity as qualifying cash flow hedges and qualifying net
investment hedges.
Revenue recognition
Revenue
  from the sale of goods and services is measured at fair value, net of sales
  and marketing incentives and excluding sales within the Group. Revenue comprises
  amounts charged to customers for goods sold, services supplied, licence fees
  and excise duties paid by the Group but not VAT or its equivalent. The Group
  recognises such revenue when the risks and rewards of ownership are transferred
  significantly (which is generally when goods are received by the customer),
  and collection of the related receivable is reasonably assured. Sales and marketing
  incentives include retrospective payments made to customers relating to specific
  performance criteria, normally targeted volume sales, ranging and stock availability,
  and payments to customers to support shelf price reduction in relation to promotional
  activity.
Excise duties
Excise
  duties are accounted for as a component of cost of goods sold and, accordingly,
  are not shown as a deduction from sales. However, a key performance indicator
  used by management is operating margin which is calculated as total profit from
  operations before amortization of intangible assets and exceptional items expressed
  as a percentage of net sales. Net sales in this context is defined as sales
  less excise duties incurred.
Exceptional
  items
Items
  that are both material in size, and unusual and infrequent in nature are presented
  as exceptional items in the income statement. The directors are of the opinion
  that the separate recording of exceptional items provides helpful information
  about the Group's underlying business performance. Examples of events,
  inter alia, which may give rise to the classification of items as exceptional
  include the restructuring of existing and newly acquired businesses, gains and
  losses on the disposal of businesses or individual assets and asset impairments.
Advertising
All
  advertising expenditure, including that relating to new brands, is charged to
  the income statement in the year in which it is incurred.
Research
  and development
Research
  and development expenditure is charged to the income statement as incurred,
  except that development expenditure is capitalised if it meets the recognition
  criteria of IAS 38 Intangible Assets. To date, no development expenditure has
  met the capitalisation recognition criteria.
F-9
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GALLAHER GROUP Plc
Notes to the Financial Statements
1.
Summary
    of significant accounting policies
(continued)
Dividend distribution
Dividend
distributions to shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the relevant
Company's shareholders or, in the case of interim dividends, when they are
declared. Where a dividend has been proposed, no liability is recognised in the
financial statements for the period, although it is included in certain performance
indicators such as dividend cover.
Property, plant and equipment
Property, plant and equipment is stated at cost less depreciation. Depreciation is calculated to write down the cost of the tangible assets to their residual values, on a straight-line
basis, over their estimated useful lives, namely:
Land and buildings
Freehold land
Not depreciated
Freehold buildings
50 years
Long leasehold (lease term 50 years or more)
50 years
Plant and machinery
3-20 years
Fittings and equipment
3-10 years
Assets in the course of construction
Not depreciated
Assets in the course of construction relate mainly to new factory premises under construction and deposits paid in respect of the installation of certain plant and machinery. Depreciation
commences when these assets become operational.
The Group does not capitalise borrowing costs incurred in the construction of qualifying assets.
Intangible assets: Acquired goodwill
Goodwill is not amortised, but is tested at least annually for impairment and carried at cost less accumulated impairment losses. At the date of acquisition, goodwill is allocated to cash
generating units for the purpose of future impairment testing. Each cash generating unit is the smallest identifiable group of assets that generate cash inflows that are largely independent of the cashflows from other groups of assets. Goodwill
arising on the acquisition of subsidiaries is presented in intangible assets and on the acquisition of associates and joint ventures is presented in investments in associates and joint ventures. Internally generated goodwill is not recognised as an
asset.
Intangible assets: other
The cost of other intangible assets acquired in a business combination is the fair value at acquisition date. These assets are shown at cost, and amortised, on a straight line basis, over
their expected useful economic lives. The definition of cost for separately acquired assets, as well as the useful economic life, varies according to the type of intangible asset:
(a) Trademarks
Trademarks
acquired separately are shown at historic cost, including acquisition expenses,
and amortised, on a straight line basis, over their expected useful economic
lives. Trademarks
principally relate to certain registrations of the Benson & Hedges and Silk Cut trademarks in western Europe. The directors are of the opinion that, based on the established brand equity of Benson & Hedges
and Silk Cut in these and other markets and the expectation that they will continue
to be developed and generate significant earnings over the long-term future,
a life of up to 40 years is appropriate. All other trademarks are amortised over
a period not exceeding 20 years.
(b) Other intangible assets
Other intangible assets include separately acquired computer software, licences, location rights for vending machines and distribution rights. Computer software licences are capitalised
on the basis of the costs incurred to acquire and bring to use the specific software. Computer software development costs that are directly associated with the implementation of major business systems are capitalised as intangible assets. These
costs are amortised over their useful economic lives, a period not exceeding 10 years. Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. If acquired separately, other intangible
assets are shown at historic cost, including acquisition expenses, and amortised on a straight-line basis, over their expected economic lives, not exceeding 20 years.
Impairment of assets
Other intangible assets include separately acquired computer software, licences, location rights for vending machines and distribution rights. Computer software licences are capitalised
on the basis of the costs incurred to acquire and bring to use the specific software. Computer software development costs that are directly associated with the implementation of major business systems are capitalised as intangible assets. These
costs are amortised over their useful economic lives, a period not exceeding 10 years. Costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. If acquired separately, other intangible
assets are shown at historic cost, including acquisition expenses, and amortised on a straight-line basis, over their expected economic lives, not exceeding 20 years.
F-10
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GALLAHER GROUP Plc
Notes to the Financial Statements
1.
Summary
    of significant accounting policies
(continued)
Deferred Taxation
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial
statements. Deferred tax is determined using tax rates that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the liability is settled.
Deferred tax assets are not recognised to the extent that the realisation of economic benefits in the future is not probable.
Deferred tax is fully provided on temporary differences arising on investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of the
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Inventories
Inventories
are stated at the lower of cost and net realisable value. Cost is determined
using the first-in, first-out method. The cost of finished goods and work in
progress comprises consumable goods, raw materials, direct labour, other direct
costs and related production overheads (based on normal operating capacity).
Borrowing costs are excluded. Raw materials and consumable goods primarily consist
of raw tobacco leaf,
packaging materials and tax stamps. Finished goods comprise products made within
the Group's manufacturing locations including excise duty where the liability
has crystallised, and goods purchased by the Group for direct re-sale. Net realisable
value is the estimated selling price in the ordinary course of business, less
applicable variable selling expenses.
Employee benefits
(a) Pensions
The Group operates both defined benefit pension plans and defined contribution pension plans.
A defined benefit pension plan defines the amount of pension benefit an employee will receive on retirement. The amount recognised in the balance sheet is the difference between the
present value of the defined benefit obligation and the fair value of plan assets at the balance sheet date. The defined benefit obligation is calculated at each reporting date by independent actuaries using the projected unit credit method.
Past service costs are recognised immediately in the income statement within operating profit, except past service costs where changes to the pension benefits are conditional on the
employees remaining in service for a specified period of time. In this case, the past-service costs are amortised on a straight-line basis over the vesting period. Interest on retirement benefit liabilities and the expected return on pension plan
assets are disclosed within finance expense and finance income in the income statement. All actuarial gains and losses, including differences between actual and expected returns on assets and differences arising from changes in actuarial
assumptions, are recognised in the statement of recognised income and expense in the period in which they arise.
A defined contribution plan is one under which fixed contributions are paid by the Group to a third party. The Group has no further payment obligations once these contributions have been
paid. The contributions are recognised in the income statement as an employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or reduction in the future payments is available.
(b) Other post employment benefit obligations
Other post employment benefits comprise healthcare, product gratuities and severance plans provided by certain subsidiaries of the Group to some retirees. The entitlement to these
benefits is generally conditional on an employee remaining in service up to retirement age and/or the completion of a minimum service period and the rules of the relevant trusts. The income statement and balance sheet treatment with respect to these
benefits is similar to that for defined benefit pension plans. The obligations are valued at each reporting date by independent actuaries.
(c) Share-based compensation
The
Group operates various equity settled, and cash settled share option schemes.
For equity settled schemes, the option is recognised as an expense over the vesting
period of the options. The total amount to be expensed over the vesting period
is determined by the fair value of the options granted at the grant date. Non-market
related vesting conditions are included in the assumptions about the number of
options that are
expected to become exercisable. At each balance sheet date these estimates are
revised and any adjustments are recognised in the income statement and shareholders' equity.
The proceeds received are credited to share capital and share premium when the
options are exercised. Cash settled schemes are recognised as an expense over
the vesting period. The fair value of the liability is measured at each balance
sheet date and at the date of settlement with changes in fair value recognised
in
the income statement.
IFRS 2 Share-based Payment, has been applied, in accordance with IFRS 1, to equity settled options granted after 7 November 2002 (including those that vested before 1 January 2005) and to
all cash settled share options.
F-11
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GALLAHER GROUP Plc
Notes to the Financial Statements
1.
Summary
    of significant accounting policies
(continued)
Financial Instruments
Financial instruments are reported and measured in accordance with IAS 32 and IAS 39 respectively. Financial instruments comprise: non-derivative financial assets and liabilities,
including cash, deposits and borrowings; and financial derivatives, whose value changes in line with movements in market rates. The Group uses derivative financial instruments to hedge exposure to interest rate and foreign exchange risks arising
from operational, financing and investment activities. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.
Non-derivative financial assets are classified as either: loans and receivables, cash and cash equivalents, or financial assets held at fair value through profit and loss.
Financial assets held at fair value through profit and loss are stated at their market value and changes in this value are taken to the income statement. Financial assets held at fair
value principally comprise listed securities held as collateral for pension and excise duty obligations. All other financial assets are stated at the lower of their initial cost (including any transaction costs and accrued interest receivable) and
their estimated recoverable amount. Cash and cash equivalents include cash in hand; deposits held on call with banks, other short-term highly liquid investments and accrued interest income thereon. Bank overdrafts are included within borrowings in
current liabilities on the balance sheet.
Non-derivative financial liabilities include borrowings and finance leases. They are stated at their redeemable value, including accrued interest payable, less transaction costs that have
not yet been recognised in the income statement.
Where the change in value of a financial liability or financial asset, due to the movement in market interest rates, has been hedged with a financial derivative, its value is adjusted for
the change in market value due to the financial risk being hedged. Where such fair value hedging relationships exist, the change in the value of the liability or asset being hedged should broadly offset the change in market value of the hedging
instrument and any difference is recognised immediately in the income statement.
Derivative financial instruments are stated at their market value in the balance sheet and are classified as current assets or liabilities, unless they form part of a hedging
relationship, in which case their classification follows the classification of the hedged financial asset or liability. Changes in the market value of derivative financial instruments are recognised immediately in the income statement, unless the
derivative is designated as a hedge of a net investment in a foreign operation or as a hedge of future cash flows, in which case the changes in value are taken direct to equity. A net investment in a foreign operation comprises the cost of the
investment, long-term intra-group receivables and payables that are not intended to be settled, and post-acquisition reserves. Where non-derivatives such as foreign currency borrowings are designated as net investment hedges, the relevant exchange
differences are similarly taken to equity. Where gains and losses have been taken direct to equity, the accumulated gain or loss is subsequently transferred to the income statement in the same period in which the foreign operation is sold or
otherwise disposed of.
Leases
Assets held under finance leases are capitalised in the balance sheet and are depreciated over the shorter of useful economic lives and the period of the lease. The capital elements of
future obligations under leases are included as liabilities in the balance sheet. The interest elements of the lease obligations are charged to the income statement over the period of the lease. Rentals paid under operating leases are charged to the
income statement over the lease term on a straight-line basis.
F-12
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GALLAHER GROUP Plc
Notes to the Financial Statements
2.
Critical
    accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and
assumptions that are felt most capable of influencing the carrying amounts of assets and liabilities to a material extent within the next financial year are discussed below.
(a) Estimated impairment of goodwill and other intangible assets
The
Group tests annually whether goodwill and other long-lived intangible assets
have suffered any impairment, in accordance with the accounting policy stated
in note 1. The recoverable amounts of cash-generating units have been determined
based on value-in-use calculations. These calculations require the use of estimates
(note 12). As at 31 December 2005, the headroom for value-in-use above the carrying
value of goodwill on each
material unit of acquired goodwill exceeds 10%. As such, it is not felt that
a reasonably possible change in any single assumption on which management has
based its determination of the value-in-use would cause the material units' carrying
amounts to exceed their recoverable amounts.
(b) Income taxes
The Group is subject to tax in numerous jurisdictions and significant judgement is exercised in determining the provision for taxes in each fiscal territory. There are many transactions
and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises probable liabilities for anticipated tax issues based upon an estimate of whether additional tax will be due. Where
the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
(c) Retirement Benefits
Costs relating to the various defined benefit pension schemes operating within the group are accounted for using methods that rely on actuarial estimates and assumptions to arrive at
costs and assets or liabilities for inclusion in the accounts. The assets and liabilities of the scheme are included in the balance sheets of the entities to which the schemes relate and, on consolidation, in the Group balance sheet. The income
statement components of the annual pension scheme movements are derived from the increase in the liability to pension scheme members of a further year of service, an interest cost relating to the unwinding of the discount used in arriving at the
present value of that expected liability and an estimated return on the assets held by the scheme based on assumptions taken at the previous year end.
At the end of each year, the value of the assets and liabilities that comprise the scheme is ascertained and the difference between the actual and expected position (as derived from the
income statement entries) is taken through the Statement of Recognised Income and Expense and hence the reserves of the entity that operates the scheme. If the markets in which assets held by the pension scheme decline, substantial deficits may
arise and may reduce the ability of a company to pay dividends.
The Group takes advice from independent actuaries as to the appropriateness of the assumptions we use. However, it is important to note that relatively small changes in the assumptions we
use can have a significant effect on the income statement and balance sheet pension components.
Details of the key assumptions used to derive the amounts disclosed in relation to retirement benefits are set out in note 21 to the financial statements. Management regards the key
valuation driver to be the discount rate, which over the last three years has moved by less than 1% in aggregate. As at 31 December 2005, a movement of 0.1% on the discount rate would give rise to a movement of £16m on the present value of
accrued retirement benefit liabilities.
F-13
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GALLAHER GROUP Plc
Notes to the Financial Statements
3.
Segment
    reporting
Primary reporting format - geographical segments
The
Group is principally engaged in the manufacture, marketing and selling of tobacco
and tobacco related products. A segment is a distinguishable component of the
Group that is engaged in providing products or services within a particular economic
environment and the Group's geographical segments form the focus of the Group's
internal reporting systems.
The Group is organised into four distinct, independently managed, geographic segments: United Kingdom ("UK"), Europe, Commonwealth of Independent States ("CIS") and
Rest of World (principally comprising: Africa; Asia Pacific; the Baltics; the Middle East; Poland; and Scandinavia).
