SECURITIES AND EXCHANGE COMMISSION

FORM 6-K

Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934

Diageo plc

(Translation of registrant’s name into English)

8 Henrietta Place, London W1G 0NB

(Address of principal executive offices)

indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-F þ               Form 40-F o

indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o               No þ

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):82 o

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.

        Diageo plc

        (Registrant)

List identifying information required to be furnished
by Diageo plc pursuant to Rule 13a-16 or 15d-16 of
The Securities Exchange Act 1934
31 August 2006

Information		Required by/when
Public Announcements/Press		The London Stock Exchange

Announcement
Preliminary results for the year ended 30 June 2006.

          Preliminary results for the year ended 30 June 2006

Diageo delivers strong top line and double digit EPS growth

Paul Walsh, Chief Executive of Diageo, commenting on the year ended 30 June 2006 said:

‘Diageo’s strong full year performance is the result of brand building marketing campaigns, better sales execution to build superior relationships with our customers and successful new product launches.

‘North America continues to deliver industry beating top line growth; a more cost effective European business is driving operating profit and margin growth; and the rate of sales growth in International has accelerated following new brand introductions and increased investment.

‘Strong top line growth has delivered organic operating margin expansion and organic operating profit growth in line with our guidance at the beginning of the year despite pressure on input costs. At the same time we have increased marketing investment creating a stronger platform for future growth. We have delivered another year of strong free cash flow and through our dividends and share buybacks we have returned a further £2.3 billion to our shareholders.

‘With well-positioned brands and a more efficient and effective organisation, we enter the new financial year with confidence. We expect that organic net sales growth will be in line with that achieved in the current year and we plan to deliver organic operating profit growth of at least 7% for the year and to return a further £1.4 billion to shareholders through our continuing buyback programme.’

Results at a glance

														Reported				Organic
						2006				2005				movement				movement
Volume in millions of equivalent units							133.8				125.4				7	%			6	%
Net sales after deducting excise duties		£	million				7,260				6,677				9	%			6	%
Operating profit before exceptional items		£	million				2,044				1,932				6	%			7	%
Operating profit after operating exceptional items		£	million				2,044				1,731				18	%
Profit attributable to parent company’s equity shareholders		£	million				1,908				1,344				42	%
Basic eps before exceptional items			Pence				50.5				39.7				27	%			10	%
Basic eps			Pence				67.2				45.2				49	%

Key highlights

	•		Growth across all businesses with net sales, after deducting excise duties, of spirits up 8%, wine up 8%, beer up 4% and ready to drink up 2%
	•		At 8% organic growth, marketing increased as a percentage of net sales, after deducting excise duties
	•		Further operating margin improvement of 30 basis points on an organic basis
	•		Double digit eps growth
	•		Return on invested capital up 90 basis points to 13.7%
	•		Another year of strong free cash flow at £1,361 million
	•		Share buyback doubled in the year to £1,400 million
	•		Recommended full year dividend per share increase of 5% to 31.1 pence

Percentage movements in this document are organic movements unless otherwise stated. These movements and operating margins are before exceptional items. Commentary, unless otherwise stated, refers to organic movements. Share, unless otherwise stated, refers to volume share. See page 31 for additional information for shareholders and an explanation of non-GAAP measures including the reconciliation of basic eps as reported to basic eps as adjusted and the organic eps movement calculation. The financial statements for the year ended 30 June 2006 have been prepared in accordance with IFRS as endorsed and adopted for use in the European Union.

Regional Summary

North America — Continued outperformance and share gains

•		Volume up 5%
•		Net sales, after deducting excise duties, up 7%
•		Marketing up 6%
•		Operating profit before exceptional items up 6%

Diageo’s North America business continues to outperform the market and gain share. As a result of proven marketing campaigns and stronger execution of on and off trade sales programmes, top line growth has been achieved across the business with net sales, after deducting excise duties, up 8% for spirits, 7% for wine, 11% for beer and 3% for ready to drink. The priority spirits brands continued to perform strongly, especially Smirnoff vodka, Captain Morgan and Jose Cuervo which each delivered double digit growth in net sales, after deducting excise duties. Diageo’s premium beer brands, Guinness, Red Stripe and Smithwicks, continue to broaden their consumer appeal through effective advertising campaigns and targeted product placement. In wine, following its acquisition in February 2005, Chalone has provided another growth engine and the performance of that business is ahead of expectations.

Europe — Building a more cost effective organisation

•		Volume up 1%
•		Net sales, after deducting excise duties, unchanged year on year
•		Marketing reduced by 4%
•		Operating profit before exceptional items up 6%

The European business has implemented change in the year to build a more cost effective organisation focused on profitable growth opportunities. The decline in the ready to drink segment in Europe and the challenges inherent in the Irish beer market have adversely impacted top line growth. However, Diageo’s spirits brands in Europe and the beer brands outside of Ireland have performed well. This is the result of focus on those brands and markets which will generate future growth and a fuller innovation pipeline. Cost initiatives implemented in the year have improved operating margins and driven operating profit growth.

International — Growth across all key markets

•		Volume up 14%
•		Net sales, after deducting excise duties, up 13%
•		Marketing up 28%
•		Operating profit before exceptional items up 9%

Diageo is well-positioned to take advantage of the opportunities in these markets. Top line growth is accelerating and the International business is delivering share gains for the key brands. The successful implementation of turnaround plans in Nigeria, Korea and Taiwan have also contributed to the improvement. This excellent top line growth has facilitated very high levels of increased marketing investment behind the growth of key brands, particularly Johnnie Walker in expanding markets such as China and Mexico, and behind innovation.

Financial

•		The deficit in respect of post employment plans reduced by £493 million from £1,294 million at 30 June 2005 to £801 million at 30 June 2006. As a consequence, in the year ending 30 June 2007, finance income under IAS 19 will increase year on year by approximately £30 million
•		In the year ended 30 June 2006, foreign exchange movements reduced operating profit by £25 million and had no impact on the interest charge
•		In the year ending 30 June 2007, at current exchange rates foreign exchange movements are estimated to reduce operating profit by £75 million and reduce the interest charge by approximately £10 million (excluding the exchange impact of re-translating short term inter-company loans under IAS 21)

•

Brand performance summary

						Reported				Organic				Reported				Organic
		Equivalent				volume				volume				net sales*				net sales*
		units				movement				movement				movement				movement
		million				%				%				%				%
Global priority brands			78.9				6				6				8				6
Local priority brands			23.1				2				2				8				3
Category brands			31.8				13				10				11				9
Total			133.8				7				6				9				6
Key brands:
Smirnoff vodka			21.9				9				9				12				10
Smirnoff ready to drink			5.0				1				1				1				(2	)
Johnnie Walker			13.7				11				11				11				11
Guinness			11.1				(1	)			(1	)			5				3
Captain Morgan (excl. ready to drink)			7.1				8				8				17				13
Baileys			7.0				4				4				4				3
JeB			5.9				—				—				(1	)			(1	)
Crown Royal			4.6				5				5				13				8
Jose Cuervo (excl. ready to drink)			4.5				9				9				15				11
Tanqueray			2.0				6				6				12				8
Buchanan’s			1.1				19				19				15				20
Windsor			0.7				12				12				23				9

Diageo acquired Bushmill’s Irish Whiskey on 25 August 2005 for approximately £200 million.

