Trading Statement

Diageo PLC
29 June 2006


Embargoed until 7.00am 29th June 2006


Diageo reports strong sales momentum

Diageo will announce preliminary results for the year ending 30 June 2006 on 31
August 2006 and has today issued the following statement.


Summary

  • Organic net sales growth expected to be 6% for the year to June 2006
  • Guidance for full year organic operating profit growth maintained at 7%
  • Free cash flow forecast to be in line with that achieved in prior year
  • £1.4 billion returned to shareholders in the financial year
  • Dividend payments of £864 million in the year

The second half of the financial year has seen continued strong growth by the
global priority brands, in particular Johnnie Walker and Smirnoff.  Consistent
delivery by these key growth drivers together with stronger performance in
International, partly driven by innovation successes, has resulted in further
improvement in the rate of organic top line growth. For the full year organic
net sales growth is expected to be 6%.

This strong top line growth has enabled marketing investment to be increased
ahead of net sales growth and increased input costs to be absorbed, while
delivering organic operating profit growth in line with the previous guidance of
7%  reiterated at the time of the interim financial results.

Diageo has continued to generate strong cash flow in the year. The actual level
of tax payments in the second half has been below that which was planned and as
a result free cash flow for the year is likely to be broadly in line with that
achieved in the prior year; this  is ahead of previous guidance.


Paul Walsh, CEO of Diageo, said:

'As the year closes we have successfully delivered on our objectives.  We are
building a superior position in North America, investing strongly behind our
brands in International and continuing to reduce costs in Europe.  As our
excellent top line growth shows, we are gaining share in many markets.

The strength of our brands and our broad based geographic exposure continue to
provide us with opportunities. We expect that relentless focus on proven brand
and market building strategies will ensure that this level of top and bottom
line organic growth together with continued strong cash generation remain the
consistent themes of Diageo's performance.

Therefore, looking ahead to the year ending 30 June 2007, we expect that organic
net sales growth will be in line with that achieved in the current year. We will
continue to grow investment in marketing at a rate above that of net sales
growth. Even with this rate of investment, and with continued pressure on input
costs we expect to deliver organic operating profit growth   at least equal to
that achieved in the year ending 30 June 2006.

As previously announced, we have doubled our share buyback programme year on
year, returning a further £1.4 billion to shareholders this year, and we plan to
return a further £1.4 billion to shareholders in the new financial year.'


Net sales

Spirits growth has been broadly based with continued, strong growth of: the
global priority brands; the local priority Scotch whisky brands and very strong
growth of the Reserve brands. The overall growth of Diageo's beer brands has
been constrained by the weakness of the Irish beer market. Diageo's wine brands
continue to grow despite an increasingly competitive environment. The
performance of the ready to drink brands is a mix of continued decline in
European markets partially offset by strong growth in International.

In North America, the priority brands continue to grow strongly and outperform
the market. Diageo continues to benefit from the consumer trend towards premium
brands across all beverage alcohol categories. Strong growth across Diageo's
priority spirits brands remains the key driver of the performance in North
America.  Diageo's beer brands, which   are positioned in the premium import
segment, have delivered good growth and in wine, Beaulieu Vineyard and Sterling
Wines continue to perform well.  Price increases have been successfully
implemented on a number of brands as effective marketing campaigns have steadily
built the position of the brands with consumers.

In Europe, the consumer environment remains subdued which together with
increased regulation continues to have a negative impact on beverage alcohol
sales. Top line growth is in line with that achieved in the first half.   While
improved sales execution and successful marketing campaigns have delivered
better top line performance and share gains, for example on Guinness in Great
Britain and on J& B in France, these improvements have been offset by the
decline in the Scotch whisky market in Spain and by the disruption in the
spirits market in Russia caused by the introduction of new excise duty strip
stamps.

In International, strong top line performance continues to be led by the growth
of the priority spirit brands, ready to drink and new product innovations. While
each of the major hubs, Latin America, Africa and Asia, are delivering
double-digit top line growth, it is Latin America which is the key driver of the
very strong overall performance in International.


Interest

It is estimated that in the year ending 30 June 2006 Diageo's average net and
closing debt will be approximately £4.0 billion. The effective interest rate for
the year ending 30 June 2006 is expected to be approximately 4.9%. As a result
of the increase in interest rates which has occurred during the year, the
effective interest rate for the year ending 30 June 2007 is currently expected
to increase by 0.6 percentage points year on year.


Exchange rate movements

The impact of exchange rate movements on reported profit before exceptional
items and tax is expected to be about £30 million for the year ending 30 June
2006. Operating profit is expected to be negatively impacted by £25 million and
interest to be negatively impacted by approximately £5 million.

For the year ending 30 June 2007 the impact of exchange rate movements, based on
current exchange rates, is estimated to have an adverse impact of £35 million on
operating profit and a positive impact of  £5 million on interest. For the full
year, each one cent movement from current rates for either the US dollar or the
Euro impacts profit before exceptionals and tax by approximately  £3 million
respectively.


Return of capital to shareholders

Consistent with previous guidance Diageo has returned a further £1,400 million
to shareholders in the financial year through the repurchase of 164 million
shares. The number of shares in issue at the year end will be 2,757 million,
excluding 294 million shares, mainly treasury shares. The weighted average
number of shares which will be used to calculate eps for the year ending 30 June
2006 will be 2,841 million shares.

As announced on 15 June 2006 Diageo has put in place an irrevocable non-
discretionary programme to buy back shares during the closed period which ends
on 1 September 2006.


Cautionary statement concerning forward-looking statement

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 United
States 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 return of capital, the impact of interest or
exchange rates, the availability of financing to Diageo, anticipated cost
savings or synergies 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 future business combinations, partnerships, acquisitions or
disposals, existing or future, and the ability to realise expected synergies 
and/or costs savings;

Diageo's ability to complete existing or 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 business, environmental laws and the laws governing
pensions;

developments in the alcohol advertising class actions and any similar
proceedings or other litigation directed at the drinks and spirits industry;

developments in the Colombian litigation and any similar proceedings;

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, promotional and innovation 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 exchange rate fluctuations, which may affect Diageo's access
to, or increase the cost of, financing or which may affect Diageo's financial
results.

All oral and written forward-looking statements made on or after the date of
this announcement and attributable to Diageo are expressly qualified in their
entirety by the above factors and the 'risk factors' contained in the annual
report on Form 20-F for the year ended 30 June 2005 filed with the US Securities
and Exchange Commission. Any forward-looking statements made by or on behalf of
Diageo speak only as of the date they are made. Diageo does not undertake to
update forward-looking statements to reflect any changes in Diageo's
expectations with regard thereto or any changes in events, conditions or
circumstances on which any such statement is based. The reader should, however,
consult any additional disclosures that Diageo may make in documents it files
with the US 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-


Contacts:

Investors Relations   Catherine James + 44 (0) 20 7927 5272     [e-mail]
                      Kelly Padgett + 1 202 715 1110

Media Relations       Isabelle Thomas  + 44 (0) 20 7927 5967    [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, Jose 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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