The segment results are as follows:
2005
Rest of
UK
Europe
CIS
World
Total
£m
£m
£m
£m
£m
Gross segment sales
3,767
3,810
476
318
8,371
Inter-segment sales
(109
)
(16
)
-
(32
)
(157
)
Sales
3,658
3,794
476
286
8,214
Duty
3,086
2,247
120
158
5,611
Total profit from
operations before amortization of intangible assets and exceptional items
310
259
67
34
670
Amortization of intangible assets
(4
)
(15
)
-
-
(19
)
Exceptional items
(22
)
(10
)
-
(3
)
(35
)
Total profit from operations
284
234
67
31
616
Other segment items
included in the income statement are as follows:
Share of profit of associates and joint ventures
-
17
-
-
17
Depreciation
28
41
14
3
86
Impairment of trade receivables
-
-
-
1
1
2004
Rest of
UK
Europe
CIS
World
Total
£m
£m
£m
£m
£m
Gross segment sales
3,799
3,866
410
192
8,267
Inter-segment sales
(119
)
(30
)
(1
)
(2
)
(152
)
Sales
3,680
3,836
409
190
8,115
Duty
3,112
2,283
102
71
5,568
Total profit from
operations before amortization of intangible assets and exceptional items
302
260
57
29
648
Amortization of intangible assets
(3
)
(10
)
-
-
(13
)
Exceptional items
(9
)
(5
)
-
(3
)
(17
)
Total profit from operations
290
245
57
26
618
Other segment items
included in the income statement are as follows:
Share of profit of associates and joint ventures
-
19
-
-
19
Depreciation
28
33
14
2
77
F-14
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GALLAHER GROUP Plc
Notes to the Financial Statements
3.
Segment
    reporting
(continued)
Segment operating profit comprises total profit from operations less the share of profit of associates and joint ventures.
The Group operates a centralised financing policy and considers that any segmental apportionment of interest and interest bearing net liabilities would not be meaningful.
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.
The segment assets and liabilities at 31 December and capital expenditure for the year then ended are as follows:
2005
Rest of
UK
Europe
CIS
World
Total
£m
£m
£m
£m
£m
Assets
815
1,737
494
489
3,535
Associates
-
116
-
-
116
Joint ventures
-
9
-
-
9
Total assets
815
1,862
494
489
3,660
Liabilities
(542
)
(513
)
(96
)
(103
)
(1,254
)
Net assets
273
1,349
398
386
2,406
Capital expenditure:
Additions to property, plant and equipment
33
40
22
29
124
Additions to intangible assets
3
73
-
-
76
2004
Rest of
UK
Europe
CIS
World
Total
£m
£m
£m
£m
£m
Assets
793
1,819
458
402
3,472
Associates
-
122
-
-
122
Joint ventures
-
8
-
-
8
Total assets
793
1,949
458
402
3,602
Liabilities
(547
)
(579
)
(103
)
(63
)
(1,292
)
Net assets
246
1,370
355
339
2,310
Capital expenditure:
Additions to property, plant and equipment
25
47
23
9
104
Additions to intangible assets
2
1
4
-
7
Segment assets consist primarily of property, plant and equipment, intangible assets, inventories and receivables. They exclude deferred taxation, derivatives and cash and cash
equivalents.
Segment liabilities
comprise operating liabilities. They exclude items such as current income tax
payables, deferred taxation, corporate borrowings and derivatives.
Segment net
  assets are reconciled to the consolidated balance sheet as follows:
2005
2004
£m
£m
Segment net assets
2,406
2,310
Taxation (current income tax, deferred tax assets and deferred tax liabilities)
(106
)
(101
)
Net debt (cash and cash equivalents, borrowings and derivative financial instruments)
(2,164
)
(2,269
)
Net assets/(liabilities)
136
(60
)
F-15
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GALLAHER GROUP Plc
Notes to the Financial Statements
3.
Segment
    reporting
(continued)
Secondary reporting format - business segments
At
31 December 2005, the Group's operations comprise two main business segments: the manufacture, marketing and selling of tobacco products ("Tobacco"); and the
distribution of tobacco and non-tobacco products ("Distribution").
The distribution operations are all within the Europe business segment.
2005
2004
£m
£m
Sales
Tobacco
6,254
6,121
Distribution
1,960
1,994
8,214
8,115
Duty
Tobacco
4,750
4,683
Distribution
861
885
5,611
5,568
Total profit from operations
Tobacco
-before amortization of intangible assets and exceptional items
605
585
-amortization of intangible assets
(12
)
(9
)
-exceptional items
(25
)
(17
)
568
559
Distribution
-before amortization of intangible assets and exceptional items
65
63
-amortization of intangible assets
(7
)
(4
)
-exceptional items
(10
)
-
48
59
Total
-before amortization of intangible assets and exceptional items
670
648
-amortization of intangible assets
(19
)
(13
)
-exceptional items
(35
)
(17
)
616
618
Total assets
Tobacco
3,330
3,698
Distribution
544
634
3,874
4,332
Capital expenditure
(additions to property, plant and equipment and intangible assets)
Tobacco
192
91
Distribution
8
20
200
111
F-16
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GALLAHER GROUP Plc
Notes to the Financial Statements
4.
Exceptional
    items
In 2003 and early 2004, Gallaher announced the restructuring of its European operations and administration. Gallaher ceased all manufacturing in the Republic of Ireland by the end of
    2003, and reduced jobs in the UK, Austria and Sweden.
In early 2005, Gallaher announced proposals for a further restructuring of its European operations. These proposals comprised: the closure of the Schwaz cigarette and Furstenfeld cigar
factories in Austria; the restructuring of production at the cigarette and cigar factories at Lisnafillan and Cardiff in the UK; and, reorganisation of some aspects of the distribution network in Europe. This activity commenced in 2005.
In December 2005, Gallaher further announced a restructuring of its German vending operation, ATG, reducing its machine park in recognition of new legislation coming into effect in 2007.
In addition, Gallaher sold its Dublin former factory site, realising a gain of £15m.
Net exceptional charges of £35m are included in the income statement for the year ended 31 December 2005 in respect of these restructuring programmes, comprising: £13m charged
in cost of goods sold (net of the gain on disposal of the Dublin former factory site); £13m charged in distribution, advertising and selling costs; and, £9m charged in administrative expenses. The charge for the year ended 31 December 2004
amounted to £17m. The tax credit associated with the 2005 net exceptional charge is £8m (2004: £6m). The restructuring charges mainly relate to redundancy costs and the write-down of operational plant and machinery, offset partly
through the gain on disposal of land and buildings. The restructuring gave rise to a net cash outflow in 2005 of £18m (2004: £15m) (notes 28 and 29).
5.
Directors
    and employees
Information
    on the directors' remuneration (including pensions), shareholdings and
    share options is given in the remuneration report in Item 6 of this Annual
Report.
The average number of persons employed by the Group during the year, including executive directors and part-time employees, was:
2005
2004
number
number
UK
1,761
1,836
Europe
3,378
3,597
CIS
5,162
5,026
Rest of world
799
713
11,100
11,172
Employee benefit expense:
2005
2004
£m
£m
Wages and salaries, including termination benefits of £26m (2004: £11m)
233
222
Social security costs
38
39
Share options granted to directors and employees
5
1
Pension costs - defined contribution plans
3
2
Pension costs - defined benefit plans (note 21)
14
17
Other post-employment benefits (note 21)
3
3
296
284
F-17
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GALLAHER GROUP Plc
Notes
to the Financial Statements
6.
Finance
    costs - net
2005
2004
£m
£m
Interest expense:
- bank borrowings
13
14
- eurobonds and medium term notes
114
130
- premium on forward foreign exchange contracts
1
9
- other
1
2
129
155
Interest and other financial income:
- bank deposits
(9
)
(16
)
- interest rate swaps
(3
)
(8
)
- other
(2
)
(4
)
(14
)
(28
)
Fair value gains on derivative financial instruments not designated as hedges
(6
)
(6
)
Net retirement benefits financing income:
- expected return on pension plan assets
(57
)
(54
)
- interest on retirement benefit liabilities
48
47
(9
)
(7
)
Finance costs - net
100
114
Comprising:
Interest and other finance income
(77
)
(88
)
Interest and other finance expense
177
202
The Group uses forward foreign exchange contracts to hedge the foreign exchange risk arising on intra-Group borrowings and to hedge the net investment in foreign operations. The premiums
payable and discounts receivable on such contracts are amortised over the term of the contracts and recognised as net finance costs in the income statement.
The fair value gains on derivative financial instruments not designated as hedges represents the change in the market value of interest rate swaps and the change in the value of foreign
exchange contracts attributable to interest rate risk. The change in the value of forward foreign exchange contracts attributable to foreign exchange risk is matched with exchange gains and losses on the underlying assets or liabilities within Group
operating profit or, in the case of net investment hedges, taken direct to the currency translation reserve in equity.
The ineffective portion of interest rate swaps designated as fair value hedges was nil in 2005 (2004: nil).
F-18
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GALLAHER GROUP
  Plc
Notes
  to the Financial Statements
7.
Profit
      before taxation
2005
2004
£m
£m
Profit
      before taxation is stated after charging/(crediting):
Staff
      costs (note 5)
296
284
Depreciation
      of property, plant and equipment:
-
      owned assets (including £7m charged in 2005 within exceptional items.
      2004: nil)
85
77
-
      under finance leases
1
-
Amortization
      of government grants
(1
)
-
Amortization
      of intangible assets:
-
      subsidiaries
15
12
-
      associates
4
1
Net
      profit on disposal of property, plant and equipment
(including
      a profit of £14m in 2005 within exceptional items. 2004: nil)
(13
)
(1
)
Other
      operating lease rentals payable:
-
      plant and machinery
4
3
-
      property
9
9
Exceptional
      items - restructuring costs (note 4)
35
17
Net
      foreign exchange gains (included in administrative expenses)
(2
)
(3
)
Audit
      fees for the Group amounted to £1.4m (2004: £1.3m).
Fees
      payable to PricewaterhouseCoopers in the UK for non-audit work amounted
      to £0.7m (2004: £0.3m).
F-19
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GALLAHER
  GROUP Plc
Notes
  to the Financial Statements
8.
Taxation
      charge
2005
2004
£m
£m
Current
      tax:
-
      UK corporation tax at 30% (2004: 30%)
62
63
-
      overseas
65
60
127
123
Deferred
      tax (note 22)
-
      UK
7
11
-
      overseas
10
8
17
19
144
142
The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated companies
as follows:
2005
2004
£m
£m
Profit
      before tax
516
504
Tax
      calculated at domestic tax rates applicable to profits in the respective
      countries
136
133
Expenditure
      not deductible for tax purposes
13
1
Non
      taxable income / credits
(9
)
(14
)
Untaxed
      reserves
-
10
Tax
      losses for which no deferred tax assets have been recognised
(4
)
(2
)
Timing
      differences
-
(2
)
Utilisation
      of previously unrecognised tax losses
(1
)
2
Amortization
      of goodwill and other intangibles
5
5
Adjustments
      to tax charge in respect of prior periods
4
9
Tax
      charge
144
142
The
      tax charge in 2005 includes a tax credit of £8m relating to exceptional
      items (2004: £6m) (note 4).
F-20
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GALLAHER GROUP
  Plc
Notes
  to the Financial Statements
9.
Earnings
      per share
2005
2004
Basic
      earnings per share (pence per share)
56.5
p
55.0
p
Diluted
      earnings per share (pence per share)
56.4
p
54.9
p
Basic earnings per share is calculated by dividing the earnings attributable to equity shareholders by the weighted average number of ordinary shares outstanding during the year,
excluding shares held in the Employee Benefit Trust.
For diluted
  earnings per share, the weighted average number of ordinary shares in issue
  is adjusted to assume conversion of all dilutive potential ordinary shares.
  The Group's dilutive potential ordinary shares are those options granted
  to employees where the exercise price is less than the average market price
  of the company's ordinary shares during the year.
A reconciliation
  of the earnings and weighted average number of shares used in the calculations
  are set out below.
2005
2004
Earnings
      (£m):
Basic
      and diluted
369
358
Weighted
      average number of ordinary shares in issue (m):
Ordinary
      shares in issue
655.3
654.1
Shares
      held by employee share trusts
(2.0
)
(2.2
)
Shares
      used in the calculation of basic earnings per share
653.3
651.9
Potentially
      dilutive share options
1.6
1.6
Shares
      used in the calculation of diluted earnings per share
654.9
653.5
The earnings have been impacted by exceptional items and amortization of intangible assets. To illustrate the impact of these items, the adjusted earnings per share are shown below:
2005
2004
Earnings
      per share (pence):
Basic
      earnings per share
56.5
55.0
Adjustment
      for exceptional items (net of tax and minority interest)
3.7
1.7
Adjustment
      for amortization of intangible assets
2.9
2.0
Adjusted
      earnings per share
63.1
58.7
The
      adjusted earnings per share is based on:
Earnings
      (£m):
Profit
      for the year attributable to equity shareholders
369
358
Exceptional
      items (before tax)
35
17
Tax
      on exceptional items
(8
)
(6
)
Minority
      share of exceptional items
(2
)
-
Amortization
      of intangible assets
19
13
Adjusted
      earnings
413
382
Weighted
      average number of ordinary shares in issue (m):
653.3
651.9
F-21
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GALLAHER GROUP Plc
Notes to the Financial Statements
10.
Dividends per
share
Total dividends paid to the Group's shareholders in each year are as follows:
2005
2004
2005
2004
Pence per
Pence per
£m
£m
share
share
Dividends on ordinary equity shares:
Final dividend in respect of 2004
21.5
20.15
141
131
Interim dividend in respect of 2005
10.6
10.00
69
65
32.1
30.15
210
196
Proposed dividend
A
final dividend in respect of 2005 of 22.9p per share, amounting to a total dividend
of £219m (33.5p per share), is to be proposed at the Annual General Meeting in May 2006. These
financial statements do not reflect this proposed dividend. In 2004 the final proposed dividend was 21.5p per share, amounting to a total dividend of £206m
(31.5p per share).
F-22
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GALLAHER GROUP Plc
Notes to the Financial Statements
11.
