FORM 6-K

SECURITIES AND EXCHANGE COMMISSION

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

DIAGEO plc

(Exact name of Registrant as specified in its charter)

England

(Jurisdiction of incorporation)

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.

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.

If ‘Yes’ is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b).               

This report on Form 6-K shall be deemed to be filed and incorporated by reference in the registration statements on Form F-3 (File Nos. 333-10410, 333-14100 and 333-110804) and registration statements on Form S-8 (File Nos. 333-08090, 333-08092, 333-08094, 333-08096, 333-08098, 333-08100, 333-08102, 333-08104, 333-08106, 333-09770, 333-11460, 333-11462) and to be a part thereof from the date on which this report is furnished, to the extent not superseded by documents or reports subsequently filed or furnished.

INDEX TO FORM 6-K

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INTRODUCTION

Diageo plc is a public limited company incorporated under the laws of England and Wales. As used herein, except as the context otherwise requires, the term “company” refers to Diageo plc and the terms “group” and “Diageo” refer to the company and its consolidated subsidiaries. References used herein to “shares” and “ordinary shares” are, except where otherwise specified, to Diageo plc’s ordinary shares.

Presentation of financial information

Diageo plc’s fiscal year ends on 30 June. The company publishes its consolidated financial statements in pounds sterling. In this document, references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to UK currency, references to “US dollars”, “US$”, “$” or “¢” are to US currency and references to the “euro” or “€” are to the euro currency. For the convenience of the reader, this document contains translations of certain pounds sterling amounts into US dollars at specified rates, or, if not so specified, the noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York (the ‘noon buying rate’) on 31 December 2005 of £1 = $1.72. No representation is made that the pounds sterling amounts have been, could have been or could be converted into US dollars at the rates indicated or at any other rates.

For all periods up to and including the year ended 30 June 2005, Diageo prepared its primary financial statements under UK generally accepted accounting principles (UK GAAP). From 1 July 2005 the group is required to comply with all current International Accounting Standards, International Financial Reporting Standards and interpretations of the International Financial Reporting Interpretations Committee (IFRS) as adopted for use in the European Union (EU) in its consolidated annual financial statements. These interim financial statements comply with applicable IFRS and have been prepared in accordance with IAS 34—Interim Financial Reporting. There is no difference between IFRS as applied in this document by Diageo and applicable IFRS as adopted by the International Accounting Standards Board (IASB). Further information on the basis of preparation is presented in the notes to the unaudited financial information for the six month period ended 31 December 2005, specifically note 1 “Basis of preparation” and note 12 “Explanation of transition to IFRS”.

IFRS are subject to ongoing review and endorsement by the EU or possible amendment by interpretative guidance from the IASB and are therefore subject to change. Accordingly, the information presented in the interim financial statements and the format of presentation may be subject to change as accounting standards and interpretations are endorsed by the EU, new guidance is issued or practice develops. Diageo has taken advantage of the US GAAP Condensed Information Option, announced by the US Securities Exchange Commission in the Final Rule: First-time Application of IFRS, under which the group is permitted to use condensed US GAAP information for periods where IFRS information is unavailable.

The operating and financial review, IFRS selected consolidated financial data and IFRS financial information included in this document for the six month periods ended 31 December 2005 and 31 December 2004 have been derived from the published Diageo interim financial statements. In addition, this document contains separate financial information of the group under US GAAP and details of the principal differences between IFRS and US GAAP relevant to Diageo.

The principal executive office of the company is located at 8 Henrietta Place, London, W1G 0NB, England and its telephone number is +44 (0) 20 7927 5200.

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Cautionary statement concerning forward-looking statements

This document contains statements with respect to the financial condition, results of operations and business of Diageo and certain of the plans and objectives of Diageo with respect to these items. These forward-looking statements are made pursuant to the ‘Safe Harbor’ provisions of the United States Private Securities Litigation Reform Act of 1995. In particular, all statements that express forecasts, expectations and projections with respect to future matters, including trends in results of operations, margins, growth rates, overall market trends, the impact of interest or exchange rates, the availability of financing to Diageo, anticipated costs savings or synergies and the completion of Diageo’s strategic transactions, are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. 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 that are outside Diageo’s control.