OPERATING AND FINANCIAL REVIEW
For the year ended 30 June 2006

OPERATING REVIEW

Analysis by region

North America

Summary:

•		Top line growth across the business — spirits 8%, wine 7%, beer 11% and ready to drink 3%
•		Increased spend on proven marketing campaigns
•		Well executed on and off trade sales programmes
•		Growth of the premium beer brands supported by effective advertising and targeted product placement
•		In wine, Chalone is another growth driver — performing ahead of expectations

Key measures:

										Reported				Organic
		2006				2005				movement				movement
		£ million				£ million				%				%
Volume											5				5
Net sales after deducting excise duties			2,510				2,194				14				7
Marketing			384				341				13				6
Operating profit before exceptional items			829				779				6				6

Reported performance:

Net sales, after deducting excise duties, were £2,510 million in the year ended 30 June 2006 up by £316 million from £2,194 million in the prior year. Operating profit before exceptional items increased by £50 million to £829 million in the year ended 30 June 2006.

Organic performance:

The weighted average exchange rate used to translate US dollar sales and profits moved from £1 = $1.86 in the year ended 30 June 2005 to £1 = $1.78 in the year ended 30 June 2006. The strengthening of the US dollar resulted in a £110 million increase in net sales, after deducting excise duties. Acquisitions added £34 million of net sales, after deducting excise duties, and there was an organic increase in net sales, after deducting excise duties, of £169 million. Transfers between business segments increased prior year net sales, after deducting excise duties, by £3 million. Operating profit before exceptional items increased by £2 million as a result of foreign exchange impacts. Acquisitions increased operating profit before exceptional items by £1 million and organic growth of £47 million was achieved.

Organic brand performance:

		Reported				Organic				Reported				Organic
		volume				volume				net sales*				net sales*
		movement				movement				movement				movement
		%				%				%				%
Global priority brands			7				7				14				8
Local priority brands			2				2				10				5
Category brands			2				(1	)			24				7
Total			5				5				14				7
Key brands:
Smirnoff vodka							9				16				11
Smirnoff ready to drink							(3	)			1				(5	)
Johnnie Walker							1				10				5
Captain Morgan (excl. ready to drink)							9				19				14
Baileys							7				13				7
Jose Cuervo (excl. ready to drink)							9				16				11
Crown Royal							6				14				8
Tanqueray							5				13				7
Guinness							7				15				9
Beaulieu Vineyard							—				5				1
Sterling Wines							3				15				10

Diageo continued to outperform the market in an industry where the increase in the US legal drinking age population and the trend towards more premium products across all beverage alcohol categories are helping to drive growth.

The global priority brands again led the growth with volume up 7% and net sales, after deducting excise duties, up 8%.

The spirits brands, excluding ready to drink, delivered 8% growth in net sales, after deducting excise duties, reflecting strong performances from Smirnoff, Captain Morgan and Jose Cuervo.

Smirnoff benefited from targeted profile raising activity. In the off trade, volume was driven by concentrated activity on high visibility feature and display initiatives across Smirnoff vodka, as well as innovation in flavours. These activities and the focus on proven growth drivers, such as quality account management, delivered strong growth for Smirnoff vodka with volume up 9% and net sales, after deducting excise duties, up 11%.

Johnnie Walker continued to outperform the scotch category with volume up 1% and net sales, after deducting excise duties, up 5%. Both Johnnie Walker Red Label and Johnnie Walker Black Label grew share. Higher marketing and public relations investment behind the successful Mentor programme and increased relationship marketing underpinned these strong results.

Captain Morgan had a good year. Excluding ready to drink, volume was up 9% and net sales, after deducting excise duties, were up 14%, benefiting from increased media spending, particularly in television to drive awareness and trial, strong display executions and the launch of Tattoo.

Baileys continued its turnaround from last year with volume and net sales, after deducting excise duties, both up 7%.

The Jose Cuervo Tradicional and Reserva variants delivered double-digit growth benefiting from the trend towards premium tequila. Product innovation also made a strong contribution to growth as the super premium range was further extended with the introduction of Black Medallion in February. A range of flavours was also introduced during the year. Excluding ready to drink, Jose Cuervo volume increased 9% and net sales, after deducting excise duties, rose 11%.

A strong second half performance from Crown Royal resulted in full year volume up 6% and net sales, after deducting excise duties, up 8% as the investment behind NASCAR was increased. The second half also saw the launch of an ultra premium offering, Crown Royal Extra Rare.

The ‘Tony Sinclair — Ready to Tanqueray’ campaign has reinvigorated the Tanqueray brand with volume up 5%. Price increases, taken over the year in certain markets, have led to an increase in net sales, after deducting excise duties, of 7%.

In line with the trend towards premium beers, Guinness continued to show strong performance with volume up 7%. A price increase across all variants in October 2005 meant that net sales, after deducting excise duties, grew 9%.

In wine, Beaulieu Vineyard volume was flat, but net sales, after deducting excise duties, increased 1%. Sterling Wines volume was up 3% with net sales, after deducting excise duties, up 10% as price increases were taken across a variety of labels. The Chalone wine brands are delivering ahead of expectations, as a result of a strong contribution from innovation with the introduction of new varietals.

Total ready to drink volume was up 2% led by the continued growth of Jose Cuervo’s pre-mixed margarita offerings and the launch of the Captain Morgan’s Parrot Bay ready to drink product. The introduction of new Smirnoff Twisted V flavours, strong growth of Smirnoff Ice in Canada and the regional launch of Smirnoff Raw Tea partially offset declines in the Smirnoff Ice brand in the US.

In category brands, volume decreased by 1% but net sales, after deducting excise duties, were up 7%. This reflected the decision to shift operational focus toward the more profitable reserve brands such as Ciroc and Don Julio and away from the high volume standard brands such as Popov and Gordon’s vodka.

Marketing spend for the year was up 6% and excluding ready to drink, up 9%. This reflects an accelerated investment in spirits, offset by a reduction in spend on ready to drink.

