Diageo Announces Organic Operating Profit Growth of 11% to -Pound-1,980 Million and EPS Up 8% to 37.3 Pence.

Business Editors

LONDON--(BUSINESS WIRE)--September 7, 2000

Diageo (NYSE: DEO), today announced its preliminary results for the year ended June 30, 2000.(a)

Lord Blyth, Chairman of Diageo, said: "The business and financial performance delivered in this financial year is in line with our goals and expectations for the year. On an organic basis turnover grew 4% to (pound)11,870 million and operating profit grew 11% with particularly strong performances from Spirits and Wine, up 15% and Beer up 14%. Free cash flow was up nearly (pound)500 million to (pound)864 million.

The new financial year has begun well. Our businesses continue to perform in line with our expectations and we look forward to the future with confidence."

(a) Unless otherwise stated percentage movements given throughout

this statement for turnover, operating profit and marketing

expenditure are organic movements (at level exchange and after

adjusting for acquisitions and disposals). They include merger

cost savings achieved in the year and are before goodwill

amortization and exceptional items. Comparisons are with the

equivalent period last year.

Paul Walsh, Group Chief Executive of Diageo, said: "Our performance in this financial year illustrates the rationale behind our recently announced decision to focus on our core beverage alcohol business. Diageo's combined Spirits, Wine and Beer business has achieved significantly higher top and bottom line growth in the year. Investment in our premium beverage alcohol brands, focus by individual market and innovation to find new ways of delivering our brands to consumers together with continued emphasis on the reduction of our cost base will continue to be the drivers of improved performance. We have made changes in marketing focus in Packaged Food during the year and our brands are now well positioned to benefit from the combination announced with General Mills. In Burger King, we believe we have the programs which will deliver improved performance."

PRELIMINARY STATEMENT OF RESULTS

FOR THE YEAR ENDED JUNE 30, 2000

FINANCIAL HIGHLIGHTS

-- Dollar system sales up 5% to $11,417 million

-- Total restaurants up 6% compared with 30 June 1999 to 11,161 units

-- Worldwide comparable restaurant sales up 0.1%

-- Turnover was up 5% from (pound)875 million to (pound)941 million

-- Operating profit growth 6% to (pound)202 million

-- Operating margin up 0.3 percentage points at 21.5%

- Spirits and Wine up 15% to (pound)1,002 million

- Beer up 14% to (pound)284 million

- Packaged Food up 1% to (pound)492 million

- Quick Service Restaurants up 6% to (pound)202 million

-- Profit before goodwill amortization, exceptional items and tax

(pound)1,815 million

-- (pound)125 million underlying improvement in economic profit

-- Basic EPS excluding goodwill amortization and exceptional

items up 8% to 37.3 pence

-- Final dividend 12.6 pence per share. Full year dividend 21

pence per share, up 8%

-- Free cash flow up nearly (pound)500 million to (pound)864

million

IN THE YEAR

-- Achieved turnover growth of 6% in the combined beverage

alcohol businesses and operating profit growth of 15%

-- Continued to invest behind beverage alcohol brands with

marketing spend up 10%

-- Improved overall operating margin by 1.0 percentage points

driven by 1.4 percentage points growth in the operating margin

in beverage alcohol

-- Volume of the global priority brands in Spirits and Wine grew

5%

-- 1,120 restaurants are committed to the transformation program

in Burger King

SINCE THE END OF THE YEAR

-- The strategic decision to refocus as a leading global beverage

alcohol business has been announced

-- The integration of Guinness and UDV has begun

-- The proposed combination of Pillsbury with General Mills,

involving at least $4.5 billion in cash to be received by

Diageo and the acquisition of an approximately 33%

shareholding in the enlarged General Mills, was announced on

July 17, 2000

GROUP CHIEF EXECUTIVE'S COMMENTS

Paul Walsh, Group Chief Executive of Diageo, commenting on the year ended June 30, 2000 said: "As we announced in July, the integration of Guinness and UDV has created a business with twelve of the world's leading beverage alcohol brands. Its goal will be to achieve a winning share of the global market for beverage alcohol which Diageo estimates to be worth (pound)5 billion in operating economic profit. The new integrated business will focus by market. The four major markets, the United States, United Kingdom, Ireland and Spain, have delivered the highest levels of operating profit growth this year and our strategy to focus on these countries and generate high levels of profitable organic growth through investment in our priority brands there will continue to drive Diageo's overall performance.

