Diageo (NYSE:DEO), the world's leading premium drinks company, yesterday announced its preliminary results for the year ended June 30, 2001.
                           Organic             2001            2000
                            growth          million         million

Turnover                        5%          $18,078         $16,737
Operating profit                9%           $2,999          $2,792
Premium drinks
   operating profit            14%           $2,019          $1,813

EPS (reported)                 15%         60.3 cents      52.6 cents

Numbers before exceptional items and goodwill amortization

SUMMARY OF KEY POINTS

  • Premium drinks continues to perform strongly with:
  • Volume up 4%
  • Net sales growth 9%
  • Marketing up 10% to $1,403 million
  • Operating margin improved by 1.1 percentage points to 18.9%
  • Driven by growth in the global priority brands:
  • Volume up 6%
  • Net sales growth 15%
  • Marketing up 15% to $998 million
  • Burger King operating profit down 12% to $250 million
  • Pillsbury operating profit up 5% to $730 million
  • Profit before goodwill amortization, exceptional items and tax $2,792 million
  • $272 million underlying improvement in economic profit
  • Final dividend 18.9 cents per share up 6%
  • Free cash flow up $502 million to $1,720 million

Paul Walsh, Group Chief Executive of Diageo, commenting on the year ended June 30, 2001 said:

"The benefits of Diageo's position as the world's leading premium drinks company are reflected in these results. They demonstrate the strength of our premium drinks business and how, by driving top line growth in our global priority brands and in our most important markets, we continue to deliver growth in shareholder value."

For the convenience of the reader, pounds sterling amounts for all amounts have been translated into US dollars ($) using the closing rate at June 30, 2001 of pound 1 = $1.41.

Annual report and AGM

Diageo's annual report will be sent to shareholders at the beginning of October 2001. The Annual General Meeting will be held at The Queen Elizabeth II Conference Center, Broad Sanctuary, Westminster, London SW1P 3EE at 2.30PM on October 30, 2001.

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 9.30 am on September 6, 2001.

Explanatory notes

Unless otherwise stated, percentage movements given throughout this statement for volume, turnover, net sales, marketing expenditure and operating profit are organic movements (at level exchange rates and after adjusting for acquisitions and disposals). They are before goodwill amortization and exceptional items. Comparisons are with the equivalent period last year.

Volume has been measured on an equivalent servings basis to nine liter cases of spirits. Equivalent cases are calculated as follows: beer in hectoliters divide by 0.9, wine in nine liter cases divide by 5, ready to drink in nine liter cases divide by 10.

Net sales are turnover less excise duty.

This document contains forward-looking statements that involve risk and uncertainty. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including factors beyond Diageo's control. Please refer to Note 10 - Cautionary statement concerning forward-looking statements for more details.

OVERVIEW

Premium drinks

Premium drinks has again delivered strong top and bottom line growth as a result of focus on the eight global priority brands, which represent 55% of our volume, and strong performances in the four major markets of North America, Great Britain, Ireland and Spain. This focus, together with commitment to innovation and the implementation of programs to continually reduce our cost base, have delivered operating margin improvement and have increased the return on total invested capital to nearly 16%. The improvement in operating profit was delivered despite increased investment in new product launches and an increase of over pound 20 million in expenditure on new business ventures. In addition, marketing investment was again increased as a percentage of net sales. The ready to drink portfolio was expanded in the year and is delivering strong net sales growth as it leverages the brands into new consumer occasions and new price points.

Burger King

Burger King's operating profit declined year on year. This was due to the continuation in North America of the trends experienced in the business in the first half, together with the slowdown which the business suffered in Europe in the second half. In North America, comparable restaurant sales declined 4% in the full year, with a second half decline of 2% compared with a decline of 7% in the first half. In the second half there was a net reduction in the number of restaurants in North America due to a weaker financial position in some parts of the franchisee system and a tightened lending environment. Operating profit in the International business grew, though in the second half the rate of growth slowed as comparable restaurant sales declined, particularly in Europe where they were down 9%.

