Interim Results - Part 1

Diageo PLC
22 February 2001

Part 1

DIAGEO ANNOUNCES ORGANIC OPERATING PROFIT 
GROWTH OF 11% AND EPS UP 11% 
 
Diageo today announced its interim results for the six months ended 31
December 2000. 
    
Turnover up 4% to £6,842 million (1999 - £6,596 million) 
Organic operating profit* growth of 11% to £1,235 million (1999 - £1,151
million) 
Organic operating profit* growth in Guinness UDV of 14% to £834 million
(1999 - £775 million) 
EPS* up 11% to 25.1 pence (1999 - 22.6 pence) 
 
*  Pre exceptional items and goodwill amortisation 
 
FINANCIAL HIGHLIGHTS: 
 
* Spirits and Wine operating profit up 14% to £693 million 
* Beer operating profit up 13% to £141 million 
* Packaged Food operating profit up 11% to £302 million 
* Quick Service Restaurants operating profit down 7% to £99 million 
* Profit before goodwill amortisation, exceptional items and tax £1,189
  million 
* Effective tax rate reduced to 25% 
* 18 million shares repurchased and cancelled in the period at a cost of £108
  million 
* £120 million underlying improvement in economic profit 
* Interim dividend 8.9 pence per share up 6% 
* Free cash flow up £77 million to £493 million 

Paul Walsh, Group Chief Executive of Diageo, commenting on the six months
ended 31 December 2000 said: 
 
'Guinness UDV has continued to deliver strong levels of growth even with a
tough comparison against last year. On an organic basis turnover grew 6% and
operating profit grew 14%. The formula for growth remains the same. We
continue to invest in our premium drinks brands and to focus by individual
market. We continue to develop our understanding of consumers and consuming
occasions and find innovative new ways to ensure that our brands capture the
biggest share of high value consumption occasions. We continue to drive down
costs and make our cost structure a source of competitive advantage. 
 
'In Pillsbury, where operating profit rose to £302 million, the changes we
made in the prior year to reduce costs and to focus marketing on the higher
margin categories have led to the achievement of 11% organic operating profit
growth in the first half. The business faces its future as part of General
Mills in good shape. 
 
'Burger King has faced a more difficult trading environment, particularly in
the United States, and operating profit at £99 million is down by £6 million
on a reported basis. We are determined to improve the operating performance
of Burger King to ensure that the proposed full separation of Burger King
from Diageo realises value for shareholders. The recent appointment of John
Dasburg to the role of Burger King's Chief Executive Officer is an important
step in this process.' 
 
Commenting on current trading, Paul Walsh said: 
 
'In Guinness UDV, the global priority brands, which were the main driver of
growth in the first half, have continued to grow in line with our
expectations. We are excited by the opportunity which the national launch of
Smirnoff Ice in the Unites States provides, building, as it does, on the
success of the brand in other markets around the world and in test markets in
the United States.  
 
'Trading performance for Pillsbury also continues to be in line with the
trends seen in the first half, though operating profit growth in the second
half will be impacted by the comparison against a stronger second half last
year. 
 
'Trading at Burger King remains challenging and in January comparable
restaurant sales were down approximately 3%, however February is slightly
better. Programmes put in place during the first half will improve operating
performance at Burger King, although the full year reported operating profit
is likely to be down year on year. 
 
'Above all else our premium drinks business continues to perform strongly and
this will drive the achievement of our overall growth targets for the full
year.' 
Lord Blyth, Chairman, commented:  
'This is the third successive results presentation in which Diageo has
delivered double digit organic operating profit growth, again driven by
strong performance in its premium drinks business. 
 
'The momentum underlying these excellent results has continued into the new
calendar year and we therefore continue to look forward to the future with
confidence.' 
                                                                          
    Investor enquiries to:    Catherine James      020 7927 5272            
                                                   [e-mail]  
    Media enquiries to:       Kathryn Partridge    020 7927 5225            
                                                   [e-mail] 
        
Diageo's interim statement will be sent to all shareholders. Copies of the
group's results presentation to be made to analysts and investors are
available upon request. The interim statement and the presentation will be on
the Diageo web site www.diageo.com from 9.30 am on 22 February 2001. 