Europe

Summary:

•		Net sales, after deducting excise duties, were unchanged year on year as growth in core spirits offset tough market conditions in beer and ready to drink
•		Spirits demonstrated healthy volume growth at 3%
•		Innovation is increasing brand visibility with new and existing customers
•		Marketing spend was reduced by 4% and prioritised against specific opportunities such as Johnnie Walker throughout Europe and JeB in France

Key measures:

										Reported				Organic
		2006				2005				movement				movement
		£ million				£ million				%				%
Volume											2				1
Net sales after deducting excise duties			2,455				2,499				(2	)			—
Marketing			389				403				(4	)			(4	)
Operating profit before exceptional items			737				702				5				6

Reported performance:

Net sales, after deducting excise duties, were £2,455 million in the year ended 30 June 2006 down by £44 million from the prior year. Operating profit before exceptional items increased by £35 million from £702 million to £737 million.

Organic performance:

Disposals net of the impact of acquisitions decreased net sales, after deducting excise duties, by £16 million and there was an organic decrease in net sales, after deducting excise duties, of £4 million and an adverse impact of exchange of £1 million. Transfers between business segments decreased prior year net sales, after deducting excise duties, by £23 million. Operating profit before exceptional items decreased by £5 million as a result of foreign exchange impacts. Acquisitions increased operating profit before exceptional items by £4 million and organic growth of £39 million was achieved. Transfers between business segments decreased prior year operating profit before exceptional items by £3 million.

Organic brand performance:

		Reported				Organic				Reported				Organic
		volume				volume				net sales*				net sales*
		movement				movement				movement				movement
		%				%				%				%
Global priority brands			1				1				(1	)			(1	)
Local priority brands			(2	)			(2	)			(1	)			(1	)
Category brands			6				2				(3	)			2
Total			2				1				(2	)			—
Key brands:
Smirnoff vodka							8				8				7
Smirnoff ready to drink							(22	)			(21	)			(21	)
Johnnie Walker							3				6				6
Baileys							1				—				—
JeB							(3	)			(5	)			(5	)
Guinness							(3	)			—				—

Spirits demonstrated resilient growth with volume and net sales, after deducting excise duties, up 3%, while beer, volume down 3% and ready to drink, volume down 22%, held back total performance. The shift from the on to the off trade in Ireland again negatively impacted overall beer performance. Wine volume grew 7% driven by Blossom Hill’s robust growth in Great Britain and Ireland.

Smirnoff vodka, excluding ready to drink, continued to grow strongly, delivering volume growth of 8% and growth of net sales, after deducting excise duties, of 7%. A pan-European advertising campaign, focusing on the quality credentials of Smirnoff, continued to build the distinctiveness of the brand, although marketing spend was reduced by 9%.

Johnnie Walker Red Label volume grew 1% while net sales, after deducting excise duties, were flat. However, very strong volume growth of Johnnie Walker Black Label, up 14% and Johnnie Walker Super Deluxe, up 21%, delivered overall growth in Johnnie Walker, with volume up 3%, and had a positive mix impact as net sales, after deducting excise duties, increased 6%. Growth was driven mainly by increased demand in Southern Europe, Russia and Eastern Europe and the favourable impact of advertising, especially the sponsorship of Team McLaren Mercedes Formula One. Marketing spend was up 19% as a result of increased activities in sports sponsorship.

Europe accounts for over half of Baileys volume worldwide and brand volume was up a further 1% year on year, driven by growth in France, Italy, Russia and Central and Eastern Europe. Net sales, after deducting excise duties, were flat. Excluding ready to drink, both volume and net sales, after deducting excise duties, grew by 1%.

The majority of JeB’s volume in Europe is sold in Spain, where the decline of the scotch category led to a 3% decrease in overall volume of JeB. However, elsewhere in Europe, especially in France and Eastern Europe, JeB performed well.

Guinness volume declined 3% although pricing offset weak volumes and net sales, after deducting excise duties, were flat year on year. Guinness sales progressed well in Russia during the year following Diageo’s agreement in July 2005 with Heineken NV for the production and distribution of Guinness in Russia.

Despite a year on year decline in ready to drink, Diageo has managed costs and increased the margin on ready to drink, even though contribution in absolute terms was down.

Total local priority brand performance was negatively impacted by the decline of Diageo’s beer volume in Ireland.

Marketing spend was reduced by 4% driven by a 23% reduction in spending on ready to drink.

Great Britain

Volume was flat and net sales, after deducting excise duties, were down 1% as the decline in ready to drink continued to cause a negative mix impact.

The total spirits market in Great Britain was broadly flat as growth in the off trade offset declines in the on trade. Diageo maintained leadership across all key categories and excluding ready to drink, grew spirits volume by 2%.

Growth in spirits was attributable to Smirnoff vodka in particular, which continued to gain share as volume grew 6% and net sales, after deducting excise duties, grew 8%. Smirnoff performance was driven by marketing programmes focused on quality and on trade activity around signature cocktails. Smirnoff ready to drink volume declined 19%, a rate similar to the prior year.

Total Baileys volume declined 2% and net sales, after deducting excise duties, declined by 4%. Excluding Baileys Glide, Baileys volume declined 1% whilst net sales, after deducting excise duties, grew 1%. The majority of Baileys is sold in the off trade where there has been increased competition from value brands, however while volume declined, the brand maintained its value share. Baileys grew in the on trade driven by distribution gains and price increases.

Total Guinness volume declined 1% whilst net sales, after deducting excise duties, grew 1% driven by a price increase on Guinness Draught. While volume in the on trade beer market in Great Britain declined 3% as consumers shifted to consumption at home, Guinness Draught gained share in the on trade, growing volume 1% and net sales, after deducting excise duties, by 4%. Media activities were focused on quality attributes and Dublin brewed Guinness, as well as the first year of a four-year sponsorship of the rugby premiership. This helped to generate growth in the second half and increase share.

Local priority brand volume declined 2% and net sales, after deducting excise duties, fell 6%, mainly due to the decline in Archers ready to drink. Gordon’s volume grew 1% and net sales, after deducting excise duties, were up 4%. Bell’s Extra Special volume grew 2% although net sales, after deducting excise duties, were down.

Category brand volume grew 4% and net sales, after deducting excise duties, increased 2% driven by Blossom Hill, which continued to grow strongly with volume up 13%, and the launch in May 2006 of a new product, Quinn’s, an alcoholic fruit ferment blended drink, into the on and off trade.

Ireland

The performance in Ireland reflects the continuing change in market dynamics from on to off trade, high levels of competitor investment, and consumer migration to value brands. While the total beverage alcohol market grew 2%, the on trade was down 3% and the off trade was up 7%. The on trade now represents 51% of the total market.

