List identifying information required to be furnished
by Diageo plc pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act 1934
1 September 2005

Information		Required by/when
Public Announcements/Press		The London Stock Exchange
Announcement
Preliminary results for the year ended 30 June 2005.

 

 

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

Diageo plc

(Translation of registrant’s name into English)

8 Henrietta Place, London W1G 0NB

(Address of principal executive offices)

indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-F  þ                    Form 40-F  o

indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  o                    No  þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82 ___.

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.

Preliminary results for the year ended 30 June 2005

1 September 2005

Diageo has achieved organic growth in net sales (after deducting excise duties) of 4% and operating margin expansion of 0.6 percentage points resulting in organic operating profit growth of 7%. Continued strong generation of free cash flow at £1.4 billion. EPS before exceptional items 49.1 pence per share. Recommended full year dividend 29.55 pence per share.

Results at a glance

						2005				2004				Reported movement				Organic movement
Volume		equivalent units million					125.6				122.1				3	%			3	%
Turnover		£ million					9,036				8,891				2	%			4	%
Net sales (after deducting excise duties)		£ million					6,729				6,682				1	%			4	%
Marketing investment		£ million					1,023				1,039				(2	)%			1	%
Operating profit before exceptional items		£ million					1,944				1,911				2	%			7	%
Operating margin before exceptional items			%				21.5				21.5				—			0.6 ppts

Other organic growth highlights

•		Net sales (after deducting excise duties) of global priority brands excluding ready to drink grew 6%
•		Marketing increased 5% excluding ready to drink
•		Restructuring costs of nearly £90 million charged to operating profit to improve efficiency and reduce costs in future years

Other financial highlights

						2005				2004
Operating profit after operating exceptionals		£ million					1,736				1,871
Profit for the year		£ million					1,375				1,392
Basic eps before exceptional items		Pence					49.1				48.2
Basic eps		Pence					46.3				45.9
Recommended final dividend per share		Pence					18.2				17.0
Free cash flow		£ million					1,441				1,450
Return on invested capital			%				14.9				14.5
Share buybacks		£ million					710				306

% movements are organic movements. These movements and operating margins are before exceptional items. See page 29 for additional information for shareholders and an explanation of non GAAP measures.

•

Restated for the change in accounting treatment for Diageo’s General Mills shareholding eps before exceptional items grew 9%

Paul Walsh, Chief Executive of Diageo, commenting on the year ended 30 June 2005 said:

‘The range of Diageo’s premium drink brands together with our geographic reach gives us the ability to consistently deliver top and bottom line growth and strong cash flow. That is exactly what we have delivered this year. At the same time we have continued to build our brands, with over £1 billion of marketing investment. We have also improved our routes to market, particularly in the world’s biggest premium drinks market, the United States and made value creating acquisitions of brands which widen our brand range even further.

We have successfully resolved our exposure to Burger King, monetised the majority of our shares in General Mills and provided certainty as to the value we will receive from our remaining shares when they are sold as we expect they will be in a couple of months.

With the completion of these transactions Diageo’s balance sheet is now as focused on our position as the world’s leading premium drinks company as our operations have been for a number of years. Therefore, given the continued strong performance of our free cash flow, we will now be able to increase the amount of our share buy back programme. For fiscal ’06 we are proposing a programme of around £1.4 billion.

As we said at our recent trading update, we expect that in ’06 volume growth will again be 3% and net sales (after deducting excise duties) will be 4%. Better pricing and a stabilising ready to drink trend may give us the opportunity to improve on the net sales (after deducting excise duties) growth we achieved this year. We believe operating profit growth can be similar to that achieved in ’05 even after allowing for higher growth in marketing spend and higher pension costs.’

Key features of the year

•		In North America, strong top line growth together with overhead reduction delivered organic operating profit growth of 11%. Volume grew 4% and Diageo gained share in the United States across all three categories — spirits, wine and beer — in a market which is estimated to have grown by 3.5%. Although volume for the ready to drink sector was flat, Diageo gained share.
•		In Europe, operating profit grew 3% despite challenging trading conditions and further contraction of the ready to drink segment. Volume and net sales (after deducting excise duties) were down 1% and 2% respectively. Excluding ready to drink, volume and net sales (after deducting excise duties) increased 1% as price increases on global priority brands were offset by weak local priority brands in Ireland. There was an incremental £25 million spent on restructuring initiatives, which was offset by savings of £17 million.
•		The International business delivered operating profit growth of 4% while increasing marketing investment by 15%. Strong volume growth in Latin America and some Asian markets together with a number of price increases drove net sales (after deducting excise duties) up 9%. Marketing investment was increased in new growth markets such as China and behind the global priority brands where spend was up over 25%.
•		The global priority brands continue to be the engine for growth with volume and net sales (after deducting excise duties), excluding ready to drink, up 3% and 6% respectively.
•		Ready to drink now represents 6% of Diageo’s volume and around 10% of net sales (after deducting excise duties). Weakness in the ready to drink segment continued and volume and net sales (after deducting excise duties) declined 3% and 5% respectively. This reduced overall net sales (after deducting excise duties) growth by over 1 percentage point.
•		Excluding ready to drink, marketing investment grew 5%. Spend on global priority brands, excluding ready to drink, increased 6%. Spend on ready to drink brands was reduced 21% to reflect the decline of the segment across Europe and the consolidating competitive environment in North America.
•		Diageo’s decision to dispose of nearly 50 million shares in General Mills improved return on invested capital and raised £1,210 million. Excluding the impact of the sale of the General Mills shares, Diageo delivered eps growth of 9%.
•		The restructuring programme, which began in fiscal 2004, has continued at a cost of nearly £90 million in the year (2004 — £50 million) focused on streamlining operations in Europe. Incremental synergy of £68 million is expected to accrue in fiscal 2006.

•

A further £710 million was returned to shareholders via our on-market share repurchase programme.

Net sales after deducting excise duties					4	%
Operating profit					7	%
Operating margin				0.6 ppts
Free cash flow at £1,441 million				—
Return on invested capital				0.4 ppts
EPS					2	%

OPERATING AND FINANCIAL REVIEW
For the year ended 30 June 2005

% movements are organic movements. These movements and operating margins are before exceptional items. See page 29 for additional information for shareholders and an explanation of non GAAP measures.

OPERATING REVIEW

Organic volume and net sales (after deducting excise duties) movement by brand

		Equivalent units				Volume movement				Net sales* movement
		million				%				%
Global priority brands
Smirnoff			25.2				3				—
Johnnie Walker			12.3				5				12
Guinness			11.4				(2	)			5
Baileys			6.7				1				(1	)
Captain Morgan			6.5				10				11
J&B			5.9				(1	)			—
José Cuervo			4.5				7				9
Tanqueray			1.9				(3	)			1
Total global priority brands			74.4				3				4
Local priority brands			22.7				—				1
Category brands			28.0				4				3
Total			125.1				3				4

Organic volume totalled 125.1 million equivalent units. Reported volume, which includes 0.5 million equivalent units in respect of the acquisitions of Ursus, the Chalone Wine Group Ltd., and a controlling interest in Ghana Breweries, totalled 125.6 million equivalent units.

Smirnoff’s performance reflected the continued strong growth of the base brand offset by declines in Smirnoff ready to drink volume of 4% and net sales (after deducting excise duties) of 7%. The base Smirnoff brand grew across all three regions resulting in volume and net sales (after deducting excise duties) growth of 5% and 7% respectively. Smirnoff ready to drink volume declined with growth in International offset by a further decline in Europe.

