Trading Statement

Diageo PLC
08 July 2004

                                           Embargoed until 07.00 BST 8 July 2004


                   Diageo issues pre-closed period statement



Diageo will announce preliminary results for the year ended 30 June 2004 on 2
September 2004 and has today issued the following statement.


Diageo's scale, geographic diversity and outstanding collection of brands are
now driving more consistent performance. Trading in the second half of the
financial year to 30 June 2004 was broadly in line with expectations as outlined
at the time of the interim results. Consequently performance trends for the full
year are expected to be similar to those delivered in the first half. Then
organic volume grew 3% and organic growth of net sales (after deducting excise
duties) was 6%. As in the first half, organic growth in marketing investment is
expected to be above growth of net sales (after deducting excise duties).

During the year Diageo has undertaken a series of initiatives to drive greater
cost efficiency across the business. These projects have given rise to
restructuring costs in the full year, which have not been treated as exceptional
items, of approximately £50 million before tax. Organic operating profit growth
for the full year is still expected to be 6% continuing the trend of the first
half. However, as previously advised adverse exchange rates are expected to
impact reported profit before exceptionals and tax for the full year by c£95 to
£100 million.

Diageo has re purchased a further 43 million shares for cancellation in the
financial year and therefore the number of shares in issue at the end of the
year was 3057 million. The weighted average number of shares used to calculate
eps in the year ended 30 June 2004 is estimated to be approximately 3030 million
shares. Eps before exceptional charges is expected to be approximately 48 pence
per share. Free cash flow before dividends is expected to be in excess of £1
billion for another year.


Looking forward to the new financial year Diageo expects that organic growth in
volume, net sales (after deducting excise duties) and operating profit will be
similar to those achieved in the year ended 30 June 2004.


Based on current exchange rates, the adverse impact of exchange rate movements
on profit before exceptionals and tax in fiscal 2005 is estimated to be £100
million mainly due to year on year weakness in the dollar and currencies such as
the Nigerian Naira and the Venezuelan Bolivar which cannot be hedged.


On 23 June 2004 Diageo announced that General Mills had filed a universal shelf
registration statement which included approximately 50 million common stock
owned by Diageo and that its board representatives, Paul Walsh and Jack Keenan
had resigned from the General Mills board. Consequently Diageo will no longer
account for General Mills as an associate from the end of June 2004. Reported
eps for the year ending 30 June 2005 will be adversely affected by this change,
the impact of which on a proforma basis for fiscal 2004 is estimated at 3.0
pence per share. Following this change in accounting treatment Diageo expects
that its effective tax rate will continue to be 25%.

Paul Walsh, CEO of Diageo, said:

'Diageo's outstanding collection of brands and our geographic reach have created
the platform from which we can deliver the consistent performance which we know
our shareholders value. As we drive the growth of our priority brands, mix
improvement together with robust pricing on an increasing number of brands has
led to net sales growth substantially above volume growth. While the costs of
our restructuring programmes adversely impact margins, we believe improved
efficiency when these initiatives are completed will lead to margin expansion.


'After a number of years in which we have funded the costs of our strategic
realignment to focus on premium drinks, the strong cash generative
characteristics of this business are becoming increasingly apparent. Free cash
flow will continue to fund both growth in dividends and our on market share buy
back programme.

'The share buy back programme together with the potential to monetise our stake
in General Mills means that our already strong return on invested capital can be
further enhanced'.




New UK GAAP accounting policies

The tables below give turnover and operating profit before exceptional items for
the year ended 30 June 2003 for premium drinks restated for the adoption of FRS
17, UITF abstract 38 and FRS 5 application note G.