Pillsbury

In Pillsbury, where there has been uncertainty around the delay in the completion of the transaction with General Mills, a good performance from Pillsbury North America was offset by volume weakness in Pillsbury Bakeries and Foodservice. While overall volume in Pillsbury North America was flat, turnover was up 4% as a result of improvement in both pricing and mix. Turnover was down 6% in Pillsbury Bakeries and Foodservice and up 3% in International. The mix improvement in Pillsbury North America was driven by continued strong volume growth in Progresso and Totino's and recovery in Old El Paso. Refrigerated Baked Goods achieved strong profit growth as improved pricing offset volume decline, while the Frozen Breakfast and Vegetable businesses declined year on year both in volume and profit terms. In Pillsbury Bakeries and Foodservice, the volume decline together with margin pressure from a more intense competitive environment reduced operating profit by nearly 40%. The International business performed well despite facing some difficult market conditions and volume gains were achieved in Asia Pacific, Europe and the Middle East, though operating profit was down due to investment in higher marketing and local infrastructure.

Outlook

Commenting on current trading, Paul Walsh said:

"Since the start of the new financial year the key drivers of performance have remained unchanged. In premium drinks top line growth, in terms of both volume and net sales, has been maintained despite some weakening of economic conditions. The expansion of our ready to drink portfolio continues to provide growth from new consumer occasions at new price points. We are on track to deliver the cost efficiencies we announced from the merger of Guinness and UDV. Burger King's performance is still adversely impacted by the slowdown in Europe and as in 2001 the results for the current year will be affected by the reduction in the number of new restaurants opening. We do not expect to see an improvement in performance before the second half of the new year. Pillsbury's performance in the year was adversely impacted by the decline in the food service business, though trading there has improved in the last two months. Trading in Pillsbury North America has continued to be good and overall the Pillsbury business has started the year well. We look forward to the completion of the strategic transactions which will further Diageo's focus on premium drinks."

OPERATING AND FINANCIAL REVIEW

OPERATING REVIEW

DIAGEO

On a reported basis, turnover increased by pound 951 million (8%) from pound 11,870 million in the year ended June 30, 2000 to pound 12,821 million in the year ended June 30, 2001. Excluding the favorable effects of currency, turnover increased 3% and on an organic basis grew 5%.

Reported operating profit before goodwill amortization and exceptional items increased pound 147 million (7%) from pound 1,980 million to pound 2,127 million. Excluding the favorable effects of currency, operating profit before goodwill amortization and exceptional items increased 7% and on an organic basis increased 9%.

On a reported basis, advertising, marketing and promotion expenditure increased 12% from pound 1,706 million to pound 1,917 million. Organically advertising, marketing and promotion expenditure increased by 8%.

Profit before goodwill amortization, exceptional items, taxation and minority interests increased by pound 165 million (9%) from pound 1,815 million in the year ended June 30, 2000 to pound 1,980 million in the year ended June 30, 2001. In local currency terms this was an increase of 8%. The net interest charge decreased by pound 13 million (4%) from pound 363 million to pound 350 million in the year ended June 30, 2001.

Exceptional items before taxation were a charge of pound 232 million in the year ended June 30, 2001. After exceptional items, profit before taxation and minority interests increased by pound 271 million from pound 1,451 million to pound 1,722 million in the year ended June 30, 2001, and profit for the year increased by pound 250 million from pound 976 million to pound 1,226 million in the year ended June 30, 2001.

PREMIUM DRINKS

Strong organic top line growth continued to be achieved with turnover up 7%.

Reported turnover increased by pound 463 million (7%) from pound 7,117 million in the year ended June 30, 2000 to pound 7,580 million in the year ended June 30, 2001. Reported operating profit before exceptional items increased by pound 146 million (11%) from pound 1,286 million to pound 1,432 million. On an organic basis, turnover increased 7% and operating profit increased 14%.

Volume increased by 4% as a result of volume growth of 6% in global priority brands and 4% in local priority brands. Volume in other categories, which account for 30% of total volume and 28% of total net sales, declined 1% mainly due to continued weakness in other spirits, which were down 1%, and other wines, where volume was down 5% compared to last year.

Net sales increased by 9% to pound 5,722 million, driven by a combination of price increases, mix improvement and the continued growth of the ready to drink portfolio.

Volume and net sales growth by brand classification

                          Equivalent        Volume      Net sales
                               cases        growth         growth
                            millions             %              %

Johnnie Walker                  10.6             3              7
Guinness                        11.0             3              6
Smirnoff                        18.4            12             52
J&B                              6.2             2              4
Baileys                          5.1            10             11
Cuervo                           4.3            (6)             9
Tanqueray                        1.9             4              7
Malibu                           2.3            20             21
                               -----            --             --
Total global priority brands    59.8             6             15
Local priority brands           14.2             4              8
Other                           32.5            (1)            (2)
                              ------            --             --
                               106.5             4              9
                                                ==             ==
Acquisitions                     2.1
                              ------
Total                          108.6

    Marketing investment increased 10% to pound 995 million.
Marketing spend on the global priority brands grew by 15% to
pound 708 million particularly behind the launch of Smirnoff Ice in
North America, the Keep Walking campaign for Johnnie Walker and on
Baileys. Marketing investment as a percentage of net sales increased
by 0.2 percentage points.

MARKET REVIEW                 Global     Local
                              priority   priority    Other
                              brands     brands      brands  Total
                                  %         %           %       %
Volume growth by market
Major markets
     North America                6        4           -       4
     Great Britain                8        3           -       6
     Ireland                      1       (1)         (2)      -
     Spain                        7       23         (10)      4
                                ---       --          --     ---
                                  6        2          (1)      4
Key markets                       4        4           1       3
Venture markets                  10        8          (5)      4
                                 --      ---          --     ---
Total                             6        4          (1)      4
-----                           ===      ===          ==     ===

Net sales growth by market
Major markets
     North America               21        13          1      14
     Great Britain               16         3         (3)      9
     Ireland                      7         5          4       5
     Spain                       12        29        (10)      9
                                 --        --         --      --
                                 17         7          -      11
Key markets                      10        12         (4)      5
Venture markets                  15         8         (6)      7
                                 --       ---         --     ---
Total                            15         8         (2)      9
-----                            ==        ==         ==     ===


Operating profit                                            Organic
                                  2001          2000        growth
                           pound million  pound million        %
Major markets
     North America                 363           317           20
     Great Britain                 162           150            9
     Ireland                       156           135           11
     Spain                          85            96           20
                                ------        ------           --
                                   766           698           16
Key markets                        447           392            7
Venture markets                    219           196           20
                                 -----         -----           --
Total                            1,432         1,286           14
-----                            =====         =====           ==

Global Duty Free operations are now reported in key markets and therefore the North American operating profit reported for the year ended June 30, 2000 has been adjusted by pound 10 million from pound 327 million to pound 317 million.

Brand review by major market

North America

In North America, volume increased by 4%, net sales grew by 14%, marketing investment was up 10% and operating profit grew by 20% as a result of continued strong growth.

Johnnie Walker volume grew 3% and net sales rose 9%. This was the result of strong growth from Johnnie Walker Black, which increased market share by 3 percentage points. The Keep Walking campaign launched in February 2001 was a key driver of this growth. The standard Scotch category remains soft. J&B volume declined by 3%, against a decline of 15% last year, and this decline was offset by price increases resulting in net sales growth of 2%.

Smirnoff volume grew by 11% with the successful launch of Smirnoff Ice, which achieved a volume of 1.1 million equivalent cases, representing 14% of total Smirnoff volume. Excluding Smirnoff Ice, volume declined by 4%, as the price increases implemented last year to reposition the brand continued to impact volume, though net sales increased by 4%.

Baileys volume continued to grow and was up 5% in the year. Malibu volume grew by 29%. Cuervo volume continues to be affected by the agave shortage, and while volume was down 6%, net sales grew 8%.

Volume of local priority brands grew by 4% to 2.6 million equivalent cases. Buchanan's volume grew by 22% and net sales grew by 24%, following a 3% price increase. Beaulieu Vineyard continued to perform strongly with volume up 15% and net sales up 23%.