Accelerated growth from the Spirits and Wine global priority brands and local priority brands will be the key to improved performance in Diageo. This is evidenced by their performance this year when these brands have achieved a 12% increase in net sales in the year. These are all high margin brands in highly profitable categories and Diageo has the infrastructure necessary to continue to grow these brands in the future. Marketing investment behind these important brands has been increased consistently over the last three years and will be maintained at current levels as a percentage of sales as we go forward.

In Beer, focus on the Guinness brand has generated 14% organic operating profit growth despite consumer changes in the beer market in Ireland which have affected volume growth of Guinness there. Diageo will continue to generate operating profit growth through volume growth of the Guinness brand as one of its global priority brands and by achieving further cost efficiencies in beer production.

The integration of Guinness and UDV into one beverage alcohol business is progressing well. We have already announced the new management structure for Diageo. Changes to the membership of the Diageo Executive Committee were announced on July 24, 2000 and became effective on September 1, 2000. They reflect the fact that our beverage alcohol business is now at the core of Diageo. Our experience in merging UD and IDV has given us considerable ability to implement this integration while continuing to drive improved trading performance.

In Packaged Food, performance was in line with last year in overall terms despite stronger competitor activity in some key categories such as refrigerated cookies and frozen breakfast. A restructuring was put in place in the year to reduce costs and achieve more focus by customer. This will benefit sales and operating profit in the next financial year. The combination with General Mills which was announced on July 17, 2000 is expected to be completed around the end of this calendar year.

In Quick Service Restaurants, operating profit growth of 6% was generated from a net increase of 635 restaurants in the year and comparable restaurant sales at the same level as last year. In the coming year it is expected that implementation of the restaurant transformation program and a higher level of targeted promotional activity can improve comparable restaurant sales."

Commenting on current trading, Paul Walsh said: "The new financial year has begun well. In Guinness UDV, the performance of our global priority brands in the major markets continued to drive overall performance of the business. Investment in effective marketing behind our brands and innovation are the key drivers of growth in this business. New advertising campaigns introduced over the last twelve months such as those behind the Johnnie Walker brand are delivering net sales growth. Similarly, new products are continuing to attract consumers and are being rolled out to new markets, for example, Smirnoff Ice which is now in fourteen markets around the world. In Pillsbury, new products and a more focused sales organization have led to improved sales and operating profit growth since the beginning of the financial year. Although comparable restaurant sales declined in July in Burger King, we believe that we have the programs which can deliver an improvement in operating performance.

Diageo is now focused around beverage alcohol, driving growth through innovation around our unrivalled portfolio of brands and providing an improved base for sustained profitable top line growth."

The detailed preliminary statement follows.

DIAGEO PLC

OPERATING AND FINANCIAL REVIEW

for the year ended June 30, 2000

Spirits and Wine

-- Volume up 2%

-- Volume of the global priority brands up 5%

-- Turnover up 8%

-- Marketing expenditure up 12%

-- Marketing expenditure up 19% on global priority brands

-- Operating profit growth 15% to (pound)1,002 million

-- Operating margin up 1.4 percentage points at 20.2%

Organic volume growth was 2%.

Organic volume growth was 2% driven by growth in the spirits portfolio of brands owned at the year end of 4%. Wine volume was down 7%.

                                        Volume   Share of Total
                                        growth       volume
                                           %             %
Global priority brands excluding
 ready to drink                           5             51
Local priority brand market units         9             15
Category management and other
 spirits brands                          (2)            20
                                        ---             --
Total spirits (continuing brands)         4             86
Wine                                     (7)            11
Disposal brands                         (10)             3
                                         --          -----
Total Spirits and Wine volume             2            100
                                        ===            ===

Turnover increased 8% on an organic basis.

Reported turnover was (pound)4,971 million (1999 - (pound)4,929 million), an increase of 1%. Organic growth of 8% offset a (pound)276 million reduction due to brand disposals made since the beginning of the prior year.

Mix and price improvements have contributed 6 percentage points of

the organic growth in turnover.

In a very competitive and sophisticated market place, the incremental investment in marketing made behind individual brands has led to further selective price increases during the year and strong volume growth of the global priority brands across the majority of regions. The successful launch of new products such as Smirnoff Ice has also led to improved mix.