Property, plant and equipment
Land and
Plant and
Fittings and
Construction
buildings
machinery
equipment
in progress
Total
£m
£m
£m
£m
£m
At 1 January 2004
Cost
143
433
284
12
872
Accumulated depreciation
(22
)
(172
)
(99
)
-
(293
)
Net book amount
121
261
185
12
579
Year ended 31 December 2004
Opening net book amount
121
261
185
12
579
Exchange differences
(2
)
(2
)
-
1
(3
)
Additions
5
12
48
39
104
Reclassifications
1
33
3
(37
)
-
Disposals
(1
)
(5
)
(8
)
(1
)
(15
)
Depreciation charge
(3
)
(27
)
(47
)
-
(77
)
Closing net book amount
121
272
181
14
588
At 31 December 2004
Cost
144
455
297
14
910
Accumulated depreciation
(23
)
(183
)
(116
)
-
(322
)
Net book amount
121
272
181
14
588
Year ended 31 December 2005
Opening net book amount
121
272
181
14
588
Exchange differences
2
9
(2
)
2
11
Additions
6
20
38
60
124
Reclassifications (see below)
(2
)
28
8
(40
)
(6
)
Disposals
(3
)
-
(6
)
-
(9
)
Depreciation charge
(3
)
(35
)
(48
)
-
(86
)
Closing net book amount
121
294
171
36
622
At 31 December 2005
Cost
147
497
324
36
1,004
Accumulated depreciation
(26
)
(203
)
(153
)
-
(382
)
Net book amount
121
294
171
36
622
The net book
    amount of reclassifications in 2005 of £6m comprises properties reclassified
as "held for sale" (note 18).
Depreciation
    has been charged in the income statement as follows:
2005
2004
£m
£m
Cost of goods sold
39
32
Distribution, advertising and selling costs
39
38
Administrative expenses
8
7
86
77
Included within
    fixtures and fittings are assets acquired by finance lease with a net book
value of £2m (2004: £6m).
The net book
  amount of land and buildings comprises:
2005
2004
£m
£m
Freehold
121
120
Long leasehold
-
1
121
121
F-23
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GALLAHER
      GROUP Plc
Notes
      to the Financial Statements
12.
Intangible assets
Other
Goodwill
Trademarks
intangibles
Total
£m
£m
£m
£m
At 1 January 2004
Cost
1,219
221
34
1,474
Accumulated amortization and impairment
-
(48
)
(11
)
(59
)
Net book amount
1,219
173
23
1,415
Year ended 31 December 2004
Opening net book value
1,219
173
23
1,415
Additions
4
-
3
7
Amortization charge
-
(8
)
(4
)
(12
)
Exchange differences
(9
)
-
-
(9
)
Closing net book amount
1,214
165
22
1,401
At 31 December 2004
Cost
1,214
221
37
1,472
Accumulated amortization and impairment
-
(56
)
(15
)
(71
)
Net book amount
1,214
165
22
1,401
Year ended 31 December 2005
Opening net book amount
1,214
165
22
1,401
Additions
1
71
4
76
Amortization charge
-
(9
)
(6
)
(15
)
Exchange differences
(10
)
-
-
(10
)
Closing net book amount
1,205
227
20
1,452
At 31 December 2005
Cost
1,205
292
36
1,533
Accumulated amortization and impairment
-
(65
)
(16
)
(81
)
Net book amount
1,205
227
20
1,452
Other intangible assets include separately acquired computer software, licences, location rights for vending machines and distribution rights.
Amortization in respect of subsidiaries has been charged in the income statement as follows:
2005
2004
£m
£m
Cost of goods sold
9
8
Distribution, advertising and selling costs
2
1
Administrative expenses
4
3
15
12
F-24
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GALLAHER
  GROUP Plc
Notes to the Financial Statements
12.
Intangible
      assets
(continued)
Impairment tests for goodwill
Goodwill
is allocated to the Group's cash-generating-units (CGUs) identified according to the country of operation and business type. A summary of the goodwill allocation,
illustrating the significant goodwill allocations in comparison with the Group's
total goodwill, is presented below:
Segment
2005
2004
£m
£m
Austria Tabak - Central Europe
Europe
720
742
Austria Tabak - Scandinavia
Rest of World
266
275
Other
Various
219
197
Goodwill - subsidiaries
1,205
1,214
Associate - Lekkerland
Europe
90
92
Total goodwill
1,295
1,306
With respect to the two significant Austria Tabak CGUs shown above, the recoverable amount of the goodwill of each CGU is determined based on value-in-use calculations. These calculations
use cash flow projections based on financial budgets approved by management covering a three-year period. Based on management's experience as to the periods over which competitive advantage from acquisition can be retained, cash flows beyond
the initial forecast period are extrapolated for an additional four years at growth rates applicable to reduce the annual growth rates gradually down to rates in line with management's view of the long-term average growth for the tobacco
industry in each business region. A terminal value is then calculated, based on the final extrapolated year's cash flows and appropriate perpetual growth rates.
When assessing the value-in-use of potential acquisitions, the tobacco industry tends to apply perpetual growth rates within the range of -1% to +1%, depending on the operating
environment of the acquisition in question. The weighted average perpetual growth rates applied in calculating the value-in-use of the significant recoverable amount calculations fall within this range. Discount rates applied to the Austria Tabak -
Central Europe and Austria Tabak - Scandinavia CGUs are 9% and 10% respectively. Other key assumptions relate to cigarette market shares, size and profitability, which have been based on the key markets of Austria and Sweden. These assumptions have
been determined by management based on past performance and expectations for the future. Recoverable value significantly exceeds carrying value for these CGUs.
F-25
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GALLAHER GROUP Plc
Notes to the Financial Statements
13.
Investments
    in associates
2005
2004
£m
£m
At 1 January
122
116
Share of profit
13
14
Dividends
(15
)
(10
)
Exchange differences
(4
)
1
Other movements
-
1
At 31 December
116
122
Investments in associates at 31 December 2005 include goodwill of £90m (2004: £92m). The share of profit of associates in 2005 is stated after charging £4m in respect of
the amortization of intangible assets (2004: £1m).
The Group's interest in its principal associate, which is unlisted, was as follows:
Interest
Country of
held
Sales
Profit
Assets
Liabilities
Name
Incorporation
%
£m
£m
£m
£m
2005
Lekkerland GmbH & Co KG
Germany
25.1
1,511
13
284
168
(formerly Lekkerland-Tobaccoland
GmbH & Co KG)
2004
Lekkerland GmbH & Co KG
Germany
25.1
1,343
14
286
164
(formerly Lekkerland-Tobaccoland
GmbH & Co KG)
14.
Investments
    in joint ventures
2005
2004
£m
£m
At 1 January
8
6
Share of profit
4
5
Exchange differences
(1
)
-
Other movements (see below)
(2
)
(3
)
At 31 December
9
8
During 2005, the Group's net investment in its joint ventures decreased by £2m (2004: £3m), as a result of the repayment of long-term loans by R.J.Reynolds-Gallaher
International SARL.
The Group's interest in its principal joint ventures, all of which are unlisted, were as follows:
Country of
Name
incorporation
Principal activity
Hungarotabak-Tobaccoland Rt
Hungary
Wholesale distribution of tobacco and other products.
R.J.Reynolds-Gallaher International SARL
Switzerland
Marketing of tobacco products in Europe.
Gallaher-Reynolds Equipment Company
Republic of Ireland
Leasing of tobacco manufacturing machinery.
GOLD-FILTER Kereskedelmi es
Hungary
Wholesale distribution of non-tobacco products.
Szolgaltato kft
The Group's interest in each joint venture is 50%, except in the case of Hungarotabak-Tobaccoland Rt, where the Group owns 51% of the equity through its subsidiary, Austria Tabak.
However, voting rights are restricted to 50%.
The Group's share of the assets, liabilities and results of its joint ventures are as follows:
F-26
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14.
Investments
    in joint ventures (continued)
GALLAHER
      GROUP Plc
Notes to the Financial Statements
2005
2004
£m
£m
Assets
Non-current assets
4
4
Current assets
22
21
26
25
Liabilities
Non-current liabilities
-
-
Current liabilities
17
17
17
17
Net Assets
9
8
Income
60
95
Expenses
(56
)
(90
)
Profit after income tax
4
5
There are no contingent liabilities relating to the Group's interest in its joint ventures, and no contingent liabilities of the joint ventures themselves.
The Group's joint ventures had no capital commitments at 31 December 2005 (2004: nil).
15.
Trade
    and other receivables
2005
2004
£m
£m
Trade receivables
750
741
Less: provision for impairment of receivables
(4
)
(3
)
Trade receivables - net
746
738
Prepayments and accrued income
17
16
Receivables from related parties (note 34)
4
10
Other receivables
49
40
816
804
Less non-current portion: other receivables
(4
)
(4
)
Current portion
812
800
The non-current receivables are due within five years from the balance sheet date.
The Groups' current receivables principally comprise short-term trade receivables due within 30 - 60 days of the balance sheet date in accordance with normal trade terms.
The fair value of the Group's non-current receivables at 31 December 2005 amounted to £4m (2004: £4m). The fair values are based on cash flows discounted using a rate based
on the borrowings rate of 5.0% (2004: 5.0%) .
The Group has recognised a loss of £1m (2004: nil) for the impairment of trade receivables during the year ended 31 December 2005. The loss has been included within operating
expenses in the income statement.
F-27
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
16.
Inventories
2005
2004
£m
£m
Raw materials and consumables
178
189
Work in progress
8
28
Finished goods and goods for resale
288
267
474
484
The cost of
    inventories recognised as expense and included in 'cost of goods sold' amounted
to £5,874m (2004: £5,829m).
Finished goods
    inventories are carried at lower of cost or net realisable value (fair value
    less costs to sell). During the year the Group has written down inventories
    amounting to £5m (2004: £3m). The Group reversed £1m (2004: nil) of previously written down inventories. The amount reversed has been included in 'cost of goods sold' in
    the income statement.
17.
Financial
    assets at fair value through profit or loss
2005
2004
£m
£m
Listed equity securities - eurozone countries
7
8
Financial assets principally comprise listed securities held by the Austria Tabak group of companies as collateral for pension and excise duty obligations. These financial assets are
designated at fair value on initial recognition.
Changes in financial assets at fair value through profit or loss are presented within the section on operating activities as part of changes in working capital in the cash flow
statement.
Changes in fair values of financial assets at fair value through profit or loss are recorded in "other gains and losses - net" in the income statement.
18.
Non
    current assets held for sale
As a consequence of the restructuring of the Group's European operations and administration during 2005 (note 4), a number of properties have become surplus to requirement. These
properties, which include two factories in Austria and several distribution depots, are being actively marketed and have been classified as assets held for sale.
2005
2004
£m
£m
Property, plant and equipment
6
-
19.
Trade
    and other payables
2005
2004
£m
£m
Trade payables
160
125
Excise duties, social security and other taxes
726
746
Amounts due to related parties (note 34)
16
22
Other payables
61
34
Accrued expenses
75
70
1,038
997
Less non-current portion: accrued expenses
(6
)
(5
)
Current portion
1,032
992
F-28
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
20.
Financial
    Instruments
a)
Balance
    sheet analysis
2005
2004
Assets
Liabilities
Assets
Liabilities
£m
£m
£m
£m
i) Cash and cash equivalents
Cash at bank and in hand
199
-
188
-
Investments in preference shares issued by corporate entities
-
-
550
-
Other cash equivalents
20
-
18
-
Accrued interest
2
-
5
-
221
-
761
-
ii) Borrowings
Non-current:
Bank borrowings
-
195
-
163
Other loans
-
1,384
-
2,034
Finance lease obligations
-
1
-
4
Accrued interest
-
14
-
14
-
1,594
-
2,215
Current:
Bank borrowings and overdrafts
-
156
-
175
Other loans
-
615
-
639
Finance lease obligations
-
1
-
1
Accrued interest
-
44
-
77
-
816
-
892
iii) Derivatives
Interest-rate-swaps - fair value hedges
23
-
20
2
Interest-rate-swaps - other
6
22
6
28
Forward foreign exchange contracts
6
16
30
-
Accrued interest
33
5
60
9
Total
68
43
116
39
Less non-current portion:
Interest-rate-swaps - fair value hedges
23
-
20
2
Accrued interest
13
-
12
-
32
43
84
37
Total financial assets and liabilities
289
2,453
877
3,146
Total accrued interest included in the above
35
63
65
100
Finance lease obligations are effectively secured as the rights to the leased assets revert to the lessors in the event of default. All other borrowings are unsecured. Cash at bank at 31
December 2005 includes £8m (2004: nil) held in an escrow account (see note 35).
2005
2004
Other loans comprise:
£m
£m
€900m 2005 Eurobond 4.875%
-
638
€750m 2006 Eurobond 5.875%
515
530
€375m 2008 Eurobond 5.875%
260
268
£300m 2009 Eurobond 6.625%
301
301
€800m 2011 Eurobond 4.625%
567
583
£250m 2013 Eurobond 5.75%
256
252
Total listed bonds
1,899
2,572
£100m Medium term note 6.47%
100
100
Equipment debt promissory notes
-
1
1,999
2,673
F-29
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
20.
Financial
    Instruments
(continued)
a)
Balance
    sheet analysis
(continued)
iv) Currency analysis and effective interest rates
The currency denomination and the effective interest rates of the Group's cash and cash equivalents at the balance sheet date are as follows.
£m
%
At 31 December 2005
By Currency:
Sterling
42
4.1
Euro
75
0.3
Polish zloty
64
4.4
US dollar
5
0.3
Swedish kroner
11
1.1
Russian rouble
7
1.1
Kazakhstan tenge
4
-
Other
13
0.2
Total
221
2.3
By Class of Instrument:
Cash at bank and in hand
199
2.1
Other cash equivalents
20
4.2
Accrued interest
2
-
Total
221
2.3
At 31 December 2004
By Currency:
Sterling
605
4.4
Euro
73
0.1
Polish zloty
61
5.3
US dollar
2
0.1
Swedish kroner
6
1.6
Russian rouble
3
-
Kazakhstan tenge
2
-
Other
9
1.3
Total
761
4.0
By Class of Instrument:
Cash at bank and in hand
188
2.7
Investments in preference shares issued by corporate entities
550
4.4
Other cash equivalents
18
4.6
Accrued interest
5
-
Total
761
4.0
The effective
    interest rates shown in the tables above have been calculated excluding the
accrued interest balances.
F-30
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
20.