Marketing increased by 10% to pound 302 million mainly due to increases in spend behind flavored Smirnoff line extensions and the introduction of Smirnoff Ice. Marketing investment behind Baileys was up 19% with the launch of the Celebrate campaign.

Great Britain

Volume increased by 6%, net sales grew by 9%, marketing investment was up 6% and operating profit grew by 9% in Great Britain, led by the continued growth of Smirnoff Ice.

Smirnoff volume grew 18% driven by strong performances by both Smirnoff Ice and Smirnoff Red. Smirnoff, excluding Smirnoff Ice, grew 4% driven by increased promotional activity and the brand's association with dance music events. Smirnoff Ice volume doubled to 0.8 million equivalent cases in its second full year following launch, reflecting trade distribution increases in both the off and on trade. In the on trade, distribution doubled to nearly 50%.

Baileys volume grew 14%, with continued growth in its share of both liqueurs and total spirits categories. Net sales grew 11%. Marketing investment increased by 30% over the prior year. Malibu volume declined by 2% as ready to drink products took some share from the specialties category, however the second half performance showed signs of improvement driven by a successful advertising campaign.

Guinness volume increased 1% compared to a strong performance in the previous year, despite a decline of around 4% in the beer category. Growth has been driven by Guinness Draught Extra Cold and the rollout of the new Guinness fount. Marketing overall fell by 10%, reflecting the high level of investment in the Rugby World Cup in 1999.

Local priority brands volume grew by 3%. Bell's volume grew by 3%, helped by marketing investment up 10% behind promotional activity at Christmas and a new advertising campaign. Archers Aqua, a new ready to drink product designed to leverage the female franchise of Archers, was launched in May 2001. The launch has been very successful and, with initial sales of 40,000 equivalent cases, performance is ahead of expectations.

Ireland

Volume was flat, net sales grew by 5%, marketing investment was up 9% and operating profit grew by 11%.

The decline in Guinness volume in Ireland slowed from 4% last year to 3%. In the Republic of Ireland, the long term decline in Guinness' share of the long alcoholic drinks market has halted, and market share has remained constant at about 34% over the past year. Net sales grew by 1%. Marketing investment, which was 4% lower, was refocused around the Witness program.

Smirnoff volume grew by 9% and net sales grew by 36%. Smirnoff Ice volume doubled to 118,000 equivalent cases. Smirnoff Ice is the market leader in premium packaged spirits in the Republic of Ireland with 50% market share. Smirnoff volume, excluding Smirnoff Ice, grew by 1% and net sales grew by 3%. Marketing investment grew by over 50% behind a new advertising campaign launched in December 2000.

Baileys volume and net sales both grew by 21%. Baileys has increased its market share by 3 percentage points to 42%. Marketing spend increased with a year round media presence and sponsorship of television programs.

Spain

In Spain, volume increased by 4%, net sales grew by 9%, marketing investment was up 14% and operating profit grew by 20% as a result of continued strong growth in all key brands. Reported movements were affected by the disposal last year of Grupo Cruzcampo SA.

J&B volume grew by 7% while maintaining share. Price increases of 2% were implemented in October 2000. Marketing was up 1%. Johnnie Walker volume grew 1%, with a 24% growth in Johnnie Walker Black in response to the introduction of the Keep Walking campaign. Cardhu volume also grew strongly, up 23% to 169,000 cases, and net sales grew 29%. The premium malts category has been growing at about 20% per annum and Diageo's market share increased from 50% to 53%.

Smirnoff volume grew by 2%. This volume growth together with a significant price increase led to net sales growth of 27%. Marketing investment grew by 26%. Baileys volume grew by 6%, supported by the introduction of a year round advertising campaign, and marketing investment grew by 10%. Baileys net sales grew by 12% driven by price increases.

Malibu volume grew by 37% to 195,000 equivalent cases. Marketing investment grew by 38% behind the introduction of a new advertising campaign.