These factors include, but are not limited to:

·       increased competitive product and pricing pressures and unanticipated actions by competitors that could impact Diageo’s market share, increase expenses and hinder growth potential;

·       the effects of future business combinations, partnerships, acquisitions or disposals, existing or future, and the ability to realise expected synergies and/or costs savings;

·       Diageo’s ability to complete future acquisitions and disposals;

·       legal and regulatory developments, including changes in regulations regarding consumption of, or advertising for, beverage alcohol, changes in accounting standards, taxation requirements, such as the impact of excise tax increases with respect to the business, environmental laws and laws governing pensions;

·       developments in the alcohol advertising class actions and any similar proceedings or other litigation directed at the drinks and spirits industry;

·       developments in the Colombian litigation and any similar proceedings;

·       changes in consumer preferences and tastes, demographic trends or perception about health related issues;

·       changes in the cost of raw materials and labour costs;

·       changes in economic conditions in countries in which Diageo operates, including changes in levels of consumer spending;

·       levels of marketing, promotional and innovation expenditure by Diageo and its competitors;

·       renewal of distribution rights on favourable terms when they expire;

·       termination of existing distribution rights on agency brands;

·       technological developments that may affect the distribution of products or impede Diageo’s ability to protect its intellectual property rights; and

·       changes in financial and equity markets, including significant interest rate and foreign currency rate fluctuations, which may affect Diageo’s access to or increase the cost of financing or which may affect Diageo’s financial results.

All oral and written forward-looking statements made on or after the date of this document and attributable to Diageo are expressly qualified in their entirety by the above factors and the “risk factors” contained in the annual report on Form 20-F for the year ended 30 June 2005 filed with the

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US Securities and Exchange Commission. Any forward-looking statements made by or on behalf of Diageo speak only as of the date they are made. Diageo does not undertake to update forward-looking statements to reflect any changes in Diageo’s expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based. The reader should, however, consult any additional disclosures that Diageo may make in documents it files with the US Securities and Exchange Commission.

The information in this document does not constitute an offer to sell or an invitation to buy shares in Diageo plc or any other invitation or inducement to engage in investment activities.

This document includes disclosure about Diageo’s debt rating. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organisation. Each rating should be evaluated independently of any other rating.

Past performance cannot be relied upon as a guide to future performance.

TRADEMARKS, TRADE NAMES AND MARKET DATA

This report on Form 6-K includes names of Diageo’s products, which constitute trademarks or trade names which Diageo owns or which others own and license to Diageo for its use.

The market data contained in the document is taken from independent industry sources in the markets in which Diageo operates.

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read in conjunction with, and are qualified in their entirety by reference to, the unaudited financial information and notes presented elsewhere in this document and to Diageo’s annual report on Form 20-F for the year ended 30 June 2005.

Selected Consolidated Financial Data

The following table presents selected consolidated financial data for Diageo as of and for the six month periods ended 31 December 2005 and 31 December 2004, derived from the unaudited financial information presented elsewhere in this document, and as of and for the year ended 30 June 2005 and as at the appropriate period ends. The US GAAP financial data as of and for the year ended 30 June 2005 has been derived from Diageo’s consolidated financial statements, which have been audited by Diageo’s independent auditor. The IFRS financial data as of and for the year ended 30 June 2005 has not been audited. The unaudited consolidated interim financial statements, in the opinion of Diageo management, include all adjustments, consisting solely of normal, recurring adjustments, necessary to present fairly the information contained therein. The results of operations for the six month period ended 31 December 2005 are not necessarily indicative of the results for the year ending 30 June 2006. All data relates to continuing operations unless otherwise stated.

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This information should be read in conjunction with the notes on pages   7   to   9   .

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Notes to the selected consolidated financial data

1                    New IFRS accounting policies

The results for the six month period ended 31 December 2005 are the group’s first interim financial statements published in respect of part of the period to be covered by the first consolidated annual financial statements prepared in accordance with IFRS. Extracts from the income statement, balance sheet and cash flow statement as of and for the six month period ended 31 December 2004 and as of and for the year ended 30 June 2005 presented here have been restated under IFRS as applied by the group from financial information previously reported in the group’s consolidated financial statements as of and for the six month period ended 31 December 2004 and as of and for the year ended 30 June 2005. The IFRS accounting policies applied by the group to the financial information in this document are presented on pages [34 to 38], along with an explanation of the primary impacts of IFRS on the group’s financial results and position as previously reported under UK GAAP.

The group has adopted the amendment to IAS 21—The effects of changes in foreign exchange rates, approved by the IASB in November 2005, in its interim financial statements. This amendment clarifies the accounting treatment for net investments in foreign subsidiaries and for the treatment of foreign exchange differences on monetary items which form part of a reporting entity’s net investment in a foreign operation.