Volume declined 3% and net sales, after deducting excise duties, were down 1%. This was due to weak performance in beer, where volumes were down 6%, partly offset by growth in wine and spirits, where volume grew 18% and 7% respectively. The impact on net sales, after deducting excise duties, of declining beer volume was partly offset by price increases.

Guinness volume declined 8% whilst net sales, after deducting excise duties, declined 3% as a result of price increases introduced in June 2005 and May 2006. Guinness was impacted by increased levels of competitor investment and the movement to the off trade where Guinness’ share is lower. In the year there was innovation on the Guinness brand with positive consumer response to the launch of the limited edition Brewhouse Series. In the second half, Guinness Mid-Strength, a lower alcohol by volume format, began consumer trials in 80 outlets.

The introduction of new packaging on Harp, new marketing executions on Carlsberg and Harp and increased distribution have helped reinvigorate both brands. As a result both Carlsberg and Harp have maintained volume year on year and net sales, after deducting excise duties, have increased 7% and 2% respectively.

Smirnoff continued to be the number one vodka in Ireland and outperformed the vodka category in both the on and off trade.

Baileys volume declined 2% and net sales, after deducting excise duties, fell 8% due to increased competition from lower value brands.

Iberia

In Iberia, volume and net sales, after deducting excise duties, both declined 3%. In Spain, spirits penetration is declining in all age groups versus other leisure categories and this has negatively impacted the Spanish business, whilst in Portugal trading conditions continued to be tough as a result of tightening consumer expenditure.

JeB faced increased pressure as the standard whisky segment in Spain continued to decline as consumers continued to switch to dark rums. Therefore, while JeB gained share in the Spanish on trade, overall Iberian volume declined 7% and net sales, after deducting excise duties, fell 10%. Marketing spend increased 3% behind JeB driven by investment in Spain.

Johnnie Walker volume declined 2%, however net sales, after deducting excise duties, were up 2% driven by the growth of Johnnie Walker Black Label, Super Deluxe and price increases throughout Iberia. Johnnie Walker Black Label and Super Deluxe combined grew volume by 4% and net sales, after deducting excise duties, by 11%. Johnnie Walker Red Label volume declined 3% despite a good performance in Spain, where it is the only standard whisky brand growing volume and share in the on trade. Total Diageo share in the standard scotch segment in Spain increased by 0.3 percentage points.

Across Iberia, Baileys volume was down 6% and net sales, after deducting excise duties, declined 5% driven by contraction in the on trade. Jose Cuervo volume grew 13% and net sales, after deducting excise duties, were up 15% due to continued consumer interest in the tequila category.

Local priority brand volume grew 5% and net sales, after deducting excise duties, were up 7%. Dark rums grew robustly in the on and off trade with Cacique volume up 6% and net sales, after deducting excise duties, up 9% as a result of repositioning the brand.

Category brand volume declined 8% and net sales, after deducting excise duties, fell 9%. Pampero volume declined 14% with net sales, after deducting excise duties, down 12% as marketing spend was focused on Cacique. In total, Diageo’s rum brands grew volume 2% and net sales, after deducting excise duties, grew 5%.

Rest of Europe

In the rest of Europe, solid performances in Italy and Central and Eastern Europe and the growth of super premium brands in Russia drove volume growth of 6% and growth in net sales, after deducting excise duties, of 4%.

Johnnie Walker Red Label volume in the rest of Europe was up 2% and net sales, after deducting excise duties, were up 1%. Johnnie Walker Black Label and Super Deluxe experienced strong growth with volume up 25% and net sales, after deducting excise duties, up 28% from key markets such as Greece, Russia and Northern Europe.

Captain Morgan delivered volume growth of 29% driven by Northern Europe and Russia with net sales, after deducting excise duties, up 23%.

JeB performed well in France, its second largest market, with volume up 9% benefiting from effective on trade advertising and promotion. Baileys enjoyed strong sales in France and Italy.

Ready to drink volume in the rest of Europe declined by 27%, as a result of the continued decline in the segment in France.

Russia continued its momentum with robust volume growth of 25% and net sales, after deducting excise duties, up 26% driven by Johnnie Walker, as the trend towards premium products in Russia continued. Johnnie Walker is the number one scotch in Russia and Baileys holds the same position in the imported liqueur category.

Diageo has announced the acquisition of the Smirnov brand in Russia through a company in which Diageo holds a 75% stake. This company will unite the Smirnoff/Smirnov brands under common ownership and will be the exclusive distributor of Diageo spirits brands and the Smirnov vodka brand in Russia.

International

Summary:

•

Strong performance across all regions as investment accelerated growth

•

Innovation has improved competitive positions in key categories across the region

•

Performance in Nigeria, Korea and Taiwan has been turned around

										Reported				Organic
		2006				2005				movement				movement
		£ million				£ million				%				%
Volume											14				14
Net sales after deducting excise duties			2,219				1,922				15				13
Marketing			354				269				32				28
Operating profit before exceptional items			644				615				5				9

Reported performance:

Net sales, after deducting excise duties, were £2,219 million in the year ended 30 June 2006, up by £297 million from £1,922 million in the prior year. Operating profit before exceptional items increased by £29 million to £644 million in the year ended 30 June 2006.

Organic performance:

Net sales, after deducting excise duties, increased by £31 million as a result of exchange rate impacts. Acquisitions added net sales, after deducting excise duties, of £9 million and there was an organic increase in net sales, after deducting excise duties, of £252 million. Transfers between business segments increased prior year net sales, after deducting excise duties, by £5 million. Operating profit before exceptional items increased by £29 million despite unfavourable exchange rate movements of £23 million. Acquisitions increased operating profit before exceptional items by £1 million and organic growth of £54 million was achieved. Transfers between business segments reduced prior year operating profit before exceptional items by £3 million.

		Reported				Organic				Reported				Organic
		volume				volume				net sales*				net sales*
		movement				movement				movement				movement
		%				%				%				%
Global priority brands			11				11				14				13
Local priority brands			4				4				12				5
Category brands			24				22				20				18
Total			14				14				15				13
Smirnoff vodka							9				14				13
Smirnoff ready to drink							41				47				44
Johnnie Walker							16				13				16
Baileys							11				8				6
Guinness							(2	)			7				3
Buchanan’s							20				15				21
Windsor							12				23				9

Good economic conditions in many markets, further investment in the brands and the organisation and a focus on market place execution have resulted in the International business growing strongly in all regions. Growth has been driven by the global priority brands, with Johnnie Walker in particular experiencing strong growth on the back of upweighted investment. This investment has been focused around the sponsorship of Team McLaren Mercedes Formula One, which has been particularly successful in driving growth of Johnnie Walker Black Label and Super Deluxe variants, where net sales, after deducting excise duties, grew 17%. The sponsorship has also provided a strong platform for Diageo’s responsible drinking programmes.