Johnnie Walker also grew across all three regions. Total volume growth across the Johnnie Walker marque was 5%. The faster growth of the Johnnie Walker super deluxe variants delivered mix improvement and drove net sales (after deducting excise duties) growth of 12%.

The beer market has been tough in all three of Guinness’ major markets and this has resulted in a 2% volume decline. However, product and packaging innovation and a robust pricing strategy in these three markets led to a 5% increase in net sales (after deducting excise duties).

Baileys volume was up year on year despite weakness in Baileys Glide and Minis. The decline in these two variants has also had an adverse impact on mix. The core Baileys brand however has continued to grow and build share in the key market of Great Britain.

In North America, where over 85% of Captain Morgan’s volume is sold, performance remained strong. This together with successful innovation, such as the launch of Captain Morgan Tattoo, delivered double-digit increases in volume and net sales (after deducting excise duties).

J&B’s volume declined 1% reflecting the decline of the standard scotch segment in Spain, offset by growth in markets such as South Africa and Korea. Increased pricing in Spain, J&B’s single biggest market, mitigated the effect of the volume decline on net sales (after deducting excise duties).

José Cuervo has returned to strong growth year on year with growth of premium variants delivering mix improvement.

Tanqueray has under-performed the imported gin segment in North America where nearly 80% of its volume is sold. The brand’s performance towards the end of the year has improved since new advertising has been aired. Stronger pricing delivered mix improvement.

Analysis by region

North America

Summary:

•		Volume grew 4%, net sales (after deducting excise duties) grew 6% and operating profit grew 11%
•		Diageo has created a leading position in the world’s most profitable beverage alcohol market. The strong growth of the spirits sector along with Diageo’s superior route to market are reflected in the results which have been achieved.
•		Volume growth was led by the global priority brands, which grew 5%. Local priority brands and the category brands also showed consistent volume growth with both up 3%.
•		This strong performance in the US spirits market has resulted in an overall share gain of 0.5 percentage points to 25.4%.
•		Ready to drink volume was flat, net sales (after deducting excise duties) grew 2% and marketing investment declined 7% as competitors exited and Diageo grew share of the segment.

Key measures:

		2005				2004				Reported movement				Organic movement
		£ million				£ million				%				%
Volume											4				4
Turnover			2,619				2,641				(1	)			6
Net sales (after deducting excise duties)			2,191				2,220				(1	)			6
Marketing			341				359				(5	)			—
Operating profit before exceptional items			778				757				3				11

Reported performance:

Turnover was £2,619 million in the year ended 30 June 2005 down by £22 million from £2,641 million in the comparable prior period. Operating profit before exceptional items increased by £21 million to £778 million in the year ended 30 June 2005.

Organic performance:

The weighted average exchange rate used to translate US dollar turnover moved from £1 = $1.74 in the year ended 30 June 2004 to £1 = $1.86 in the year ended 30 June 2005. The weakening of the US dollar resulted in a £183 million reduction in turnover that was offset by organic growth of £146 million and the net impact of acquisitions and disposals which contributed £15 million of turnover. Operating profit before exceptional items increased by £21 million, reflecting organic growth of £78 million offset by £57 million of adverse exchange rate movement effects.

Organic brand performance:

		Volume movement %				Net sales* movement %
Smirnoff			4				5
Johnnie Walker			3				11
José Cuervo			6				7
Baileys			(3	)			(2	)
Captain Morgan			11				12
Tanqueray			(4	)			—
Guinness			5				9
Total global priority brands			5				6
Local priority brands			3				6
Category brands			3				1
Total			4				6

In North America, global priority brands represent 61% of volume, local priority brands account for 23% of volume while category brands represent the remaining 16%.

Smirnoff vodka grew volume 6% and net sales (after deducting excise duties) 8% behind strong base brand performance and even faster growth of Smirnoff Twist. Share of the vodka category grew by 0.8 percentage points.

Smirnoff ready to drink volume was flat although net sales (after deducting excise duties) grew 2%. While share of the segment grew 5.9 percentage points, growth was impacted by comparison against the Smirnoff Twisted V launch in late 2003.

In the prior year, marketing investment behind Smirnoff vodka increased nearly 50% to support the Icon packaging launch. Consequently, year on year Smirnoff vodka marketing declined while Smirnoff ready to drink marketing was focused on continuing to build awareness of Smirnoff Twisted V.

Johnnie Walker volume grew 3% and share increased due in part to increasing demand from ethnic minority and 21-29 year old adults. Net sales (after deducting excise duties) increased 11% driven by the higher growth of the super deluxe variants and price increases. Johnnie Walker Black Label grew volume 2% and net sales (after deducting excise duties) grew 9% as a price increase was implemented in certain areas of the United States. Johnnie Walker Red Label lost share in its segment as competitive pressure increased. Johnnie Walker Green Label was launched in October 2004 and contributed to the growth in the super deluxe variants. Marketing investment increased 7% to support this launch and behind increased gift packaging programmes.

José Cuervo volume was up 6%, led by growth in Cuervo Gold and José Cuervo Classico. Marketing investment increased 10% as the brand launched its first television advertising campaign. While share declined 0.9 percentage points as competitive pressures from super and ultra premium tequilas increased, José Cuervo remains the category leader.

Baileys had a difficult start to the year as Minis failed to sustain its initial launch success. In the second half of the year however the brand’s volume performance has improved.

Captain Morgan continues to grow very strongly with volume up 11% and net sales (after deducting excise duties) up 12% as the brand gained 2.2 percentage points of share. Growth was driven primarily by Captain Morgan Original Spiced Rum, together with the successful launch of Captain Morgan Tattoo and Parrot Bay Passion Fruit. Marketing investment increased 14% to support these launches as well as increased advertising and on trade marketing programmes.

Tanqueray volume fell 4% and the brand lost share although it remains the leading imported gin. A price increase was taken in certain states mitigating the volume decline and therefore net sales (after deducting excise duties) were flat. Marketing investment declined 2% in the year as campaigns were withdrawn to prepare for the fourth quarter launch of a new advertising campaign.

Guinness volume grew 5%, significantly outperforming the import beer category. This was due to growth across all variants: Guinness Draught in Bottle, Guinness Extra Stout and Guinness Draught. This performance is the result of successful marketing particularly around the low calorie message and the consumer trend towards premium brands and taste. Net sales (after deducting excise duties) increased 9% as a result of stronger pricing.

The local priority brands performed well with volume growth and mix improvement driven by the strong performance of Crown Royal. Volume of Crown Royal was up 7%, and net sales (after deducting excise duties) increased 11% benefiting from a price increase in select states. Crown Royal also grew share by 0.4 percentage points. Beaulieu Vineyards and Sterling Vineyard continue to grow strongly with volume up 12% and 19% respectively, boosted by the significant growth of lower value variants, BV Century Cellers and Sterling Vintners Collection. These volume increases were partially offset by a decline in volume of Buchanan’s, 7 Crown and VO, all down 1%.

Category brands grew volume 3% led by growth in beer such as Smithwicks and Red Stripe as well as value vodkas such as Popov and Gordon’s Vodka. Net sales (after deducting excise duties) grew only 1% principally due to the growth in value vodkas.

Overall marketing investment was flat as growth in Crown Royal, Captain Morgan and José Cuervo was offset by the decline in Smirnoff. The growth in marketing spend for Crown Royal is primarily related to the brand’s sponsorship of NASCAR. The Captain Morgan and José Cuervo marketing increases were driven by increased media investment.

Diageo has signed new distributor agreements in a further three states in the past year, bringing the total number of states that have signed new distribution agreements to 39 and the District of Columbia. Across the United States, there are 2,100 distributor sales persons who are exclusively selling over 80% of Diageo’s spirits and wines volume.

Performance in Canada, which represents 10% of total North America volume, was negatively affected by a strike in the province of Quebec, which impacted the holiday selling season and the destocking of the Canadian Liquor Control Board and consequently volume declined 3%.

In February 2005, Diageo completed the acquisition of the Chalone Wine Group Ltd. for US$285 million (£153 million) and has since successfully integrated the brands. In fiscal 2005, Chalone contributed nearly 50,000 equivalent units and £14 million in net sales (after deducting excise duties).

Europe

Summary:

•		Volume declined 1%, net sales (after deducting excise duties) were down 2% and operating profit increased 3%.
•		Europe remains a difficult business environment with increased regulation on ready to drink products, health related legislation, a continued shift from the on trade to the off trade and weak economic conditions.
•		There were £25 million of incremental restructuring charges, partially offset by a reduction of £17 million in costs, which resulted in a 1 percentage point reduction in organic operating profit growth.
•		Marketing declined 7%, partially driven by a 44% reduction in spend on ready to drink as a result of the continued contraction of the ready to drink segment.
•		Excluding ready to drink volume and net sales (after deducting excise duties) grew 1%.

Key measures:

		2005				2004				Reported movement				Organic movement
		£ million				£ million				%				%
Volume											—				(1	)
Turnover			3,852				3,847				—				—
Net sales (after deducting excise duties)			2,494				2,535				(2	)			(2	)
Marketing			403				435				(7	)			(7	)
Operating profit before exceptional items			692				666				4				3

Reported performance:

     Turnover in Europe increased in the year ended 30 June 2005 by £5 million to £3,852 million. Operating profit before exceptional items increased by 4% from £666 million to £692 million.

Organic performance:

     Turnover increased by £5 million compared with the year ended 30 June 2004. This increase arose due to organic growth of £8 million offset by an overall reduction in turnover arising from disposals and acquisitions of £3 million. Exchange rate movements had no overall impact on turnover in the year. Operating profit before exceptional items increased by £26 million as a result of £18 million of organic growth, beneficial exchange rate movement effect of £7 million and the impact of acquisitions of £1 million.

Organic brand performance		Volume				Net sales*
		movement				movement
		%				%
Smirnoff			(3	)			(12	)
Johnnie Walker			1				2
Guinness			(2	)			5
Baileys			2				—
J&B			(3	)			(2	)
Total global priority brands			(1	)			(2	)
Local priority brands			(4	)			(4	)
Category brands			4				1
Total			(1	)			(2	)

In Europe, global priority brands represent 64% of the volume, local priority brands account for 16%, while category brands represent the remaining 20% of the volume.

Smirnoff’s performance reflects the continued decline of the ready to drink segment in Europe. Last year Smirnoff ready to drink represented nearly 20% of total Smirnoff volume and this has fallen to 15% in 2005. Smirnoff vodka grew volume 3% and net sales (after deducting excise duties) grew 4% with good performances and stronger pricing in Great Britain, Ireland and Spain; all markets in which it is the leading vodka brand. Smirnoff ready to drink volume and net sales (after deducting excise duties) declined over 25% and consequently marketing on ready to drink was reduced by more than 40%. However, support behind Smirnoff vodka was up 7% as there was increased investment behind the launch of Smirnoff Norsk and Penka in Great Britain.

Johnnie Walker volume grew 1% and net sales (after deducting excise duties) increased 2%. Volume for Johnnie Walker Black Label and Johnnie Walker super deluxe variants was up 3% and 50% respectively as a result of increased focus on super premium brands in Greece, Russia and Spain. Johnnie Walker Red Label volume was flat as growth in Russia and Greece offset weakness in France and Spain. Marketing was up 6% as a result of increased activities in Greece, Russia and Spain.

Almost 95% of Guinness volume in Europe is sold in Great Britain and Ireland, and therefore the declining beer market in both countries heavily impacted volume, which declined 2%. Robust pricing has offset volume weakness with net sales (after deducting excise duties) up 5%.

Baileys volume was up 2% driven by strong growth in Great Britain, Germany and Russia. Net sales (after deducting excise duties) were flat due to adverse mix as the prior year saw the launch of Baileys Glide. Excluding ready to drink, net sales (after deducting excise duties) were up 2%.

J&B volume declined 3% due to the continued contraction of the standard whisky segment. However net sales (after deducting excise duties) were down by 2% due to improved pricing in Spain and Portugal.

Local priority brand volume and net sales (after deducting excise duties) were down 4% as lagers in Ireland continue to decline due to difficult on trade market conditions.

Category brands grew volume 4% as strong performances from smaller brands offset a 3% decline in Gordon’s Gin outside of Great Britain. Blossom Hill continued to grow in Great Britain with volume up 18%. Pampero performed well in Spain and Italy with volume up 8% and 20% respectively, while Haig was particularly strong in Greece with volume up 29%.

Marketing in Europe was down 7% due to a 44% reduction in spend on ready to drink. Marketing, excluding ready to drink, decreased 1% in response to soft market conditions. However investment in key brands was up-weighted with marketing for Smirnoff excluding ready to drink up 7% driven by increases in Great Britain and Ireland. Johnnie Walker marketing grew 6% to support the brand’s growth in Greece and Russia. Investment was also increased behind specific opportunities such as Baileys and Guinness in Great Britain, lagers in Ireland and Cacique in Spain.

The acquisition of the Ursus vodka and the Ursus Roter brands for €146 million (£99 million) was completed on 25 February 2005 and Diageo began selling the brands in Greece late in March.

Great Britain

Through a period of weakening economic and market conditions, Diageo delivered overall top line growth with volume and net sales (after deducting excise duties) up 1% and 2% respectively. This growth has been achieved through share gains in vodka, gin and cream liqueurs. A focused pricing strategy has resulted in price increases on Smirnoff Red, Guinness, Baileys, Gordon’s, and Pimms. This strength in core spirits, together with the continued growth of wines, helped offset the negative mix impact of the decline in the ready to drink segment. Excluding ready to drink, volume grew 3% while net sales (after deducting excise duties) were up 7%.

In a buoyant category, Smirnoff vodka continued to outperform. Volume grew 5% and net sales (after deducting excise duties) were up 8% as a result of a price rise in June 2004. Share increased by 1 percentage point due to a strong marketing programme, increased distribution and consistent promotional activities. Share of voice increased 13 percentage points to 29% as a result of a 28% increase in marketing investment which includes support for the launch of Norsk and Penka. Smirnoff ready to drink volume declined 19%, however, the brand remains the segment leader with a 28% share.

In a weak beer market, Guinness volume declined 1%, although price increases in April 2004 and February 2005 led to net sales (after deducting excise duties) growth of 4%. New promotional packaging for Guinness Draught in cans drove off trade growth, while a solid performance in the on trade enabled the brand to hold share. Marketing investment grew 1% and as result share of voice increased 1 percentage point to 17%.

Baileys Glide has not built on its initial success, and volume of the product halved in the year. Consequently, total Baileys volume increased 2% and net sales (after deducting excise duties) were down 3% as a result of the adverse mix impact. Core Baileys volume and net sales (after deducting excise duties) were up 3%. Stock in trade was successfully reduced following the increase in the prior year in preparation for the July 2004 launch of a new bottle with a modern and contemporary look. Marketing investment for Baileys (excluding Glide) was up 3% to support the launch of the new bottle as well as wide reaching media and sampling campaigns.

Local priority brand performance was mixed. Gordon’s volume grew 2% driven by an effective advertising campaign and the successful re-launch of Gordon’s Sloe gin. Already the leading gin brand in Great Britain, share increased 2 percentage points to 41%. Bell’s volume was flat as the brand recovered from tough trading conditions over the Christmas period when competitors pursued an aggressive discounting strategy. It remains the market leader with 15% share. Archers volume declined 12% driven by a 21% decline in the ready to drink variant Archers Aqua.

Category brand volume was up 9% driven by 18% growth in Blossom Hill which, as a result of its continued strong performance, has become Diageo Great Britain’s biggest off trade brand.

Ireland

The results for Ireland reflect the ongoing difficulties in the on trade as well as growth in the value wine and spirits segments. The shift from the on trade to the off trade was further exacerbated by the smoking ban introduced in the Republic of Ireland in March 2004. The on trade declined 5% and now represents 53% of the market while the off trade grew 11% driven by strong growth in wines and spirits. These market dynamics have a major impact on performance in Ireland as the majority of Diageo’s business is in the on trade. As a result, volume declined 4% and net sales (after deducting excise duties) were down 5%.

Although Guinness volume was down 3%, net sales (after deducting excise duties) were up 4% due to pricing. The brand’s performance in the first half was stronger as it benefited from a cool summer in 2004 compared to the abnormally hot summer in 2003. In the on trade, which accounts for nearly 90% of Guinness’ volume, share was up by nearly 1 percentage point in the Republic of Ireland and remained flat in Northern Ireland despite the challenging market dynamics.

In spirits, Smirnoff vodka performed well and it continues to be the number one vodka brand in Ireland. Volume increased 11% as a result of the successful introduction of a new bottle and new advertising in 2004. Baileys volume was up 2% with most of the growth coming during the Christmas period as a result of a new and extended marketing campaign.

Local priority volume declined 9% due to continued weak performance in beer. However, performance in the second half was stronger due in part to increased marketing investment.

Spain

In Spain, volume declined 1% in a spirits market that contracted by 2%. The first half saw a trade buy-in ahead of the January 2005 increase in both duty and price. As a result of stronger pricing across a number of brands, net sales (after deducting net excise duties) grew 3%.

J&B volume declined 4%, while net sales (after deducting excise duties) were down only 1% due to higher pricing. Despite a 1 percentage point decrease in share, J&B remains the leader of the standard whisky segment with a 25% share.

Johnnie Walker volume declined 3% while net sales (after deducting excise duties) grew 2% due to stronger pricing on Johnnie Walker Red Label and 6% volume growth in Johnnie Walker Black Label. Johnnie Walker Red Label share was flat while Johnnie Walker Black Label grew share by 1 percentage point.

Baileys volume increased 1% and net sales (after deducting excise duties) were up 4%, again as a result of stronger pricing. Off a small base, José Cuervo volume was up 38% and net sales (after deducting excise duties) increased 50% driven by the introduction of new premium variants and increased consumer interest in the tequila category.

Local priority brand volume was flat while net sales (after deducting excise duties) increased 4% as the result of higher pricing. The dark rum segment continues to grow, although at a more moderate pace, as consumers continue to shift away from whisky and white rum. Cacique volume was flat, while net sales (after deducting excise duties) were up 6% due to pricing. Although the brand lost share due to numerous new entries, it is still the leader of the dark rum segment with 21% share.

Category brand volume was up 7%. Continued momentum behind Pampero led volume to grow 8% and net sales (after deducting excise duties) to increase by 19%. Gordon’s volume was up 6% and net sales (after deducting excise duties) grew 7% due to favourable pricing versus the competition.

Rest of Europe

The rest of Europe represents about a third of Diageo’s European business. Total volume declined 1% and net sales (after deducting excise duties) were down 4% driven by the decline in the ready to drink segment in Germany, Switzerland and the Nordics. Performance excluding ready to drink was stronger with volume up 1% and net sales (after deducting excise duties) up 2% as a result of volume growth in Russia and robust pricing in Greece.

In Greece, volume increased 6% and net sales (after deducting excise duties) were up by 5%. Stronger pricing of Johnnie Walker, Smirnoff, José Cuervo and Haig was slightly offset by a 16% decline in ready to drink net sales (after deducting excise duties). In a tough market, volume in France declined by 1% as weakness in Johnnie Walker and Gordon’s was partially offset by growth in Smirnoff vodka and J&B. Volume in Germany and Switzerland was down more than 8% as a result of ready to drink volumes declining 71% and 48% respectively as higher duties and increased regulations of the ready to drink category were introduced during the year.

Russia continued its strong growth trajectory, albeit from a relatively small base. Volume grew 51%, while net sales (after deducting excise duties) were up 47%. Johnnie Walker and Baileys were the key growth drivers with volume up 56% and 45% respectively. Johnnie Walker Black Label, Johnnie Walker Red Label and Baileys are the clear leaders in their segments. Diageo entered an agreement with Heineken for the production and distribution of Guinness in Russia which became effective as of July 2005.

International

Summary

•		Strong growth with volume up 4%, net sales (after deducting excise duties) up 9%, marketing up 15% and operating profit up 4%.
•		Volume growth was achieved through high growth in Latin America and parts of Asia Pacific. This together with price increases in Latin America and Africa and overall mix improvement delivered a 5 percentage point improvement in price and mix.
•		Global priority brands performed strongly with volume up 6%. Net sales (after deducting excise duties) grew 12% due to price increases on Smirnoff in Latin America and Guinness in Africa and mix improvement in Johnnie Walker, which offset a decline in volume in Nigeria, Taiwan and Korea.
•		Significant investments were made in the period to position Diageo for long term growth including an increase in marketing of 27% on global priority brands, the launch of a redesigned Guinness bottle in Nigeria at a cost of £13 million and the launch of a number of product innovations.
•		The emerging markets of Brazil, India and China continue to grow rapidly resulting in strong Johnnie Walker and Smirnoff growth.

										Reported				Organic
Key measures:		2005				2004				movement				movement
		£ million				£ million				%				%
Volume											5				4
Turnover			2,503				2,340				7				8
Net sales (after deducting excise duties)			1,982				1,864				6				9
Marketing			279				245				14				15
Operating profit before exceptional items			627				646				(3	)			4

Reported performance:

Reported turnover in the year ended 30 June 2005 was £2,503 million, up £163 million on the prior year figure of £2,340 million. Operating profit before exceptional items was down 3% at £627 million for the year ended 30 June 2005.

Organic performance:

Turnover in International markets was up £163 million compared with the year ended 30 June 2004. There were unfavourable exchange effects of £45 million, offset by a £194 million improvement in organic performance. Acquisitions contributed turnover of £14 million in the year to 30 June 2005.

There was a £19 million decrease in reported operating profit before exceptional items. This decrease was mainly due to organic improvements in brand performance of £21 million offset by unfavourable exchange rate movements of £41 million.

Organic brand performance:		Volume				Net sales*
		movement				movement
		%				%
Johnnie Walker			8				16
Smirnoff			13				21
Guinness			(4	)			5
Baileys			1				1
Total global priority brands			6				12
Local priority brands			—				1
Category brands			4				8
Total			4				9

In International, global priority brands account for 53% of total volume, while local priority brands represent 15% and category brands account for the remaining 32%.

Growth in Johnnie Walker was driven by the brand’s strong performance across Latin America and in China and India, offset by weakness in Taiwan and Australia. Higher growth in the Johnnie Walker super deluxe variants gave rise to significant mix benefits.