The effect of implementing this amendment is that a number of intra-group financing arrangements are now regarded as part of the group’s net investment in foreign operations and the foreign exchange arising on translation of these balances is recorded in equity. Prior to adoption of the amendment, IAS 21 required the foreign exchange arising on translation of these balances to be taken to income. The effect on implementation of the amendment is to increase the interest charge for the six month period ended 31 December 2005 by £2 million (six month period ended 31 December 2004—decrease of £1 million; year ended 30 June 2005—increase of £9 million). Basic and diluted earnings per share for the six month period ended 31 December 2005 have been decreased by 0.1p (six month period ended 31 December 2004—increased by 0.1p; year ended 30 June 2005—decreased by 0.4p). There is no impact on net assets.

In the process of implementing the amendment to IAS 21, the group reconsidered its interpretation of the wording of the original IAS 21 standard and has identified that other foreign exchange losses in the six month period ended 31 December 2004 and other foreign exchange gains in the year ended 30 June 2005 in the preliminary IFRS information previously published, in respect of intra-group financing arrangements forming part of the group’s net investment in foreign operations, were originally charged to income and should have been recognised directly in equity. The group has reclassified these exchange movements resulting in an increase in other finance income and net income of £26 million in the six month period ended 31 December 2004 (year ended 30 June 2005—decrease of £1 million). Basic and diluted earnings per share for the six month period ended 31 December 2004 have been increased by 0.8p (year ended 30 June 2005—nil). There is no impact on net assets.

2                    Continuing operations

There have been no significant acquisitions or business combinations involving the group in the period from 1 July 2004.

3                    Discontinued operations

Discontinued operations in the year ended 30 June 2005 under IFRS are in respect of Burger King. There are no discontinued operations under US GAAP.

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4                    Exceptional items

Following the implementation of IFRS, the group has decided to continue with its separate presentation of certain items as “exceptional”. These are items which, in management’s judgement, need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding of the financial information. Such items are included within the income statement caption to which they relate. Exceptional items, as presented by management, do not represent extraordinary items under US GAAP. An analysis of exceptional items before taxation under IFRS is as follows:

Exceptional tax credits amounted to £117 million in the six month period ended 31 December 2005 (2004—£14 million) including a £110 million increase in the group’s deferred tax assets following agreement of certain brand carrying values with fiscal authorities.

5                    Dividends

The Diageo plc board expects that Diageo will pay an interim dividend in April and a final dividend in October of each year. Approximately 40% of the total dividend in respect of any financial year is expected to be paid as an interim dividend and approximately 60% as a final dividend. The payment of future dividends, subject to shareholder approval, will depend upon Diageo’s earnings, financial condition and such other factors as the Diageo plc board deems relevant. The dividends paid are translated into US dollars per ADS (each ADS representing four ordinary shares) at the noon buying rate on each of the respective dividend payment dates.

The table below sets out the amounts of interim, final and total cash dividends declared by Diageo plc on each ordinary share.

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The interim dividend for the six month period ended 31 December 2005 will be paid on 6 April 2006. Payment to US ADR holders will be made on 12 April 2006. In the table above, an exchange rate of £1 = $1.72 has been assumed. The actual amount to be received by US ADR holders will be determined by the rate of exchange on 12 April 2006.

6                    Employee share options

From 1 July 2005 Diageo adopted the provisions of SFAS No. 123(R)—Share-Based Payment for its US GAAP reporting. On adoption of SFAS 123(R), Diageo revalued unvested awards in its senior executive share option plan (SESOP) and recognised a cumulative effect of an accounting change of £2 million net of tax in its US GAAP financial information.

7                    Definitions

Net borrowings is defined as total borrowings (i.e. short term borrowings and long term borrowings plus finance lease obligations) less cash and cash equivalents, interest rate and foreign currency swaps and other liquid resources. Long term obligations is defined as long term borrowings and capital lease obligations which fall due after more than one year.

8                    Share capital

The called up share capital represents the par value of ordinary shares of 28101¤108 pence in issue. The number of ordinary shares represents the number of shares in issue and fully paid up at the balance sheet date. Of these, 47 million (30 June 2005—43 million) are held in employee share trusts and 170 million (30 June 2005—86 million) are held as treasury shares and are all deducted from total equity. During the six month period ended 31 December 2005, Diageo repurchased 84.4 million shares for cancellation or to be held as treasury shares at a cost of £704 million (six month period ended 31 December 2004—48.2 million, cost of £353 million; year ended 30 June 2005—94.4 million ordinary shares, cost of £710 million).