INTERIM STATEMENT OF RESULTS 
for the six months ended 31 December 2000 
 
Unless otherwise stated, percentage movements given throughout this statement
for volume, turnover, operating profit and marketing expenditure are organic
movements (at level exchange and after adjusting for acquisitions and
disposals). They are before goodwill amortisation and exceptional items.
Comparisons are with the equivalent period last year. 
 
Volume has been measured on an equivalent servings basis to nine litre cases
of spirits. Equivalent units are calculated as follows: beer in hectolitres
divide by 0.9, wine in nine litre cases divide by 5, ready to drink in nine
litre cases divide by 10. 
 

FOCUS ON ORGANIC GROWTH IN PREMIUM DRINKS:

* The global priority brands in Guinness UDV drove growth in that business 
* Net sales value of global priority brands grew 13% 
* Continued investment behind global priority brands with marketing spend up
  13% as total premium drinks marketing spend rose 9% 
* Reported operating margin improved by 1.5 percentage points to 20.5% 
* Including ready to drink formats, on an equivalent unit basis, growth in
  the volume of the global priority brands was 5% 
* Smirnoff Ice continues to perform very strongly in the United Kingdom and
  has now been launched in 13 markets around the world 

STRATEGIC CHANGE TO SUSTAIN ORGANIC GROWTH:

* Refocused Diageo as a leading global premium drinks business 
* Implementing the integration of Guinness and UDV 
* Agreed the combination of Pillsbury with General Mills, involving at least
  $4.5 billion in cash to be received by Diageo and a 33% shareholding in the
  enlarged General Mills 
* Agreed the acquisition, together with Pernod Ricard, of the Seagram Spirits
  and Wine business

OPERATING AND FINANCIAL REVIEW 
for the six months ended 31 December 2000 
 
PREMIUM DRINKS 
 
Organic volume growth was 3% comprising growth in spirits of 3%, in beer of
2% and a decline in wine of 9%. 

                                                                              
                         Volume growth*        Net sales    Share of total net
                                           value growth*         sales value* 
                                      %                %                    % 
Global priority                      5               13                    58 
brands                                                                      
Local priority                       3                8                    15 
brand market units                                                          
Other spirits                        -               (3)                   17 
Other beer                          (1)              (3)                    6 
Other wine                         (12)             (11)                    4 

Total premium                        3                7                   100 
drinks volume                                                               
 
*Including ready to drink formats 

 
Volume of the global priority brands grew 5% including ready to drink
formats. 
 
The volume growth of the global priority brands (GPBs), including ready to
drink formats is shown in the table below.  

                                                                       
                              Cases* million    Volume       Net sales 
                                                growth    value growth 
                                                     %               % 
Johnnie Walker                           6.1        3                9 
Guinness                                 5.6        3                7 
Smirnoff                                 9.7        5               38 
J&B                                      3.7        4                6 
Baileys                                  3.2        8               10 
Cuervo                                   2.2       (3)               9 
Tanqueray                                1.0        5               12 
Malibu                                   1.2       21               19 

Total GPBs                              32.7        5               13 
 
* Equivalent units 
 
Excluding ready to drink (RTD) formats, GPB volume grew 3% in the period.
Volume of RTD formats of the GPBs reached nearly 0.9 million equivalent cases
up from 0.3 million in the prior year. This was mainly due to the continuing
strong growth of Smirnoff Ice in Great Britain and Ireland, to its launch
into new markets and to test marketing in the United States ahead of its
launch there in January 2001. Smirnoff Ice volume grew to nearly 0.7 million
equivalent cases or nearly 230 million individual bottles. 
 
Turnover grew 6%, comprising growth in Spirits and Wine of 5%, with a decline
in wine of 3%, and growth in Beer of 6%. 
 
                                                                              
                      Turnover     Turnover   Reported growth          Organic
                          2000         1999                            growth 
                     £ million    £ million                 %               % 
Spirits and              3,004        2,877                4                5 
Wine                                                                        
Beer                     1,060        1,195              (11)               6 

Guinness UDV             4,064        4,072                -                6 
 
Reported turnover was flat as growth in the global priority brands of 12% was
offset by a reduction of £284 million principally due to the disposal of
Cruzcampo in January 2000 and of the European spirits brands in late 1999.
Organic growth in turnover was 6% with net sales value up 7%. Growth was
driven by price increases and mix improvements particularly in the GPBs,
where price and mix accounted for over 60% of the growth in turnover. 