Marketing spend increased 12% on an organic basis.

Reported investment in marketing was up 7% to (pound)679 million (1999 - (pound)633 million). Organic growth of 12% was offset by a reduction of (pound)20 million in respect of disposals made since the beginning of the prior year. Marketing spend on the global priority brands was up 19% and now represents 69% of total UDV spend, up 4 percentage points over the prior year. Marketing spend on other spirits brands was up 2%.

The performance of the global priority brands continues to improve

strongly to over 50 million cases.

The performance of the global priority brands (GPBs) has strengthened further in the year on all measures including volume up 5% excluding ready to drink (RTD) formats and up 6% including RTD at equivalent units. This improvement in performance was most marked in the United States, United Kingdom and Spain where volume of the global priority brands increased by 7%. Net sales (i.e. sales excluding excise duty) was up 9% and contribution after marketing grew 6% on the GPBs. Further price increases were achieved in the year and these, together with the benefits of price increases implemented in the prior year, have led to significant growth in net sales as the chart below shows.

                 Cases million(b) Volume growth(b) Net sales growth(b)
                                         %            %
Johnnie Walker Black and
 Deluxe Labels              3.4           7           9
Johnnie Walker Red Label    6.9           5           5
Smirnoff                   15.9           4          11
J&B Rare                    6.0           1           4
Baileys                     4.7           8          14
Cuervo                      4.3          13          19
Tanqueray                   1.8           2           6
Malibu                      2.0          12          15
Gordon's                    5.2           4           4
(b) Excluding RTD

Local priority brands also continued to improve with net sales up

21%.

Local priority BMU's have again performed very strongly with volume up 9% and net sales up 21%, supported by incremental marketing spend which was up 21%. The key drivers include Dimple in Korea, which has continued to grow strongly, Stolichnaya in the United States which grew volume by 22% and net sales by 26% and Smirnoff Ice in the United Kingdom.

Operating profit increased 15% on an organic basis.

                           Operating  profit       Organic growth
                            (pound) million            %

Europe                            379                   12
North America                     318                   13
Asia/Pacific                      124                   41
Latin America                     126                    9
Rest of World                      55                   25
                               ------                   --
                                1,002                   15
                                =====                   ==

Reported operating profit was (pound)1,002 million (1999 - (pound)967 million), an increase of 4%. Organic growth of 15% was partly offset by a (pound)69 million reduction in operating profit due to brand disposals made since the beginning of the prior year.

In Europe, volume grew 4% and net sales were up 12%.

Total volume in Europe grew 4%, driven by global priority brands up 6% and the successful launch of new ready to drink products such as Gordon's Space and Smirnoff Ice. Price harmonization across the region was supported by focused marketing investment. The one-off uplift due to the millennium, which was estimated to have benefited operating profit by (pound)10 million was offset by the abolition of intra-EU duty free allowances from July 1, 1999.

UK performance was driven by 17% volume growth led by key brands and the successful launch of Smirnoff Ice.

All the global priority brands performed well in the UK in the year. The UK spirits market grew in the year and was particularly strong in the categories in which UDV leads. The vodka category grew over 10%, the liqueur category grew more than 15% and speciality drinks grew over 5%. This category growth was driven by UDV brands. Smirnoff volume was up 13% and its market share of branded vodka grew 8 percentage points to 68%. While about a quarter of this growth was attributable to the one-off increase in demand around the millennium the majority of this growth was due to distribution gains and marketing spend including the new "No imperfections" campaign. Baileys volume grew 21% as the brand is being successfully repositioned away from its traditional seasonal bias. With only about one-third of this growth due to the millennium the further sustained growth of the brand was driven by successful advertising around "The Thief" campaign and extensive sampling.

                                Volume growth(c)    Net sales growth(c)
                                             %                    %
Johnnie Walker Black and
 Deluxe Labels                              35                  32
Johnnie Walker Red Label                   n/a                  n/a
Smirnoff                                    13                  14
J&B Rare                                    30                  32
Baileys                                     21                  20
Cuervo                                      23                  24
Tanqueray                                   44                  44
Malibu                                       3                   3
Gordon's                                     9                   8
(c) Excluding RTD

In its first year, Smirnoff Ice has sold 124 million bottles and, including ready to drink volume at equivalent units, total Smirnoff volume in the United Kingdom improved by 33%.

