SMOKERS STABILISE AT 22%

BRITAIN'S largest tobacco company, the Gallaher Group, reported a decline
in half-year profits yesterday but claimed fewer smokers were quitting.

Chairman and chief executive Peter Wilson said regular surveys conducted by
Gallaher of consumers indicate that the percentage of adults who smoke has
remained stable at about 22% over the past six months.

The rate of decline of the UK cigarette market is running at around 6% a year.

But this accelerated rate of decline in the domestic cigarette market is
driven by the growing number of smokers who buy tobacco from mainland
Europe, where it is much cheaper.

Gallaher turned in profits before tax of UKP128.2m in the six months ended
June 30, down from UKP166.7m in 1997. The figures were in line with
stockbrokers' forecasts, and the shares were up at 4l9p.

Gallaher held on to its leadership of Britain's cigarette market over rival
Imperial Tobacco Group, although its market share fell to 39.1% from
39.50% over the same. 1997 period.

Group profit from tobacco sales in Britain fell by 7.8% to UKP135.2m in the
first half. Overseas profits grew 0.4% to UKP31.7m, with cigarette sales up
15.9% over the half-year period.

The company, which owns Britain's best-selling cigarette brand, Benson &
Hedges, and Hamlet cigars, said its low-price brands Sovereign and Mayfair
were the UK's fastest growing.

Gallaher also announced plans to buy back 5% of its own shares, equivalent
to about #130m. -Reuters.

Checked-by: Joel W. Johnson