9                    Exchange rates

A substantial portion of the group’s assets, liabilities, revenues and expenses is denominated in currencies other than pounds sterling, principally the US dollar. For the convenience of the reader, selected financial information for the six month period ended 31 December 2005 has been translated into US dollars at the noon buying rate on 31 December 2005 of £1 = $1.72.

The following table shows, for the periods indicated, information regarding the US dollar/pound sterling exchange rate, based on the noon buying rate, expressed in US dollars per £1.

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CAPITALISATION AND INDEBTEDNESS

The following table sets forth on an IFRS basis the unaudited actual capitalisation of Diageo as at 31 December 2005:

Notes

1.                At 31 December 2005, the group had cash and cash equivalents of £1,039 million.

2.                At 31 December 2005, £58 million of the group’s net borrowings due within one year and £44 million of the group’s net borrowings due after more than one year were secured.

3.                At 31 December 2005, there were potential issues of approximately 2 million new ordinary shares outstanding under Diageo’s employee share option schemes.

4.                At 31 December 2005, the total authorised share capital of Diageo consisted of 5,329,052,500 ordinary shares of 28101¤108 pence each. At such date, 3,050,644,627 ordinary shares were issued and fully paid, including shares issued, shares held in employee share trusts and those held as treasury shares.

5.                In connection with the disposal of Pillsbury, Diageo has guaranteed the debt of a third party to the amount of $200 million (£116 million) until November 2009. Including this guarantee, but net of the amounts provided in the consolidated interim financial statements, the group has given performance guarantees and indemnities to the third parties of £176 million at 31 December 2005. Since 31 December 2005, there has been no material change in the group’s performance guarantees and indemnities.

6.                Since 31 December 2005, the group has repurchased 36 million of its own shares, which are being held as treasury shares, at a cost of £309 million. Other than as described above, there has been no material change in the capitalisation of the group since 31 December 2005.

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OPERATING AND FINANCIAL REVIEW

Information presented

Diageo’s strategy is to generate consistent top line growth while enhancing its operating margins. Diageo’s brands are the platform from which its strategy will be delivered. The company’s leadership position in premium drinks is based on its ownership of a number of the world’s top selling premium brands. Diageo manages nine of the world’s top 20 premium distilled spirits brands as defined by Impact, a publication which compiles volume statistics for the international drinks industry. The following discussion is based on Diageo’s IFRS results for the six month period ended 31 December 2005 compared with the six month period ended 31 December 2004.

There are a number of accounting differences between IFRS and US GAAP. A reconciliation of net income from IFRS to US GAAP and an explanation of the differences between IFRS and US GAAP are set out in the US GAAP unaudited consolidated financial information on pages [F-18] to [F-33] of this document.

In addition to describing the significant factors impacting the income statement for the six month period ended 31 December 2005 compared to the prior period, additional information is also presented on the operating performance of the group.

Non-GAAP measures

Organic movement in volume, sales, net sales after deducting excise duties and operating profit before exceptional items are measures not specifically used in the consolidated financial statements themselves (non-GAAP measures). The performance of the group is discussed using these measures.

In the discussion of the performance of the business, certain information is presented using pounds sterling amounts on a constant currency basis. This strips out the effect of foreign exchange rate movements and enables an understanding of the underlying performance of the market that is most closely influenced by the actions of that market’s management. The risk from foreign exchange is managed centrally and is not a factor over which local managers have any control.

Acquisitions and disposals also impact the reported performance and therefore the reported movement in any period in which they arise. Management adjusts for the impact of such transactions in assessing the performance of the underlying business.

The underlying performance on a constant currency basis and excluding the impact of acquisitions and disposals is referred to as “organic” performance. Organic movement calculations enable the reader to focus on the performance of the business which is common to both periods.

Diageo’s strategic planning and budgeting process is based on organic movement in volume, sales, net sales after deducting excise duties and operating profit before exceptional items, and these measures closely reflect the way in which operating targets are defined and performance is monitored by the group’s management. Therefore organic movement measures most closely reflect the way in which the business is managed.

These measures are chosen for planning, budgeting, reporting and incentive purposes since they represent those measures which local managers are most directly able to influence and they enable consideration of the underlying business performance without the distortion caused by fluctuating exchange rates, acquisitions and disposals.