Financial Instruments
(continued)
a)
Balance sheet analysis
(continued)
iv)
Currency
analysis and effective interest rates
(continued)
The currency
      denomination and the effective interest rates of the Group's borrowings
  at the balance sheet date are as follows:
Maturity
Less than
Between 1
Between 2
More than
Weighted
1 year
and
    2 years
and
    5 years
5 years
Average
£m
%
£m
%
£m
%
£m
%
£m
%
At 31 December 2005
By Currency:
Sterling
100
6.5
-
-
377
6.3
256
5.8
733
6.1
Euro
587
5.5
101
3.9
270
5.7
567
4.6
1,525
5.1
Polish zloty
50
4.6
-
-
-
-
-
-
50
4.6
Swedish kroner
9
2.0
9
2.0
-
-
-
-
18
2.0
US Dollar
24
5.1
-
-
-
-
-
-
24
5.1
Other
2
11.5
-
-
-
-
-
-
2
11.5
Accrued interest:
Sterling
30
-
-
-
-
-
-
-
30
-
Euro
14
-
-
-
-
-
14
-
28
-
Total
816
5.5
110
3.8
647
6.1
837
5.0
2,410
5.4
By Class of Instrument:
Bank borrowings
156
3.9
109
3.8
86
4.7
-
-
351
4.1
Other loans and finance lease obligations
616
6.0
1
3.9
561
6.3
823
5.0
2,001
5.7
Accrued interest
44
-
-
-
-
-
14
-
58
-
Total
816
5.5
110
3.8
647
6.1
837
5.0
2,410
5.4
At 31 December 2004
By Currency:
Sterling
4
5.7
100
6.5
341
6.1
252
5.8
697
6.0
Euro
724
4.7
532
5.9
373
5.3
583
4.6
2,212
5.1
Polish zloty
55
5.3
-
-
-
-
-
-
55
5.3
Swedish kroner
10
2.6
10
2.6
10
2.6
-
-
30
2.6
US Dollar
22
3.3
-
-
-
-
-
-
22
3.3
Accrued interest:
Sterling
34
-
-
-
-
-
-
-
34
-
Euro
43
-
-
-
-
-
14
-
57
-
Total
892
4.7
642
6.0
724
5.7
849
5.0
3,107
5.3
By Class of Instrument:
Bank borrowings
175
4.1
10
2.6
153
3.3
-
-
338
3.7
Other loans and finance lease obligations
640
4.9
632
6.0
571
6.3
835
5.0
2,678
5.5
Accrued interest
77
-
-
-
-
-
14
-
91
-
Total
892
4.7
642
6.0
724
5.7
849
5.0
3,107
5.3
The effective interest rates shown in the tables above have been calculated excluding the accrued interest balances.
The overall average interest rate payable on net financial liabilities, after the impact of interest rate swaps, during 2005 was 5.6% (2004: 5.8%) and on 31 December 2005 was 5.8% (2004:
5.8%) .
F-31
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
20.   Financial
    Instruments
(continued)
b)
Interest
    rate exposure
The
        exposure of the Group's borrowings and cash and cash equivalents
        to interest rate changes at the balance sheet dates are set out in the
        tables below, together with the impact of interest rate swaps. Where
        fixed interest rate receivable swaps have been used to swap fixed rate
        borrowings into variable rate borrowings, the effective date of the interest
        rate change is less than 1 year. Where fixed interest rate payable swaps
        have been used to swap variable rate borrowings into fixed rate borrowings,
        the effective date of the interest rate change is the maturity date of
        the
fixed interest rate payable swap.
The dates on which the interest rate on a borrowing changes will be earlier than the contractual maturity date of the borrowing shown in paragraph c) liquidity risk below where the
interest rate payable is reset before the maturity date.
Date of interest rate change
Less than
Between 1
Between 2
More than
1 year
and 2 years
and 5 years
5 years
Total
£m
£m
£m
£m
£m
At 31 December 2005
Borrowings:
Bank borrowings and overdrafts
251
100
-
-
351
Other loans
615
-
562
822
1,999
Finance leases obligations
1
1
-
-
2
Accrued interest
58
-
-
-
58
Total borrowings
925
101
562
822
2,410
Cash and cash equivalents
(221
)
-
-
-
(221
)
Net borrowings subject to interest rate changes,
before the impact of interest rate swaps
704
101
562
822
2,189
Interest rate swaps:
Fixed rate receivable swaps
1,206
-
(384
)
(822
)
-
Fixed rate payable swaps
(470
)
-
470
-
-
Net borrowings subject to interest rate changes, after
the impact of interest rate swaps
1,440
101
648
-
2,189
At 31 December 2004
Borrowings:
Bank borrowings and overdrafts
235
-
103
-
338
Other loans
639
630
569
835
2,673
Finance lease obligations
4
1
-
-
5
Accrued interest
91
-
-
-
91
Total borrowings
969
631
672
835
3,107
Cash and cash equivalents
(761
)
-
-
-
(761
)
Net borrowings subject to interest rate changes,
before the impact of interest rate swaps
208
631
672
835
2,346
Interest rate swaps:
Fixed rate receivable swaps
1,136
84
(385
)
(835
)
-
Fixed rate payable swaps
(527
)
57
470
-
-
Net borrowings subject to interest rate changes, after
the impact of interest rate swaps
817
772
757
-
2,346
Interest rate sensitivity
In
2005, if variable interest rates had been 1% higher, on average, with all other
variables held constant, post-tax profit for the year would have been £4m (2004: £4m)
lower,
mainly as a result of higher interest expense on variable rate borrowings.
F-32
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
20.
Financial Instruments
(continued)
c)
Liquidity
          Risk
The settlement
      dates of financial instruments at the balance sheet date are set out below.
      In the case of financial derivatives, settlement is either on a gross or
      net basis. The Group manages the liquidity risk of financial liabilities
      by maintaining sufficient liquid financial assets and the availability
    of funding through an adequate amount of committed credit facilities. At
    31
      December 2005, in addition to cash and cash
    equivalents of £221m, the Group had undrawn committed credit facilities totalling £925m (2004: £500m)
that mature in 2010.
Settlement date
Less than
Between 1
Between 2
More than
1 year
and 2 years
and 5 years
5 years
Total
At 31 December 2005
£m
£m
£m
£m
£m
Gross Settlement Receipts
Cash and cash equivalents
221
-
-
-
221
Forward foreign exchange contracts:
Euro
231
-
-
-
231
Sterling
323
-
-
-
323
Interest rate swaps
67
72
170
69
378
842
72
170
69
1,153
Gross Settlement Payments
Bank borrowings and overdrafts
156
109
86
-
351
Other loans
615
-
558
800
1,973
Finance lease obligations
1
1
-
-
2
Accrued interest
58
-
-
-
58
Forward foreign exchange contracts:
US dollars
241
-
-
-
241
Sterling
229
-
-
-
229
Polish zloty
77
-
-
-
77
Other
12
-
-
-
12
Interest rate swaps
63
67
148
42
320
1,452
177
792
842
3,263
Net Settlement on Financial Derivatives
Interest rate swaps:
Receipts
-
-
-
-
-
Payments
5
4
3
-
12
Forward foreign exchange contracts:
Receipts
2
1
-
-
3
Payments
8
-
-
-
8
F-33
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
20.
Financial
    Instruments
(continued)
c)
Liquidity
    Risk
(continued)
Settlement
    date
Less than
Between 1
Between 2
More than
1 year
and 2 years
and 5 years
5 years
Total
At 31 December 2004
£m
£m
£m
£m
£m
Gross Settlement Receipts
Cash and cash equivalents
761
-
-
-
761
Forward foreign exchange contracts:
Euro
786
-
-
-
786
Sterling
192
-
-
-
192
Interest rate swaps
100
68
199
110
477
1,839
68
199
110
2,216
Gross Settlement Payments
Bank borrowings and overdrafts
175
10
153
-
338
Other loans
637
631
565
816
2,649
Finance lease obligations
1
2
2
-
5
Accrued interest
91
-
-
-
91
Forward foreign exchange contracts:
Sterling
764
-
-
-
764
US dollars
131
-
-
-
131
Polish zloty
58
-
-
-
58
Interest rate swaps
68
65
185
89
407
1,925
708
905
905
4,443
Net Settlement on Financial Derivatives
Interest rate swaps:
Receipts
5
4
6
-
15
Payments
-
-
-
-
-
Forward foreign exchange contracts:
Receipts
-
2
-
-
2
Payments
3
-
-
-
3
d)
Fair
    values of financial assets and liabilities
The carrying amounts of cash and cash equivalents, trade and other receivables, bank borrowings and overdrafts, finance lease obligations, financial derivatives and trade and other
payables approximate to their fair value. The carrying amounts and fair values of other loans are as follows:
Carrying amount
Fair value
2005
2004
2005
2004
£m
£m
£m
£m
Other loans
1,999
2,673
2,054
2,748
The fair values of other loans are the amounts at which the financial instruments could be exchanged in a current transaction between willing parties.
F-34
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
20.
Financial
      Instruments
(continued)
e)
Financial
      risk management
i)   Interest
    rate risk
The
    Group has both interest bearing financial assets and liabilities. As the
    Group's financial assets are only held for short periods before being used to repay financial
liabilities, the Group does not actively manage the interest rate risk on these assets. The Group's
policy in respect of financial liabilities is to maintain a target level of fixed
interest rate cover in the current and subsequent two years of between 40% and
80% of the level of core net financial liabilities. At the year-end, fixed interest
rate debt, after the impact of interest rate swaps, represented approximately
70% (2004: 70%) of net debt (as defined in note 30).
Interest rate swaps - fair value hedges
The Group has a number of long-term bonds outstanding on which a fixed interest rate is payable. In order to manage the proportion of fixed and variable rate financial liabilities, the
    Group entered into interest rate swaps under which the Group receives a fixed interest rate equivalent to the fixed coupon payable on the bond and pays a variable interest rate based on a relevant market benchmark interest rate plus a fixed margin.
    This has the effect of replacing fixed rate debt with variable rate debt. Certain of these interest rate swaps have then been designated as fair value hedges of the corresponding fixed rate financial liability, i.e. the bond. The risk that is being
    hedged is the change in the fair value of the fixed rate financial liability due to changes in market interest rates. The changes in the value of these fixed rate financial liabilities and the corresponding interest rate swap are taken to the income
    statement, where they broadly offset.
Details of the fixed interest rate receivable swaps that have been designated as fair value hedges are shown below.
Hedged
      item
Hedging
      instrument
Gain/(loss)
Gain/(loss)
in
      net
Fair
      value
in
      net
Fair
      value
Hedged
      item
Hedging
      instrument
finance
      costs
gain/(loss)
finance
      costs
gain/(loss)
adjustment
adjustment
Maturity
Fixed
Variable
Notional
2005
2004
2005
2004
2005
2004
2005
2004
date
rate
rate
principal
£m
£m
£m
£m
£m
£m
£m
£m
€
900m
      2005
2005
4.875%.
Euribor
      plus
€900m
1
10
-
(1
)
(1
)
(10
)
-
1
4.875%
      Bond
0.89%
€
119m
      2008
2008
5.875%.
Euribor
      plus
€119m
-
(2
)
(2
)
(2
)
-
2
2
2
5.875%
      Bond
1.095%
£
300m
      2009
2009
6.625%.
Libor
      plus
£300m
(1
)
(1
)
(2
)
(1
)
1
1
2
1
6.625%
      Bond
1.26%
€
800m
      2011
2011
4.625%.
Euribor
      plus
€800m
(1
)
(16
)
(17
)
(16
)
1
16
17
16
4.625%
      Bond
0.7%
£
250m
      2013
2013
5.75%.
Libor
      plus
£250m
(4
)
(2
)
(6
)
(2
)
4
2
2
(2
)
5.75%
      Bond
1.0125%
Total
(5
)
(11
)
(27
)
(22
)
5
11
23
18
F-35
Back to Contents
GALLAHER
GROUP Plc
Notes to the Financial Statements
20.
Financial
          Instruments
(continued)
e)
Financial
          risk management
i)
Interest
    rate risk (continued)
Interest rate swaps - other
The following interest rate swaps do not meet the criteria for hedge accounting under IAS 39 and changes in their fair value are taken to the income statement. The fixed interest rate
payable swaps were undertaken when the Group had a higher level of floating rate bank debt, in order to hedge the cash flow risk. Subsequently, when the Group refinanced floating rate bank debt with fixed interest rate bonds, fixed interest rate
receivable swaps were entered into to maintain the overall level of fixed interest rate cover within the target range of 40% to 80%.
Gain/(loss)
      in net
Fair
      value
Notional
      principal
finance
      costs
asset/(liability)
Maturity
Fixed
Variable
2005
2004
2005
2004
2005
2004
Date
Rate
Rate
£m
£m
£m
£m
£m
£m
Fixed
      interest rate payable swaps
Sterling
2008
5.9
%
Libor
1
470
470
1
3
(21
)
(22
)
Euro
2006
4.8
%
Euribor
55
114
2
2
(1
)
(3
)
Total
525
584
3
5
(22
)
(25
)
Fixed
      interest rate receivable swaps
Sterling
2008
6.6
%
Libor
      plus
300
300
(1
)
-
5
6
1.26
%
Sterling
2008
5.7
%
Libor
      plus
250
250
4
1
1
(3
)
1.0
%
Total
550
550
3
1
6
3
1
Included in this balance is an interest rate swap contract of £50m maturing in December 2008 with a
fixed interest rate payable of 5.6% where the counterparty has the option to extend the contract for a further five years.
F-36
Back to Contents
GALLAHER GROUP
  Plc
Notes to the
  Financial Statements
20.
Financial
      Instruments
(continued)
e)
Financial
    risk management
(continued)
ii) Foreign
  exchange risk
The
  Group has operations in the UK, the Republic of Ireland, Europe, the CIS, Asia
  and Africa. The Group is exposed to foreign exchange risks arising from future
  commercial transactions, recognised assets and liabilities, and net investments
  in foreign operations, mainly with respect to the euro, US dollars, Russian
  rouble, Polish zloty, Kazakhstan tenge, Ukrainean hryvnia and the UK pound sterling.
To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, companies in the Group use forward contracts, transacted with
Group Treasury or external counterparties. The Group also enters into forward exchange contracts to hedge the foreign exchange exposure in respect of intra-Group loans to and from its overseas subsidiaries. Group Treasury is responsible for managing
the overall net position of the Group in each foreign currency.
The Group has
  investments in foreign operations whose net assets are exposed to foreign currency
  translation risk. The Group finances certain overseas investments in the euro
  and US dollar through the use of foreign currency borrowings and forward exchange
  contracts to hedge the net foreign currency investment including the post-acquisition
  retained reserves. The Group hedges the foreign exchange risk on a post-tax
  basis. As the exchange differences arising on the post acquisition retained
  profits are not subject to taxation, the value of the foreign currency liabilities
  used to hedge these profits is grossed up at the prevailing UK corporation tax
  rate. The Group does not hedge the foreign exchange risk in respect of the translation
  of the results of overseas operations into sterling.
iii) Net
  investment hedges
2005
2004
£m
£m
Euro
US
      Dollar
Euro
US
      Dollar
Hedging
      instruments:
Foreign
      currency borrowings
1,323
-
1,363
-
Forward
      foreign exchange contracts
106
247
110
221
Total
      value of hedging instruments
1,429
247
1,473
221
f)   Credit
      Risk
The
  Group has some significant concentrations of credit risk with trading customers
  and financial institutions. It has policies in place to ensure that sales of
  products are made to customers with an appropriate credit history and obtains
  guarantees or other means of credit support to reduce the risk, where this is
  considered to be necessary. Derivative and other financial transactions are
  undertaken only with counterparties that have an investment grade credit rating.
