9913 2004 Cover Outer

Diageo Annual Report 2004 Annual Report 2004 Diageo plc 8 Henrietta Place London W1G 0NB United Kingdom Tel +44 (0) 20 7927 5200 Fax +44 (0) 20 7927 4600 www.diageo.com Registered in England No. 23307 Diageo is... © 2004 Diageo plc.All rights reserved. All brands mentioned in this Annual Report are trademarks and are registered and/or otherwise protected in accordance with applicable law. delivering results 165 Diageo Annual Report 2004 Contents Glossary of terms and US equivalents 1Highlights 63 Directors and senior management In this document the following words and expressions shall, unless the context otherwise requires, have the following meanings: 2Chairman’s statement 66 Directors’ remuneration report 3Chief executive’s review 77 Corporate governance report Term used in UK annual report US equivalent or definition Acquisition accounting Purchase accounting 5Five year information 83 Directors’ report Associates Entities accounted for under the equity method American Depositary Receipt (ADR) Receipt evidencing ownership of an ADS 10 Business description 84 Consolidated financial statements American Depositary Share (ADS) Registered negotiable security, listed on the New York Stock Exchange, representing four Diageo plc ordinary shares of 28101⁄108 pence each 10 – Overview 85 – Independent auditor’s report to Called up share capital Common stock 10 – Strategy the members of Diageo plc Capital allowances Tax depreciation 10 – Premium drinks 86 – Consolidated profit and loss account Capital redemption reserve Other additional capital 18 – Other businesses 88 – Consolidated balance sheet Company Diageo plc Creditors Accounts payable and accrued liabilities 19 – Discontinued operations 89 – Consolidated cash flow statement Debtors Receivables 19 – Risk factors 89 – Movements in net borrowings Employee share schemes Employee stock benefit plans 22 – Cautionary statement concerning 90 – Consolidated statement of total recognised Employment or staff costs Payroll costs Equivalent units An equivalent unit represents one nine litre case of spirits, which is approximately 272 servings. forward-looking statements gains and losses A serving comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or beer. To convert 90 – Note of consolidated historical cost volume of products other than spirits to equivalent units: beer in hectolitres divide by 0.9, wine in 23 Operating and financial review profits and losses nine litre cases divide by five and ready to drink in nine litre cases divide by 10. u 23 – Introduction 91 – Accounting policies Euro, Euro currency Exceptional items Items that, in management’s judgement, need to be disclosed separately by virtue of their size or 24 – Operating results – 2004 compared with 2003 93 – Notes to the consolidated financial incidence. Exceptional items under UK GAAP do not represent extraordinary items under US 38 – Operating results – 2003 compared with 2002 statements GAAP 51 – Trend information 151 – Company balance sheet Excise duty Tax charged by a sovereign territory on the production, manufacture, sale or distribution of selected goods (including imported goods) within that territory. Excise duties are generally based 51 – Liquidity and capital resources 152 – Notes to the company balance sheet on the quantity or alcohol content of goods, rather than their value and are typically applied to 54 – Contractual obligations 154 – Principal group companies alcohol products and fuels. 55 – Off-balance sheet arrangements Finance lease Capital lease Financial year Fiscal year 55 – Risk management 155 Additional information for shareholders Fixed asset investments Non-current investments 56 – Sensitivity analysis 155 – Legal proceedings Free cash flow Net cash flow arising from operating activities, dividends received from associates, returns on 57 – Critical UK GAAP accounting policies 155 – Material contracts investments and servicing of finance, taxation, and capital expenditure and financial investment 58 – New accounting standards 156 – Related party transactions Freehold Ownership with absolute rights in perpetuity GAAP Generally accepted accounting principles 60 – Conversion to International Financial 157 – Share capital GrandMet Grand Metropolitan Public Limited Company and its consolidated subsidiaries Reporting Standards 159 – Memorandum and articles of association GrandMet PLC Grand Metropolitan Public Limited Company 60 – Discussion of US GAAP differences 161 – Exchange controls Group and Diageo Diageo plc and its consolidated subsidiaries Guinness Group Former Guinness PLC and its consolidated subsidiaries 161 – Documents on display Impact An international drinks magazine that is independent from industry