 
All global priority brands performed strongly in the period. 
 
Net sales value of the Johnnie Walker brand grew 6 percentage points more
than the 3% growth in volume as a result of price increases and mix
improvement. While volume of Johnnie Walker Red Label was constant, focus on
Johnnie Walker Black Label, with marketing up nearly 30%, resulted in further
strong growth with volume up 11%. Johnnie Walker Black Label is now the
world's number one deluxe scotch following successive periods of growth.
Total investment in marketing behind Johnnie Walker grew 21% as focus on the
KEEP WALKING campaign, which is now running in most Johnnie Walker markets
around the world, has improved qualitative and quantitative measures of brand
health.  
 
Guinness volume was up 3%, driven by strong volume growth in the United
States. The brand continued to grow in all regions except Europe, where the
decline in the beer market in Ireland continued to impact the performance of
the brand. Nevertheless, Guinness gained share in the draught beer market in
both Ireland and Great Britain. In Rest of World, the brand continues to grow
behind proven marketing programmes. 
 
The performance of Smirnoff was very strong. Volume was up 5% and net sales
value grew nearly 40%. This increase in net sales value was in part due to
the price repositioning of the brand in the United States, which helped to
generate a 5% increase in net sales value despite a decline in volume. In
addition, the successful expansion of Smirnoff Ice contributed to the growth
in net sales value with sales nearly 0.6 million equivalent cases above the
comparable period last year. Growth of Smirnoff Ice is due equally to the
continued success of the brand in Great Britain and Ireland, and its
introduction into a further 11 markets. Investment in marketing increased in
most markets and behind both the core brand and RTD formats. Despite this 35%
increase in marketing investment behind the brand, contribution after
marketing was up 30%. 
 
Volume of J&B was up 4% driven principally by continued strong growth in
Spain. Volume in Spain grew 11% as a result of strong marketing, particularly
in the non-metropolitan areas outside J&B's traditional urban strongholds,
together with targeted on-premise activity. Strong growth in Portugal and
Turkey offset volume weakness in France following a 4% price increase. In the
United States, the rate of decline has been slowed and although volume fell
7% in the period net sales value was only down 3% due to price increases. 
 
Baileys volume was up 8%. In the United States and Great Britain, its biggest
markets, it continued to grow steadily with volume up 3% and 6%,
respectively. Continental European markets also grew strongly with volume up
over 9%. However, in Spain price increases as a consequence of euro price
alignment negatively impacted volume. 
 
Volume of Cuervo in the United States, which accounts for approximately 85%
of the brand's total volume, declined by 5% due to price increases
implemented to reflect the rise in agave prices. Worldwide net sales value
increased 9%. Contribution after marketing increased by 20%. 
 
Tanqueray performed strongly in the period. Volume was up 5% and net sales
value grew 12% as a result of price increases in most markets and the very
successful launch of Tanqueray No. TEN in the United States. Contribution
after marketing grew 21% as a result of lower marketing spend pending the
introduction of new advertising. 
 
Malibu's excellent performance in many markets, with total volume up 21% and
net sales value up 19% was the result of a 30% increase in marketing
investment.  

 
Local priority brands continued to perform well with net sales value up 8%. 
 
Local priority brand market units, which contribute 13% of Guinness UDV
volume and 16% of contribution after marketing, achieved 3% volume growth in
the period. Marketing expenditure was broadly in line with the prior year.  
 
Local priority brands no longer include ready to drink formats of the global
priority brands as they are now included in the total volume of the GPBs.
Using the previous classification of local priority brands volume growth was
8% and net sales value growth was 18%. 

 
Wine volume declined by 9% but strong growth of Beaulieu Vineyard wines
improved the mix and contribution after marketing increased by 6%. 
 
At the lower end, the wine category remained very competitive with volume
down 12% however at the premium end Beaulieu Vineyard wines in the United
States, which is the focus of our wine business, continued to grow strongly
with volume up 20%, net sales value up over 30% and contribution after
marketing up nearly 50%. 

 
Marketing spend increased 9% on an organic basis. 
 
Reported marketing investment was up 6% to £525 million (1999 - £493
million). Organic growth of 9% was offset by a reduction of £17 million in
respect of disposals made in the prior year. Marketing spend on the global
priority brands was up 13% and represents 70% of total Guinness UDV marketing
expenditure. 