Smirnoff vodka grew net sales, after deducting excise duties, by 13% with particularly strong growth in India and Brazil. Smirnoff ready to drink volume grew over 40%. This performance has been delivered through strengthened distribution and sales execution and advertising campaigns on Smirnoff Ice in Brazil and Australia, as well as the launch of Smirnoff Ice in Venezuela and Smirnoff Storm in South Africa.

Baileys grew volume by 11% driven by growth in Global Duty Free and Japan. Promotional activity in Global Duty Free and the decline of Baileys Glide in Australia have, however, resulted in adverse mix with net sales, after deducting excise duties, growing by 6%.

Guinness volume declined 2% whilst net sales, after deducting excise duties, were up 3%. Performance was held back as a result of a decline in Cameroon, although this was partly offset by strong performances in Nigeria and Ghana where price increases accelerated the growth of net sales, after deducting excise duties, ahead of volume. South East Asia and Japan also experienced good growth.

Local priority brand performance was led by the growth of Buchanan’s in Venezuela, and the return to growth of Windsor in Korea, driven in particular by new packaging on the 12 and 17 year-old variants. Growth of Bundaberg in Australia and Bell’s in South Africa were offset by declines in Dimple in Korea, and Tusker and Pilsner in Kenya.

The growth of the scotch category across the region has been the main driver of the growth in category brands. Investment behind Diageo’s scotch brands has enabled the International region to capitalise on market opportunities. Amongst the successes was Old Parr, which grew significantly across Latin America with volume and net sales, after deducting excise duties, up nearly 60%. The newly launched whisky brands, continued to perform strongly in Thailand and the successful relaunch of Harp in Nigeria also contributed to the overall growth in category brands.

Ready to drink grew volume by 22% and net sales, after deducting excise duties, by 21%. This was led by the growth of Smirnoff throughout International and Bundaberg and Johnnie Walker in Australia.

Asia Pacific

Increased marketing investment, growing markets in India and China, share gains in Korea and Thailand and continued growth in ready to drink in Australia led to volume up 15%, and net sales, after deducting excise duties, up 11% in Asia Pacific.

In Australia, ready to drink has driven growth of 6% in net sales, after deducting excise duties, with Smirnoff, Johnnie Walker and Bundaberg all showing good growth. Smirnoff ready to drink delivered share gains of 3.4 percentage points, boosted by the successful launch of Smirnoff Twist ready to drink. In spirits, whilst Baileys has declined in volume and lost share, Johnnie Walker Red Label, Johnnie Walker Black Label, Bundaberg and Smirnoff have all gained share in a spirits market that was up 6% in the year.

In Korea, the trading environment for spirits has stabilised as a result of improved economic conditions, however Diageo’s strong performance was the result of gaining share, most notably on Windsor. The brand has been revitalised with new packaging and the introduction of a 21-year-old variant and net sales, after deducting excise duties, grew 9%. Johnnie Walker volume grew 36% and net sales, after deducting excise duties, grew 52%. Johnnie Walker Super Deluxe grew volume 58% and net sales, after deducting excise duties, by 82%, albeit off a small base, as it gained from the new focus on modern on trade outlets and marketing activities to build brand equity. Dimple volume declined by 22% in the year, as renovations on the brand failed to turn around performance.

In Japan, volume grew 3% and net sales, after deducting excise duties, grew by 1%. Strong performances from Baileys, which grew volume by 65% and Guinness, up 14%, offset a 45% volume decline in Smirnoff ready to drink as a result of a temporary withdrawal in the first half. The brand performed well following the relaunch in the second half.

In Thailand, Diageo clearly outperformed the market and the competition, with growth in each of its brands despite the decline in the imported whisky segment. Benmore and Golden Knight together account for over 450,000 cases and have made significant share gains in the standard and economy whisky segments respectively, although this strong growth has resulted in an adverse mix. Johnnie Walker recorded volume growth of 32% and growth in net sales, after deducting excise duties, of 20% driven by Johnnie Walker Red Label.

Performance in Taiwan improved as volume and net sales, after deducting excise duties, both grew 11%. Johnnie Walker Green Label in particular has performed well, benefiting from a new campaign and a market where malt whisky is growing strongly.

Performance in China has continued strongly with volume up 57% and net sales, after deducting excise duties, up 81%, albeit from a small base. Johnnie Walker Black Label represents a significant proportion of Diageo’s business in China, and has driven this growth with volume up 89% and net sales, after deducting excise duties, up 124%, supported by a significant upweight in investment. This investment included activities surrounding the sponsorship of Team McLaren Mercedes Formula One at the Shanghai Grand Prix, as well as three new local advertising executions.

The Indian business benefited from activities surrounding Johnnie Walker’s sponsorship of the cricket Super Series in Australia, and the Smirnoff “Life is Calling” campaign. Volume grew 29% and net sales, after deducting excise duties, grew 37%. While there is increasing evidence of consumers upgrading to premium and branded products, competitive activity is becoming more intense, with evidence of increased consolidation in the sector, and an increasing number of new brand launches.

Africa

Africa delivered volume growth of 10% and growth in net sales, after deducting excise duties, of 9%. This was the result of strong performances in Nigeria and South Africa, offset by a decline in Cameroon.

In Nigeria volume grew 20% and net sales, after deducting excise duties, grew 13%. Harp was relaunched in 2005 and as a result share has increased by 3.7 percentage points. This growth has, however, led to adverse mix. Guinness delivered volume growth of 4% and net sales, after deducting excise duties, grew 9% as a result of a price increase in October 2004.

In East Africa, difficult economic conditions due to drought and rising fuel prices together with a duty increase, saw consumers trade down to lower value brands. Volume grew 20% and net sales, after deducting excise duties, grew 11% with Senator, a low priced beer introduced in 2005, having performed well.

South Africa saw significant mix improvement as volume grew 6% and net sales, after deducting excise duties, grew 19%. This mix improvement was the result of a strong performance by Diageo’s scotch brands as Johnnie Walker volume increased by 36% and Bell’s grew volume by 15%. The switch in consumer preference towards dark spirits resulted in Smirnoff vodka volume declining by 7%, although Smirnoff ready to drink grew by 48%, driven by the launch of Smirnoff Storm.

In Ghana, volume grew 6% whilst price increases and a change in invoicing arrangements agreed with the authorities following the acquisition of Ghana Breweries Ltd, led net sales, after deducting excise duties, to grow by 17%. Guinness volume for the year was flat with net sales, after deducting excise duties, up 13%. Volume of Malta increased by 13% as it continued to enjoy an advantaged price position over its competitive set.