Pampero dark rum volume grew 60% to 100,000 cases and it is the fastest growing brand in the fastest growing premium drinks category of the Spanish market.

Key markets

Key markets operating profit grew by 7% reflecting varied performance across a number of markets.

Reported operating profit for key markets grew by 14% to pound 447 million, as East Africa Breweries and Bundaberg are now accounted for as subsidiaries following the acquisition of further shares. Reported turnover increased pound 192 million (12%) despite the disposal in Brazil of certain non core brands including Dreher. Operating profit growth was 7%.

In the African key markets, Guinness volume was up 8%, with strong growth in Nigeria and Cameroon driven by the Michael Power advertising campaign. Spirits volume was up by 8% driven by the performance of Smirnoff Ice in South Africa and Johnnie Walker in West Africa.

In Venezuela, where the economy has benefited from an increase in oil prices, the business has performed well and volume was up 77%. Johnnie Walker Black and Deluxe grew 30% and VAT69 volume tripled to 0.9 million cases. Overall the other Latin American markets designated as key (Brazil, Paraguay, Columbia and Mexico) reported results down compared with last year, as volume declined due to duty increases and distributor de-stocking.

In Thailand, economic conditions and an excise duty increase in April 2001 impacted the business' performance. Volume declined by 2% and net sales declined by 1%. Marketing expenditure was up 66%, due to the impact of staging the Johnnie Walker Classic golf tournament.

In Taiwan, the successful introduction of the Keep Walking campaign for Johnnie Walker and a distribution drive for Johnnie Walker Black and Red into independent off trade retail led to a strong year. Johnnie Walker volume growth in total was 26% with Black up 69%.

Volume in Korea was up by 30%, with a 25% increase in Dimple volume to over 700,000 cases. Approximately 50% of the volume growth could be attributed to an increase in distributor stocks before the introduction of a new liquor purchase card in the market.

In Greece, there was strong volume growth across global priority brands. Gordon's Space volume was up 30% and it is the number one ready to drink brand in the market.

Venture markets operating profit increased by 20% to pound 219 million with strong performances in most markets.

Volume grew by 4%, with global and local priority brands growing 10% and 8%, respectively. Net sales increased by 7% and marketing investment grew by 16%, reflecting increased investment behind Johnnie Walker Black and Baileys, as well as the launch of Smirnoff Ice in a number of markets.

The European venture businesses performed well and although the Asian venture businesses had a challenging year, being impacted by economic down turn in Asia, overall they delivered both volume and profit growth compared with the previous year.

BURGER KING

  • System sales were down 1%
  • Total restaurants up 2% compared with June 30, 2000 to 11,372
  • Worldwide comparable restaurant sales down 4%
  • Operating profit declined 12% to pound 177 million
  • Operating margin down 2.9 percentage points to 17.0%

Fewer restaurant openings and more closures in the year; reported operating profit fell by pound 25 million to pound 177 million.

In the year ended June 30, 2001, 550 new restaurants were opened against 796 new openings in the prior year. In addition, restaurant closures were 339 in the year compared with 161 last year. These adverse movements were due to a weaker financial position of some parts of the franchisee system and a tightened lending environment.

Worldwide comparable restaurant sales declined by 4%, with 4% decline in the United States. The decline in operating profit reflects the decline in worldwide comparable restaurant sales and the lower level of increases in restaurant numbers.

In North America, system sales were down 2%, which led to an 18% decline in operating profit.

The North American business declined 24% in the second half of the year compared to 12% decline in the first half. The reduction in the number of new restaurant openings and the closure of an increased number of poor performing restaurants has reduced profit.

The International business experienced a decline in comparable restaurant sales of 4%.

The International business suffered significant decline in comparable restaurant sales in the second half, driven primarily by the slowdown in Europe, where comparable restaurant sales were down 9%. In addition, new restaurant openings were lower than in the prior year and 23 restaurants were closed in Poland and 45 in Japan as a result of the decision to exit this market.

PILLSBURY

  • Volume flat
  • Turnover up 2% to pound 4,199 million (2000 - pound 3,812 million)
  • Marketing expenditure up 6% to pound 886 million (2000 - pound 774 million)
  • Operating profit up 5% to pound 518 million (2000 - pound 492 million)
  • Operating margin up 0.3 percentage points to 12.3%

Improved performance in Pillsbury North America was offset by the impact of softness in the Foodservice category.

Pillsbury's turnover increased 2% as a result of higher pricing and improved mix of value added products in Pillsbury North America and volume growth in International. Overall top line growth was limited by Pillsbury Bakeries and Foodservice where turnover declined due to category softness and aggressive competitor activity. Investment in marketing activities, mainly in Pillsbury North America, increased 6% during the year to pound 886 million in support of new products and other growth initiatives. Growth in turnover, coupled with lower overheads, due in part to the restructuring actions taken last year, improved operating profit by 5% and operating margin by 0.3 percentage points during the year.

Pillsbury North America

Pillsbury's largest business, Pillsbury North America, achieved turnover growth of 4%. Operating margin growth was achieved as a result of pricing actions across the portfolio and volume increases in value added products. An increase of 7% in marketing investment provided the foundation for continuing growth.

Turnover increases were led by Progresso up 21%, Totino's up 9% and Old El Paso up 7%. Progresso continued to gain market share behind a 30% increase in marketing investment and the successful introduction of new products. Strong category performance and successful merchandising programs drove Totino's growth during the year. Old El Paso returned to growth on the strength of Meal Dinner Kit products. Refrigerated Baked Goods achieved double digit operating profit growth driven by improved pricing, operational efficiencies and more efficient marketing investment. Frozen Breakfast turnover and profit declined during the year as competitive activities increased in the waffles segment and as expenditure increased in support of new product introductions.

Pillsbury Bakeries and Foodservice

Turnover for Pillsbury Bakeries and Foodservice declined 6% as the foodservice and in-store retail channels experienced softness due to weaker demand and increased competitor activity. These trends have impacted Pillsbury Bakeries and Foodservice sales to a number of quick serve and midsize restaurants and also volume sold through distributors. The reduction in turnover, combined with margin pressures from a more intense competitive environment, resulted in a 39% decline in operating profit during the year. In recent months Pillsbury Bakeries and Foodservice have made improvements which have lowered costs and streamlined manufacturing operations.

International

Turnover growth of 3% was achieved in International driven by volume increases in key markets such as the United Kingdom, Venezuela, Middle East and Australia. The Haagen-Dazs and Old El Paso brands achieved strong volume growth. Turnover growth was limited by soft volume performance in Brazil and Argentina due to unfavourable economic conditions. Overall, increased investment in marketing and local infrastructure outweighed turnover gains during the year.

STRATEGIC INITIATIVES

Progress is continuing on the group's strategic initiatives.

The new management team at Burger King has been strengthened by a number of key appointments of executives with wide experience in the relevant areas of hospitality, fast food and marketing. They are working on the strategy to restore market share and improve operating performance, as well as to facilitate the separation of Burger King from Diageo.

The regulatory review of the Pillsbury transaction has extended beyond the period originally expected by the parties and, although the contract remains in place, either Diageo or General Mills may terminate the contract without penalty. The parties are continuing to work hard to address outstanding issues with the FTC and currently expect that the FTC review process will conclude in October.

The proposed acquisition of the Seagram spirits and wines business with Pernod Ricard is also awaiting regulatory approval and the parties are endeavoring to resolve the issues raised by regulators in the United States and Canada. Meanwhile, excellent progress has been made on plans for the integration of the businesses using the experience gained from the UD/IDV integration. It is expected that net proceeds from disposals will be slightly higher than originally anticipated.

FINANCIAL REVIEW

Exchange rates

Exchange rate movements during the year, including the effect of the currency option cylinders, favorably impacted profit before goodwill, exceptional items and tax by pound 11 million. The adverse impact of exchange rate movements on the translation of overseas operating profit was pound 22 million which was more than offset by the favorable impact on transactions in the year of pound 28 million, giving a net favorable impact on operating profit of pound 6 million. Exchange rate movements also favorably affected the share of profits of associates by pound 1 million and the interest charge by pound 4 million.