 
Organic operating profit increased 14%. 
 
Reported operating profit was £834 million (1999 - £775 million) up 8%.
Organic growth of 14% was partly offset by the impact of disposals which
reduced operating profit by £47 million. 
 

                                                                    
                                 Operating profit    Organic growth 
                                        £ million                 % 
Spirits and Wine                                        
Europe                                        282               14  
North America                                 217               17  
Asia Pacific                                   89               26  
Latin America                                  72               (1) 
Rest of World                                  33               14  

                                              693               14  
Beer                                                    
Europe                                         80                11 
North America                                   1                 - 
Asia Pacific                                   21                11 
Latin America                                  13                44 
Rest of World                                  26                 4 

                                              141                13 
Premium drinks                                          
Europe                                        362                13 
North America                                 218                18 
Asia Pacific                                  110                23 
Latin America                                  85                 4 
Rest of World                                  59                 9 

                                              834                14 

 
In Europe, volume increased 2%, turnover grew 4% and operating profit was up
13%, driven by improvements in the major markets of Great Britain where
volume grew 4% and Spain where volume was up 6%. 
 
In Great Britain, volume, sales and operating profit all increased despite
the significant impact of the millennium on the results for the six months
ended 31 December 1999. The continued success of Smirnoff Ice was the
principal engine of this growth. Smirnoff Ice volume and sales were over
three and a half times the levels of the comparative period. Smirnoff Red
volume grew by 5%, benefiting from the enhanced visibility and profile of
Smirnoff Ice. Depletions of Bell's grew 3% in the first half behind a new
marketing campaign for the brand, though volume was level with the comparable
period last year because of a reduction in stock levels. Baileys, with volume
up 6%, continued to grow as a result of new advertising for the brand aimed
at increasing consumption occasions throughout the year. The beer market in
Great Britain continued to decline but strategic focus on Guinness maintained
volume on the brand, despite comparison against the prior year which
benefited from the Rugby World Cup promotions. Other beer volume declined
partly as a result of the decision to focus on the Guinness brand and
withdraw from secondary brands such as Kilkenny. Marketing investment
remained at the same level as in the prior year as increased spend on
Smirnoff Ice offset later phasing of expenditure on Guinness. 
 
In Ireland, total volume was flat as strong growth in Baileys and Smirnoff
offset a fall in beer volume. Baileys volume was up 19%, and Smirnoff volume
was up 15%. Beer volume was down 3% driven by a declining beer market there.
Mix improvements and price increases drove turnover growth of 3%. Guinness
Draught, which accounts for over 80% of the volume of the Guinness brand in
Ireland, has increased share in the draught beer market. A number of
programmes have been introduced to build recruitment and maintain loyalty and
they are demonstrating significant success in increasing consumer perceptions
of Guinness.  
 
In Spain, price increases, supported by a 40% increase in marketing
investment, led to turnover growth of 11% with a 6% increase in volume. The
majority of global priority brands contributed to this growth, particularly
J&B with volume up 11% and net sales value up 12%. Cardhu and Malibu again
grew strongly with volume up 30% and 50%, respectively. 

 
In North America, operating profit growth of 18% was driven by volume growth,
selective price increases and carefully targeted marketing investment. 
 
Turnover growth of 6% in North America was driven by volume growth of 3% and
increases in net sales value per case generated by price and mix
improvements. Price increases arising from the decision to reposition
Smirnoff and the effect of the agave shortage on Cuervo generated an increase
in net sales value on these brands of 9% and 8%, respectively despite a
decline in volume. Volume growth of Malibu, Tanqueray and Baileys also
generated net sales value growth. Marketing investment was slightly up,
reflecting increased investment in Guinness, Baileys, Malibu and Smirnoff -
particularly in preparation for the Smirnoff Ice launch in January 2001.
Marketing spend behind Cuervo and Stolichnaya was reduced, and expenditure on
Johnnie Walker has been phased later than in the prior year. 

 
In Asia Pacific, operating profit growth of 23% was driven by growth in
premium brands. 
 
Asia Pacific volume grew 6% as a result of strong growth in Johnnie Walker
which grew 17%, Smirnoff which grew 10%, Dimple which was up 27% and Guinness
up 6%. Turnover was up 9%. Johnnie Walker Black sales grew 22% as a result of
increased marketing investment. Smirnoff growth was driven principally by
Australia. In Korea, the Scotch market continues to recover, with a shift in
consumption towards the premium sector, benefiting Dimple which has grown
market share. Guinness volume growth was driven by improved distribution and
by increased sales in Malaysia ahead of a possible increase in duty. 

 
In Latin America, turnover and operating profit grew 3% and 4%, respectively,
and were supported by an increase in marketing investment. 
 
Latin America turnover growth of 3% was driven by the strong volume
performance of Buchanan's in Mexico and Venezuela, growth in Johnnie Walker
Black Label in Venezuela, and the growth of Baileys throughout the region.
Operating profit growth was slightly ahead of sales growth, even after a
substantial increase in marketing investment, principally behind Johnnie
Walker. Beer operating profit growth of over 40% was achieved as a result of
cost efficiencies arising from the restructuring in Jamaica. 
 
Continued volume growth of Guinness and the growth of Smirnoff Ice in South
Africa and Kenya drove operating profit growth in Rest of World. 
 
Guinness continued to grow strongly in Africa, supported by the extension of
the successful 'Michael Power' advertising campaign. In Nigeria, Guinness
volume grew 5% despite an increase in excise duty and growth in Ghana and
Cameroon was also strong. This growth together with the success of Smirnoff
Ice in South Africa and Kenya were the principal drivers of sales growth of
18% and operating profit growth of 9% in Rest of World. 

 
QUICK SERVICE RESTAURANTS 
 
* System sales were flat 
* Total restaurants up 5% compared with 31 December 1999 to 11,345 units 
* Worldwide comparable restaurant sales down 6% 
* Operating profit declined 7% to £99 million 
* Reported operating margin down 3.3 percentage points to 19.1% 


Worldwide system sales were flat as a 5% increase in restaurant numbers since
31 December 1999 offset a 6% decline in comparable restaurant sales. 
 
In the six months ended 31 December 2000, 306 new restaurants were opened,
over 60% of them outside the United States. 122 restaurants were closed
giving a net increase of 184 restaurants since 30 June 2000, of which 33 were
in the United States. Worldwide comparable restaurant sales declined 6%, with
comparable sales in the United States down 7%. 

 
Reported operating profit fell by £6 million to £99 million. 
 
The decline in operating profit reflects a decline in North America partially
offset by continued strong performance in the International business. 

 
In North America system sales were down 4% which led to a 12% decline in
operating profit. 
 
The financial results for the North America business were principally driven
by the operations in the United States which suffered from the general
slowdown in the US Quick Service Restaurant business, particularly in
November and December when cold weather led to lower consumer traffic. In
Canada, which represents 3% of North America system sales, restaurant numbers
have increased since 31 December 1999 by 10% and comparable restaurant sales
were down 6%. 
 
The performance in the United States, where the decline in comparable
restaurant sales resulted in lower managed restaurant profit and lower
receipt of royalty fees and property income, was also affected both by
slowness in the Quick Service Restaurant sector and some issues specific to
Burger King. The impact of marketing activity and promotions to drive store
traffic was below expectations and did not match the very successful
performance in the prior year of promotions such as Pokemon. The US business
is now being refocused on the core brand attributes of quality, consistency
and high levels of service around the United States' favourite burger - the
WHOPPER. Burger King has implemented an action plan based on improved
delivery to the consumer, which is expected to help drive top line growth in
the short to medium term. 

 
The international business outside North America continues to grow with
system sales up 13% as strong growth in restaurant numbers, up 12% since 31
December 1999, offset a small decline in comparable restaurant sales, down
1%. 
 
In the major international markets of the United Kingdom, Germany and Spain,
the system continues to expand. 41 new restaurants were added, since 31
December 1999, in the United Kingdom and Germany which offset negative
comparable restaurant sales which were down 2% in the United Kingdom and down
4% in Germany primarily due to the impact of consumer concerns about BSE
there. In Spain, system sales were up 25% fuelled by 28 new restaurants since
31 December 1999 and by 10% growth in comparable restaurant sales. In Latin
America, there is a similar pattern of growth with restaurant numbers up 10%
and comparable restaurant sales growth of 2%. Asia Pacific also added to its
restaurant count with 79 new restaurants since 31 December 1999, however
comparable restaurant sales declined 4%. Driven primarily by the growth in
restaurant numbers, operating profit in the business outside North America
increased by nearly 30%. 