F-37
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GALLAHER
  GROUP Plc
Notes
  to the Financial Statements
21.
Retirement
      benefit obligations
2005
2004
£m
£m
i)
      Balance sheet obligations:
Pension
      benefits - net (assets)/liabilities
(36
)
22
Other
      post-employment benefits
51
50
15
72
Other post-employment
  benefits comprise medical benefits ("healthcare"), product gratuities
  and severance payments.
The amounts
  recognised in the balance sheet are determined as follows:
2005
2004
£m
£m
Present
      value of funded obligations
972
905
Present
      value of unfunded obligations
67
66
Total
      defined benefit obligation
1,039
971
Fair
      value of plan assets
(1,024
)
(899
)
15
72
The movement
  in the defined benefit obligation is as follows:
2005
2004
£m
£m
At
      1 January
971
915
Employer
      service cost
15
15
Past
      service cost
3
6
Curtailment
      gains
(1
)
(1
)
Interest
      cost
48
47
Actuarial
      losses
60
44
Contributions
      by plan participants
2
2
Benefits
      paid
(55
)
(50
)
Settlements
-
(8
)
Exchange
      differences
(4
)
1
At
      31 December
1,039
971
The movement
  in the fair value of the plan assets is as follows:
2005
2004
£m
£m
At
      1 January
(899
)
(835
)
Expected
      return on plan assets
(57
)
(54
)
Actuarial
      gains
(90
)
(30
)
Employer
      contributions
(34
)
(36
)
Contributions
      by plan participants
(2
)
(2
)
Benefits
      paid
55
50
Settlements
-
8
Exchange
      differences
3
-
At
      31 December
(1,024
)
(899
)
F-38
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GALLAHER
  GROUP Plc
Notes
  to the Financial Statements
21.
Retirement
      benefit obligations
(continued)
ii) Pension
  benefits
The Group operates
  defined benefit retirement arrangements in the UK, Austria, Republic of Ireland
  and Germany. All of these plans are administered and financed in accordance
  with local legislation and practice. In the UK and Irish schemes, assets are
  held in trust separately from the assets of the subsidiaries. In Austria, book
  reserves are established in respect of the liabilities and, in line with Austrian
  legislation, the corresponding assets are held by the respective subsidiary
  (the subsidiary has no legal right to the use of the assets for any purpose
  other than the provision of pension benefits). Book reserves are also established
  in respect of German liabilities, which are unfunded.
The pension costs of these arrangements are assessed in accordance with the advice of independent qualified actuaries using the projected unit method. The latest actuarial valuations of
the UK and Republic of Ireland pension schemes were undertaken as at 31 March 2005 and 1 January 2004 respectively, and the results of these valuations have been updated to 31 December 2005. Formal valuations of the Austrian and German plans are
undertaken annually, as at 31 December.
The latest agreed contribution rates (as a percentage of pensionable pay) for the material funded schemes are as follows: UK: 31% plus £10m per annum, Austria: 13.9% per annum and
Republic of Ireland: 6.0% per annum.
The UK defined
  benefit pension scheme was closed to new entrants on 30 June 2003. The main
  Austrian pension plan was closed to new entrants on 31 December 2002. Because
  the plans are closed, the average age of the active members is likely to increase
  in future, leading to an increasing current service contribution rate. This
  may be offset by a falling total pensionable salary resulting from leavers and
  retirements.
The amounts
  recognised in the balance sheet are determined as follows:
2005
2004
£m
£m
Present
      value of funded obligations
972
905
Present
      value of unfunded obligations
16
16
Fair
      value of plan assets
(1,024
)
(899
)
(36
)
22
Comprising:
Plans
      in net surplus (non-current assets)
(56
)
(7
)
Plans
      in net deficit (non-current liabilities)
20
29
The principal
  weighted average actuarial assumptions used in the valuation of the Group's
  pension liabilities are as follows:
2005
2004
%
%
Discount
      rate
4.7
5.2
Rate
      of increase in salaries
3.6
3.6
Rate
      of increase of pensions in payment
2.6
2.6
Rate
      of price inflation
2.6
2.7
The Group's
  pension plan assets and weighted average expected rates of return are as follows:
31
      December 2005
31
      December 2004
Expected
Expected
return
Fair
return
Fair
per
      annum
value
per
      annum
value
%
£m
%
£m
Equities
7.9
579
7.4
546
Bonds
4.4
421
4.9
343
Property
5.6
8
5.0
8
Other
      (including cash)
3.2
16
2.8
2
1,024
899
F-39
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
21.
Retirement
    benefit obligations
(continued)
ii) Pension benefits
(continued)
The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest
investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.
The amounts
recognised in the income statement are as follows:
2005
2004
£m
£m
Employer service cost
13
13
Past service cost
2
5
Curtailment gains
(1
)
(1
)
Charge included in staff costs within operating profit (note 5)
14
17
Interest on retirement benefit liabilities
46
44
Expected return on pension plan assets
(57
)
(54
)
Net credit included in finance costs
(11
)
(10
)
Net charge recognised in the income statement
3
7
The actual return
on pension plan assets was £147m (2004: £84m).
Costs in respect
    of defined benefit pension plans are charged to operating profit in the income
statement as follows:
2005
2004
£m
£m
Cost of goods sold
6
6
Distribution, advertising and selling costs
3
2
Administrative expenses
5
9
14
17
Movement in
the net pension (asset)/liability recognised in the balance sheet:
2005
2004
£m
£m
At 1 January
22
28
Total expense charged in the income statement
3
7
Actuarial (gains)/losses
(31
)
17
Contributions paid
(30
)
(31
)
Exchange differences
-
1
At 31 December
(36
)
22
F-40
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
21.
Retirement
    benefit obligations
(continued)
ii) Pension benefits
(continued)
UK pension plan
The
Group's principal defined benefit pension plan is in the UK. The amounts
recognised in the balance sheet in respect of the UK plan are as follows:
2005
2004
£m
£m
Present value of funded obligations
850
789
Fair value of plan assets
(899
)
(777
)
Net (surplus)/deficit
(49
)
12
The principal
    actuarial assumptions used in the valuation of the UK pension liabilities
are as follows:
2005
2004
%
%
Discount rate
4.80
5.30
Rate of increase in salaries
3.75
3.80
Rate of increase of pensions in payment
2.75
2.80
Rate of price inflation
2.75
2.80
A detailed investigation into the mortality experience of the UK plan was carried out as part of the 2005 actuarial valuations. The life expectancies underlying the value of the pension
liabilities of the UK plan at 31 December 2005 are as follows:
Life expectancy at age 60 (years):
Male
Female
Member currently aged 60
20.3
23.3
Member currently aged 45
22.1
25.1
The UK pension
plan assets and expected rates of return are as follows:
31 December 2005
31 December 2004
Expected
Expected
return
Fair
return
Fair
per annum
value
per annum
value
%
£m
%
£m
Equities
8.0
522
7.5
484
Bonds
4.5
377
5.0
293
899
777
F-41
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GALLAHER GROUP Plc
Notes to the Financial Statements
21.
Retirement
    benefit obligations
(continued)
iii)   Other post-employment benefits
Other post-employment benefits comprise healthcare, product gratuities and severance plans provided by certain subsidiaries of the Group to some retirees. The method of accounting,
assumptions and the frequency of valuations are similar to those used for defined benefit pension schemes.
The main actuarial assumption is the weighted average medical expense inflation of 4.4% per annum (2004: 4.3%) used in the valuation of UK healthcare liabilities.
The liabilities
recognised in the balance sheet are determined as follows:
2005
2004
£m
£m
Liabilities: present value of unfunded obligations
51
50
The amounts recognised in the income statement are as follows:
2005
2004
£m
£m
Employer service cost
2
2
Past service cost
1
1
Charge included in staff costs within operating profit (note 5)
3
3
Interest on liabilities - included in finance costs
2
3
Charge recognised in the income statement
5
6
Of the total charge of £3m (2004: £3m) included in staff costs within operating profit, £2m (2004: £1m) is included in cost of goods sold and £1m (2004: £2m)
is included in administrative expenses.
Movement in
the liability recognised in the balance sheet:
2005
2004
£m
£m
At 1 January
50
52
Total expense charged in the income statement
5
6
Actuarial losses/(gains)
1
(3
)
Contributions paid
(4
)
(5
)
Exchange differences
(1
)
-
At 31 December
51
50
iv)   Experience
gains and losses in the year
The
experience gains and losses recognised in relation to the Group's retirement
benefit plans during the year are analysed as follows:
2005
2004
£m
£m
Difference between expected and actual return on scheme assets
90
30
Experience gains and losses on retirement benefit liabilities
(19
)
14
Changes in actuarial assumptions
(41
)
(58
)
Total amount recognised in the statement of recognised income and expense
30
(14
)
Comprising:
Pension benefits
31
(17
)
Other post-employment benefits
(1
)
3
Total amount recognised in the statement of recognised income and expense expressed as a percentage
of the present value of retirement benefit liabilities
2.9%
(1.5%
)
The cumulative actuarial gain recognised in the statement of recognised income and expense at 31 December 2005 amounted to £16m (2004: loss of £14m).
F-42
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GALLAHER GROUP Plc
Notes to the Financial Statements
22.
Deferred
    tax
Deferred tax is calculated in full on temporary differences under the liability method using the tax rate applicable in the relevant fiscal territory.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to
the same fiscal authority. The offset amounts are as follows:
2005
2004
£m
£m
Deferred tax assets:
- deferred tax asset to be recovered after more than 12 months
(24
)
(27
)
- deferred tax asset to be recovered within 12 months
(3
)
(6
)
(27
)
(33
)
Deferred tax liabilities:
- deferred tax liability to be recovered after more than 12 months
60
51
- deferred tax liability to be recovered within 12 months
12
-
72
51
Net deferred tax liability
45
18
The gross movement
on the deferred income tax account is as follows:
2005
2004
£m
£m
At 1 January
18
5
Income statement charge (note 8)
17
19
Tax charged/(credited) to equity (note 25)
9
(5
)
Exchange differences
1
(1
)
At 31 December
45
18
Deferred tax assets have been recognised in respect of all tax losses and other temporary differences giving rise to deferred tax assets because it is probable that these assets will be
recovered.
The movement in deferred tax assets and liabilities during the year, taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:
Deferred
tax liabilities:
Accelerated
tax
Fair value
Retirement
depreciation
gains
benefits
Other
Total
£m
£m
£m
£m
£m
At 1 January 2004
23
(10
)
(13
)
31
31
Charged to the income statement
3
2
5
12
22
Credited to equity
-
-
(2
)
-
(2
)
At 31 December 2004
26
(8
)
(10
)
43
51
Charged/(credited) to the income statement
5
2
8
(4
)
11
Charged to equity
-
-
10
-
10
Exchange differences
1
-
-
(1
)
-
At 31 December 2005
32
(6
)
8
38
72
F-43
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
22.
Deferred
    tax
(continued)
Deferred
tax assets:
Intangible
Retirement
Tax
assets
benefits
losses
Other
Total
£m
£m
£m
£m
£m
At 1 January 2004
(16
)
(2
)
(1
)
(7
)
(26
)
Charged/(credited) to the income statement
4
-
-
(7
)
(3
)
Credited to equity
-
(3
)
-
-
(3
)
Exchange differences
-
2
-
(3
)
(1
)
At 31 December 2004
(12
)
(3
)
(1
)
(17
)
(33
)
Charged/(credited) to the income statement
4
1
(1
)
2
6
Credited to equity
-
(1
)
-
-
(1
)
Exchange differences
-
(1
)
-
2
1
At 31 December 2005
(8
)
(4
)
(2
)
(13
)
(27
)
Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is an intention to settle the balances net.
The deferred tax charged to equity during the year of £9m (2004: credit of £5m) relates to tax on actuarial gains/losses recognised on retirement benefits.
Deferred tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through the future taxable profits is probable. The Group has
not recognised deferred tax assets of £5m (2004: £2m) in respect of losses amounting to £22m (2004: £12m) that can be carried forward against future taxable income.
Deferred tax is recognised on the unremitted earnings of certain overseas subsidiaries. In other instances, where the earnings are continually reinvested by the group, no tax is expected
to be payable on them in the foreseeable future and hence no deferred tax liability is recognised. If these earnings were remitted, unprovided tax of £34m (2004: £21m) would be payable.
F-44
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GALLAHER GROUP Plc
Notes to the Financial Statements
23.
Provisions
    for liabilities and charges
Employment
Other
Restructuring
benefits
provisions
Total
£m
£m
£m
£m
At 1 January 2005
9
22
5
36
Charged to consolidated income statement:
- additional provisions
8
8
4
20
- unused amounts reversed
(1
)
-
-
(1
)
Exchange differences
-
(1
)
-
(1
)
Used during the year
(7
)
(2
)
(2
)
(11
)
At 31 December 2005
9
27
7
43
Analysis of
total provisions:
2005
2004
£m
£m
Non current
29
28
Current
14
8
43
36
With the exception of vacant property obligations (see below) and on-going employment benefits, management expect the non current portion of provisions to be utilised within five years of
the balance sheet date.
Restructuring
Restructuring
provisions at 31 December 2005 mainly relate to charges associated with the restructuring
of the Group's European operations and administration in Austria and Sweden
(note 4) and depot closures in the German vending business.
Employment benefits
Employment
benefits relate mainly to contractual 'jubilee' one-off cash payments
due after a certain service period to employees in Austria, the provision of
paid leave prior to severance in Germany and employment benefits relating to
the acquisition of Austria Tabak.
Other provisions
Other provisions at 31 December 2005 relate to vacant property obligations, costs associated with the requirement to remove vending machines in compliance with German legislation and
deferred consideration relating to the acquisition of Gallaher Snus AB. The property obligations relate to two offices in the UK where the Group has head lease commitments until 2013 and 2014 respectively. Provisions have been made for the residual
lease commitments, after taking into account existing sub-tenant arrangements.
F-45
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GALLAHER GROUP Plc
Notes to the Financial Statements
24.
Share
          capital
Number
Share
Share
of shares
capital
premium
millions
£m
£m
At 1 January 2004
653.6
65
125
Employee share option schemes - shares issued
1.4
-
4
At 31 December 2004
655.0
65
129
Employee share option schemes - shares issued
1.0
-
5
At 31 December 2005
656.0
65
134
The total authorised number of ordinary shares is 1,050 million shares (2004: 1,050 million shares) with a par value of 10p per share (2004: 10p per share). All shares issued are fully
paid.