Strong volume growth was achieved in both Smirnoff vodka, up 9% and Smirnoff ready to drink, up 32%. Smirnoff performance was particularly strong in Latin America, Asia Pacific and India with volume growth of 22%, 15% and 36% respectively. In Latin America, Smirnoff ready to drink grew volume 40% due to a repositioning of the brand in Brazil and the launch of the Smirnoff Black Ice variant. In South Africa, Smirnoff ready to drink volume was up 15% driven by innovation initiatives. Price increases in Latin America coupled with the growth in the ready to drink segment delivered favourable mix benefits.

Guinness volume decline of 4% is primarily due to a 20% volume decline in Nigeria, as the rest of international delivered strong volume growth of 8%. The key drivers of growth were Cameroon, Japan and Ghana as a result of both innovation and packaging initiatives. Net sales (after deducting excise duties) grew 9 percentage points ahead of volume supported by higher pricing in Nigeria.

Baileys volume grew 1% with volume growth in Latin America offset by declines in Australia and global duty free. Growth in Latin America was as a result of strong volume performance in Mexico primarily supported by a new media campaign.

In local priority brands, strong volume growth from Buchanan’s (Venezuela), Pilsner (Kenya) and Bell’s (South Africa) was offset by significant declines in Windsor (Korea) and Malta Guinness (Africa).

Mix improvement in the category brands was due to the growth of higher value brands such as Buchanan’s (outside of Venezuela) and Old Parr, which was offset by a significant decline in Spey Royal, a value brand, in Thailand.

Overall marketing investment grew 15% with spend behind global priority brands up 27%. In South Africa investment in the global priority brands was up 40%. The drivers included the launch of Smirnoff Triple Spin, the re-launch of Baileys and promotional activities for Smirnoff and J&B. In Nigeria, promotional activities focused around the launch of the redesigned Guinness bottle. In Latin America, higher media spend supported the continued growth of Johnnie Walker and Smirnoff.

Asia Pacific

In Korea, the trading environment for beverage alcohol remains tough due to a difficult economy. The whisky category declined 7% losing share to cheaper local substitutes. While Diageo maintained its leadership in scotch, premium brands such as Windsor and Dimple, both lost share and volume declined 16% and 14% respectively. This was offset by strong volume growth in J&B of 49% and therefore overall volume was down 10%. Net sales (after deducting excise duties) declined 13% due to the negative mix impact of the volume decline in Windsor and Dimple.

In Japan, the global priority brands were up 8% in volume and 14% in net sales (after deducting excise duties). Guinness grew share driven by expanded on trade distribution and increased media spend. Smirnoff ready to drink grew share 13 percentage points in the off trade.

In Thailand, volume was up 1% and mix improvement led to stronger net sales (after deducting excise duties) growth. Johnnie Walker reversed its first half volume decline with overall volume up 1% and net sales (after deducting excise duties) benefited from higher pricing across all variants and positive mix. Additionally, increased media spend supported price increases on Johnnie Walker Red Label and Johnnie Walker Black Label. This was offset by weak Spey Royal performance with volume down 36% as the brand increased price and lost share in the highly competitive standard scotch segment. However, this lost volume was offset by the successful launches of Golden Knight, in January 2005, and Benmore, in March 2005, which compete in the value whisky and standard scotch segments respectively.

Trading conditions in Taiwan were difficult with increased competition from both lower priced local scotch brands and single and blended malt brands. Johnnie Walker Black Label lost share and volume declined by 36%, primarily driven by a volume decline in the first half. However, the brand performed strongly in the second half with volume up 17%. Growth in the Johnnie Walker super deluxe variants delivered mix improvement and overall Johnnie Walker volume and net sales (after deducting excise duties) declined 26% and 16% respectively.

Diageo grew share and maintained its leadership position in both the spirits category and ready to drink segment in Australia. The Australian spirits market was down 4% and Diageo’s performance was mixed with volume of Bundaberg and Smirnoff up, but Johnnie Walker and Baileys down. Bundaberg grew share due to the launch of Bundaberg Distillers No. 3, new packaging and increased media spend. Ready to drink volume grew 10% driven by further successful line extensions.

In India, volume increased 26% off a small base, primarily driven by growth in the global priority brands. This was supported by a significant investment in marketing concentrated on increasing brand awareness of Smirnoff vodka and Johnnie Walker. Smirnoff vodka delivered the highest growth, with volume up 36% and share up 2 percentage points driven by the launch of Smirnoff Flavours and targeted marketing campaigns. A price increase was also implemented on Smirnoff vodka. Johnnie Walker continued its strong performance with volume up 24%.

China too experienced rapid volume and net sales (after deducting excise duties) growth primarily driven by an increase in Johnnie Walker volume of 78%. Johnnie Walker Black Label benefited from a significant increase in marketing investment. Additionally, in April 2005, Diageo successfully hosted the Johnnie Walker Classic, a premier golf tournament, in Beijing. Growth in the global priority brands was also supported by a new route to market model for Guinness, Baileys and Smirnoff vodka, all of which registered volume increases, although off smaller bases.

Latin America and the Caribbean

There was strong growth across all Latin American markets with overall region volume up 11% and net sales (after deducting excise duties) up 20%. The key drivers of growth were the global priority brands with Johnnie Walker and Smirnoff growing volume 13% and 22% respectively as well as strong growth in the local priority brands.

Performance in Brazil, Paraguay and Uruguay benefited from generally strong economies and volume was up 21% and net sales (after deducting excise duties) up 31%. Johnnie Walker contributed to the strong performance with overall volume up 10% and net sales (after deducting excise duties) up 19% due to growth in the previously declining super deluxe variants. Smirnoff vodka grew volume 21% boosted by higher media spend and a new packaging launch. In Brazil, Johnnie Walker Red Label, Johnnie Walker Black Label and Smirnoff vodka all increased share as a result of increased media spend, and maintained leadership of their respective categories.

In Venezuela, a significant improvement in the economic environment led to strong growth with volume up 23% and net sales (after deducting excise duties) up 50%. The key drivers of growth were volume and mix improvement on Johnnie Walker and Buchanan’s both of which increased volume over 60% and grew share. Diageo maintained its leadership of the super deluxe, deluxe and standard scotch segments as a result of new media spend. Smirnoff Ice was launched in Venezuela in October 2004 and has positioned itself as the leader within the ready to drink segment supported by increased media spend.

Performance in Mexico was strong with overall volume up 43% and net sales (after deducting excise duties) up 54% primarily driven by growth and share gains across the scotch category. Buchanan’s increased share by 4 percentage points and Johnnie Walker Red Label and J&B each increased share by 2 percentage points. Baileys accelerated growth with volume up 26% and share increased 2 percentage points lifted by improved brand visibility from wider distribution and a new media campaign.

In Jamaica, volume declined 1% while net sales (after deducting excise duties) were up 11% as a result of price increases on Guinness and Red Stripe.

Africa

Africa delivered volume growth of 2% despite the weakness of the important Nigerian beer market. Price increases were achieved in a number of major markets including Nigeria and overall net sales (after deducting excise duties) grew 8%. Underlying margin expansion was offset by the cost of the new bottle design in Nigeria.

In Nigeria, the beer market declined 10% due in part to reduced liquidity and increased competition for disposable income, from such items as mobile phones. Guinness, the premium priced brand in the beer market, was more affected by the downturn with volume down 20% while share declined. Similarly, Malta Guinness, which retails at a premium price, lost share and declined in volume. Marketing investment increased 18% to support promotional activities, including the launch of a redesigned Guinness bottle in August 2004, which re-enforced Guinness’ quality positioning. Harp, which was re-launched in April 2005, grew share and volume. Guinness Extra Smooth was successfully launched in June 2005. While overall volume in Nigeria declined 19%, net sales (after deducting excise duties) only declined 2% as a result of higher pricing.