In Spain, strong growth in the global priority brands has also delivered continued improved performance.

Total volume growth in Spain was 12% led by 12% volume growth of the global priority brands as shown in the table below:

                               Volume growth(d)    Net sales growth(d)
                                            %                    %
Johnnie Walker Black and
 Deluxe Labels                             71                   68
Johnnie Walker Red Label                    8                   11
Smirnoff                                   15                   31
J&B Rare                                   10                   12
Baileys                                     9                   16
Cuervo                                     28                   31
Tanqueray                                  14                   18
Malibu                                     45                   52
Gordon's                                    7                   15
(d) Excluding RTD

Price increases were implemented on most brands at between 3% and 7% of net sales. This had an impact on volume growth in the second half, however continued focused advertising mainly behind the priority brands ensured that net sales continued to grow strongly.

The withdrawal of intra-EU duty free reduced total Spirits and Wine volume by 2%.

The withdrawal of intra-EU duty free in July 1999 is estimated to have resulted in a net reduction of 1.4 million cases, of which 900,000 cases related to the global priority brands, and a (pound)14 million reduction in contribution after marketing.

In North America, strong sales growth in the global priority brands has continued to drive operating profit growth up 13% in the year.

Reported operating profit was flat year on year at (pound)318 million. On an organic basis volume was flat with spirits up 4% and wine down 15%. Volume growth of 4% and price increases of 4% on the global priority brands, which represent about 60% of total net sales, contributed to strong sales growth, up 6% on an organic basis. On a reported basis, sales were down 2% to (pound)1,488 million (1999 - (pound)1,512 million) due mainly to disposals. Marketing spend increased 6% on an organic basis and marketing investment behind the global priority brands grew 17%.

Growth of the global priority brands in North America is shown below:

                               Volume growth(e)  Net sales growth(e)
                                            %                  %
Johnnie Walker Black and
 Deluxe Labels                            14                 17
Johnnie Walker Red Label                  (1)                (1)
Smirnoff                                   -                 11
J&B Rare                                 (15)               (10)
Baileys                                   10                  9
Cuervo                                    14                 20
Tanqueray                                  3                  7
Malibu                                    22                 26
Gordon's                                  (7)                (1)
(e) Excluding RTD

As the table shows the Johnnie Walker brands in total continued to perform strongly on the back of further significant incremental marketing investment, up 7% this year following a 8% increase in the previous year. Marketing investment has been focused on the Black and Deluxe Labels of the Johnnie Walker brand in the United States with spend there up 25%. Therefore, despite a small decline in volume and net sales of Johnnie Walker Red Label, net sales on the Johnnie Walker brand has increased 9% year on year and contribution after advertising and promotion has increased over 13%. Volume performance in Smirnoff exceeded expectations as despite a 12% price increase in the second half, as part of a process to reposition the brand, volume was flat with an 11% increase in net sales. Volume of J&B Rare continued to decline overall although marketing spend has increased by over 50% in the year behind the new marketing campaign. This campaign, targeted towards 24-28 year old males, is driving incremental volume up 12% in those test markets against a year ago and up 18% in the on trade in these markets.

Baileys volume improved 10% as the brand was repositioned away from a special occasion image. In some markets the price was reduced to reflect this. The new market positioning has been successful and contribution after marketing increased about 20%. Volume and net sales of Cuervo grew, despite competition from lower priced competitors, as a result of strong performance from Cuervo 1800 and price increases of 2%. The agave shortage, which did not impact Cuervo in the year, is being closely managed. Volume of Tanqueray was up, despite a reduction in stock levels, and net sales increased due to price increases and the successful launch of Tanqueray Ten in the year.

Economic recovery in Asia Pacific has led to recovery in the premium Spirits market.