Trading in Cameroon was heavily impacted by aggressive promotional activity by a competitor. As a result, Guinness volumes were down 37% and net sales, after deducting excise duties, were down by 35%.

Latin America and Caribbean

Diageo has continued to invest behind brand building programmes, improvements in customer relationships and sales execution to capitalise on the growth in consumer demand from buoyant economies across Latin America. Volume grew by 17% and net sales, after deducting excise duties, by 21%.

In the Brazilian hub, which includes Paraguay and Uruguay, growth was driven by scotch and ready to drink. Johnnie Walker grew net sales, after deducting excise duties, by 40%. In Brazil, Johnnie Walker benefited from investment both above and below the line as Johnnie Walker Red Label share grew 3.4 percentage points and Johnnie Walker Black Label delivered share gains of 1.8 percentage points. Smirnoff ready to drink grew net sales, after deducting excise duties, over 100% as the continued success of Smirnoff Ice has extended Smirnoff’s leadership in the buoyant ready to drink segment.

Volume grew 23% and net sales, after deducting excise duties, grew 36% in Venezuela, as strong economic fundamentals have translated into increased consumer demand across all sectors. Diageo leads the super deluxe, deluxe and standard scotch segments. Johnnie Walker Red Label performed strongly with volume and net sales, after deducting excise duties, up 25% and Buchanan’s delivered growth in net sales, after deducting excise duties, of 40%. A new campaign for Smirnoff Ice has driven significant growth in volume and net sales, after deducting excise duties, albeit off a small base.

In Mexico, volume grew 55% and net sales, after deducting excise duties, grew 41%. As a result Diageo gained 4.9 percentage points of share in the scotch category. Johnnie Walker Red Label grew volume 32% and Buchanan’s volume increased 51% as a result of strengthened customer relationships, sustained brand building investment and a particular focus on the on trade.

Global Duty Free

The focus on sales execution and innovation within Global Duty Free has driven strong volume growth of 16% and growth in net sales, after deducting excise duties, of 18%. Packaging innovation such as the Johnnie Walker Blue Label Magnum and marketing activity around the sponsorship of Team McLaren Mercedes Formula One has led to a 21% growth in net sales, after deducting excise duties, for Johnnie Walker. Baileys delivered growth of 29% in net sales, after deducting excise duties, as major sampling activities were carried out in Europe and Asia associated with the launch of the new flavour innovations.

Corporate revenue and costs

Reported Performance:

Net sales, after deducting excise duties, were £76 million in the year ended 30 June 2006, up by £14 million from £62 million in the prior year. Net operating costs before exceptional items increased by £2 million to £166 million in the year ended 30 June 2006.

Organic Performance:

Transfers between business segments increased prior year net sales, after deducting excise duties, by £15 million, and there was an organic decrease in net sales, after deducting excise duties, of £1 million. Net corporate operating costs before exceptional items decreased by £6 million as a result of transfers between business segments and there was a decrease of £1 million as a result of foreign exchange impacts. An organic increase of £9 million in corporate net operating costs, before exceptional items, was driven mainly by an increase in investment behind innovation.

FINANCIAL REVIEW

Condensed consolidated income statement

		Year ended 30 June 2006												Year ended 30 June 2005
		Before												Before
		exceptional				Exceptional								exceptional				Exceptional
		items				items				Total				items				items				Total
		£ million				£ million				£ million				£ million				£ million				£ million
Sales			9,704				—				9,704				8,968				—				8,968
Excise duties			(2,444	)			—				(2,444	)			(2,291	)			—				(2,291	)
Net sales			7,260				—				7,260				6,677				—				6,677
Operating costs			(5,216	)			—				(5,216	)			(4,745	)			(201	)			(4,946	)
Operating profit			2,044				—				2,044				1,932				(201	)			1,731
Disposal of investments/ businesses							157				157								214				214
Net finance charges			(186	)			—				(186	)			(141	)			—				(141	)
Associates’ profits			131				—				131				121				—				121
Profit before taxation			1,989				157				2,146				1,912				13				1,925
Taxation			(496	)			315				(181	)			(677	)			78				(599	)
Profit from continuing operations			1,493				472				1,965				1,235				91				1,326
Profit after tax from disposal of businesses							—				—								73				73
Profit for the year			1,493				472				1,965				1,235				164				1,399
Attributable to:
Equity shareholders			1,436				472				1,908				1,180				164				1,344
Minority interests			57				—				57				55				—				55
			1,493				472				1,965				1,235				164				1,399

Adoption of IFRS

The financial statements for the year ended 30 June 2006 have been prepared in accordance with International Financial Reporting Standards as endorsed and adopted for use in the European Union (IFRS). The results for the comparative year ended 30 June 2005 are also presented in accordance with IFRS. For further information related to the conversion to IFRS please see note 1 ‘Basis of preparation’ and note 12 ‘Explanation of transition to IFRS’.

Sales and net sales after deducting excise duties

On a reported basis, sales increased by £736 million (8%) from £8,968 million in the year ended 30 June 2005 to £9,704 million in the year ended 30 June 2006. On a reported basis, net sales, after deducting excise duties, increased by £583 million (9%) from £6,677 million in the year ended 30 June 2005 to £7,260 million in the year ended 30 June 2006. Acquisitions and disposals contributed a net increase to reported sales and net sales, after deducting excise duties, of £46 million and £27 million respectively in the year and foreign exchange rate movements also beneficially impacted reported sales by £186 million and reported net sales, after deducting excise duties, by £140 million, principally arising from strengthening of the US dollar.

Operating costs

On a reported basis operating costs before exceptional items increased by £471 million principally due to an increase in cost of goods sold of £318 million and an increase in marketing costs of 11% from £1,013 million to £1,127 million. Overall, the impact of exchange rate movements increased total operating costs before exceptional items by £165 million. There were no exceptional operating costs in the year (2005 — £201 million).

In the prior year exceptional operating costs comprised £149 million in respect of contributions to be made to the Thalidomide Trust, £29 million of accelerated depreciation and £30 million of Seagram integration costs less £7 million in respect of the disposal of property, plant and equipment. On a reported basis, operating costs increased by £270 million (5%) from £4,946 million in the year ended 30 June 2005 to £5,216 million in the year ended 30 June 2006.

Post employment plans

Post employment costs for the year ended 30 June 2006 of £87 million (2005 — £80 million) comprised amounts charged to operating profit of £106 million (2005 — £89 million) and finance income of £19 million (2005 — £9 million). At 30 June 2006, Diageo’s deficit before taxation for all post employment plans was £801 million (2005 — £1,294 million).