In Kenya, Diageo’s performance in beer was strong with volume up 13%. Strong volume performance of premium variants delivered mix benefits for Tusker, Pilsner volume remained robust, and Senator, driven by the launch of the keg variant in July 2004, grew share by 4 percentage points.

Performance was strong in Cameroon and, although the beer market declined by 4%, Guinness grew volume by 21% benefiting from the successful launch of Guinness Extra Smooth in June 2004 which captured 5% of the beer market. Volume increased 10% as this strong performance was offset by volume declines in Harp and Gordon’s Spark. Net sales (after deducting excise duties) increased 12%, driven by price and mix.

In December 2004, Diageo completed the purchase of Ghana Breweries Limited, a subsidiary of Heineken, and retains a majority ownership in the newly formed entity — Guinness Ghana Breweries Limited. Guinness delivered high volume growth in Ghana with Guinness FES increasing share by 2 percentage points. Malta Guinness also gained share and increased volume by 26%. Overall volume increased 15% and net sales (after deducting excise duties) increased 22%, driven by price increases.

In South Africa, overall volume increased 8% and net sales (after deducting excise duties) increased 11%, primarily driven by positive brand mix. The scotch market was up 14% and Diageo’s joint venture, brandhouse, delivered strong results with Johnnie Walker, J&B and Bell’s all delivering strong volume growth and share gains. The performance of these brands was driven by an increase in marketing of 34% focused on building brand awareness. Smirnoff in South Africa, which represents 90% of Smirnoff volume in Africa, registered strong growth with volume up 5% and net sales (after deducting excise duties) up 6% due in part to the introduction of Smirnoff Triple Spin, a new ready to drink variant. Smirnoff vodka, positioned as a premium white spirit in the on trade, grew share by 1 percentage point.

Global Duty Free

Volume growth in Europe, Australia and parts of Asia in the second half, reversed the declining trend of the first half, and overall volume and net sales (after deducting excise duties) remained flat year on year. Stronger performances from Johnnie Walker Black Label and Johnnie Walker super deluxe variants due to aggressive marketing and promotion initiatives at airports and price increases on Smirnoff vodka, offset a volume decline in Baileys.

Corporate revenue and costs

Reported turnover in the year ended 30 June 2005 was £62 million, down £1 million versus the prior year. Net corporate operating costs before exceptional items reduced by 3% to £153 million in the year to 30 June 2005 compared to the prior year.

FINANCIAL REVIEW

Summary consolidated profit and loss account

		Year ended 30 June 2005												Year ended 30 June 2004
		Before												Before
		exceptional				Exceptional								exceptional				Exceptional
		items				items				Total				items				items				Total
		£ million				£ million				£ million				£ million				£ million				£ million
Turnover			9,036				—				9,036				8,891				—				8,891
Operating costs			(7,092	)			(208	)			(7,300	)			(6,980	)			(40	)			(7,020	)
Operating profit			1,944				(208	)			1,736				1,911				(40	)			1,871
Associates’ profits			185				—				185				451				(13	)			438
Investment income			17				—				17				—				—				—
Disposal of fixed assets							(19	)			(19	)							(35	)			(35	)
Disposal of businesses							46				46								(10	)			(10	)
Finance charges			(143	)			—				(143	)			(295	)			—				(295	)
Profit before taxation			2,003				(181	)			1,822				2,067				(98	)			1,969
Taxation			(481	)			98				(383	)			(517	)			30				(487	)
Profit after taxation			1,522				(83	)			1,439				1,550				(68	)			1,482
Minority interests			(64	)			—				(64	)			(90	)			—				(90	)
Profit for the year			1,458				(83	)			1,375				1,460				(68	)			1,392
Dividends			(866	)			—				(866	)			(833	)			—				(833	)
Transferred to reserves			592				(83	)			509				627				(68	)			559

Turnover

On a reported basis, turnover increased by £145 million (2%) from £8,891 million in the year ended 30 June 2004 to £9,036 million in the year ended 30 June 2005. Turnover was adversely impacted by exchange rate movements of £228 million, principally arising from weakening of the US dollar.

Operating costs

On a reported basis, operating costs increased by £280 million (4%) from £7,020 million in the year ended 30 June 2004 to £7,300 million in the year ended 30 June 2005. Operating exceptional items increased by £168 million from £40 million to £208 million. On a reported basis before exceptional items, excise duties increased by £98 million from £2,209 million for the year to 30 June 2004 to £2,307 million, whilst cost of goods sold increased by £7 million and marketing investment was down 2% from £1,039 million to £1,023 million. Marketing investment on global priority brands (excluding ready to drink) was £587 million while marketing spend on ready to drink brands was £128 million. Reported group overheads increased by £23 million in the year to 30 June 2005 to £1,176 million. Overall, the impact of exchange rate movements reduced total operating costs before exceptional items by £137 million.

Exceptional operating costs

Operating profit for the period is after £208 million of exceptional operating costs. Exceptional operating costs include a charge of £149 million which is the discounted value of increasing the annual payments to the Thalidomide Trust. Diageo currently makes an annual payment of £2.8 million to the Trust although in the year ended 30 June 2005 an additional contribution of £4.4 million was made. Based on the current negotiations it is expected that the future annual payment will increase to around £6.5 million per annum.

This amount will be index-linked and is expected to be a final settlement payable over the period to 2037. Also included in exceptional costs is £29 million of accelerated depreciation in respect of the Park Royal brewery which, as announced in April 2004, closed in June 2005 and £30 million (2004 — £40 million) of final costs related to the integration of the Seagram spirits and wine businesses, acquired in December 2001.

Operating profit

Reported operating profit decreased by £135 million from £1,871 million to £1,736 million. Exchange rate movements reduced operating profit before exceptional items for the year ended 30 June 2005 by £91 million (US dollar reduction of £79 million, euro benefit of £3 million, other currencies reduction of £15 million).

Post employment plans

Post employment charges calculated under FRS 17 resulted in a charge to operating profit of £96 million (2004 — £101 million) and other finance income of £16 million (2004 — charge of £18 million). In October 2004, four million shares in General Mills with a market value of £100 million were transferred to the group’s UK pension fund. At 30 June 2005, Diageo’s deficit after taxation for all post employment plans was £902 million (30 June 2004 — £750 million).

Associates

The group’s share of profits of associates before exceptional items was £185 million for the year compared to £451 million last year. Diageo ceased to equity account for its share of the results of General Mills from 23 June 2004. In the year ended 30 June 2004, General Mills contributed £258 million to share of profits of associates. In the year ended 30 June 2005 the Group’s 34% equity interest in Moët Hennessy contributed £169 million to share of profits of associates before exceptional items (2004 — £176 million).

Investment income

Income from fixed asset investments was £17 million, arising on dividends receivable from General Mills.

Finance charges

Finance charges decreased from £295 million in the year ended 30 June 2004 to £143 million in the year ended 30 June 2005.

The net interest charge decreased by £120 million (44%) from £271 million in the prior year to £151 million in the year ended 30 June 2005; £42 million of this decrease results from lower debt offset by higher floating interest rates year on year. The balance of the reduction in the net interest charge mainly results from the cessation of equity accounting for General Mills shares (£59 million) and from the weaker US dollar (£11 million).