Operating profit was up over 40% in Asia Pacific to (pound)124 million. This has been driven by strong volume recovery in premium brands. In Thailand, Johnnie Walker continues to lead the premium and standard Scotch categories with volume of Johnnie Walker Red Label up 16% and Black and Deluxe Labels up 11%. In the secondary Scotch category, Spey Royal volume increased by 50% and net sales increased 60%. In Korea, Dimple grew market share in the premium category by 4 percentage points to 29% with volume up over 80%. In Taiwan, the Johnnie Walker Deluxe Labels all grew market share. Sales of Johnnie Walker Black and Deluxe Labels continued to improve throughout the year and volume was up 21% year on year. In Japan, the market has continued to move away from premium products and volume of Old Parr and Johnnie Walker Black Label has continued to decline in line with the market. In Australia, Bundaberg, Baileys and Johnnie Walker continued to perform well. The spirits based ready to drink category remains an important part of the total beverage alcohol market, representing nearly half of total spirits economic profit in Australia. A decline in the volume of Stoli Lemon Ruski against the previous year adversely affected market share in this category, however, Bundaberg Gold and Cola and UDL grew volume by 21% and 5% respectively. This category will benefit in the coming year from duty changes, resulting in parity with beer, and further new brand introductions.

In Latin America, reduced overheads led to a 9% increase in organic operating profit despite a 7% decline in sales.

The economic situation in Latin America remained difficult throughout the year, however, there are signs of some improvement, particularly in the two largest economies Brazil and Mexico. Brazil is recovering well following the devaluation of January 1999 and Mexico is benefiting from continued growth in the US economy. Colombia and Venezuela, however, have continued in recession. Overall, volume in priority brands fell year on year, though market share gains were achieved across most brands and markets. In Brazil, the priority brands all performed well with Johnnie Walker Red Label up 6%, Smirnoff up 7% and Baileys grew 29%. In Venezuela, the local priority brands, Buchanans and Old Parr, showed strong growth, as did Johnnie Walker and Baileys in Mexico and Baileys and Johnnie Walker Red Label in Colombia.

In Rest of World, operating profit increased by 25% due to continued margin improvement and strategic restructuring.

In Rest of World, turnover grew by 6% and operating profit grew by 25%. Increased focus on higher margin brands in many markets improved overall mix. In addition, the restructuring of operations in Russia resulted in increased volume of imported brands and delivered significant overhead savings.

Premium wines continue to perform well but weakness in low margin categories led to a decline in total wine volumes.

Full year volume for wine brands declined by 7%. The Beaulieu Vineyards brand continued to gain distribution in the United States and benefited from price rises. However, Glen Ellen and Blossom Hill in the United States face increased competition at the lower end of the market and volume has declined and marketing spend was reduced. Increased advertising and promotion for Blossom Hill in the United Kingdom and Ireland has been successful in increasing distribution and volume.

Beer

-- Dollar system sales up 5% to $11,417 million

-- Total restaurants up 6% compared with 30 June 1999 to 11,161 units

-- Worldwide comparable restaurant sales up 0.1%

-- Turnover was up 5% from (pound)875 million to (pound)941 million

-- Operating profit growth 6% to (pound)202 million

-- Operating margin up 0.3 percentage points at 21.5%

Turnover increased 3% on an organic basis.

Reported turnover was (pound)2,146 million (1999 - (pound)2,234 million) down 4%. The disposal of Cruzcampo in January 2000 reduced turnover by (pound)118 million and adverse exchange rate movements, in particular the euro, reduced turnover by over (pound)100 million. Turnover benefited by (pound)63 million over last year following the acquisition of United Beverages Holdings in March 1999.

Guinness brand volume up 2%.

Comparable total volume was up 1% in the year. Guinness volume continued to grow, although the reported increase for the year slowed due to the decline in volume in Ireland and the decision to reduce stock levels in the United States as we introduced a new logistics network. Organic volume growth by region was as follows:

                                       Total
                                      volume             Guinness
                                           %                    %
Ireland                                  (1)                  (4)
Great Britain                             2                    3
Africa                                    4                    7
United States                             4                   (1)
Asia Pacific                             (3)                   2
Other (including discontinued)            1                    2
                                        ---                  ---
Total                                     1                    2
                                        ===                  ===

Organic operating profit growth was 14%.

Operating profit grew to (pound)284 million (1999 - (pound)273 million) as continued operating profit growth in Europe offset the impact of the disposal of Cruzcampo during the year.

In Ireland, operating profit grew as a result of overhead reductions despite a 1% decline in volume.