Operating profit

Operating profit before exceptional items for the year increased by £112 million to £2,044 million from £1,932 million in the prior year. Exchange rate movements reduced operating profit before exceptional items for the year ended 30 June 2006 by £25 million. There were no exceptional operating charges in the year ended 30 June 2006, compared to costs in respect of the year ended 30 June 2005 of £201 million.

Non-operating exceptional items

Non-operating exceptional items before taxation were a gain of £157 million in the year ended 30 June 2006 compared with a gain of £214 million in the year ended 30 June 2005. The gain in the year to 30 June 2006 represents a gain of £151 million on sale of the group’s remaining 25 million shares of common stock of General Mills and a gain on sale of other businesses of £6 million. In the year ended 30 June 2005 non-operating exceptional items included a gain of £221 million on the disposal of 54 million shares of common stock of General Mills and a net charge of £7 million in respect of the disposal of other businesses.

Net finance charges

Net finance charges increased by £45 million from £141 million in the year ended 30 June 2005 to £186 million in the year ended 30 June 2006.

The net interest charge increased by £43 million from £150 million in the prior year to £193 million in the year ended 30 June 2006; £23 million of this increase resulted from higher debt and higher interest rates year on year, £13 million resulted from the loss of interest income on the Burger King subordinated debt repaid in July 2005 and £10 million from the termination of certain financing arrangements. In addition, the interest charge increased by £6 million as a result of exchange rate movements. Partly offsetting these increases, net interest also includes an interest credit of £9 million related to derivative instruments arising on the application of IAS 39 - Financial instruments: recognition and measurement.

Other net finance income of £7 million (2005 — income of £9 million) included income in respect of the group’s post employment plans of £19 million (2005 — income of £9 million) which year on year improvement principally results from lower interest costs in the pension plans from the unwinding of discounted liabilities. In addition, other net finance charges include a charge of £15 million (2005 — £7 million) in respect of the unwinding of discounted liabilities, a £2 million charge (2005 — charge of £8 million) in respect of foreign exchange translation differences on inter-company funding arrangements that do not meet the accounting criteria for recognition in equity and investment income of £5 million (2005 — £17 million) in respect of dividends on General Mills shares.

Associates

The group’s share of profits of associates after interest and tax was £131 million for the year compared to £121 million last year. Diageo’s 34% equity interest in Moët Hennessy contributed £122 million to share of profits of associates after interest and tax (2005 — £113 million).

Profit before taxation

After exceptional items, profit before taxation increased by £221 million from £1,925 million to £2,146 million in the year ended 30 June 2006.

Taxation

The effective tax rate before exceptional items for the year ended 30 June 2006 is 24.9% compared with 35.4% for the year ended 30 June 2005. The higher effective tax rate in the year ended 30 June 2005 mainly resulted from the reduction in the carrying value of deferred tax assets following a change in tax rate in the relevant territory.

The effective tax rate for continuing operations for the year ended 30 June 2006 after exceptional items is 8.4% compared with 31.1% for the year ended 30 June 2005. The effective tax rate in the current year has been reduced following the agreement of certain brand values with fiscal authorities that resulted in recognising an increase in the group’s deferred tax assets of £313 million. This amount has been accounted for as exceptional income. The profit arising on the sale of General Mills shares in the year and the comparative year is not subject to tax.

Profits after tax from disposal of businesses

Profits after tax from the disposal of businesses in the prior year of £73 million are in respect of the release of provisions established on the disposal of Burger King and Pillsbury.

Exchange rates

Diageo does not hedge the translation of its foreign currency results into sterling. Transactional foreign exchange rate risk is hedged for those currencies in which there is an active market. The group seeks to hedge between 80% and 100% of forecast transactional exchange rate risk, for up to a maximum of 21 months forward, using forward currency exchange contracts. The gain or loss on the hedge is recognised in equity to the extent the hedge is effective and subsequently recognised in the income statement at the same time as the underlying hedged transaction effects the income statement.

Effect of exchange rate movements on the results for the year ended 30 June 2006 as compared with the results for the year ended 30 June 2005:

		Year ended
		30 June 2006
		Gains/(losses)
		£ million
Operating profit before exceptional items
Translation impact			46
Transaction impact			(71	)
			(25	)
Interest and other finance charges
Translation impact			(6	)
Net exchange movements on short term inter-company loans			6
Total FX effect on profit before exceptional items and taxation			(25	)

		Year ended				Year ended
		30 June 2006				30 June 2005
Exchange rates
Translation US$/£ rate			1.78				1.86
Translation €/£ rate			1.46				1.46
Transaction US$/£ rate			1.81				1.72
Transaction €/£ rate			1.45				1.48

The strengthening of the US dollar had a positive translation effect on operating profit and an adverse impact on US dollar denominated interest payments. The negative transaction impact was mainly driven by the move in the transaction US$ exchange rate from £1 = $1.72 to £1 = $1.81.

Outlook for the impact of exchange rate movements

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 £75 million on operating profit and a positive impact of between £5 million to £10 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 taxation by approximately £3 million respectively.

Dividend

The directors recommend a final dividend of 19.15 pence per share, an increase of 5% on last year’s final dividend. The full dividend would therefore be 31.1 pence per share, an increase of 5% from the year ended 30 June 2005. Subject to approval by shareholders, the final dividend will be paid on 23 October 2006 to shareholders on the register on 15 September 2006. Payment to ADR holders will be made on 27 October 2006. A dividend reinvestment plan is available in respect of the final dividend and the plan notice date is 2 October 2006.

Cash flow

Extract from the consolidated cash flow statement

		Year ended				Year ended
		30 June 2006				30 June 2005
		£ million				£ million
Cash generated from operations			2,199				2,273
Interest paid (net)			(171	)			(179	)
Dividends paid to equity minority interests			(40	)			(49	)
Tax paid			(393	)			(320	)
Net sale/(purchase) of investments			7				(6	)
Net capital expenditure			(241	)			(276	)
Free cash flow			1,361				1,443

Cash generated from operations decreased by £74 million to £2,199 million in the year ended 30 June 2006. There was an increase in profit after tax in the year of £566 million to £1,965 million at 30 June 2006 which was offset by the year-on-year impact of working capital movements on the cash flow of £281 million (an outflow of £192 million in the year ended 30 June 2006 and an inflow of £89 million in the prior year). Of this movement in year-on-year working capital, £179 million reflects the presentation of exceptional non-cash charges within working capital movements in the prior year following the implementation of IFRS, thus operating working capital impact on cash flow was £102 million. The decrease in cash generated from operations was partially offset by reduced interest payments (down £8 million to £171 million) and reduced capital expenditure (down £35 million to £241 million). However increased tax payments (up £73 million to £393 million) contributed to an overall decrease in free cash flow of £82 million to £1,361 million from £1,443 million in the prior year.