Other finance income of £8 million included income of £16 million (2004 — charge of £18 million) in respect of the group’s post employment plans. This beneficial movement principally reflects the increase in the value of the assets held by the post employment plans between 1 July 2003 and 30 June 2004.

Non operating exceptional items

Non-operating exceptional items before taxation were a credit of £27 million in the year ended 30 June 2005 compared with a charge of £45 million in the year ended 30 June 2004. This credit includes a loss on disposal of fixed assets totalling £19 million comprising a loss on disposal of part of the group’s investment in General Mills of £26 million and a net gain on disposal of other fixed assets of £7 million. In October 2004, 49.9 million shares in General Mills were sold for £1.2 billion and a further four million shares were transferred to the group’s UK pension fund. These disposals generated a loss before tax of £26 million after writing back goodwill previously written off to reserves of £247 million and other costs, including the costs of terminating related hedge instruments, of £25 million. Also included in non-operating exceptional items is the net profit on disposal of businesses of £46 million comprising a credit relating to Burger King Corporation of £53 million, a provision of £8 million in respect of the sale of part of the United Beverages distribution business in Ireland and a net credit of £1 million relating to other disposals. The credit in relation to Burger King Corporation, which was sold in 2002, reflects the release of provisions relating to residual financing obligations following the successful refinancing of Burger King Corporation on 13 July 2005. This resulted in the repayment of the subordinated debt (including accrued interest receivable) and the release of Diageo from its obligations under the guarantee.

Profit before taxation

After exceptional items, the profit before taxation and minority interests decreased by £147 million from £1,969 million to £1,822 million in the year ended 30 June 2005.

Exchange rates

The impact of adverse exchange rate movements on profit before exceptional items and taxation for the financial year ending 30 June 2006 is estimated to be £50 million (excluding transaction exchange on share of profits of associates). This is comprised of an adverse impact in respect of our hedged transaction exposure of around £70 million and £20 million favourable translation exposure based on current exchange rates, including £1 = $1.80 (2005 – $1.86) and £1 = €1.47 (2005 – €1.46).

Taxation

The effective rate of taxation on profit before exceptional items for the year was 24%, compared with 25% for the year ended 30 June 2004, the reduction arising primarily as a consequence of the sale of the General Mills shares. The effective tax rate on exceptional items benefits from a provision release related to various disposals in previous years.

Dividend

The directors recommend a final dividend of 18.2 pence per share, an increase of 7% on last year’s final dividend. The full dividend would therefore be 29.55 pence per share, an increase of 7%. Subject to approval by shareholders, the final dividend will be paid on 24 October 2005 to shareholders on the register on 16 September 2005. Payment to US ADR holders will be made 28 October 2005. A dividend reinvestment plan is available in respect of the final dividend and the plan notice date is 3 October 2005.

Cash flow

Extract from the consolidated cash flow statement

		2005				2004
		£ million				£ million
Operating cash inflow			2,143				2,121
Interest and dividends paid to equity minority interests			(228	)			(299	)
Dividends from associates and fixed asset investments			134				224
Taxation			(324	)			(298	)
Net (purchase)/sale of investments			(6	)			9
Net capital expenditure			(278	)			(307	)
Free cash flow			1,441				1,450

Free cash inflow was £1,441 million, compared with £1,450 million in the year ended 30 June 2004. Free cash flow decreased marginally as a result of an increase in operating cash inflows of £22 million from £2,121 million to £2,143 million in the year ended 30 June 2005 and reduced interest and dividends paid to equity minority interest of £71 million and reduced net capital expenditure of £29 million, offset by reduced dividends received from associates and fixed asset investments of £90 million (following disposal of part of the investment in General Mills) and increased taxation paid of £26 million.

In the year ended 30 June 2005, Diageo repurchased 94.4 million shares for cancellation or to be held as treasury shares (2004 — 43.1 million shares) at a cost of £710 million (2004 — £306 million). A net £29 million (2004 — £4 million) was spent on the purchase of shares for the employee share trusts.

Net borrowings at 30 June 2005 were £3,697 million, a decrease of £447 million in the year. The principal components of this decrease were the free cash inflow of £1,441 million, proceeds from the sale of part of the General Mills investment of £1,210 million partly offset by the acquisitions of £258 million principally being The Chalone Wine Group Ltd. and Ursus Vodka Holding B.V., purchase of own shares of £710 million, outflows to redeem guaranteed preferred securities of £302 million and dividends paid of £849 million.

Other matters

Conversion to International Financial Reporting Standards ‘IFRS’ — The unaudited IFRS primary statements and the accounting policies under IFRS are included on page 36 to page 44 of this press release. Reconciliations between UK GAAP and IFRS for the year ended 30 June 2005 and the balance sheets as at 30 June 2005 and 30 June 2004 are available on the Diageo website, www.diageo.com or to obtain a copy, please contact investor.relations@diageo.com.

Revised Articles of Association — A resolution will be put to the 2005 AGM in October 2005 to adopt a revised set of Articles of Association. If adopted, a summary of the new Articles will appear in the 2006 Annual Report.

DIAGEO CONSOLIDATED PROFIT AND LOSS ACCOUNT

		Year ended 30 June 2005												Year ended 30 June 2004
		Before												Before
		exceptional				Exceptional								exceptional				Exceptional
		items				items				Total				items				items				Total
		£ million				£ million				£ million				£ million				£ million				£ million
Turnover			9,036				—				9,036				8,891				—				8,891
Operating costs			(7,092	)			(208	)			(7,300	)			(6,980	)			(40	)			(7,020	)
Operating profit			1,944				(208	)			1,736				1,911				(40	)			1,871
Associates’ profits			185				—				185				451				(13	)			438
			2,129				(208	)			1,921				2,362				(53	)			2,309
Investment income			17				—				17				—				—				—
Disposal of fixed assets							(19	)			(19	)							(35	)			(35	)
Sale of businesses
Continuing operations							(7	)			(7	)							(13	)			(13	)
Discontinued operations							53				53								3				3
							27				27								(45	)			(45	)
Interest payable (net)			(151	)			—				(151	)			(271	)			—				(271	)
Other finance income/(charges)			8				—				8				(24	)			—				(24	)
Profit before taxation			2,003				(181	)			1,822				2,067				(98	)			1,969
Taxation			(481	)			98				(383	)			(517	)			30				(487	)
Profit after taxation			1,522				(83	)			1,439				1,550				(68	)			1,482
Minority interests
Equity			(53	)			—				(53	)			(58	)			—				(58	)
Non-equity			(11	)			—				(11	)			(32	)			—				(32	)
Profit for the year			1,458				(83	)			1,375				1,460				(68	)			1,392
Dividends			(866	)			—				(866	)			(833	)			—				(833	)
Transferred to reserves			592				(83	)			509				627				(68	)			559
Pence per share
Basic earnings			49.1	p			(2.8	)p			46.3	p			48.2	p			(2.3	)p			45.9	p
Diluted earnings			49.0	p			(2.8	)p			46.2	p			48.2	p			(2.3	)p			45.9	p
Dividends											29.55	p											27.6	p
Average shares											2,972	m											3,030	m