In Ireland, total volume was down 1% and Guinness volume was down 4% reflecting the changes in the beverage alcohol market in both the Republic of Ireland and in Northern Ireland. In Northern Ireland, total volume was down 8% and Guinness volume was down 10% due to a shift out of beer to spirits based options. In the Republic of Ireland, total volume grew 1% which was broadly in line with the overall beer market. However there has been a marked decline over the last 18 months in the draught beer market where Guinness is strongest as a result of a considerable reduction in the level of pub visits by consumers. This change is being addressed and Guinness marketing investment is now being spent on a program to make the brand increasingly relevant to a younger customer - 18-34 year old men and women. The `Live Life to the Power of Guinness' campaign, which began in July 1999, achieved significant changes in brand perception and has made the brand more youthful and approachable. In June 2000, a unique recruitment initiative `Witnness' was introduced targeted at this younger consumer creating experiences with which to drive adoption of the Guinness brand. Price increases had a favorable impact on profit in the year. Marketing spend was increased but cost reductions have led to margin improvement and operating profit was up.

In Great Britain, Guinness volume growth of 3% continues to drive profitable growth.

Guinness Great Britain performed strongly with total volume for the year up 2% and Guinness up 3%. While the on trade beer market declined 5% Guinness Draught performed well and volume was up 1% and market share increased. In the off trade, Guinness volume growth was in line with the market and market share was maintained.

Volume growth, reflecting the success of the Rugby World Cup sponsorship, improved sales mix with the focus on Guinness and price increases in May 1999 and April 2000 led to significant operating profit growth. Marketing investment on the Guinness brand has increased although overall spend declined following the licensing of Harp. Savings in overheads further contributed to profit growth.

In Africa, operating profit increased due to continued volume growth despite worsening economic conditions.

In Africa, total volume was up 4% due mainly to growth in Nigeria and Ghana where total volume for each market was up 8%. Guinness volume grew 7% for the year reflecting strong performances across all subsidiaries. Operating profit again grew significantly despite worsening economic situations in a number of markets. In Nigeria, Guinness volume was up 12% despite the re-introduction of excise duty in January 2000. In Ghana, Guinness volume grew 2% despite significant price increases taken following the rapid devaluation of the local currency.

In the United States, Guinness continues to increase market share.

In the United States depletions were up 10% with Draught Guinness up 12% for the year. Shipments are up 4% in total and down 1% for Guinness as a result of changes introduced in the first half to the logistics network to reduce stock levels at wholesalers. This decision, which led to improved product quality, resulted in inventory reduction of almost 20% overall and of nearly 30% on Guinness. A decision has been made to move forward with the rollout of warehouses nationwide by the end of 2000. This is not expected to have a significant impact on shipment volume next year given that much of the change in stock levels has already been effected at the wholesaler level. Operating profit growth of 20% has been achieved as a result of volume growth and cost savings. Marketing investment was down 8% on the prior year due to purchasing efficiencies and a decision to defer funds to invest behind new promotional opportunities taking place next year. In the coming year, Harp and bottled Guinness Extra will be brewed under contract in Canada for the North American market and this will further improve the profitability of those brands and hence the North American business.

In Asia Pacific, operating profit has declined as a result of lower volume.

Total volume for the year was down 3% with Guinness volume up 2%. Strong growth in Indonesia partially offset the impact of overall market decline in Malaysia and Singapore. In Malaysia, declining retail consumption together with a reduction of wholesaler stock levels resulted in overall volume down 6%. Guinness however performed well and volume was up 1% despite increased competition. In Singapore, total volume was down 10% and Guinness volume was down 9% against a market decline of 3%. Indonesia has delivered strong volume growth in a difficult economic environment and Guinness volume was up 5% in the year.

PACKAGED FOOD

-- Dollar system sales up 5% to $11,417 million

-- Total restaurants up 6% compared with 30 June 1999 to 11,161 units

-- Worldwide comparable restaurant sales up 0.1%

-- Turnover was up 5% from (pound)875 million to (pound)941 million

-- Operating profit growth 6% to (pound)202 million

-- Operating margin up 0.3 percentage points at 21.5%

Turnover was in line with prior year on an organic basis.

Turnover was (pound)3,812 million (1999 - (pound)3,757 million). The disposal of non-core brands in the last financial year and the formation in October 1999 of Ice Cream Partners, the joint venture with Nestle for Haagen-Dazs in the United States, resulted in a decline in turnover of (pound)219 million while the Foodservice and other acquisitions increased turnover in the year by (pound)207 million. Volume declined 1% on an organic basis. In Pillsbury North America, volume and sales declined 2% reflecting the strong competitive environment.