Share Options
The
total expense recognised in the year arising from equity-settled share-based
payment transactions was £5m (2004: £1m).
Savings related share option scheme ("SRSOS")
Under
the terms of the Gallaher Group Plc Inland Revenue approved SRSOS the Board may
offer options to purchase ordinary shares in the Company to eligible employees
who apply to enter into a SRSOS savings contract. Options may be offered at a
maximum discount of 20% of the share price as quoted on the London Stock Exchange
at or around the date of the offer. The options may normally be exercised during
the period of six months
after the expiry of the SRSOS contract, three, five or seven years after entering
the scheme, or on leaving the Group's employment, other than by resignation,
early retirement or dismissal.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
2005
2004
Average
Average
exercise
Options
exercise
Options
price
(millions)
price
(millions)
At 1 January
436p
3.9
378p
4.7
Granted
681p
0.4
505p
0.8
Forfeited
665p
(0.1
)
455p
(0.2
)
Exercised
369p
(0.9
)
277p
(1.4
)
At 31 December
485p
3.3
436p
3.9
Out of the 3.3m outstanding options (2004: 3.9m), 0.1m options were exercisable (2004: 0.1m options). During the year, 0.9m shares (2004: 1.4m) were allocated to employees in satisfaction
of options exercised under the Gallaher Group Plc SRSOS at a weighted average of 369p each (2004: 277p). Options are exercised on a regular basis throughout the year, with the weighted average share price during the period being 830p (2004:
669p).
The following options over ordinary shares have been granted and are outstanding at 31 December 2005:
Number
    of shares (millions)
Exercise
Date of grant
Date exercisable
price
2005
2004
July 1997
Sep 2002 - Feb 2005
234p
0.0
0.1
October 1998
Dec 2001 - May 2006
330p
0.0
0.2
October 1999
Dec 2002 - May 2007
350p
0.1
0.1
October 2000
Dec 2003 - May 2008
297p
0.1
0.4
October 2001
Dec 2004 - May 2009
367p
0.2
0.2
October 2002
Dec 2005 - May 2010
559p
0.1
0.4
October 2003
Dec 2006 - May 2011
443p
1.6
1.7
October 2004
Dec 2007 - May 2012
505p
0.7
0.8
October 2005
Dec 2008 - May 2013
681p
0.5
-
Total
3.3
3.9
F-46
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GALLAHER GROUP Plc
Notes to the Financial Statements
24.
Share
      capital
(continued)
Exercise of an option is subject to continued employment. The fair value of options granted during the period determined using the Black-Scholes valuation model was 226p (2004: 150p). The
significant inputs into the model were share price of 877p (2004: 631p), at the grant date, exercise price (see table), standard deviations of expected share price returns for the 3, 5 and 7 year schemes of 20%, 24% and 29% respectively (2004: 24%,
30% and 30%), option life, and annual risk-free interest rate of 5% (2004: 5%). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices over the last three, five or
seven years, a period matching the duration of the scheme in question. The expected dividend yield at the date of grant was 4% (2004: 4%), being the available market consensus rate at that time.
Performance share plan and deferred bonus plan
Details of these plans, which are available to senior executives and executive directors, are given in the remuneration report in Item 6B of the Annual Report. The vesting of these awards
is conditional upon the achievement of certain targets.
Movements in
the number of share options outstanding are as follows:
2005
2004
Options
Options
(millions)
(millions)
At 1 January
2.9
2.4
Granted
1.2
1.2
Forfeited
-
(0.2
)
Exercised
(0.4
)
(0.5
)
Lapsed
(0.4
)
-
At 31 December
3.3
2.9
Out of the 3.3m outstanding options (2004: 2.9m options), nil options were exercisable (2004: nil). During the year, 0.4m shares vested under the two plans in respect of the three-year
performance period ended 31 December 2004 (2004: 0.5m shares vested in respect of the three-year performance period ended 31 December 2003). Options vest in March of each year, with the weighted average share price for this month being 766p (2004:
664p).
The following
    options over ordinary shares have been granted and are outstanding at 31
December 2005:
Number of shares
(millions)
Date of grant
Performance period
2005
2004
March 2002
Jan 2002-Dec 2004
-
0.8
March 2003
Jan 2003-Dec 2005
1.0
1.0
March 2004
Jan 2004-Dec 2006
1.1
1.1
March 2005
Jan 2005-Dec 2007
1.2
-
Total
3.3
2.9
The vesting of these awards is conditional on the achievement of certain targets. The weighted average fair value of options granted during the period determined using the Black-Scholes
valuation model was 691p (2004: 586p). The significant inputs into the model were a weighted average share price of 779p (2004: 680p), at the grant date, a standard deviation of expected share price returns for the 3 year schemes of 24% (2004: 25%),
option life of three years, and annual risk-free interest rate of 5% (2004: 5%). Multiples of 58% and 52%, calculated using an actuarial TSR pricing model, have been applied to the Black-Scholes-derived fair values to reflect the impact of the TSR
criteria against the FTSE 100 Comparator Group and Industry Comparator Group respectively (2004: 58% and 52%). The volatility measured at the standard deviation of expected share price returns is based on statistical analysis of daily share prices
over the last three years. The expected dividend yield at the date of grant was 4% (2004: 4%), being the available market consensus rate at that time.
F-47
Back to Contents
GALLAHER GROUP Plc
Notes to the Financial Statements
25.
Reserves
Capital
Currency
redemption
Merger
Other
translation
Retained
reserve
reserve
reserve
reserve
earnings
£m
£m
£m
£m
£m
At 1 January 2004
8
146
(911
)
-
332
Actuarial
	    loss recognised on retirement benefits
-
-
-
-
(14
)
Deferred
tax relating to actuarial loss on
retirement benefits
-
-
-
-
5
Currency translation differences
-
-
-
(13
)
-
Profit for the
year attributable to equity shareholders
-
-
-
-
358
Employee share option schemes:
- value of employee services
-
-
-
-
1
Increase in own shares held by the Employee
Benefit Trust
-
-
-
-
(1
)
Dividends paid to equity shareholders
-
-
-
-
(196
)
At 31 December 2004
8
146
(911
)
(13
)
485
Actuarial
	    gain recognised on retirement benefits
-
-
-
-
30
Deferred tax relating
to actuarial gain on retirement benefits
-
-
-
-
(9
)
Currency translation differences
-
-
-
8
-
Profit for the
year attributable to equity shareholders
-
-
-
-
369
Employee share option schemes:
-
-
-
-
- value of employee services
-
-
-
-
5
Increase in own shares held by the Employee
Benefit Trust
-
-
-
-
(3
)
Dividends paid to equity shareholders
-
-
-
-
(210
)
At 31 December 2005
8
146
(911
)
(5
)
667
Capital redemption reserve
Upon the buy back of its own shares by the Company, the nominal value of the shares cancelled is transferred to a capital redemption reserve in accordance with Section 170(1) of the
Companies Act 1985.
Merger reserve
In 2001, the Company completed a private placing of 35.7 million ordinary shares of 10p in connection with the acquisition of Austria Tabak. This capital reorganisation gave rise to a
merger reserve.
Other reserve
On demerger from Fortune Brands, Inc. in 1997, the Company underwent a capital reorganisation that included a purchase of own shares out of capital resulting in the creation of the other
reserve.
Employee benefit trust
The
employee benefit trust ("EBT") has been established to acquire ordinary shares in Gallaher Group Plc, by subscription or purchase, from funds provided by the Group to
satisfy rights to shares arising on the vesting of awards under the performance share plan and deferred bonus plan. All finance costs and administration expenses connected with the EBT are charged to the profit and loss account as they accrue. The
trust has waived its voting and dividend rights and the shares held by the trust are excluded from the calculation of basic, adjusted and diluted earnings per share. At 31 December 2005, the trust holds 2,084,089 shares (2004: 2,108,602 shares) with
an original cost of £14m (2004: £13m) and a market value of £18m (2004: £17m).
F-48
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GALLAHER GROUP Plc
Notes to the Financial Statements
26.
Consolidated
    statement of changes in equity attributable to shareholders
2005
2004
£m
£m
Opening equity attributable to shareholders
(91
)
(235
)
Net income/(expense) recognised directly in equity
29
(22
)
Profit for the year attributable to equity shareholders
369
358
Total recognised income for the year
398
336
Employee share option schemes:
- value of employee services
5
1
- issue of ordinary shares
5
4
Increase in own shares held by the Employee Benefit Trust
(3
)
(1
)
Dividends paid to equity shareholders
(210
)
(196
)
Closing equity attributable to shareholders
104
(91
)
27.
Minority
    interests
2005
2004
£m
£m
At 1 January
31
31
Share of net profit of subsidiaries
3
4
Dividends
(1
)
(4
)
Exchange differences
(1
)
-
At 31 December
32
31
F-49
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GALLAHER GROUP Plc
Notes to the Financial Statements
28.
Cash
    generated from operations
2005
2004
£m
£m
Profit for the year
372
362
Adjustments for:
- Tax (note 8)
144
142
- Finance costs - net (note 6)
100
114
- Share of post-tax results of joint ventures and associates (note 3)
(17
)
(19
)
- Exceptional items (note 4)
35
17
- Depreciation (excluding exceptional items)
79
77
- Amortization of government grants
(1
)
-
- Amortization of intangible assets included in subsidiaries
15
12
- Loss/(profit) on sale of property, plant and equipment (excluding exceptional items)
1
(1
)
- Charge in respect of employee share schemes
5
1
- Other non-cash adjustments
-
1
Changes in working capital (excluding the effects of acquisitions, exceptional items
and exchange differences):
- Inventories
5
27
- Trade and other receivables
(10
)
(49
)
- Financial assets at fair value through profit and loss
-
8
- Trade and other payables
21
96
Retirement benefits assets and liabilities
(16
)
(18
)
Cash generated from operations before exceptional items
733
770
Cash outflow from exceptional items
(33
)
(15
)
Cash generated from operations
700
755
29.
Proceeds
    from sale of property, plant and equipment
2005
2004
£m
£m
Exceptional item - proceeds from sale of Dublin factory site (note 4)
15
-
All other proceeds
6
8
Proceeds from sale of property, plant and equipment
21
8
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GALLAHER GROUP Plc
Notes to the Financial Statements
30.
Reconciliation
    of movements in net debt
Net debt comprises current and non current borrowings, derivative financial instrument assets and liabilities and cash and cash equivalents, excluding all accrued interest.
2005
2004
£m
£m
(Decrease)/increase in cash and cash equivalents
(536
)
621
Decrease/(increase) in borrowings
626
(371
)
Change in net debt resulting from cash flows
90
250
Exchange differences
4
(1
)
Other non-cash movements including revaluation of derivative financial instruments
4
7
Decrease in net debt in the year
98
256
Net debt at 1 January
(2,234
)
(2,490
)
Net debt at 31 December
(2,136
)
(2,234
)
Net debt in
the cash flow is reconciled to the balance sheet as follows:
2005
2004
£m
£m
Non current assets:
- Derivative financial instruments
36
32
Current assets:
- Derivative financial instruments
32
84
- Cash and cash equivalents
221
761
Non current liabilities:
- Borrowings
(1,594
)
(2,215
)
- Derivative financial instruments
-
(2
)
Current liabilities:
- Borrowings
(816
)
(892
)
- Derivative financial instruments
(43
)
(37
)
Net debt including accrued interest
(2,164
)
(2,269
)
Less: accrued interest included within the above headings
28
35
Net debt in the cash flow
(2,136
)
(2,234
)
Cash and cash
equivalents in the cash flow statement comprise:
2005
2004
£m
£m
Cash and cash equivalents per balance sheet
221
761
Less: accrued interest
(2
)
(5
)
Cash and cash equivalents in the cash flow statement
219
756
F-51
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GALLAHER GROUP Plc
Notes to the Financial Statements
31.
Contingencies
The Group has contingent liabilities in respect of bank and other guarantees and other matters arising in the ordinary course of business. It is not anticipated that any material
liabilities will arise from the contingent liabilities. The Group has given guarantees in the ordinary course of business amounting to £23m (2004: £9m) to third parties.
The Group is subject
to a number of legal and regulatory risks which are described in Item 4 part
B and Item 8 part A of this Annual Report.
32.
Commitments
Capital commitments
:
2005
2004
£m
£m
Contracts placed but not yet provided for in the financial statements
17
1
These commitments
mainly relate to plant and machinery and merchandising units.
Operating lease commitments - where a Group company is the lessee
The Group leases various offices, warehouses and factory sites under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The
Group also leases various machinery, vehicles and equipment under non-cancellable operating lease agreements. The lease expenditure charged to the income statement during the year is disclosed in note 7.
The future
    aggregate minimum lease payments under non-cancellable operating leases are
as follows:
2005
2004
£m
£m
Not later than one year
9
8
Later than one year and not later than five years
16
17
Later than five years
44
43
69
68
The
        fair value of the Group's minimum obligations under non-cancellable
        operating leases at 31 December 2005 amounted to £35m (2004: £34m).
        The fair values are based on cash flows discounted using a rate based
    on the borrowings rate of 5% (2004: 5%).
F-52
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GALLAHER GROUP Plc
Notes to the Financial Statements
33.
Business
    combinations
2005
There were no business combinations in 2005. See note 35 for disclosures regarding an acquisition that took place after the balance sheet but before the approval of these financial
statements.
2004
In
January 2004 the Group's associate, Lekkerland GmbH & Co. KG ("L-T"), purchased 100% of Lekkerland Europa Holding GmbH ("LEH"), for a total consideration
of £110m, which was funded from L-T's own financial resources. LEH is a German company engaged in the wholesale distribution of tobacco and other products and operates principally in EU countries. Following this business combination, L-T
changed its name to Lekkerland GmbH & Co. KG.
In January 2004, the Group purchased from management the 15% of Gallaher (Ukraine) Limited that it did not already own. The fair value of the equity stake amounted to £4m. Goodwill
of £4m was recognised on this acquisition.
F-53
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GALLAHER GROUP Plc
Notes to the Financial Statements
34.
Related
    party transactions
The
following transactions were carried out with related parties:
i) Sales
      of goods and services
2005
2004
£m
£m
Sales of goods:
To associates
36
31
To joint ventures
19
47
Sales of services:
To joint ventures
13
18
68
96
ii) Purchases
of goods and services
2005
2004
£m
£m
Purchases of goods:
From associates
16
15
From joint ventures
39
47
55
62
Goods are sold on the basis of the price lists in force with non-related parties. Services are usually negotiated with related parties on a cost-plus basis, allowing a margin ranging from
0% to 10%.
iii) Year-end
balances arising from sales/purchases of goods/services
2005
2004
£m
£m
Receivables from related third parties (note 15)
- Associates
1
1
- Joint ventures
3
9
4
10
Payables to related parties (note 19)
- Joint ventures
16
22
There are no
commitments and contingencies in respect of associates and joint ventures.
iv) Key
management compensation
2005
2004
£m
£m
Salaries and other short-term employee benefits
8
7
Post-employment benefits
1
1
Share-based payments
2
2
11
10
F-54
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GALLAHER GROUP Plc
Notes to the Financial Statements
35.