DIAGEO CONSOLIDATED BALANCE SHEET

						30 June 2005								30 June 2004
		£ million				£ million				£ million				£ million
Fixed assets
Intangible assets			4,252								4,012
Tangible assets			2,097								1,976
Investments in associates			1,334								1,263
Other investments			719								1,772
							8,402								9,023
Current assets
Stocks			2,335								2,176
Debtors — due within one year			1,664								1,573
Debtors — due after one year			68								151
Cash at bank and liquid resources			817								1,167
			4,884								5,067
Creditors — due within one year
Borrowings			(869	)							(2,001	)
Other creditors			(3,183	)							(3,022	)
			(4,052	)							(5,023	)
Net current assets							832								44
Total assets less current liabilities							9,234								9,067
Creditors — due after one year
Borrowings			(3,677	)							(3,316	)
Other creditors			(98	)							(109	)
							(3,775	)							(3,425	)
Provisions for liabilities and charges							(723	)							(709	)
							4,736								4,933
Post employment liabilities (net of tax)							(902	)							(750	)
Net assets							3,834								4,183
Capital and reserves
Called up share capital							883								885
Reserves							2,758								2,807
Shareholders’ funds							3,641								3,692
Minority interests
Equity			193								179
Non-equity			—								312
							193								491
							3,834								4,183

DIAGEO CONSOLIDATED CASH FLOW STATEMENT

						Year ended								Year ended
						30 June 2005								30 June 2004
		£ million				£ million				£ million				£ million
Net cash inflow from operating activities							2,143								2,121
Dividends received from associates							111								224
Returns on investments and servicing of finance
Interest paid (net)			(179	)							(257	)
Dividends received from fixed asset investments			23								—
Dividends paid to equity minority interests			(49	)							(42	)
							(205	)							(299	)
Taxation							(324	)							(298	)
Capital expenditure and financial investment
Purchase of tangible fixed assets			(296	)							(327	)
Net (purchase)/sale of investments			(6	)							9
Sale of tangible fixed assets			18								20
							(284	)							(298	)
Acquisitions and disposals
Purchase of subsidiaries			(258	)							(17	)
Sale of subsidiaries, associates and businesses			(16	)							(17	)
Sale of shares in General Mills			1,210								—
							936								(34	)
Equity dividends paid							(849	)							(800	)
Management of liquid resources							369								(98	)
Financing
Issue of share capital			6								4
Net purchase of own shares for share trusts			(29	)							(4	)
Own shares purchased for cancellation/ holding as treasury shares			(710	)							(306	)
Redemption of guaranteed preferred securities			(302	)							—
Decrease in loans			(757	)							(247	)
							(1,792	)							(553	)
Increase/(decrease) in cash in the year							105								(35	)

MOVEMENTS IN NET BORROWINGS

		Year ended								Year ended
		30 June 2005								30 June 2004
		£ million								£ million
Increase/(decrease) in cash in the year			105								(35	)
Cash flow from change in loans			757								247
Change in liquid resources			(369	)							98
Change in net borrowings from cash flows			493								310
Exchange adjustments			(137	)							371
Non-cash items			91								45
Decrease in net borrowings			447								726
Net borrowings at beginning of the year			(4,144	)							(4,870	)
Net borrowings at end of the year			(3,697	)							(4,144	)

DIAGEO CONSOLIDATED STATEMENT OF
TOTAL RECOGNISED GAINS AND LOSSES

						Year ended												Year ended
						30 June 2005												30 June 2004
						Before												Before
						tax				Tax				Net				tax				Tax				Net
						£ million				£ million				£ million				£ million				£ million				£ million
Profit for the year		— group					1,574				(320	)			1,254				1,493				(356	)			1,137
		— associates					184				(63	)			121				386				(131	)			255
							1,758				(383	)			1,375				1,879				(487	)			1,392
Exchange adjustments		— group					99				—				99				77				6				83
		— associates					21				—				21				(204	)			—				(204	)
Actuarial (losses)/gains on post employment plans
		— group					(239	)			32				(207	)			476				188				664
		— associates					—				—				—				110				(39	)			71
Total recognised gains and losses for the year							1,639				(351	)			1,288				2,338				(332	)			2,006

NOTES TO PRESS RELEASE

1. Basis of preparation

The financial statements, prepared in accordance with UK GAAP, of Diageo plc for the year ended 30 June 2005 and this preliminary statement were approved by a duly appointed and authorised committee of the board of directors on 31 August 2005. This statement does not comprise the statutory accounts of the group but is derived from those accounts.

The statutory accounts of Diageo plc for the year ended 30 June 2004 have been filed with the registrar of companies. KPMG Audit Plc has reported on those accounts and on the statutory accounts for the year ended 30 June 2005. Both the audit reports were unqualified and did not contain any statement under section 237 of the Companies Act 1985.

2. Business and geographical analysis

Following a reorganisation of the way the business is managed, the business analysis is now presented under the categories of Diageo North America, Diageo Europe and Diageo International. The results for the years ended 30 June 2005 and 30 June 2004 have been reported to reflect this new organisation.

Business analysis:

						2005								2004
						Operating								Operating
		Turnover				profit/(loss)*				Turnover				profit/(loss)*
		£ million				£ million				£ million				£ million
North America			2,619				778				2,641				757
Europe			3,852				692				3,847				666
International			2,503				627				2,340				646
			8,974				2,097				8,828				2,069
Corporate			62				(153	)			63				(158	)
			9,036				1,944				8,891				1,911

Geographical analysis of turnover and operating profit by destination:

						2005								2004
						Operating								Operating
		Turnover				profit*				Turnover				profit*
		£ million				£ million				£ million				£ million
Europe			3,966				562				3,963				524
North America			2,655				794				2,683				778
Asia Pacific			966				219				971				245
Latin America			564				159				455				157
Rest of World			885				210				819				207
			9,036				1,944				8,891				1,911

Turnover and operating profit by geographical destination have been stated according to the location of the third party customers. Certain businesses within Diageo International for internal management purposes have been reported within the appropriate region in the geographical analysis above. Corporate turnover and operating loss (principally central costs) are incurred in Europe.

Corporate revenues and costs are in respect of central costs including finance, human resources and legal as well as certain information system, service centre, facilities and employee costs that are not directly allocated to the geographical operating units. Additionally, they also include the revenues and costs related to rents receivable in respect of properties not used by Diageo in the manufacture, sale or distribution of premium drinks and the results of Gleneagles Hotel.

		2005				2004
		£ million				£ million
Net assets relating to:
Premium drinks business			8,386				7,772
Investment in General Mills			508				1,587
Investments in associates			1,334				1,263
Post employment liabilities (net of deferred tax)			(902	)			(750	)
Net borrowings			(3,697	)			(4,144	)
Tax, dividends and other corporate items			(1,795	)			(1,545	)
			3,834				4,183

Weighted average exchange rates used in the translation of profit and loss accounts were US dollar — £1 = $1.86 (2004 — £1 = $1.74) and euro — £1 = €1.46 (2004 — £1 = €1.45). Exchange rates used to translate assets and liabilities at the balance sheet date were US dollar — £1 = $1.79 (2004 — £1 = $1.82) and euro — £1 = €1.48 (2004 — £1 = €1. 49). The group uses foreign exchange transaction hedges to mitigate the effect of exchange rate movements.

3. Exceptional items

						2005								2004
		£ million				£ million				£ million				£ million
Operating costs
Thalidomide Trust			(149	)							—
Seagram integration			(30	)							(40	)
Park Royal brewery accelerated depreciation			(29	)							—
							(208	)							(40	)
Associates							—								(13	)
Disposal of fixed assets
General Mills			(26	)							(42	)
Other			7								7
Sale of businesses							(19	)							(35	)
Continuing operations
United Beverages Holdings			(8	)							—
Other premium drinks			1								(13	)
Discontinued operations
Burger King Corporation			53								(26	)
The Pillsbury Company			—								29
							46								(10	)
							(181	)							(98	)