Diageo Profit up 11% in North America; Great Brands, Marketing and Distribution are Key Drivers.

Business Editors

STAMFORD, Conn.--(BUSINESS WIRE)--Sept. 4, 2003

Diageo plc, the world's leading premium drinks company, reported that its North American operation contributed significantly to its overall growth in volume, turnover and operating profit.

Diageo's focus on priority brands helped drive North American operating profit up 11% on an organic basis in the year ending June 30, 2003.

Ivan Menezes, President and COO of Diageo North America, said: "We are seeing the results of our focus on premium brands, top flight execution and world-class innovation. We understand our consumers, are responsive to their changing lifestyles and ever-changing preferences, and are committed to satisfying their beverage preferences on every occasion - and we have the leading brands to do just that."

A key driver was the strong performance of the global priority spirits brands, led by Smirnoff (exclusive of RTD/FMBs) which increased volume by 9%. The successful completion of the integration of the Seagram spirits and wine brands are making a substantial contribution to North American performance.

In addition, Diageo made great progress on its strategic initiative, Next Generation Growth (NGG), by creating a more efficient and effective distribution network with dedicated sales forces in distributors and brokers in 34 states and Washington DC. To date, almost 80% of Diageo's US volume is now sold through dedicated sales teams. When this program is fully implemented in 2004, Diageo expects to have nearly 3000 dedicated sales people in distributors and brokers across the US.

Baileys continued its impressive growth driven by national advertising around a very successful holiday program and the continued success of initiatives to broaden the appeal of the brand to new occasions. The launch of Baileys Minis in May also contributed incremental volume and net sales, as well as generated momentum for the brand.

Jose Cuervo continues to be the leader in US tequila sales. The key drivers of its growth were high consumer visibility, the success of national advertising and increased trial programs.

About Diageo

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 brands across the spirits, wine and beer categories including Smirnoff, Guinness, Johnnie Walker, Baileys, J&B, Jose Cuervo, Captain Morgan, Tanqueray and Crown Royal, 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.

The following conversion is based on a convenience rate for
translation of $1.65/GBP 1 for illustrative purposes:

North America

Key measures:                                     Reported    Organic
                                2003       2002   movement   movement
                           $ million  $ million        %          %

Volume                                                15          1
Turnover                     4,612      4,404          5          1
Net sales                    3,853      3,680          5          1
Marketing                      668        673         (1)        (3)
Operating profit before
 exceptional items           1,203        908         33         11

Turnover in North America increased 5% from $4,404 million in the year ended June 30, 2002 to $4,612 million in the current year. This increase was primarily due to the turnover derived from the Seagram brands acquired in December 2001 which contributed $733 million in the six months ended December 31, 2002. The effect of brand disposals and of exchange-rate movements in the US dollar reduced turnover in the year ended June 30, 2003 by $173 million and $393 million, respectively.

The Seagram brands were the main factor in growing operating profit before exceptional items in North America from $908 million last year to $1,203 million in the year ended June 30, 2003 contributing $254 million in the six months ended December 31, 2002.

Organic brand performance:                        Volume     Net sales
                                                  growth %   growth %

Smirnoff                                              4         (2)
Johnnie Walker                                        2          7
Jose Cuervo                                          10          9
Baileys                                              14         17
Tanqueray                                             2          7
Guinness                                              1          1
Captain Morgan                                       (6)       (17)
J&B                                                  (6)        (6)

Total global priority brands                          4          2

Local priority brands                                 1          4

Category brands                                      (7)        (3)

Total                                                 1          1

-- Smirnoff volume excluding RTD and flavored malt beverages was

up 9% and net sales were up 11%

-- Excluding Captain Morgan Gold, volume of Captain Morgan was up

8% and net sales were up 10%

-- Excluding RTDs and flavored malt beverages total volume was up

3% and net sales were up 5%

Volume growth in North America was driven by the strong performance of the priority spirits brands. Global priority brand volume excluding RTDs and flavored malt beverages grew 7%. RTD and flavored-malt-beverage volume, which includes flavored malt beverages in the United States and ready to drink in Canada, was down 17%, representing a decline in Smirnoff RTDs and flavored malt beverages of 11% and the withdrawal of Captain Morgan Gold.

