Trading Statement

Diageo PLC
09 July 2003

                                                                     9 July 2003

                         Diageo Year End Trading Update

Diageo's scale, geographic diversity and brands have again provided a firm
platform for top and bottom line growth even in the challenging environment
which international consumer goods companies have faced in the last 12 months.
Therefore while trading conditions have remained tough in the second half of the
year, compounded by the Iraqi conflict and SARS, full year organic operating
profit growth is currently anticipated to be marginally better than the 6%
achieved in the first half of the year. However organic volume and net sales
growth for the full year is not expected to improve upon the 1% organic volume
growth and 4% organic net sales growth achieved in the first half.

Brand categories

The global priority brands ('GPBs') continue to be the main drivers of growth.
Volume of the GBPs, excluding ready to drink ('RTD'), has improved in the second
half of the year benefiting from stronger growth across a number of brands but
particularly from Smirnoff and Guinness and the inclusion of Captain Morgan in
the organic growth figures. The volume performance of the local priority brands,
including the ex-Seagram brands, has also improved in the second half of the
year. Volume performance of the category brands remains unchanged from the first
half of the year. Despite weakness in RTD in North America and Great Britain
overall volumes of RTD are expected to be up about 5% for the full year.
Excluding Captain Morgan Gold volume from the prior year comparison RTD volume
is up over 10%.

Major markets

North America

The spirits market in the United States has shown robust growth despite a weak
economy. This is particularly true of premium brands where Diageo is well
placed. Diageo's priority brands excluding RTD, particularly Smirnoff, Baileys,
Johnnie Walker Black Label, Captain Morgan and Crown Royal, continued to perform
well. The Smirnoff Ice range of flavoured malt beverages ('FMB') has gained
share in recent months, rebuilding to 37% of the FMB category, although volume
is likely to be down about 12% for the full year. The volume performance of the
category brands, down 5% in the first half, has worsened in the second half of
the year partly due to a reduction in distributors' inventories.

Progress of the next generation growth programme continues to be on track with
75% of Diageo's US volume already sold through distributors using or committed
to creating a dedicated sales force to represent Diageo's brands.

Great Britain

Smirnoff volumes are at an all-time high, and Baileys is now a one million case
brand in Great Britain. While the RTD category in Great Britain, where Diageo is
the leader, has not yet recovered from the impact of increased excise duties in
2002 Smirnoff Ice has in part offset this impact through further share gains and
the successful launch of Black Ice. However volume of Smirnoff Ice RTDs will be
down about 3% for the full year.

Ireland

Across this market the beverage alcohol industry, which has been in decline, has
deteriorated further as a result of the increased excise duty on spirits
introduced in December 2002 and the continuing slowdown in economic growth. In
this context, volume performance of Diageo's brands deteriorated in the second
half across all categories with volume expected to fall 5% in the full year.

Spain

The Spanish market has recovered in recent months and Diageo has been able to
build upon the share gains made in the first half of the year. Volume of
Diageo's brands is therefore up about 14% in the second half of the year with
volume of J&B up about 9% and continued outstanding growth of Cacique.

Key markets

Several of Diageo's key markets are in geographies which have faced the most
difficult challenges of the last year. However despite these challenges the
overall volume performance in key markets for the full year will be consistent
with that achieved in the first half of the year. Continued weakness in Latin
America made worse by the recent introduction of exchange controls in Venezuela
has been offset by strong performance in Africa, driven by Guinness Stout, and
by growth in Australia. While the market in Korea has softened, Diageo's
performance in Korea has improved in the second half now that Diageo has
regained in-house distribution of Dimple.

Venture markets

The strong overall performance of Diageo's venture markets continues to be led
by growth in the global priority brands, particularly Johnnie Walker, Smirnoff
and Baileys. In addition, Smirnoff Ice volume in venture markets has doubled,
building on its successful launch in fiscal '02 in Germany and the Nordic
markets and continued growth in other venture markets, complemented by recent
launches of Smirnoff Black Ice.

Marketing investment

Growth in marketing investment, which was up 13% in the first half of the year
as a result of the high number of new product launches, will be lower than net
sales growth in the second half but for the full year will continue to be ahead
of the growth in net sales.

Post employment benefits

Since the guidance given at the time of the interim results there has been a
recovery in equity markets which has been reflected in the value of the pension
funds' investments. This has however been offset by other changes including an
increase in pension liabilities as a result of the reduction in corporate bond
yields used to calculate pension liabilities and modifications to the
assumptions used. The deficit on the principal pension funds is therefore still
estimated to be £1.4 billion. Under FRS17 accounting requirements this is
currently estimated to give rise in fiscal '04 to a charge to operating profit
of £95 million and a charge to interest of £25 million.

Exchange

The strengthening of the Euro offset by the weakness of the US dollar and
exchange controls recently introduced in Venezuela means that the impact of
currency movements in the year ended 30 June 2003 has deteriorated from the
guidance given in February 2003. It is now expected that the adverse impact of
currency movements on profit before exceptionals and tax in the year ended 30
June 2003 will be approximately £15 million. However, based on current exchange
rates ($:£1.65, €:£1.44) the adverse impact of currency movements in the year to
30 June 2004 is still estimated to be £40 million.