Operating profit was up 1% on an organic basis and marketing spend increased by 4%.

Reported operating profit was (pound)492 million (1999 - (pound)478 million) an increase of 3%. On an organic basis operating profit was up 1% and marketing spend increased by 4% to (pound)774 million (1999 - (pound)740 million). Marketing as a percentage of sales increased 0.8 percentage points against last year.

Sales and consumer takeaway trends for Pillsbury North America.

                                                        Pillsbury NA
                         Pillsbury NA                consumer takeaway
                         sales growth  Category growth       growth
                               %                 %                %
Dough products               (1)                4              -
Non-dough products           (4)                -             (2)
Total Pillsbury
 North America(f)            (2)                1             (2)
(f) Excludes Ice Cream.

Source: AC Nielsen. Consumer takeaway (US dollar retail sales) in the
52 weeks ended July 1, 2000.

Consumer takeaway for Ice Cream Partners increased 6% against category growth of 3%.

Foodservice continued to perform strongly and reported volume increased 35%.

Pillsbury Bakeries and Foodservice continued to expand profitably due principally to growth in frozen dough and margins improved over 2 percentage points. Reported volume was up 35% reflecting the benefit of acquisitions and 5% organic volume growth. Turnover on an organic basis grew 6% and operating profit grew significantly.

Turnover in International grew 4% and margins improved.

In International, on an organic basis, volume grew 1% and turnover grew 4%. Strong growth was achieved in Europe and Asia Pacific while organic volume declined in Latin America due to difficult economic conditions in Argentina and Brazil. Marketing investment was up 14%.

Quick Service Restaurants

-- Dollar system sales up 5% to $11,417 million

-- Total restaurants up 6% compared with 30 June 1999 to 11,161 units

-- Worldwide comparable restaurant sales up 0.1%

-- Turnover was up 5% from (pound)875 million to (pound)941 million

-- Operating profit growth 6% to (pound)202 million

-- Operating margin up 0.3 percentage points at 21.5%

6% growth in restaurant numbers and comparable restaurant sales in line with the prior year have delivered growth in worldwide system sales.

At June 30, 2000, there were 11,161 restaurants, a net increase of 635 in the year.

Organic growth in operating profit was 6%.

Operating profit was (pound)202 million (1999 - (pound)185 million). Operating margin rose 0.3 percentage points due to margin improvement in the United States partially offset by one-off costs in Europe relating to legal costs associated with litigation in Israel and Portugal, and charges relating to the bank default of the franchisee in Poland.

In North America, operating performance improved during the year.

Turnover grew 2% on an organic basis in North America. Comparable restaurant sales were slightly negative and the system expanded by 309 new restaurants in the year. Despite disruption to the system caused by the transition away from AmeriServe to a new regional distribution system, the North American business delivered 8% operating profit growth in the year.

The United Kingdom, Germany and Spain continue to deliver strong sales growth.

In each of the key markets, the United Kingdom, Spain and Germany, system sales were up over 10%. Comparable restaurant sales grew 2% in the United Kingdom and 8% in Spain. The strongest performance continued to be in Germany where market share increased as system sales grew 23% due to over 50 new restaurants and comps up 2%. In addition, company restaurants continued to perform strongly and operating profit grew.

Latin America delivered positive comparable restaurant sales and strong operating profit growth.

Comparable restaurant sales grew 4% in Latin America. In addition, restaurant numbers grew 12% and there was strong operating profit growth.

FINANCIAL REVIEW

Exchange rates

Exchange rate movements during the year adversely impacted profit before exceptional items and tax by (pound)41 million. The adverse impact of exchange rate movements on the translation of overseas operating profit was (pound)14 million and on transactions in the year was (pound)17 million, giving a total impact on operating profit of (pound)31 million. Exchange rate movements also adversely affected the share of profits of associates by (pound)9 million and the interest charge by (pound)1 million.

Based on current exchange rates it is estimated that there will be no impact from exchange rate movements on profit before exceptionals and tax for the year ending June 30, 2001.

Associates

The group's share of profits of associates before interest and exceptional items was (pound)198 million for the year compared with (pound)188 million for last year, an organic growth of 10%.

Goodwill

Goodwill amortization in the year was (pound)17 million (1999 - (pound)4 million), mainly in respect of the Packaged Food acquisitions last year.