Smirnoff had another strong year despite weakness in Smirnoff flavored malt beverages. Excluding RTDs and flavored malt beverages, volume was up 9%, driven by strong growth in Smirnoff Red and the continued success of the Smirnoff Twist flavored vodka range. Smirnoff Red increased its share of the category to 23.1%. The brand's volume growth was driven by the success of the 'What's your mix' advertising campaign. In addition, Smirnoff Red continues to benefit from spend behind Smirnoff RTDs and flavored malt beverages and Smirnoff Twist.

Smirnoff RTD and flavored malt beverage volume was down 11%. The launch of Smirnoff Ice Triple Black in January 2003 partially offset softness in Smirnoff Ice.

Volume of Johnnie Walker Red Label improved in the second half of the year. Johnnie Walker Black Label also gained share although volume growth slowed from the first half. Net sales for the total brand were up 7% due to volume growth, favorable mix and price increases of 3% in selected markets.

Baileys continued its impressive growth driven by national advertising around a very successful holiday program and the continued success of initiatives to broaden the appeal of the brand to new occasions. The launch of Baileys Minis in May also contributed incremental volume and net sales, as well as generating momentum for the brand.

The strategy for J&B in North America is to maximize value and in the year contribution from the brand increased as marketing expenditure was reduced.

Jose Cuervo continues to be the leader in US tequila sales. The key drivers of its growth were high consumer visibility, the success of national advertising and an increase in trial programs.

The success of the "Distinctive Since" campaign was a key driver of the growth in Tanqueray. Both Tanqueray and Tanqueray No. TEN increased their share of the category.

Excluding Captain Morgan Gold flavored malt beverage, Captain Morgan volume was up 8% and net sales were up 10% driven by increased advertising and media spending for Captain Morgan Original Spiced Rum.

Guinness volume grew slightly in the year driven by strong performance by bottled Guinness Extra Stout and Guinness Draught in Bottles.

Local priority brand volume was up 1% for the year, with net sales up 4%. Crown Royal showed strong gains, as did Sterling Vineyards; however, these were partially offset by volume decline in Gordon's Gin, Beaulieu Vineyard, and other smaller brands. Volume of category brands was down 7% for the year, with net sales down 3%. The decrease in volume was due to declines in Gordon's Vodka and other smaller category brands. Bass volume was down versus the prior year; distribution of the brand was returned to Interbrew as of June 30, 2003. There has been a mix improvement due to inclusion of the former Seagram brands and the launch of Ciroc.

Other business performance drivers:

-- Almost 80% of Diageo's volume now distributed through

dedicated sales teams

-- Flavored malt beverage segment under pressure

-- Efficiencies generated savings of over 10% in media planning

and buying

-- Share of US spirits brands increased by 0.3 percentage points

to 27.3%

Diageo North America continued to progress its strategic initiatives. In particular its Next Generation Growth (NGG) program has made excellent further progress. In the second half of the year, new distribution and brokerage agreements were reached in 9 more states and additional distributors established dedicated sales forces. Distributors and brokers in 34 states and Washington DC, representing nearly 80% of Diageo's volume, are now supporting Diageo's brands with just under 2,000 sales personnel working in teams solely dedicated to Diageo and Schieffelin & Somerset brands.

Following two years of rapid growth, the flavored malt beverage segment in the United States has slowed considerably and volume in the segment was broadly level for the year. Of the new launches this year, Smirnoff Ice Triple Black was the most successful and it is now the second best selling flavored malt beverage in the United States behind Smirnoff Ice. Flavored malt beverages currently represent 2% of the US beer category, of which Smirnoff flavored malt beverage is estimated to constitute about a third.

Diageo's share of US spirits increased in the year to 27.3% as a result of share gains in most priority brands.