 
PACKAGED FOOD  
 
* Volume flat 
* Turnover up 2% to £2,259 million 
* Marketing expenditure up 4% to £478 million 
* Operating profit up 11% to £302 million 
* Reported operating margin up 0.2 percentage points to 13.4% 


Pillsbury returned to profitable growth with turnover up 2% and operating
profit up 11%. 
 
The results in the six months ended 31 December 2000 show that the strategic
reorganisation and marketing changes we made in March 2000 have begun to be
successful and this business has returned to its long term trend of
profitable growth. Turnover and operating profit growth resulted from
improved performance in Pillsbury North America and International. Growth in
profit was achieved as marketing investment increased as a percentage of
sales, laying the ground for future growth.  

 
Pillsbury North America increased turnover 3%. 
 
Price increases and improved mix increased sales and operating margins during
the period. Progresso continued to gain market share, growing at a rate four
times that of the market, as new products and increased marketing investment
drove higher volume. In Refrigerated Baked Goods, price increases helped to
offset volume declines and improve operating margins. Frozen Breakfast volume
and operating profit declined due to category softness and increased
competitive activity in the waffles segment. Marketing investment in Frozen
Breakfast was increased 14% during the period in support of new product
introductions. 

 
Competitive pressures experienced in Pillsbury Bakeries and Foodservice. 
 
Volume softness in the Quick Service Restaurant sector and increased
competitor activity in in-store bakeries and foodservice distributors led to
a 5% decline in turnover in Pillsbury Bakeries and Foodservice. The business
has however restructured during the period to move away from low margin
operations. While this is expected to improve performance going forward it,
together with the decline in volume, has resulted in a reduction in operating
profit of approximately 20% in the period. 

 
International has recovered achieving strong volume and operating profit
growth. 
 
In International, volume growth was 6% and operating profit was up over 70%
during the period. All regions achieved volume growth, with Asia Pacific
reporting the largest increase as a result of focusing marketing support
towards our highest potential brands and markets. 

 
FINANCIAL REVIEW 
 
Exchange rates 
 
Exchange rate movements during the six month period, including the effect of
the currency option cylinders, adversely impacted profit before exceptional
items and tax by £6 million. The beneficial impact of exchange rate movements
on operating profit in the period was £1 million. Exchange rate movements
also adversely affected the share of profits of associates by £2 million,
goodwill amortisation by £1 million and the interest charge by £4 million. 
 
Based on current exchange rates, it is expected that the full year impact of
exchange rate movements on profit before exceptional items and taxation will
be a positive impact of approximately £10 million. 
 
Associates 
 
The group's share of profits of associates before exceptional items was £139
million for the period compared with £121 million for the same period last
year, an organic growth of 19%. 
 
Goodwill 
 
Goodwill amortisation in the period was £11 million, mainly in respect of
Packaged Food. 
 
Exceptional items 
 
Exceptional operating cost items in the six month period amounted to a charge
of £56 million before taxation. This comprised restructuring costs of £38
million and Burger King costs associated with litigation of £21 million,
partly offset by Burger King's successor franchise fee income of £3 million. 
 
The restructuring costs comprised £8 million in respect of the first stages
of the integration of UDV and Guinness, £5 million relating to the
commencement of the reorganisation of Beer production facilities in Great
Britain and Ireland, and £25 million relating to restructuring of ownership
and management within Guinness UDV. 
 
Interest 
 
The interest charge in the period was £185 million, the same as reported in
the comparable period. A £21 million benefit arising from the disposal of
businesses was offset by other factors, principally increases in respect of
interest and exchange rate movements. 
 
Taxation 
 
The effective rate of taxation on profit before goodwill amortisation and
exceptional items for the period was 25%, compared with 26.2% for the six
months ended 31 December 1999. The charge is based on an estimate of the
effective tax rate for the financial year as a whole. 
 
Dividend 
 
Diageo will pay an interim dividend of 8.9 pence per share on 23 April 2001,
an increase of 6% on last year's interim dividend. Payment to US ADR holders
will be made on 27 April 2001. The record date for this dividend will be 9
March 2001. A dividend reinvestment plan is available in respect of this
dividend and the plan notice date will be 29 March 2001. 
 
