DGE Diageo Plc

RNS Number:0811D
Diageo PLC
29 October 2002



                                                                 29 October 2002


                             Diageo Trading Update


Major markets


In North America, the premium spirits category remains healthy, and Diageo's
global priority brands continue to perform well. The 'next generation growth'
strategy has led to new distribution arrangements in 19 states in the United
States. While there has been some initial disruption to shipments as a
consequence of this move, this now seems to be coming to an end.


The ready to drink category in the US is highly competitive. Smirnoff Ice
continues to lead this category by a clear margin, and Diageo is building brand
awareness and loyalty for the product and its parent brand. In order to ensure
focus on the next ready to drink offerings, Diageo has decided to withdraw
Captain Morgan Gold from distributors. As announced at the preliminary results,
Diageo has been disappointed with the performance of this product. There will be
an additional charge of approximately #18 million in the current financial year
relating to stock held by distributors.


In Great Britain, growth in the global priority brands continues to drive
overall performance. Diageo's ready to drink products are performing relatively
well in a category that has been hit by an increase in excise duty. Diageo has
remained competitive on price across its collection of ready to drink products,
a collection that is now enhanced following the successful launch of Smirnoff
Black Ice.


In Ireland, Guinness is now growing share in the ROI draught beer and cider
category after a period of decline, although beer sales in this market are still
weak. The successful introduction of Smirnoff Ice on Draught has resulted in
volume growth and good share gains for Diageo in the ready to drink category.


The slowdown in the Spanish economy has impacted sales in that country. Volume
in the scotch whisky category has declined, although J&B has made a small share
gain. Overall, Diageo's relative performance in premium drinks here has
benefited from the very strong growth of the dark rum category led by Diageo's
brands, Cacique (ex-Seagram) and Pampero.




Key markets


As anticipated, the overall performance of the key markets has been adversely
impacted by continued social and political unrest and economic difficulties in
Latin America. The economic climate in Brazil and Venezuela has worsened since
the beginning of the current financial year and at the end of the first quarter
operating profit in Latin American key markets was down approximately #15
million against the prior period. Diageo has faced economic pressures of this
nature before and is using the expertise already built to mitigate its exposure.
Diageo continues to focus on long-term brand building to protect its future and
to grow share for its brands.


At the preliminary results, Diageo announced that in Korea its local priority
brand Dimple, currently distributed by a third party, will be distributed
through its own in-market company from January 2003. Diageo has not shipped any
Dimple to the current distributor in the first quarter of this year, and little
volume is expected to be recorded in the first half of the current financial
year. Sales to consumers have of course continued albeit with some loss of
market share.


Venture markets


The overall performance of venture markets continues to be in line with
expectations. Diageo's venture model is flexible and geographically
wide-ranging, with weakness in one part of the world often offset by strength in
another. Germany in particular is benefiting from the launch of Smirnoff Ice and
a new rum product is leading to improvements in the Philippines.


Ready to drink


Total ready to drink performance on a global basis is strong, with double-digit
volume growth in the first quarter of the current financial year.


Marketing investment


Diageo is in the privileged position of being able to continue to support its
brands with high levels of marketing investment. This investment ensures the
health of Diageo's brands and supports their premium position during this period
of challenging economic circumstances.






Seagram spirits and wine acquisition


Diageo acquired several new priority brands with the acquisition of the Seagram
spirits and wine business. The performance of these brands has been strong,
particularly that of Captain Morgan and Cacique. Overall, the acquisition
continues to exceed expectations and current year operating profit will be ahead
of projections made at the time of the preliminary results despite the
incremental cost relating to the withdrawal of Captain Morgan Gold.
Additionally, by enhancing brand positions in the United States, the Seagram
acquisition has allowed the implementation of the 'next generation growth'
strategy through which we will make the transition to a network of dedicated
sales teams within the US distribution system.


Burger King


The operating environment for the quick service restaurant industry has worsened
over the last three months, with aggressive price discounting. However, Diageo
is continuing to work with the buying group, led by Texas Pacific Group, towards
concluding the sale of this business.


Post employment benefits


As a result of the continued decline in the equity markets Diageo's net deficit
before taxation under FRS 17 has increased from #366 million at 30 June 2002 to
approximately #950 million. In the current financial year Diageo will not
benefit from approximately #30 million of pension credit included in the
reported results for the last financial year.


Cash flow


Cash flow will benefit from the receipt of $89 million from the sale of options
to General Mills over 29 million shares Diageo holds in that company and
approximately $100 million in compensation from Interbrew for the transfer back
to them of the US distribution rights for the Bass brand.


Summary


At Diageo's Annual General Meeting today, Paul Walsh, Diageo's Chief Executive,
will make the following comments on the company's trading outlook:


"Since our preliminary results announcement, trading conditions have become more
difficult but Diageo continues to be well placed to deliver superior levels of
growth in premium drinks and value for its shareholders.


"As we indicated in our preliminary results announcement, we expect our
performance to be better in the second half than in the first half of the
current financial year because of factors such as the phasing of our marketing
expenditures and the first time inclusion of the Seagram business into our
organic results in the second half.


"Today, given world events and the more difficult world economic environment,
current year targets do look increasingly challenging. However, we believe that
in Diageo we have a premium drinks model that works and we continue to grow
market share around the world, thereby positioning us strongly for improved
economic conditions when they occur".


Annual General Meeting


Diageo is holding its Annual General Meeting at 2.30pm at the Queen Elizabeth II
Conference Centre in London.



For further information:

Investors enquiries     Catherine James          +00 44 (0) 20 7927 5272

Investor.rel@diageo.com

Media enquiries to      Isabelle Thomas          +00 44 (0) 20 7927 5967

Media@diageo.com




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