participants 162 – Taxation Merger Merger of Grand Metropolitan Public Limited Company and Guinness PLC, effective 17 December 1997 165 Glossary of terms and US equivalents Merger accounting Pooling of interests Net asset value Book value Net sales (after deducting excise duties) Turnover less excise duties Noon buying rate Buying rate at noon in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York Operating profit Net operating income Operating margin Operating profit before exceptional items divided by turnover Organic movement At level exchange and after adjusting for acquisitions and disposals for continuing operations Own shares Treasury stock Pillsbury The Pillsbury Company Pound sterling, sterling, £, pence, p UK currency Profit Earnings Profit and loss account Income statement/statement of operations Profit for financial year Net income Profit on sale of fixed assets Gain on disposal of non-current assets Provisions Accruals for losses/contingencies Recognised gains and losses Comprehensive income Redundancy charges Early release scheme expenses Reserves Accumulated earnings, other comprehensive income and additional paid in capital RPI UK retail price index Scrip dividend Stock dividend SEC US Securities and Exchange Commission Share premium account Additional paid-in capital or paid-in surplus Shareholders’funds Shareholders’equity Shares Common stock Shares and ordinary shares Diageo plc’s ordinary shares Shares in issue Shares issued and outstanding This is the annual report of Diageo plc for the year ended 30 June 2004 and it is dated 1 September 2004. It includes information that is required by the US Securities and Exchange Commission (SEC) for Diageo’s US annual filing on Form 20-F. This information may be updated or supplemented at the time of the filing of that document with the SEC or later amended if necessary. Stocks Inventories Tangible fixed assets Property, plant and equipment An annual review is issued to all shareholders. In addition, shareholders may elect to receive this annual report. Trade debtors Accounts receivable (net) The market data contained in this document is taken from independent industry sources in the markets in which Diageo operates. Turnover Revenue/sales This report includes names of Diageo’s products, which constitute trademarks or trade names which Diageo owns or which others own and licence to Diageo for use. In this report, the term ‘company’refers to Diageo plc and the US dollars, US$, $, ¢ US currency terms ‘group’and ‘Diageo’refer to the company and its consolidated subsidiaries, except as the context otherwise requires. A glossary of terms used in this report is included at the end of the document. Diageo’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP), which is the group’s primary reporting framework. Unless otherwise indicated all other financial information contained in this document has been prepared in accordance with UK GAAP.The principal differences between UK and US GAAP are discussed in the operating and financial review and set out in the consolidated financial statements. 1Diageo Annual Report 2004 Highlights Summary financials Key highlights Reported Organic 2004 2003 movement movement • Having achieved focus on premium drinks, Diageo’s scale, £ million £ million %%geographic diversity and outstanding collection of brands are now Premium drinks 8,891 8,802 1 6 driving consistent performance Burger King – 479 • Organic operating profit* grew by 7%, in a year when Diageo Turnover 8,891 9,281 incurred restructuring costs of £50 million, which were taken to operating profit Premium drinks 1,911 1,902 – 7 • Diageo’s operating margin* was 21.5% Burger King – 53 Operating profit before • Organic volume growth improved to 4%, driven by continued exceptional items 1,911 1,955 strong performance by the global priority brands, volume up 5%, and improved performance on category brands, volume up 3%. Organic growth* Local priority brands were flat. Ready to drink improved, with organic volume growth of 7% as a result of the successful launch in • Volume up 4% North America of Smirnoff Twisted V • Net sales (after deducting excise duties) up 6% • Organic net sales (after deducting excise duties) grew by 6%, • Marketing investment including certain promotional expenditure** driven by the further mix improvement in North America and in up 7% venture markets • Operating profit* up 7% • Marketing investment increased 6%, with a further 1% growth in promotional spend reclassified against turnover under application • Operating margin* up 0.3 percentage points note (G) to FRS 5. This reflected a 10% increase in spend behind brands excluding ready to drink

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