Events
          after
the balance sheet date
Business combinations
On
2 January 2006, Gallaher Group Plc acquired 100% of Cita Tabacos de Canarias
SL and its group companies ("CITA"). As part of the transaction, Gallaher also acquired 100% of
both Tabacos Canary Islands SA ("TACISA") and Tabacos La Nubia SL ("La Nubia").
CITA's principal interests comprise the manufacture, distribution and sale of cigarettes and cigars in the Canary Islands, Spanish Peninsula and Portugal. TACISA is a cigarette
manufacturing operation based in the Canary Islands, principally conducting contract manufacture for third parties. La Nubia is a small cigar manufacturer based in the Canary Islands.
At acquisition, the expected consideration for the transaction was approximately €85m in cash, with Gallaher assuming approximately €20m of CITA's debt. The final purchase
price is subject to the determination of the closing balance sheet. Due to the timing of the transaction, the final calculation of the purchase price and a review of fair values have not yet been completed. Therefore, at this stage, it is
impracticable to disclose an analysis of the assets and liabilities acquired and any fair value adjustments relating to the acquisition.
As at 31 December 2005, the Group had paid €12m (£8m) of the above consideration into an escrow account in advance of this acquisition. These funds were partially released to
the vendor on the acquisition date, 2 January 2006.
36.
IFRS
    transition disclosures
The 2005 financial statements are Gallaher Group Plc's first consolidated financial statements prepared under International Financial Reporting Standards ("IFRS"). For
accounting periods up to and including the year ended 31 December 2004, the Group prepared its financial statements under UK Generally Accepted Accounting Principles ("UK GAAP").
In accordance with IFRS 1 First Time Adoption of International Reporting Standards ("IFRS 1"), certain transitional disclosures have been given in this note. These disclosures
have been prepared under IFRS as outlined in the 'Basis of preparation'.
The transition date to IFRS was 1 January 2004. To enable users of the financial statements to understand the impact of the adoption of IFRS, the following reconciliations have been
provided:
-
reconciliation of consolidated profits for the year ended 31 December 2004 from UK GAAP to IFRS;
-
reconciliation of shareholders' deficit as at 31 December 2004 and 1 January 2004 from UK GAAP to IFRS.
Explanations of the significant adjustments have been provided in the notes following the reconciliations. These notes should be read in conjunction with the reconciliations.
The adoption of IFRS did not have any impact on Gallaher's reported net cash flows and therefore no reconciliation of the 2004 cash flow statement has been provided. However, under
IFRS (in accordance with IAS 1 Presentation of Financial Statements and IAS 7 Cash Flow Statements), the presentation of the cash flow statement has changed.
F-55
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GALLAHER GROUP Plc
Notes to the Financial Statements
36.
IFRS
    transition disclosures
(continued)
Reconciliation
of consolidated profits from UK GAAP to IFRS - Year ended 31 December 2004
IFRS adjustments
Share of
results of
As
joint
Amort-
As
reported
ventures
isation of
reported
under
and
purchased
Financial
Deferred
under
UK GAAP
associates
goodwill
instruments
taxation
Other
IFRS
£m
£m
£m
£m
£m
£m
£m
Note
A
B
C
D
E
Sales
8,115
8,115
Operating profit before
551
67
(2
)
616
exceptional charges
Exceptional charges
(17
)
(17
)
Share of results of joint ventures
17
(3
)
5
19
and associates
Total profit from operations
551
618
Net interest and other financing
(128
)
1
(127
)
charges
Net retirement benefits financing
6
1
7
income
Financial instruments mark to
n/a
6
6
market adjustments
Finance costs - net
(122
)
(114
)
Profit before taxation
429
504
Taxation
(135
)
2
(2
)
(7
)
(142
)
Profit for the year
294
72
4
(7
)
(1
)
362
Attributable to:
Equity shareholders
290
358
Minority interests
4
4
Earnings per share
basic
44.5
p
55.0
p
diluted
44.4
p
54.9
p
adjusted*
58.9
p
58.7
p
* Before amortization
of intangible assets and exceptional items.
F-56
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GALLAHER GROUP Plc
Notes to the Financial Statements
36.
IFRS
    transition disclosures
(continued)
Reconciliation
of shareholders' deficit from UK GAAP to IFRS
As at
As at
31 December
1 January
2004
2004
Note
£m
£m
Equity shareholders' deficit under UK GAAP
(251
)
(315
)
A
Associates and joint ventures
3
4
B
Write back of goodwill amortization
73
-
C
Fair value of financial instruments
(27
)
(33
)
D
Deferred tax
- on financial instruments
8
10
- on unremitted earnings
(28
)
(18
)
- on acquisition fair values
(3
)
(4
)
- other items
(7
)
(10
)
E
Proposed dividend adjustment
141
131
Equity shareholders' deficit under IFRS
(91
)
(235
)
F-57
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GALLAHER GROUP Plc
Notes to the Financial Statements
36.
IFRS
    transition disclosures
(continued)
Explanation of the key differences between UK GAAP and IFRS impacting Gallaher
The following notes highlight the key differences between UK GAAP and IFRS that had a material effect on the financial reporting of the Group.
A
Associates
              and joint ventures
Under
          UK GAAP, Gallaher accounted for joint ventures using the 'gross
          equity' method, showing Gallaher's share of joint venture
          turnover as part of total turnover and Gallaher's share of joint
          venture operating profit separately following the Group's operating
          profit . Associates were accounted for using the 'equity' method,
          whereby Gallaher's share of associates' operating profit
          was shown separately following the Group operating profit. The Group's
          share of associates' and joint ventures' interest and tax
    were included in the Group's totals for those amounts.
Under IFRS, Gallaher now accounts for both joint ventures and associates using the equity method. The presentation of the results of joint ventures and associates has changed however as
  IAS 1 'Presentation of financial statements' requires that the share of post-tax profits from joint ventures and associates is presented as a separate item on the face of the income statement.  A reclassification adjustment of £3m was
  made to deduct the associates and joint ventures' interest and tax from the 'share of results' line. The share of associates and joint ventures turnover is no longer presented on the face of the profit and loss account, but instead it
is disclosed in the notes to the accounts. There is no impact on the net profit or earnings per share of Gallaher as a result of this change; however, segmental turnover, results and operating margins are all impacted.
The accounting policies of the Group's associates and joint ventures (principally Lekkerland Tobaccoland) were also impacted by the adoption of IFRS. The net impact on the opening
balance sheet was an increase in the Group's investments in associates and joint ventures of £4m. The adjustment mainly related to the recognition of deferred tax assets.
B
Goodwill
              amortization and business combinations
IFRS
          3 'Business Combinations' introduced significant changes
          to accounting for acquisitions compared to UK GAAP. In particular,
          more separable intangibles will be recognised on acquisition of a business,
          and goodwill arising on acquisition is not amortised, but instead is
    subject to an annual impairment review.
IFRS 1 allows that IFRS 3 may be applied prospectively from the IFRS transition date. Gallaher utilised this exemption. The impact of IFRS 3 and the associated transition arrangements on
Gallaher were:
-
the accounting for acquisitions made before 1 January 2004 has not been restated as a result of the IFRS transition; and,
-
the goodwill balance recorded as at 1 January 2004, including that recorded in the investment in associates line, is no longer amortised.
The
      results for the year ended 31 December 2004 have been restated to reverse
      the goodwill amortization
charge of £72m recorded under UK GAAP.
The reversal of the goodwill amortization charge did not impact the Group's tax charge.
In the future, the goodwill balance will be subject to reviews for impairment performed annually, or more regularly if events prove it to be necessary. Impairment reviews were carried out
as at 1 January 2004 and 31 December 2004 in accordance with IAS 36 'Impairment of Assets'. No impairments were identified.
C
Financial
              instruments
IAS
          32 'Financial instruments: Disclosure and presentation' and
          IAS 39 'Financial instruments: Recognition and Measurement' address
          the accounting for, and financial reporting of, financial instruments.
          At the time the 2004 financial statements were published, there was
          no equivalent UK standard that comprehensively addressed accounting
    for financial instruments and hedge accounting.
Gallaher uses certain derivative financial instruments for the purposes of hedging foreign exchange and interest rate risk. Under UK GAAP, a form of hedge accounting was applied to these
derivative financial instruments meaning that changes in the market value of the derivative instrument were matched against changes in the value of the underlying hedged exposure.  Some of these derivative instruments were held off balance sheet for
at least part of their lives with their impact disclosed in the notes to the accounts.
IAS 39 requires that all derivative financial instruments must be recognised on the balance sheet and measured at fair value. The standard places significant restrictions on the use of
hedge accounting as specific designation and effectiveness criteria must be satisfied; the hedge accounting methodology is also different.
F-58
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GALLAHER GROUP Plc
Notes to the Financial Statements
36.
IFRS
    transition disclosures
(continued)
Explanation of the key differences between UK GAAP and IFRS impacting Gallaher
(continued)
C
Financial
              Instruments
(continued)
Gallaher
          has applied IAS 32 and IAS 39 from 1 January 2004 onwards. Gallaher
          has hedged and continues to hedge underlying exposures in an effective
          manner with a medium-term perspective, although market values can be
          volatile in the short-term. However, some of Gallaher's hedged
          positions failed to meet the strict hedging criteria under IAS 39 and
          as a consequence, the reported annual financing charge under IFRS has
    become m
ore volatile.
The balance sheet impact
    of the implementation of IAS 39 was to recognise a charge to equity of £33m in the opening IFRS balance sheet as at 1 January 2004; this represented the fair
  value of all derivatives brought onto the balance sheet for the first time and the adjustment to the carrying value of borrowings which were hedged. A related deferred tax liability of £10m was recorded in the opening balance sheet. The
transition to the new standards also impacted the 2004 finance charge which benefited from a credit of £6m, representing the change in fair value of these derivatives during 2004. The related tax charge was £2m.
D
Taxation
IAS12 'Income
          taxes' covers accounting for both current and deferred taxation.
          There is no difference in the accounting for current taxation between
    IAS 12 and the existing UK standard FRS 16 'Current tax'.
The
    basis of recognising deferred tax is significantly different under IAS 12
    compared to the UK standard, FRS 19 'Deferred taxation'. Under
    UK GAAP, deferred tax was recognised only on timing differences that arose
    from the inclusion of gains and losses in tax assessments in periods different
    from those in which they were recognised in the financial statements. Under
    IFRS, deferred tax must be recognised in respect of all
  taxable temporary differences arising between the tax base and the accounting
    base of balance sheet items. This means that deferred tax is recognised on
    certain temporary differences that would not have given rise to deferred
    tax under UK GAAP.
Specific differences relevant to Gallaher include:
deferred tax is recognised on unremitted earnings of foreign subsidiaries where it is not probable that the temporary difference will not reverse in the foreseeable future; this treatment
gave rise to an adjustment compared to UK GAAP of £18m in the opening balance sheet. There was a £10m deferred tax charge to the 2004 profit and loss account relating to the unremitted amounts earned during the year. No deferred tax
liability was recognised in respect of temporary differences relating to investments in subsidiaries since realisation of such differences is controlled and therefore is not probable in the foreseeable future;
deferred tax is recognised on all step-ups to fair values made as a result of acquisitions. This resulted in an additional deferred tax liability of £4m in the opening balance sheet;
and,
a further £10m deferred tax liability was recognised in the opening balance sheet which related to various small valuation and temporary timing differences.
E
Other
              adjustments
The
          following points list those areas of IFRS that have had an impact on
    Gallaher, but did not result in any significant financial adjustments.
Share-based payments
Under UK GAAP, Gallaher recognised a profit and loss account charge in respect of employee share options based on the difference between the exercise price of the option and the market
value of a Gallaher share at the option grant date. This charge was often small or zero.
IFRS 2 'Share-based payment' requires that Gallaher recognise a charge representing the fair value of employee share options awarded. The fair value is calculated using the
  Black-Scholes options valuation model and is charged to income over the relevant option vesting periods, adjusted to reflect actual and expected levels of vesting. A charge has been recognised from 1 January 2004 onwards in respect of options
  granted to employees on or after 7 November 2002.
The operating
profit impact in 2004 was a charge of £1m.
F-59
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GALLAHER GROUP Plc
Notes to the Financial Statements
36.
IFRS
    transition disclosures
(continued)
Explanation of the key differences between UK GAAP and IFRS impacting Gallaher
(continued)
Pensions and other post-employment benefits
Under
UK GAAP, Gallaher accounted for pensions and other post-employment benefits in
accordance with FRS 17 'Retirement benefits', which it adopted in the
year ended 31 December
2002.
In accordance with FRS 17, the full surplus or deficit for each retirement benefit scheme, representing the difference between the market value of the scheme assets and the present value
of the accrued liabilities, is recognised as an asset or liability on the balance sheet, net of deferred tax where appropriate. Actuarial gains and losses arising from differences between the assumptions and actual experience (e.g., the difference
between expected and actual returns on assets) and differences arising from changes in assumptions are recognised in full in the statement of total recognised gains and losses.
Under IFRS, retirement benefits fall within the scope of IAS 19 'Employee benefits'. Like FRS 17, this standard requires retirement benefit liabilities to be valued using the
projected unit actuarial method, but IAS 19 gives a number of options for the treatment of actuarial gains and losses.
The Group elected to early adopt the amendment to IAS 19 issued by the IASB on 16 December 2004, which allows all actuarial gains and losses to be immediately charged or credited to
equity through the statement of recognised income and expense. This amendment brings IAS 19 methodology substantially in to line with FRS 17.  This amendment has now been fully endorsed by the European Commission.
Despite some valuation differences between the standards still remaining, there is no material net difference between the balance sheet surpluses or deficits computed under FRS 17 at 1
January 2004 and 31 December 2004 and the equivalent assets or liabilities recognised under IAS 19 (amended).
Under IAS 19, plan surpluses are classified as non current assets, plan deficits are classified as non-current liabilities and any associated deferred tax balances are disclosed
separately. This gross presentation contrasts with FRS 17, under which the net retirement benefit surplus or deficit is presented below net assets in the balance sheet, net of associated deferred tax.
Additionally, under IFRS there is a change in the presentation of interest relating to the employer service cost. This interest has been charged against operating profit as per IAS 19,
whereas under UK GAAP, it had been charged as a financing cost. In the 2004 profit and loss account, this adjustment resulted in a £1m reclassification from interest to operating profit.