Cash flow 
 
Free cash inflow was £493 million, compared with £416 million in the prior
period. Cash inflow from operating activities was £995 million compared with
£929 million in the comparable period. This inflow was after £87 million of
integration costs and a £331 million increase in working capital mainly due
to seasonal factors. Net interest payments were £204 million against £182
million in the comparable period. Purchases of tangible fixed assets in the
period amounted to £178 million, a decrease of £74 million. Tax payments were
£87 million compared with £78 million. 
 
The acquisition of businesses, primarily the remaining shares in Bundaberg,
resulted in a cash outflow of £97 million. 18 million ordinary shares were
purchased for cancellation in the period at a cost of £108 million, compared
with 9.5 million at a cost of £54 million in the same period last year. 
 
Balance sheet 
 
At 31 December 2000, total shareholders' funds were £5,150 million compared
with £4,711 million at 30 June 2000. The increase was mainly due to the £501
million retained income for the period, less the £108 million cancellation of
shares. 
 
Net borrowings were £5,702 million, an increase of £157 million from 30 June
2000. This increase reflects the £108 million purchase of shares and adverse
exchange movements of £55 million. 

DIAGEO CONSOLIDATED PROFIT AND LOSS ACCOUNT
                                                                              
                             Six months ended               Six months ended 
                             31 December 2000               31 December 1999
                   Before    Goodwill               Before  Goodwill          
             goodwill and     and ex-         goodwill and   and ex-          
              exceptional   ceptional          exceptional ceptional          
                    items       items    Total       items     items    Total 
                £ million  £ million £ million   £ million  £million £million
      
  Turnover       6,842          -     6,842       6,596          -     6,596  
  Operating     (5,607)       (67)   (5,674)     (5,445)       (86)   (5,531) 
  costs                                                                       
  Operating      1,235        (67)   1,168        1,151        (86)    1,065  
  profit                                                                      
  Share of         139          -      139          121          -       121  
  profits                                                                     
  of                                                                          
  associates                                                                  
                                                                              
  Trading        1,374        (67)   1,307        1,272        (86)    1,186  
  profit                                                                      
  Disposal           -          6        6            -         (2)       (2) 
  of fixed                                                                    
  assets                                                                      
  Sale of            -          -        -            -       (244)     (244) 
  businesses                                                                  
                                                                              
  Interest        (185)         -     (185)        (185)         -      (185) 
  payable                                                                     
  (net)                                                                       
  Profit         1,189        (61)   1,128        1,087       (332)      755  
  before                                                                      
  taxation                                                                    
  Taxation        (297)        10     (287)        (285)         6      (279) 
  Profit           892        (51)     841          802       (326)      476  
  after                                                                       
  taxation                                                                    
  Minority                                                                    
  interests                                                                   
  Equity           (22)         -      (22)         (18)         -       (18) 
  Non-equity       (20)         -      (20)         (18)         -       (18) 
                                                                              
  Profit           850        (51)     799          766       (326)      440  
  for the                                                                     
  period                                                                      
  Interim         (298)         -     (298)        (285)         -      (285) 
  dividend                                                                    
  Transferred      552        (51)     501          481       (326)      155  
  to                                                                        
  reserves                                                                    
  Pence per                                                                   
  share                                                                       
  Basic           25.1p     (1.5)p    23.6p        22.6p     (9.6)p     13.0p 
  earnings                                                                    
  Diluted         25.1p     (1.5)p    23.6p        22.5p     (9.6)p     12.9p 
  earnings                                                                    
  Interim          8.9p         -      8.9p         8.4p         -       8.4p 
  dividend                                                                    
  Average                            3,380m                            3,394m 
  shares                                                                      
 
 
 
DIAGEO CONSOLIDATED STATEMENT OF 
TOTAL RECOGNISED GAINS AND LOSSES 
 

                                                                              
                                         Six months ended    Six months ended 
                                         31 December 2000    31 December 1999 
                                                £ million           £ million 
  Profit for the period - group                      708                 370  
                        - associates                  91                  70  
                                                     799                 440  
  Exchange adjustments                                27                 (21) 
  Tax charge on exchange                               -                  (4) 
  in reserves                                                                 
  Total recognised gains                             826                 415  
  and losses                                                                  


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