Cash flow

The financial strength of Diageo's business is evidenced in its strong free cash
flow, which is expected to improve on the prior year to over £1 billion. This
includes the receipt, net of costs, of over $90 million from Interbrew for the
termination of the Bass distribution contract in the US which was received at
the end of the year. Capital expenditure fell in the year to approximately £400
million although capital expenditure in premium drinks increased in the year to
approximately £350 million. In addition, but not included in the free cash flow
measure, Diageo received a payment of $273 million from General Mills in May
2003 in respect of the contingent value right which was part of the sale
agreement for Pillsbury. Furthermore, in October 2002 Diageo received $89
million in respect of the call option granted to General Mills over 29 million
General Mills shares held by Diageo. Therefore, in total Diageo has received a
further $362 million in relation to the Pillsbury transaction which although not
included in free cash flow has been used to reduce debt.

Share repurchase

In the year ended 30 June 2003 Diageo repurchased 116 million shares for
cancellation, returning £845 million to shareholders. The weighted average
number of shares outstanding was 3113 million and there were 3100 million shares
in issue at the year-end.

Paul Walsh, CEO of Diageo said:

' All consumer goods companies have faced an environment of declining consumer
confidence and significant global events in the year. Despite these
circumstances Diageo will deliver consistent performance in top and bottom line
organic growth, continued growth in priority brands and improved share. On a
reported basis volume is expected to be up 9% as the Seagram acquisition
continues to deliver above our original projections. Our free cash flow is on
target to exceed £1 billion and we have repurchased a further 4% of our share
capital.

'The trading environment remains tough but Diageo expects to build further on
its brand equities and global scale to deliver superior levels of organic
operating profit growth and shareholder value.'

Diageo will announce its preliminary statement of results for the year ended 30
June 2003 at 07.00 BST on Thursday 4 September 2003.

Cautionary statement concerning forward-looking statements

This document contains statements with respect to the financial condition,
results of operations and business of Diageo and certain of the plans and
objectives of Diageo with respect to these items. These forward-looking
statements are made pursuant to the 'Safe Harbor' provisions of the US Private
Securities Litigation Reform Act of 1995. In particular, all statements that
express forecasts, expectations and projections with respect to future matters,
including trends in results of operations, margins, growth rates, overall market
trends, the impact of interest or exchange rates, the availability of financing
to Diageo and parties or consortia who have purchased Diageo's assets, actions
of parties or consortia who have purchased Diageo's assets, anticipated cost
savings or synergy and the completion of Diageo's strategic transactions, are
forward-looking statements. By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on circumstances
that will occur in the future. There are a number of factors that could cause
actual results and developments to differ materially from those expressed or
implied by these forward-looking statements, including factors that are outside
Diageo's control.

These factors include, but are not limited to:

  • Increased competitive product and pricing pressures and unanticipated
    actions by competitors that could impact Diageo's market share, increase
    expenses and hinder growth potential;
  • The effects of completed or future business combinations, acquisitions or
    disposals and the ability to realise expected synergy and/or costs savings;
  • Diageo's ability to complete future acquisitions and disposals;
  • Legal and regulatory developments, including changes in regulations
    regarding consumption of, or advertising for, beverage alcohol, changes in
    accounting standards, taxation requirements, such as the impact of excise
    tax increases with respect to the premium drinks business, and environmental
    laws;
  • Changes in consumer preferences and tastes, demographic trends or
    perception about health related issues;
  • Changes in the cost of raw materials and labour costs;
  • Changes in economic conditions in countries in which Diageo operates,
    including changes in levels of consumer spending;
  • Levels of marketing and promotional expenditure by Diageo and its
    competitors;
  • Renewal of distribution rights on favourable terms when they expire;
  • Termination of existing distribution rights on agency brands;
  • Technological developments that may affect the distribution of products or
    impede Diageo's ability to protect its intellectual property rights; and
  • Changes in financial and equity markets, including significant interest
    rate and foreign currency rate fluctuations which may affect Diageo's access
    to or increase the cost of financing.

All oral and written forward-looking statements made on or after the date of
this document and attributable to Diageo are expressly qualified in their
entirety by the above factors and the 'Risk Factors' contained in Diageo's
Annual Report on Form 20-F for the year ended 30 June 2002 filed with the U.S.
Securities and Exchange Commission.

The information in this announcement does not constitute an offer to sell or an
invitation to buy shares in Diageo plc or any other invitation or inducement to
engage in investment activities.

Past performance cannot be relied upon as a guide to future performance.


                                      ENDS

Notes to editor:

Diageo is the world's leading premium drinks business with an outstanding
collection of beverage alcohol brands across spirits, wine and beer categories.
These brands include Smirnoff, Johnnie Walker, Guinness, Baileys, J&B, Captain
Morgan, Cuervo, Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines.

Diageo is a global company, trading in over 180 markets around the world. The
company is listed on both the London Stock Exchange (DGE) and the New York Stock
Exchange (DEO). For more information about Diageo, its people, brands and
performance, visit us at www.diageo.com.

For further information:

Media enquiries     Isabelle Thomas [phone] [e-mail]

Investor enquiries   Catherine James [phone] [e-mail]






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