Turnover by market restated following the adoption of FRS 5 application note G:

                                                                         
                                                 June 03                   
                                Originally reported   Movement    Restated 
                                                £m          £m          £m 
       Major markets:                                                      
       North America                         2,795        (36)       2,759 
       Great Britain                         1,429        (49)       1,380 
       Ireland                                 953          -          953 
       Spain                                   424         (6)         418 
                                             5,601        (91)       5,510 
       Key markets                           2,129        (49)       2,080 
       Venture markets                       1,231        (19)       1,212 
       Total premium drinks                  8,961       (159)       8,802 

Operating profit before exceptional items by market restated following the
adoption of FRS 17 and UITF abstract 38: 

                                                                           
                                                June 03                    
                               Originally reported    Movement    Restated 
                                                £m          £m          £m 
      Major markets:                                                       
      North America                            729        (21)         708 
      Great Britain                            219        (16)         203 
      Ireland                                  141        (10)         131 
      Spain                                     99         (3)          96 
                                             1,188        (50)       1,138 
      Key markets                              522        (20)         502 
      Venture markets                          266         (4)         262 
      Total premium drinks                   1,976        (74)       1,902 


The group has adopted the reporting requirements of FRS 17 - Retirement benefits
in its primary financial statements from 1 July 2003. The restatements also
comply from 1 July 2003 with the following requirements issued by the UK's
Accounting Standards Board: UITF abstract 38 - Accounting for ESOP trusts and
the amendment to FRS 5 - Reporting the substance of transactions.


FRS 17 - Retirement benefits. This standard replaces the use of the actuarial
values for assets in a pension scheme in favour of a market-based approach. In
order to cope with the volatility inherent in this measurement basis, the
standard requires that the profit and loss account shows the relatively stable
ongoing service cost, finance charge and expected return on assets. Differences
between expected and actual returns, and changes in actuarial assumptions, are
reflected in the statement of total recognised gains and losses.


The adoption of FRS 17 has decreased the reported operating profit for the year
ended 30 June 2003 by £88 million. This charge has been offset by a decrease in
exceptional charges of £14 million and an increase in other finance income of
£36 million, giving a net decrease in the profit for the year of £38 million. In
addition, the adoption of the standard has reduced shareholders' funds at 30
June 2003 by £1,865 million.


UITF abstract 38 - Accounting for ESOP trusts. This abstract changes the
presentation of an entity's own shares held in an employee share trust from
requiring them to be recognised as assets to requiring them to be deducted in
arriving at shareholders' funds. It also requires that the minimum expense to
the profit and loss account should be the difference between the fair value of
the shares at the date of award and the amount that an employee may be required
to pay for the shares (i.e. the 'intrinsic value' of the award).

The impact of the adoption of UITF 38 in the year ended 30 June 2003 has been to
increase operating profit by £14 million and increase the tax charge by £4
million. In addition, exceptional charges were reduced by £2 million, giving a
net increase in the profit for the year of £12 million. The reclassification of
shares acquired by the share trust (own shares) from fixed assets and debtors to
equity has reduced shareholders' funds by £288 million at 30 June 2003. In
addition, the net cash outflow arising from the purchase of shares by the share
trusts has been reclassified from 'capital expenditure and financial investment'
to 'financing'. This reclassification has increased free cash flow for the year
ended 30 June 2003 by £65 million.


FRS 5 - Reporting the substance of transactions. The amendment to the standard
added a new application note (G) on revenue recognition. This requires that
revenue should be stated at fair value of the right to consideration. Diageo
incurs certain promotional expenditure that is not wholly independent of the
invoiced product price. Such expenditure is now deducted from turnover. The
change, which has no impact on operating profit, reduced turnover and operating
costs by £159 million in the year ended 30 June 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;
  • Developments in the Hakki v. Zima Company et al. litigation and any
    similar proceedings;
  • Changes in the food industry in the United States, including increased
    competition and changes in levels of consumer preferences;
  • 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, as amended, for the year ended 30 June 2003 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-


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

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

Notes to Editor:

Diageo is the world's leading premium drinks business. With its global vision,
and local marketing focus, Diageo brings to consumers an outstanding collection
of beverage alcohol brands across the spirits, wine and beer categories
including Smirnoff, Guinness, Johnnie Walker, Baileys, J&B, Cuervo, Captain
Morgan and Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines. Diageo
trades in some 180 countries around the world and is listed on both the New York
Stock Exchange (DEO) and the London Stock Exchange (DGE). For more information
about Diageo, its people, brands and performance, visit us at www.diageo.com







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