Reclassification of computer software
Under
UK GAAP, all computer software was included within tangible fixed assets in the
balance sheet, but under IFRS only computer software that is integral to another
fixed asset may be included in tangible fixed assets. All other separately identifiable
computer software must be recorded separately as an intangible asset. The charge
to profit in respect of such computer software under IFRS is classified as amortization
of
intangible assets rather than depreciation of tangible fixed assets. The depreciation
of such software for the year ended 31 December 2004 of £2m has been reclassified
from depreciation to amortization.
Proposed dividends
Under
UK Company Law, it was normal practice for companies to provide for dividends
approved subsequent to the year-end. This practice is not permitted under IFRS.
Therefore, under IFRS,
the final dividend of £141m for the year ended 31 December 2004 could not be provided for in the 2004 income statement. Similarly, there was an adjustment to the opening balance sheet as at 1 January 2004 of £131m.
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GALLAHER GROUP Plc
Notes to the Financial Statements
37
Summary
    of differences between IFRS and US Generally accepted accounting principles
The Group prepares its financial statements in accordance with IFRS which differ from those generally accepted in the United States of America ("US GAAP"). The following
statements summarise the adjustments reconciling profit for the year attributable to equity shareholders and equity shareholders' funds under IFRS to the amounts reported had US GAAP been applied in respect of the years ended 31 December 2005
and 2004.
Notes
2005
2004
Profit for the years
£m
£m
Profit for the years ended 31 December attributable to equity shareholders
as reported in the consolidated income statements under IFRS
369
358
US GAAP adjustments:
Pension costs
(a)
(18
)
(10
)
Financial instruments
(b)
(20
)
9
Amortization of other intangible assets
(c)
(26
)
(25
)
Restructuring costs
(d)
4
-
Long-term incentive plans and share option scheme
(f)
(3
)
(9
)
Deferred taxation
(g)
(6
)
16
Net income under US GAAP
300
339
Amounts in accordance with US GAAP:
Net income under US GAAP
300
339
Net Income per ordinary share - basic (pence)
45.8
52.0
Net Income per ADS – basic (pence) **
183.2
208.0
Net Income per ordinary share – diluted (pence)
45.7
51.8
Net Income per ADS – diluted (pence)**
182.8
207.2
** each ADS represents four ordinary shares
Equity shareholders' funds/(deficit)
Equity/(deficit) attributable to the shareholders as reported in the
consolidated balance sheets under IFRS
104
(91
)
US GAAP adjustments;
Pension costs
(a)
232
275
Capitalised interest
(e)
4
4
Financial instruments
(b)
32
29
Other intangible assets
(c)
49
72
Restructuring costs
(d)
4
1
Deferred taxation
(g)
(42
)
(23
)
Equity shareholders' funds under US GAAP
383
267
F-61
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GALLAHER GROUP Plc
Notes to the Financial Statements
2005
2004
US GAAP deficit roll forward
£m
£m
Shareholders' deficit roll forward prepared in accordance with US
GAAP is as follows:
Balance at beginning of year
267
(50
)
Net income
300
339
Proposed dividends
(210
)
(196
)
Issue of ordinary shares
5
4
Shares held by the employee benefit trust
2
8
Savings related share option schemes
1
1
Additional minimum pension liability
(4
)
171
Other gains and losses
13
(8
)
Exchange adjustments
9
(2
)
Balance at end of year
383
267
Notes
(a)
Pension costs
Under
IFRS, pension and other post-retirement benefits costs and net liabilities are
determined in accordance with the International Accounting Standard IAS 19 "Employee
Benefits" ("IAS 19"), whereas under US GAAP these costs and liabilities are determined primarily in accordance with the requirements of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standard
("FAS") No. 87, "Employers' Accounting for Pension", FAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits", and FAS No. 106
"Employers' Accounting for Post Retirement Benefits other than Pensions".
The group has adopted the exemption allowed in IFRS 1 to recognise all cumulative actuarial gains and losses at the transition date (January 1, 2004) in reserves. Actuarial gains and
losses are recognised under IAS 19 Amended, in full in the period in which they occur. They are recognised outside of the income statement in retained earnings and presented in the statement of recognised income and expense.
Under US GAAP the Group applies the "corridor approach" whereby variations from expected costs are recognised in the income statement and balance sheet over the expected service
lives of the employees.
Under IFRS the actuarial valuations of the pension plan are carried out at the balance sheet date, whereas for US GAAP the valuations are performed as at 30 September for the principal
defined benefit plans.
Under IAS 19, the expected costs of providing retirement benefits are charged to the income statement over the period benefiting from the employee's service based upon actuarial
methodologies that are similar to those applied under US GAAP.
(b)
Financial Instruments
Under IFRS the carrying value of non-derivative financial liabilities has been adjusted for changes in their fair value, with the change recognised in earnings, where subject to effective
fair value hedges. Changes in the fair value of foreign exchange derivatives are recognised immediately in earnings except where they are an effective hedge of a net investment in foreign operations in which case the changes are taken direct to
equity.
Under US GAAP, FAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133"), the requirements for determining whether a fair value or net
investment hedge is effective differ from the rules provided by relevant standards under IFRS and the Group has decided not to apply the FAS 133 requirements to hedge account for any derivative financial instrument and accordingly, changes in the
fair values of these instruments have been recognised in earnings. In addition to this no changes in the fair values of non-derivative financial liabilities have been recognised under US GAAP.
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GALLAHER GROUP Plc
Notes to the Financial Statements
(c)
Other
intangible assets
Under UK GAAP, prior to transition to IFRS, intangible assets acquired in business combinations, such as brands, were regarded as indistinguishable from goodwill and were subsumed within
the goodwill balance. On transition to IFRS, such UK GAAP amounts remain within goodwill.
US GAAP requires that the cost of investment is allocated to the acquired entity's assets and liabilities based on fair values to the acquirer at the date of acquisition. SFAS 141
"Business Combinations" provides specific criteria for the initial recognition and measurement of intangible assets separately from goodwill. Brands worth €723 million would be classified separately from goodwill as being definite
lived intangible assets in accordance with US GAAP. The Group has identified no indefinite lived intangibles.
Previously under UK GAAP, the Group had amortised goodwill over its useful economic life. On transition to IFRS such goodwill is no longer amortised and its transition value is, as under
US GAAP, tested annually for impairment and whenever events or circumstances occur that would more likely than not reduce the fair value of the reporting unit to below its carrying value. We amortise the separately identifiable additional definite
lived brands under US GAAP over 20 years.
Under US GAAP an impairment loss is indicated only when the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows.
Adjustments to intangible assets prepared in accordance with US GAAP
as at 31 December 2005 are as follows:
Total
Goodwill
Other
Intangibles
intangibles
£m
£m
£m
Goodwill and intangibles,
under IFRS as at
31 December 2005
1,452
1,205
247
Adjustments:
Intangible asset adjustment to equity under US GAAP
49
(342
)
391
Intangible asset adjustment not affecting equity under US GAAP
161
161
-
Goodwill and intangibles,
under US GAAP as
at 31 December 2005
1,662
1,024
638
Goodwill and intangibles,
under US GAAP as
at 31 December 2004
1,628
1,030
598
(d)
Restructuring
      costs
Under
      IFRS a provision for restructuring costs is recognised when an entity meets
      a number of specific criteria, indicating a present obligation as a result
      of a past event; it being probable that an outflow of resources will be
      required to settle the obligation; and, that a reliable estimate can be
      made of the amount of the obligation, in accordance with IAS 37 "Provisions, Contingent Liabilities and Contingent
Assets".
Under US GAAP, FAS 146, "Accounting for Costs Associated with Exit or Disposal Activities", requires the company to recognise certain costs associated with restructuring
activities when they are incurred, or in the case of redundancies, rateably over any future service period required in order to receive termination benefits for the employees rather than at the date of commitment to a restructuring plan.
(e)
Capitalised
interest
Under IFRS, the group has chosen not to capitalise interest incurred as part of the cost of constructing fixed assets.
Under US GAAP, the interest incurred is required to be capitalised and amortised over the useful economic lives of the qualifying assets in accordance with FAS 34, "Capitalisation of
Interest Costs".
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GALLAHER GROUP Plc
Notes to the Financial Statements
(f)
Long-term
incentive plans and share option scheme
Under
IFRS 2 "Share-based payments", an expense is recognised in the income
statement for all share-based payments (both awards of options and award of shares)
granted after 7 November 2002. This expense is calculated based on the fair value
at the date of grant of the award, using option pricing models, and is charged
over the related performance period.
Under US GAAP, Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees", the estimated intrinsic value of benefits accruing to individuals during
the period from share awards held by the EBT to satisfy rights to shares arising from Gallaher's long term share incentive plans, is remeasured each reporting period and charged to the income statement over the remaining vesting period of the
share awards.
Under US GAAP, the difference between the share price at the date of the option grant and the option exercise for any benefits accruing to individuals under its savings related share
option scheme, must be charged to the income statement over the option period being three, five or seven years.
(g)
Deferred
taxation
Deferred tax is provided on the US GAAP adjustments and on other items for which there are timing differences in recognition between US GAAP and IFRS.
In the year ended 31 December 2005, the Group reviewed its deferred tax provision in respect of unremitted earnings of certain foreign subsidiaries and recorded a charge of £28m
under US GAAP. Previously under US GAAP, no deferred taxation on unremitted earnings had been recognised due to judgements regarding the Group's ability and intent to remit such earnings and the potential tax liabilities related
thereto.
Exceptional items
In addition to the differences stated above it should be noted that 'exceptional items' under IFRS do not have the same definition as 'extraordinary items' under US
GAAP.
Under IFRS and US GAAP, 'exceptional items' are not defined; however significant material items must be disclosed separately although under US GAAP this disclosure must be on
the face of the income statement. US GAAP defines and requires presentation of 'extraordinary items', which are items that are deemed both unusual in nature and infrequent in occurrence (not reasonably expected to recur in the foreseeable
future). Such US GAAP extraordinary items must be presented net of tax effects in the income statement below income before extraordinary items. Under IFRS there is no definition for extraordinary items.
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GALLAHER GROUP Plc
Notes to the Financial Statements
38.
Principal
subsidiaries
Gallaher Group Plc is the beneficial owner of all (unless specified) of the equity share capital of its principal subsidiaries, either itself or through subsidiary undertakings. The
principal subsidiaries, all of which are unlisted, are shown below. A full list of subsidiaries is attached to the annual return of the Company.
Name
Country of
Incorporation
Principal
	    activity
Gallaher Limited (a)
England
Manufacture, marketing and distribution of tobacco products in the UK
Benson & Hedges Limited
England
Ownership of trademarks of tobacco products
Gallaher Asia Limited
Hong Kong
Marketing and importation of tobacco products in Asia Pacific markets
Gallaher Belgium SA
Belgium
Marketing and importation of tobacco products in Benelux markets
Gallaher Canarias SA
Spain
Marketing and importation of tobacco products in the Canary Islands
Gallaher (Dublin) Limited
Republic of
Ireland
Marketing and distribution of tobacco products in the Republic of
Ireland
Gallaher France EURL
France
Marketing of tobacco products in France
Gallaher Hellas SA
Greece
Marketing and importation of tobacco products in Greece
Gallaher International Limited
England
Marketing of tobacco products outside the UK
Gallaher Italia SRL
Italy
Marketing and importation of tobacco products in Italy
Gallaher Kazakhstan LLC
Kazakhstan
Manufacture, marketing and distribution of tobacco products in
Kazakhstan
Gallaher Nederlands B.V.
Netherlands
Marketing and importation of tobacco products in the Netherlands
Gallaher Polska Sp z.o.o.
Poland
Manufacture, marketing and distribution of tobacco products in Poland
Gallaher Spain SA
Spain
Marketing of tobacco products in Spain
Gallaher Switzerland SA
Switzerland
Marketing and distribution of tobacco products in developing markets
(Africa, Middle East and South America)
OOO Gallaher Liggett-Ducat
Russia
Marketing and distribution of tobacco products in Russia
Liggett-Ducat CJSC
Russia
Manufacture of tobacco products in Russia
Gallaher Ukraine CJSC
Ukraine
Manufacture, marketing
and distribution of tobacco products in Ukraine
Austria Tabak GmbH & Co KG
Austria
Manufacture of tobacco products in Austria
Austria Tabak GmbH
Germany
Marketing and distribution of tobacco products in Germany
Gallaher Austria Tabak Europe GmbH & Co.
Austria
Marketing and distribution of tobacco products in Europe
KG
Gallaher Sweden AB
Sweden
Marketing and importation of tobacco products in Scandinavia
Gallaher Snus AB
Sweden
Manufacture, marketing and distribution of snuff tobacco in Sweden
Tobaccoland Handels GmbH & Co. KG
Austria
Distribution of tobacco and non-tobacco products in Austria
Tobaccoland Automatengesellschaft mbH
& Co. KG (63.9%)
Germany
Tobacco vending operations in Germany
Cita Tabacos de Canarias SL
Spain
Manufacture, marketing and distribution of tobacco products in the
Canary Islands,
Spanish Peninsular and Portugal
(a)
Shares held directly by Gallaher Group Plc.
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Exhibit
    no.
Description
    of Exhibits
1
Memorandum and Articles of Association.
2.1
Trust Deed dated 21 May 1999 for Guaranteed Bonds due 2009 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.
2.2
Trust Deed dated 6 August 1998 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by
reference.
First Supplemental Trust Deed dated 24 May 2001 for Guaranteed Bonds due 2008 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated
herein by reference.
2.3
Pricing Supplement dated 28 September 2001 was filed with the SEC on May 24, 2002 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.
Pricing Supplement dated 21 May 2004 was filed with the SEC on June 8, 2004 under Form 20-F, file registration number 1-14602, and is incorporated herein by reference.
2.4
Offering Circular dated 4 February 2003 for Guaranteed Bonds due 2013 was filed with the SEC on May 30, 2003 under Form 20-F, file registration number 1-14602, and is incorporated herein
by reference.
2.5
Gallaher Group
    Plc - £650,000,000 Facility Agreement dated 11 March 2003 as amended, restated and increased to £1,000,000,000
pursuant to an amendment and restatement agreement
dated 16 June 2005 (the "Agreement").
2.6
Offering Circular
    by Gallaher Group Plc for £2,000,000,000 Medium Term Note Programme,
    unconditionally and irrevocably guaranteed by Gallaher Limited dated 21 May
    2004.
8
List of Subsidiaries
11
Code of Ethics was filed with the SEC on April 8, 2004 under Form 20-F, file registration number 1-14602 and is incorporated by reference.
12
Section 302 Certification
13
Section 906 Certification
15.1
Notice of annual general meeting 2006 to be held on 10 May 2006.