Exceptional items

In addition to the final merger integration costs of (pound)83 million, operating cost net exceptional items included (pound)43 million integration and restructuring costs incurred by Pillsbury in the year. These costs related to organizational changes announced in March 2000, which are resulting in the elimination of approximately 400 positions, and to the integration of the recent acquisitions into its Bakeries and Foodservice operations.

Exceptional items also included three exceptional items relating to Burger King. Litigation damages of (pound)34 million were awarded by an Australian court in a legal dispute with Burger King's Australian franchisee, Hungry Jack's Pty Ltd. In addition, (pound)38 million was incurred to minimize the interruption of product supply to its entire system and to ensure a smooth transition to Burger King's new US regional distributors following AmeriServe's bankruptcy filing in January 2000. These costs have been partly offset by exceptional income of (pound)17 million. Burger King, as part of its transformation program, has incentivised franchisees with phased royalty changes for a specified time if they agree to a new franchise agreement and to upgrade and migrate their existing restaurants to the current image requirements within 18 months for the financial year 2000 program and 12 months for the financial year 2001 program. The successor franchise agreement involves the receipt of franchise renewal fees which are being reported as exceptional income in 2000 and 2001.

The disposals of drinks brands, principally in Europe, resulted in a charge of (pound)247 million, of which (pound)214 million was in respect of goodwill previously written off. The sale of Grupo Cruzcampo SA to Heineken NV resulted in an exceptional gain of (pound)82 million, after charging (pound)224 million in respect of goodwill.

Interest

The interest charge in the year increased to (pound)363 million from (pound)324 million in the comparable period. Funding the various share repurchases cost (pound)60 million, partly offset by a (pound)41 million benefit in respect of the disposal of businesses.

Taxation

The effective rate of taxation on profit before goodwill amortization and exceptional items for the year was 26.2%, the same as the rate for the year ended June 30, 1999.

Dividend

The directors recommend a final dividend of 12.6 pence per share to be paid on November 15, 2000 to shareholders on the register on October 13, 2000. Dividends for the year will total 21.0 pence per share, an increase of 8% on last year's dividends. A dividend reinvestment plan is available in respect of this dividend and the plan notice date is October 25, 2000.

Cash flow

Free cash inflow was (pound)864 million, compared with (pound)373 million in the prior year. Cash inflow from operating activities was (pound)2,043 million compared with (pound)1,966 million. This inflow was after (pound)128 million of merger integration costs and a (pound)62 million increase in working capital. Net interest payments were (pound)405 million against (pound)432 million in the comparable year (which included the cost of closing out certain long dated financial instruments in August 1998). Purchases of tangible fixed assets in the year amounted to (pound)547 million, an increase of (pound)13 million. Tax payments were (pound)285 million compared with (pound)566 million, the reduction being due to the receipt of advance corporation tax paid in previous years and lower capital gains payments on disposals.

Sale of businesses generated (pound)638 million, which was partly offset by acquisitions costing (pound)151 million. 9.5 million ordinary shares were purchased for cancellation in the year at a cost of (pound)54 million, compared with the cancellation of 175 million ordinary and B shares at a cost of (pound)1,211 million last year.

Balance sheet

Total shareholders' funds were (pound)4,711 million at June 30, 2000 compared with (pound)4,026 million at June 30, 1999. The principal reasons for the increase were the (pound)263 million retained income for the year and the reversal of the (pound)446 million goodwill charged to the profit and loss account on disposals.

Net borrowings were (pound)5,545 million, a decrease of (pound)511 million from June 30, 1999. This decrease reflects the free cash inflow of (pound)864 million noted above and net receipts from sales/purchases of businesses of (pound)487 million, partly offset by dividends paid of (pound)683 million and increases due to exchange movements of (pound)119 million.

The group has authority to repurchase up to 10% of its shares and will continue to review its capital structure in the light of market conditions.

Annual report and AGM

Diageo's annual report will be sent to shareholders by the end of September 2000. The Annual General Meeting will be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE at 2:30pm on November 9, 2000.

Copies of the group's results presentation to be made to analysts and investors are available upon request. The announcement and the presentation will be on the Diageo website www.diageo.com from 9:30am on September 7, 2000.

Note to Editors: Photographs can be downloaded from the Newscast Website at the following address: www.newscast.co.uk For tabular results, please contact Taylor Rafferty at [phone].