In the year ended 30 June 2006, the group generated proceeds from the disposal of shares of General Mills of £651 million (2005 — £1,210 million) and issued new share capital under employee share schemes generating proceeds of £3 million (2005 — £6 million). These inflows were mainly offset by payments of £1,428 million to repurchase shares to be held as treasury shares, the payment of £209 million to acquire Bushmills Irish Whiskey in August 2005 and £864 million equity dividends paid. Diageo’s stance on capital structure is unchanged: it continues to target a range of ratios that are currently broadly consistent with an A band credit rating. Diageo expects to continue the share repurchase programme at broadly the current level in the next financial year.

Balance sheet

At 30 June 2006, total equity was £4,681 million compared with £4,626 million at 30 June 2005. This increase was mainly due to the profit for the year of £1,965 million and an actuarial gain on the group’s post employment plans (net of tax) of £374 million offset by the dividends paid out of shareholders’ equity of £864 million and shares repurchased of £1,428 million.

Net borrowings were £4,082 million at 30 June 2006, an increase of £379 million from 1 July 2005 net borrowings of £3,703 million. The principal components of this increase are summarised above.

Economic profit

Economic profit increased by £101 million from £463 million in the year ended 30 June 2005 to £564 million in the year ended 30 June 2006. See page 38 for calculation and definition of economic profit.

DIAGEO CONSOLIDATED INCOME STATEMENT

						Year ended 30 June 2006												Year ended 30 June 2005
						Before												Before
						exceptional				Exceptional								exceptional				Exceptional
						items				items				Total				items				items				Total
		Notes				£ million				£ million				£ million				£ million				£ million				£ million
Sales			2				9,704				—				9,704				8,968				—				8,968
Excise duties							(2,444	)			—				(2,444	)			(2,291	)			—				(2,291	)
Net sales							7,260				—				7,260				6,677				—				6,677
Cost of sales			4				(2,921	)			—				(2,921	)			(2,603	)			(29	)			(2,632	)
Gross profit							4,339				—				4,339				4,074				(29	)			4,045
Marketing							(1,127	)			—				(1,127	)			(1,013	)			—				(1,013	)
Other operating expenses			4				(1,168	)			—				(1,168	)			(1,129	)			(172	)			(1,301	)
Operating profit			2				2,044				—				2,044				1,932				(201	)			1,731
Sale of General Mills shares			4								151				151								221				221
Sale of other businesses			4								6				6								(7	)			(7	)
Net interest			3				(193	)			—				(193	)			(150	)			—				(150	)
Other net finance income			3				7				—				7				9				—				9
Share of associates’ profits after tax							131				—				131				121				—				121
Profit before taxation							1,989				157				2,146				1,912				13				1,925
Taxation			5				(496	)			315				(181	)			(677	)			78				(599	)
Profit from continuing operations							1,493				472				1,965				1,235				91				1,326
Discontinued operations
Profit after tax from disposal of businesses											—				—								73				73
Profit for the year							1,493				472				1,965				1,235				164				1,399
Attributable to:
Equity shareholders							1,436				472				1,908				1,180				164				1,344
Minority interests							57				—				57				55				—				55
							1,493				472				1,965				1,235				164				1,399
Basic earnings per share
Continuing operations															67.2	p											42.8	p
Discontinued operations															—												2.4	p
															67.2	p											45.2	p
Diluted earnings per share
Continuing operations															66.9	p											42.8	p
Discontinued operations															—												2.4	p
															66.9	p											45.2	p
Average shares															2,841	m											2,972	m

DIAGEO CONSOLIDATED STATEMENT OF
RECOGNISED INCOME AND EXPENSE

		Year ended								Year ended
		30 June 2006								30 June 2005
		£ million				£ million				£ million				£ million
Exchange differences on translation of foreign operations
- group			24								95
- associates			22								21
Exchange differences on hedge of net investment in foreign operations			(21	)
Effective portion of changes in fair value of net investment hedges			(49	)
Effective portion of changes in fair value of foreign exchange cash flow hedges
- gains taken to equity			38
- transferred to other operating expenses for the year			11
Effective portion of changes in fair value of interest rate cash flow hedges
- gains taken to equity			1
- transferred to interest receivable/payable for the year			(7	)
Fair value movement on available for sale securities
- unrealised gains arising during the year (including exchange)			33
- realised gains reclassified to profit for the year			(181	)
Actuarial gains/(losses) on post employment plans			459								(238	)
Tax on items taken directly to equity			(97	)							33
Net income/(expense) recognised directly in equity							233								(89	)
Profit for the year
- group			1,834								1,278
- associates			131								121
Profit for the year							1,965								1,399
Total recognised income and expense for the year							2,198								1,310
Impact of IAS 39 adoption on 1 July 2005 (net of tax)
- group			170
- associates			(6	)
Impact of adoption of IAS39							164
							2,362
Attributable to:
Equity shareholders of the parent company							2,146								1,250
Minority interests							52								60
Total recognised income and expense for the year							2,198								1,310

DIAGEO CONSOLIDATED BALANCE SHEET

		30 June 2006								30 June 2005
		£ million				£ million				£ million				£ million
Non-current assets
Intangible assets			4,534								4,409
Property, plant and equipment			1,952								1,919
Biological assets			13								14
Investments in associates			1,341								1,261
Other investments			69								719
Other receivables			12								44
Other financial assets			42								32
Deferred tax assets			1,113								778
Post employment benefit assets			14								12
							9,090								9,188
Current assets
Inventories (note 8)			2,386								2,347
Trade and other receivables			1,681								1,569
Cash and cash equivalents			699								787
Other financial assets			71								30
							4,837								4,733
Total assets							13,927								13,921
Current liabilities
Borrowings and bank overdrafts			(759	)							(869	)
Trade and other payables			(1,803	)							(1,872	)
Other financial liabilities			(36	)							—
Corporate tax payable			(681	)							(777	)
Provisions			(56	)							(88	)
							(3,335	)							(3,606	)
Non-current liabilities
Borrowings			(4,001	)							(3,677	)
Other payables			(37	)							(95	)
Other financial liabilities			(78	)							(9	)
Provisions			(306	)							(304	)
Deferred tax liabilities			(674	)							(298	)
Post employment benefit liabilities			(815	)							(1,306	)
							(5,911	)							(5,689	)
Total liabilities							(9,246	)							(9,295	)
Net assets							4,681								4,626
Equity
Called up share capital			883								883
Share premium			1,340								1,337
Other reserves			3,168								3,181
Retained deficit			(889	)							(942	)
Equity attributable to equity shareholders of the parent company							4,502								4,459
Minority interests							179								167
Total equity (note 7)							4,681								4,626