The group’s management believes these measures provide valuable additional information for users of the financial statements in understanding the group’s performance since they provide information on those elements of performance which local managers are most directly able to influence and focus on that element of the core brand portfolio which is common to both periods. They should be viewed as complementary to, and not a replacement for, the comparable GAAP measures: sales, net sales

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after deducting excise duties and reported movements in individual income statement captions. These GAAP measures reflect all of the factors which impact on the business.

Definitions

Market data information is taken from independent industry sources in the markets in which Diageo operates. Diageo believes that all of the information in this document that is based on statements from industry sources is reliable.

Volume has been measured on an equivalent units basis to nine litre cases of spirits. An equivalent unit represents one nine litre case of spirits, which is approximately 272 servings. A serving comprises 33ml of spirits, 165ml of wine, or 330ml of ready to drink or beer. Therefore, to convert volume of products other than spirits to equivalent units, the following guide has been used: beer in hectolitres divide by 0.9, wine in nine litre cases divide by five and ready to drink in nine litre cases divide by 10.

Net sales are sales after deducting excise duties.

Exceptional items are those that in management’s judgement need to be disclosed by virtue of their size or incidence in order for the user to obtain a proper understanding of the financial information. Such items are included within the income statement caption to which they relate.

References to ready to drink include flavored malt beverages in the United States. References to Smirnoff ready to drink include Smirnoff Ice, Smirnoff Black Ice, Smirnoff Twisted V, Smirnoff Mule, Smirnoff Spin, Smirnoff Caesar and Smirnoff Signatures. References to Smirnoff Black Ice include Smirnoff Ice Triple Black in the United States

Volume share is a brand’s volume when compared to the volume of all brands in its segment. Value share is a brand’s retail sales when compared to the retail sales of all brands in its segment. The share data contained in this document is taken from independent industry sources in the markets in which Diageo operates. Unless otherwise stated, share refers to volume share.

Share of voice is the media spend of a particular brand when compared to others in its category. The share of voice data in this document is taken from independent industry sources in the markets in which Diageo operates.

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Operating results for the six months ended 31 December 2005 compared with the six months ended 31 December 2004

Condensed consolidated income statement

Adoption of IFRS

The unaudited financial information for the six month period ended 31 December 2005 has been prepared in accordance with IFRS as adopted by the IASB. The unaudited financial information for the comparative six month period ended 31 December 2004 has been restated and is also presented in accordance with IFRS as adopted by the IASB. For further information related to the conversion to IFRS please see the notes to the unaudited financial information for the six month period ended 31 December 2005, specifically 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 £413 million (8%) from £4,946 million in the period ended 31 December 2004 to £5,359 million in the period ended 31 December 2005. On a reported basis, net sales after deducting excise duties increased by £286 million (8%) from £3,674 million in the period ended 31 December 2004 to £3,960 million in the period ended 31 December 2005. Acquisitions and disposals contributed a net increase to reported sales and net sales after deducting excise duties of £36 million and £26 million respectively in the period and foreign exchange rate movements also increased reported sales by £82 million and reported net sales after deducting excise duties by £56 million, principally arising from strengthening of the US dollar.

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Operating costs

On a reported basis, operating costs before exceptional items increased by £210 million principally due to an increase in cost of goods sold of £146 million and an increase in marketing costs of 8% from £572 million to £618 million. There were no exceptional operating costs in the period (2004—£16 million). On a reported basis, operating costs increased by £194 million (8%) from £2,505 million in the period ended 31 December 2004 to £2,699 million in the period ended 31 December 2005. Overall, the impact of exchange rate movements increased total operating costs before exceptional items by £75 million.

Post employment plans

Post employment costs for the period ended 31 December 2005 of £44 million (2004—£43 million) included amounts charged to operating profit of £54 million (2004—£47 million) and finance income of £10 million (2004—£4 million). At 31 December 2005, Diageo’s deficit before taxation for all post employment plans was £1,099 million (30 June 2005—£1,294 million).

Operating profit

Operating profit before exceptional items for the period increased by £76 million to £1,261 million from £1,185 million in the comparable prior period. There were no exceptional operating charges in the period ended 31 December 2005, compared to costs in respect of the period ended 31 December 2004 of £16 million.

Exchange rate movements reduced operating profit before exceptional items for the six months ended 31 December 2005 by £19 million.

Non-operating exceptional items

Non-operating exceptional items before taxation were a gain of £151 million in the six months ended 31 December 2005 compared with a gain of £218 million in the six months ended 31 December 2004. The gain in the period to 31 December 2005 represents the gain on sale of all of the group’s remaining 25 million shares of common stock of General Mills. In the period to 31 December 2004 non-operating exceptional items included a gain of £219 million on the disposal of 54 million shares of common stock of General Mills and a net charge of £1 million in respect of the disposal of businesses.