Based on current exchange rates, it is estimated that the impact from exchange rate movements on profit before exceptional items and tax for the year ending June 30, 2002 will be a favorable impact of approximately pound 30 million.

Associates

The group's share of profits of associates before interest and exceptional items was pound 203 million for the year compared with pound 198 million for last year, an organic growth of 7%.

Goodwill

Goodwill amortization in the year was pound 26 million compared with pound 17 million in the previous year. The increase is in respect of Burger King and Pillsbury acquisitions.

Exceptional items

Exceptional operating cost items amounted to a charge of pound 228 million before taxation. This comprised integration and restructuring costs of pound 163 million and net charges in respect of Burger King of pound 65 million.

The principal restructuring cost was pound 74 million in respect of the integration of the UDV (spirits and wine) and the Guinness (beer) businesses. It is expected that the total costs of this merger will be approximately pound 170 million and that most of the balance will be incurred next year. The other costs were pound 54 million for the reorganization of Beer production facilities in Great Britain and Ireland, pound 25 million relating to restructuring of ownership and management within premium drinks, and pound 10 million in respect of production facilities in Pillsbury Bakeries and Foodservice.

Exceptional items also included three items relating to Burger King. Following a review by management, provisions of pound 49 million have been made against certain fixed assets. In addition, there were costs associated with litigation amounting to pound 21 million. These costs have been partly offset by exceptional income of pound 5 million in respect of successor franchise fees.

The disposals of premium drinks brands in Latin America resulted in a profit of pound 28 million. Professional fees, retention bonuses and other costs totaling pound 51 million were incurred in the year relating to the proposed combination of Pillsbury, the Packaged Food business, with General Mills.

Interest

The interest charge in the year decreased to pound 350 million from pound 363 million in the comparable period. The benefits in respect of the disposal of businesses and cash flow were partly offset by the funding of acquisitions and share repurchases.

Taxation

The effective rate of taxation on profit before goodwill amortization and exceptional items for the year was 23.0%, compared with 26.2% for the year ended June 30, 2000 and a 25% effective rate estimated for the interim results. The two percentage points reduction in the effective rate from 25% reflects a low effective rate of taxation in respect of associated companies which is not expected to recur.

Dividend

The directors recommend a final dividend of 13.4 pence per share to be paid on November 5, 2001 to shareholders on the register on September 21, 2001. Dividends for the year will total 22.3 pence per share, an increase of 6% on last year's dividends. A dividend reinvestment plan is available in respect of the final dividend and the plan notice date is October 15, 2001.

Cash flow

Free cash inflow was pound 1,220 million, compared with pound 864 million in the prior year. Cash inflow from operating activities was pound 2,276 million compared with pound 2,043 million.

This inflow was after pound 144 million of integration costs and a pound 54 million increase in working capital, compared with pound 198 million and pound 62 million, respectively. Net interest payments were pound 446 million against pound 405 million in the comparable year. Purchases of tangible fixed assets in the year amounted to pound 439 million, a decrease of pound 108 million. Tax payments were pound 230 million compared with pound 285 million, the reduction being due to a repayment of UK advance corporation tax.

Acquisitions of businesses cost pound 136 million and the purchase of 17.8 million ordinary shares for cancellation in the year cost pound 108 million. Sales of businesses generated pound 31 million.

Balance sheet

Total shareholders' funds were pound 5,187 million at June 30, 2001 compared with pound 4,711 million at June 30, 2000. The principal reason for the increase was the pound 475 million retained income for the year, with the repurchase of shares of pound 108 million being broadly offset by exchange gains of pound 95 million.

Net borrowings were pound 5,479 million, a decrease of pound 66 million from June 30, 2000. This decrease reflects the free cash inflow of pound 1,220 million noted above, partly offset by dividends paid of pound 725 million, increases due to exchange movements of pound 229 million and net payments from sales/purchases of businesses of pound 105 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.

For tabular information, please call Taylor Rafferty at 212/889-4350