Finance charges

Finance charges increased by £19 million from £74 million in the period ended 31 December 2004 to £93 million in the six months ended 31 December 2005.

The net interest charge increased by £14 million from £78 million in the comparable prior period to £92 million in the six months ended 31 December 2005. This increase principally resulted from increasing US dollar interest rates, the loss of interest income on the Burger King subordinated debt, the increase in net borrowings in the period and the termination of certain financing arrangements. IAS 39—Financial instruments: recognition and measurement had no net impact on the interest charge for the six months ended 31 December 2005.

Other finance charges of £1 million (2004—income of £4 million) included income of £10 million (2004—income of £4 million) in respect of the group’s post employment plans. This beneficial movement principally reflects the increase in the value of the assets held by the post employment plans between 1 July 2004 and 30 June 2005. Other finance charges also include a £5 million charge (2004—gain of £3 million) in respect of foreign exchange translation differences on inter-company funding arrangements that do not meet the accounting criteria for recognition in equity.

Associates

The group’s share of profits of associates after interest and tax was £77 million for the period compared to £71 million in the comparable period last year. Diageo’s 34% equity interest in Moët

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Hennessy contributed £71 million to share of profits of associates after interest and tax (2004—£66 million).

Profit before taxation

After exceptional items, profit before taxation increased by £9 million from £1,392 million to £1,401 million in the six months ended 31 December 2005.

Taxation

The tax charge is based upon the estimate of the average annual effective tax rate expected for the full financial year with the exception of tax in respect of transactions that are presented by the group as exceptional items or tax presented by the group as an exceptional item in its own right which are accounted for in the period in which the items arise.

The effective tax rate before exceptional items for the six months ended 31 December 2005 is 25% compared with 34% for the six months ended 31 December 2004. The higher effective tax rate in the period ended 31 December 2004 mainly resulted from the reduction in the carrying value of deferred tax assets following a change in tax rate.

The effective tax rate for the six months ended 31 December 2005 after exceptional items is 14% compared with 28% for the six months ended 31 December 2004. The effective tax rate in the current period has been reduced following the agreement of certain brand carrying values with fiscal authorities which resulted in recognising an increase in the group’s deferred tax assets of £110 million. The profit on disposal arising on the sale of General Mills shares in the period and the comparative period is not subject to tax.

Exchange rates

It is estimated that in the year ending 30 June 2006 there will be an adverse impact from exchange rate movements on profit before exceptional items and taxation of £30 million (translation exchange only on reported share of profits of associates). It is estimated that the impact from exchange rate movements on profit before exceptional items and taxation for the year ending 30 June 2007 will not be material.

Dividend

An interim dividend of 11.95 pence per share will be paid to holders of ordinary shares and ADR’s on the register on 10 March 2006. This represents an increase of 5% on last year’s interim dividend. The interim dividend will be paid to shareholders on 6 April 2006. Payment to US ADR holders will be made on 12 April 2006. A dividend reinvestment plan is available in respect of the interim dividend and the plan notice date is 16 March 2006.

In the AGM statement in October 2004 Diageo announced that while final decisions on annual dividends will continue to be taken in the light of earnings performance, inflation and other external factors, the Diageo Board would expect, from February 2006, to hold the company’s dividend increase to shareholders to around 5% annually to gradually rebuild dividend cover.

Trading performance

The following discussion provides additional commentary on the trading performance of the business compared with the equivalent period in the prior year.

In the discussion movements are described as “reported” or “organic” performance. “Reported” means that the measure reflects movement in the number disclosed in the financial statements. “Organic” means the movement excluding the impact of exchange, acquisitions and disposals. In the discussion under “organic brand performance” for each market, movements given for sales, net sales after deducting excise duties and marketing expenditure are organic movements. A further description

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of organic movement, how it is calculated and why it is considered useful for the reader is set out on pages 11 and 12.

Comparisons are with the equivalent period in the last financial year.

In order to assist the reader of the financial statements, the comparisons of the six months ended 31 December 2005 with the six months ended 31 December 2004 include tables which present the exchange, disposal, acquisition and organic components of the period on period movement for each of volume, sales, net sales after deducting excise duties and operating profit before exceptional items.

Organic movement calculation

The organic movement calculations for volume, sales, net sales after deducting excise duties and operating profit before exceptional items for the six months ended 31 December 2005 were as follows: