Javier Ferrán

Chairman of the Nomination Committee

Role and composition of the Nomination Committee

The Nomination Committee is responsible for keeping under review the composition of the Board and succession to it, reviewing succession planning for key Executive Committee roles, and succession planning and overall talent strategy for senior leadership positions, including in relation to ensuring and encouraging diversity in leadership positions. It makes recommendations to the Board concerning appointments to the Board. More details on the role of the Nomination Committee are set out in its terms of reference which are available at
https://www.diageo.com/en/our-business/corporate-governance.

The Nomination Committee comprises Javier Ferrán (Committee Chairman), Melissa Bethell, Karen Blackett, Susan Kilsby, Valérie Chapoulaud-Floquet, Sir John Manzoni, Lady Mendelsohn, Alan Stewart and Ireena Vittal.

Recruitment and election procedures

The recruitment process for Non-Executive Directors includes the development of a candidate profile and the engagement of Egon Zehnder, a professional search agency (which has no connection with the company other than acting as an executive search agency) specialising in the recruitment of high-calibre candidates for non-executive and executive roles. In the case of Executive Director or Executive Committee appointments, an executive leadership assessment is carried out by an external professional agency. Reports on potential appointees are provided to the Committee, which, after careful consideration, makes a recommendation to the Board. In determining its recommendations, the Committee has regard to a broad range of factors including the candidate’s background, skillset and experience, their ability to express independent judgement and participate across a broad range of topics, including on sustainability and societal matters, their ability to devote sufficient time to the company and whether their appointment would contribute towards the Board’s diversity objectives.

Any new Directors are appointed by the Board and, in accordance with the company’s articles of association, they must be elected at the next AGM to continue in office. All existing Directors retire by rotation and stand for re-election every year. While the company’s policy is for all Directors to attend the AGM, either physically or by video conference as permitted by the company's Articles of Association. Details of attendance of all Board and Committee meetings by Directors are set out on page 154.

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External appointments

While the Board does not have a written policy as regards the maximum number of other appointments that Directors should have, before recommending new appointments to the Board, the Nomination Committee considers other demands on candidates’ time. As a general principle, the Committee takes the view that Non-Executive Directors should have no more than four, and Executive Directors no more than one, listed mandates in addition to their role as a director of the company. For example, the Committee concluded that Karen Blackett had sufficient time to devote to the company due to the majority of her external appointments being with industry bodies, charitable or public institutions. Once appointed, any proposed additional external appointments are also reviewed by the Nomination Committee to ensure that the additional demands on a director’s time will not impact on the director’s ability to perform his or her role as a director of the company before the additional appointment is recommended for approval by the Board. Directors’ interests are reviewed and updated at each Board meeting. ~~Any new Directors are appointed by the~~The Board ~~and, in accordance with the company’s articles of association, they must be elected at the next AGM~~has concluded that each Non-Executive Director has sufficient time to continue in office. All existing Directors retire by rotation and stand for re-election every year. While the company’s policy is for all Directors to attend the AGM, due to the Covid-19 pandemic the 2020 AGM was helddischarge their duties as a ‘closed meeting’ in accordance with the Corporate Insolvency and Governance Act 2020 and, as a result, only the Chairman attended with the Company Secretary. Details of attendance of all Board and Committee meetings by Directors are set out on page 163.

~~More details on the role~~director of the ~~Nomination Committee are set out in its terms of reference which are available at https://www.diageo.com/en/our-business/corporate-governance.~~

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~~Composition of the Nomination Committee~~

~~The Nomination Committee comprises Javier Ferrán (Committee Chairman), Melissa Bethell, Susan Kilsby, Valérie Chapoulaud-Floquet, Sir John Manzoni, Lady Mendelsohn, Alan Stewart~~company, taking into consideration their external appointments and ~~Ireena Vittal.~~commitments.

Induction and training

~~The company has adapted its induction programme for new Directors appointed~~With the easing of travel restrictions during the year, we have reverted to ~~take account of social distancing requirements and restrictions on travel. As a consequence,~~more customary induction processes for newly appointed directors. In addition to individual meetings with Executive Committee members and other senior executives, ~~which would ordinarily~~Directors who have ~~been in person~~joined the Board since the beginning of the pandemic have had the opportunity to ~~take place through video conference systems and visits by the newly appointed Directors to~~visit a number of the company’s production facilities and offices in London, Scotland and ~~other sites around~~Ireland. These include the ~~group have been postponed.~~

~~Alternative ways of facilitating thorough induction programmes have been introduced, including a number which were recommended following~~company's new head office in London, the ~~externally facilitated Board effectiveness review carried out during~~Guinness Storehouse and St James's Gate Brewery in Dublin, the first half of the year. For example instead of physical visits Directors have been provided with access to a number of recorded virtual tours of certain of the company’s sites and interviews with a range of employees from different backgrounds and markets. ‘Skip level’ video conference meetings are also being arranged between Non-Executive Directors and employees to enable broader interactions which will enhance Directors’ induction experiences as well as provide another means of engagement between the Board and the company’s workforce. All Directors who have been unable to travel over this period will have the opportunity to visit key sites, including the company’sgroup's spirits production facilities and archives in ~~Scotland and elsewhere, and to meet executives face-to-face when travel restrictions are lifted.~~Scotland.

~~It is intended that future induction~~Induction programmes for new Directors ~~will also be more~~are tailored to suit the particular background and experience of the individual Director, with the Committee advising on priorities for that individual and tracking induction activity. ~~This will~~These induction processes supplement existing practices whereby ~~following the initial induction process,~~ a continuing understanding of the business is developed through appropriate business engagements for Non-Executive Directors ~~which would ordinarily include~~such as visits to customers, engagements with employees, and brand events worked into the annual cycle of Board meetings.

Training on specific areas of risk and detailed reviews of strategic matters are provided by Executive Committee members, other internal senior leaders and external guest speakers and specialists through presentations, roundtable discussions and other sessions as part of the Board’s Annual Strategy Conference and during the year as part of Board and Audit Committee meetings.

In addition, Executive Committee members and other senior executives are invited, as appropriate, to Board and strategy meetings to make presentations on their areas of responsibility. All Directors are also provided regular briefings to ensure they are kept up to date on relevant legal and governance developments or changes, best practice developments and changing commercial and other risks.

Activities of the Nomination Committee

The principal activities of the Nomination Committee during the year were:

•the consideration of the talent pipeline for potential new appointments to the Board including the selection and recommendation as to the appointment of a new ~~Executive Directors, Non-Executive Directors and the Company Secretary;~~Board member;

•the ~~selection, scoping~~design and ~~appointment~~conduct of ~~an external professional consultancy to conduct a~~the annual review of Board, committee and individual Director effectiveness and performance ~~as part of the annual evaluation process,~~ and a review of the findings of the ~~consultancy’s report~~review and ~~its recommendations~~recommended actions;

•consideration and approval of the report of the Committee in the company’s ~~annual report~~Annual Report and ~~accounts~~consolidated financial statements for the year ended 30 June ~~2020~~2022;

•consideration and recommendation to the Board of proposed changes in Directors’ outside interests and any potential conflicts of interest; and

•a review of the succession plans for Executive Committee roles, including potential candidates for such roles, their backgrounds and experience, and how such candidates would contribute towards the company's diversity objectives.

Evaluation

As part of the annual Board evaluation, all members of the Nomination Committee participated in an evaluation of the Committee. This concluded that the Committee was effective and that the Board was satisfied with its performance, ofthat its remit and scope was sufficient, and that the Committee ~~had continued to improve, with more formalised ways~~was effective in maintaining a suitable pipeline of ~~working. The emphasis is now on ensuring adequate time~~talent for non-executive roles and ~~focus on developing strong~~in monitoring succession ~~plans~~planning for executive director and ~~to ensure all Board members remain informed as to the work of the Committee as the Board grows.~~senior management roles. Further details of the evaluation can be found on ~~pages 168-169.~~page 161.

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Diversity

The Board has a ~~long-standing~~longstanding commitment to prioritise diversity and supports the recommendations of the FTSE Women Leaders Review (previously the Hampton-Alexander ~~Review~~Review) on gender diversity and the Parker Review on ethnic diversity. The Board Diversity Policy sets out specific objectives with parity between male and female members of the Board being the ultimate goal in terms of gender diversity, with a commitment to have no less than 40% female representation on the Board, and having at least one Director reflecting ethnic diversity as defined in accordance with the Parker Review. The Committee is pleased to confirm that both these objectives have currently been met. The Board Diversity Policy also sets out the Board’s support for management’s actions to increase the proportion of senior leadership roles held by women and by people from minority backgrounds and other under-represented groups. As at 30 June ~~2021,~~2022, the percentage of women on the Executive Committee and their direct reports is ~~46%~~40%.

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~~Board composition~~

~~Non-Executive Director tenure~~

~~Gender diversity: Board of Directors~~

~~Gender diversity: Executive Committee~~

~~Executive Committee nationality~~

~~Ethnic diversity: Board of Directors~~

ETHNIC DIVERSITY DEFINITIONS

–• Directors are defined as all non-executive and executive directors appointed to the Board.

–• Directors of colour are defined in accordance with the Parker Review definitions as those "who identify as or have evident heritage from African, Asian, Middle Eastern, Central and South American regions".

All data above is given as at the last practicable date prior to publication of this report, being 27 July ~~2021.~~2022.

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Governance (continued)

~~Directors’ remuneration report~~

Annual statement by the Chairman of the Remuneration Committee

"It has been another year of robust performance for Diageo, with the organisation continuing to show resilience and creativity in an ongoing volatile environment."

Dear Shareholder

I am pleased to present ~~to you~~ the Directors' remuneration report for the year ended 30 June ~~2021,~~2022, which contains:

–•The current Directors’ remuneration policy, which was approved ~~last year~~ at the AGM on 28 September 2020; and

–•The annual remuneration report, describing how the policy has been put into practice during ~~2021,~~2022, and how the policy will be implemented in ~~2022.~~2023.

~~Exceptional~~

Business performance ~~through exceptional times~~

As ~~you’ve read~~mentioned elsewhere in the ~~statements from~~Annual Report, Diageo has delivered a strong set of financial results for 2022. Organic net sales grew at double-digit rates and, in an environment of high-cost inflation, the ~~Chairman~~company implemented strategic price increases across all regions while continuing to grow volume and market share. Operating margin expanded and cash generation continues to be robust, with £2.8 billion of free cash flow delivered in the ~~Chief Executive, the results that have been delivered over the past~~ year ~~have been truly exceptional, despite continued challenging~~ and ~~uneven trading conditions, including the severe impact of the pandemic~~an increase in return on ~~Diageo’s travel retail business and significant restrictions on the on-trade (pubs, bars and restaurants) in many parts of the world. Even with this backdrop, Diageo~~invested capital to 16.8%.

The organisation has continued to ~~invest ahead on brands with improved marketing spend relative to pre-pandemic levels,~~show resilience, skill, creativity, focus and determination during what has ~~capitalised on at-home occasions through strengthened e-commerce and digital capabilities to fuel further growth. As a result, Diageo~~remained an uncertain time. Employee engagement has ~~delivered robust improvement in top and bottom line performance.~~

~~At the same time,~~remained very high, the company has continued to ~~deliver strong returns to shareholders (~£23 billion~~invest for long-term growth in its brands and portfolio and has maintained focus on delivering the key sustainability milestones underpinning ‘Society 2030: Spirit of value in share price growth, dividends and return of capital since 1 July 2018), has delivered sustained improvements in market share (continuing the off-trade share momentum confirmed at the interim results earlierProgress’. Again this ~~year), while also providing unwavering support to employees, suppliers, customers and communities. You can read more about this on pages 23-24.~~

~~Diageo’s decisive leadership throughout the uncertainty of the past~~ year, together with the hard work, resilience, ingenuity and commitment of our 27,650 employees around the world, have enabled Diageo to emerge from the pandemic in a strong position to drive long-term sustainable growth. Despite the challenges of the past year, employee engagement remains very high. Through the annual engagement survey, regular ‘pulse’ surveys on the company’s response to the pandemic and workforce engagement sessions led by the Chairman and other Non-Executive Directors during the year, our people report a strong sense of pride and fulfilment working for Diageo and have emphasised how supported they have felt during the pandemic. Unlike many other companies, Diageo has not participated in any furloughing schemes ~~has not~~or initiated any ~~large-scale restructuring and~~widespread lay-offs as a result of ongoing impacts of the Covid-19 pandemic. The company has continued to provide ~~practical, financial, and health and wellbeing~~ support to its employees, ~~throughout~~customers and the ~~pandemic.~~communities in which it operates.

Looking back at decisions made during the year

Incentive outcomes

In determining annual and long-term incentive outcomes, the Remuneration Committee reviews not only the financial outcomes against targets set, but also considers Diageo’s holistic performance. It assesses market share gains, financial performance relative to our Alcoholic Beverages and TSR peer groups, progress made towards our ‘Society 2030: Spirit of Progress’ goals and employee engagement, among other factors. It also considers the experience of shareholders over the applicable performance period, including the company’s TSR performance relative to our peer group.

Following this review, the Remuneration Committee concluded that the financial measure outcomes for both the annual and long-term incentives were fair reflections of overall business performance in testing market conditions during the relevant performance periods. Consequently, the Committee did not exercise discretion to alter the incentive outcomes.

In setting the 2022 annual incentive, the Committee returned to annual targets, having set two half-yearly targets for the previous year, which reflected the significant uncertainty and volatility facing the business at that time. The company’s performance in 2022 resulted in maximum achievement for all three financial measures despite the very stretching nature of performance required to achieve the maximum payouts - which reflected higher growth percentages than pre-Covid-19 pandemic levels for net sales and operating profit. The Individual Business Objective (IBO) outcomes for the CEO and CFO reflect an assessment of the achievement of critical business and ESG related milestones. Further detail is set out on page 186.

Overall annual incentive payouts were 93.75% of maximum for Ivan Menezes and 90.0% of maximum for Lavanya Chandrashekar, with one-third being deferred into Diageo shares for three years.

The 2019 long-term incentive plan targets were set in the summer of 2019 before the Covid-19 pandemic and therefore reflect the company’s growth plan at that time. Following an assessment of performance against the targets, the vesting outcome for the 2019 performance share awards, which will vest in September 2022, is 59.3% of maximum for the CEO and 59.8% of maximum for the CFO. Share options for the CEO will vest at 61.5% of maximum.

The Committee believes that the incentive plans continue to drive the desired behaviours to support the company’s values and strategy and that the Directors’ remuneration policy has operated as intended in 2022.

Looking forward to the year ahead

The Committee approved base salary increases of 3% for Ivan Menezes and Lavanya Chandrashekar, effective 1 October 2022. These increases reflect strong performance and are below the 2022 salary increase budgets for the UK and US for the wider employee population and are consistent with external market salary increases for executive directors in the current environment.

As previously communicated, Ivan Menezes’ pension contribution will reduce from 20% to 14% of salary effective 1 January 2023, ensuring full alignment of executive director pension contributions with the UK workforce. The CFO’s pension contribution has been 14% since joining the Board on 1 July 2021.

The structure of the annual incentive plan for Executive Directors for the year ended 30 June 2021 was designed to reflect the significant levels of uncertainty facing the business across the multiple markets in which Diageo operates. The target-setting process was managed in two half-year periods to ensure the right level of focus on critical deliverables and ~~to enable swift response to the changing external environment. This design~~performance measures for the annual ~~incentive plan was outlined in the 2020 remuneration report~~ and ~~communicated~~long-term incentives remain unchanged for 2023 as these continue to ~~participants in July 2020.~~

The targets for the first half of the year (1 July 2020 - 31 December 2020) were approved immediately before the announcement of Diageo’s final results in July 2020, and targets for the second half of the year (1 January 2021 - 30 June 2021) were approved immediately before the announcement of Diageo’s interim results in January 2021. Details ofalign with the company’s ~~performance against targets in both the first and second halves of the year, as well as total results for the full year, are described in more detail on page 201.~~strategy.

~~The targets set in the second half of the year took account of better tha~~
n expected performance in the first half of the year, and enabled the Remuneration Committee to set more challenging targets than would have been possible had the Committee set full year targets at the beginning of the fiscal year.

As is the usual practice, each year the Remuneration Committee assesses Diageo’s holistic performance across the full financial year, in addition to the company’s performance against targets, to determine whether the level of bonus payout is appropriate, reflects underlying business performance and is aligned to the experience of shareholders. This year, the Committee undertook a comprehensive review of performance across a number of internal and external factors including:

– Market share gains - Diageo is holding or growing off-trade share in 85% of total net sales value in measured markets, an improvement of 20ppt on last year, with notably strong share gains in the US TBA (Total Beverage Alcohol);

~~– Performance relative to peer group - Diageo delivered broad-based outperformance at the top of the Alcoholic Beverages peer set and top quartile performance compared to our TSR peer group;~~

– Strategic delivery and reputation - Diageo has continued to provide support to customers and the communities within which it operates (see pages 23-24) as well as making positive progress on grain-to-glass sustainability and continued progress on inclusion and diversity. Diageo was also named the top company in both the FTSE100 and in the beverages sector for representation of women at board, executive and leadership level in the 2020 Hampton Alexander Review; and

– Employee engagement - remains very high at an overall score of 81% in 2021, 1% above already high levels prior to the pandemic and 10ppt higher than the external benchmark for similar sized companies in our sector. 89% of respondents are proud to work for Diageo and 81% would recommend working for Diageo.

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Governance (continued)

Alignment of incentives with strategy / global market competitiveness

Our ambition is to be one of the best performing, most trusted and respected consumer companies in the world. Our strategic priorities to drive the company forward are unchanged: sustain quality growth, embed everyday efficiency, invest smartly, promote positive drinking, champion inclusion and diversity and pioneer grain-to-glass sustainability.

The ~~Remuneration Committee concluded that~~performance measures in the formulaic outcomes of 93.8% of maximum for the Chief Executive, Ivan Menezes, and 91.3% of maximum for the outgoing Chief Financial Officer during the year, Kathryn Mikells, are justified given the exceptional nature of performance in challenging circumstances. In lineincentive plans align with the ~~Directors’ remuneration policy, one-third of~~strategy and the ~~Chief Executive's annual bonus will be deferred into Diageo shares to be held~~key performance indicators on pages 47-49. The financial measures for ~~three years, with the balance paid in cash in September 2021.~~

Under the long-term incentive plan, 2018 performance share awards will vest in September 2021 at 29.3% of maximum and share option awards will vest at 10% of maximum, based on performance against the original targets set in 2018 (see page 203) for more detail), which was much higher than anticipated given the impact of the pandemic on a large proportion of the three-year performance period. At the start of 2021, on the basis that it was not clear that the awards would vest at all, the Committee explored the possibility of exercising its discretion to change the formulaic outcome of the 2018 award, considering the additional criteria that would need to be satisfied to warrant any vesting, as well as taking account of the views gathered from shareholders during consultation meetings.

The Committee was also mindful of the difficult decisions that had been taken on remuneration during fiscal 2020, with no annual salary review for employees and executives alike, no annual bonus payment for many employees (including the Executive Committee, as we exercised downward discretion to waive the earned payout against individual business objectives) as well as low long-term incentive vesting. The potential impact of such actions on motivation, engagement and retention, particularly for the wider group of senior leaders across the business who participate in the performance share element of the long-term incentive plan, continues to be a serious concern for the Remuneration Committee and will continue to be carefully monitored.

The final outcome under the 2018 long-term incentive plan based on performance against the original targets, while still relatively low in the context of the substantial returns to shareholders over the same period, is well above the level at which it was tracking earlier in the year. The Committee carefully considered financial performance under the annual incentive ~~plan~~focus on net sales growth, operating profit (both of which represent critical measures of growth for Diageo) and ~~determined that this payout, together with~~operating cash conversion (which recognises the ~~level~~criticality of ~~vesting under the 2018 long-term incentive award, would provide fair recognition and reward of exceptional~~strong cash performance and ~~leadership during this~~cash containment, particularly in the current challenging ~~period. As a result, the Committee decided not to apply discretion to the vesting outcome under the 2018 long-term incentive award.~~market conditions). The IBO component adds focus on key individual strategic and financial objectives.

Remuneration principles

The approach to setting executive remuneration continues to be guided by the remuneration principles set out below. The Committee considers these principles carefully when making decisions on executive remuneration in order to strike the right balance between risk and reward, cost and sustainability, and competitiveness and fairness.

The company has a strategy to grow and leverage its leaders globally given the international nature of the business. We also need to have the right tools in place to source talent globally and the increasingly restrictive corporate governance environment in the United Kingdom presents some challenges when considered against the significantly higher pay norms in the United States and other parts of the world, particularly given the increasing international mobility of the senior talent pool.

Long-term value creation for shareholders and pay for performance remains at the heart of our remuneration policy and practices. Attracting and nurturing a vibrant mix of talent with a range of backgrounds, skills and capabilities ~~– in good times and even more so in challenging times –~~ enables Diageo to grow and thrive, and ultimately to deliver our Performance Ambition. Remuneration remains a key part of attracting and retaining the best people to lead our business, balanced against the need to ensure our packages are appropriate and fair in the business and wider employee context, delivering market-competitive pay in return for high performance against the company’s strategic objectives.



Delivery of business strategy ~~[1]~~
~~Short-~~Short and long-term incentive plans reward the delivery of our business strategy and Performance Ambition. Performance measures are reviewed regularly and stretching targets are set relative to the company’s growth plans and peer group performance. The Committee seeks to embed simplicity and transparency in the design and delivery of executive reward.
Creating sustainable, long-term performance ~~[2]~~
A significant proportion of remuneration is delivered in variable pay linked to business and individual performance, ~~focussed~~focused on consistent and responsible drivers of long-term growth. Performance against targets is assessed in the context of underlying business performance and the ‘quality of earnings’.
Winning best talent ~~[3]~~
~~Market-competitive~~Having market-competitive total remuneration with an appropriate balance of reward and upside opportunity allows us to attract and retain the best talent from all over the world, which is critical to our continued business success.
Consideration of stakeholder interests ~~[4]~~
Executives are ~~focussed~~focused on creating sustainable share price growth. The requirement to build significant personal shareholdings in Diageo, and to hold long-term incentive awards for two years post-vesting encourages executives to think and act like owners. Decisions on executive remuneration are made with consideration of the interests of the wider workforce and other stakeholders, as well as taking account of the external climate.

~~CFO succession~~

As announced on 14 January 2021, Kathryn Mikells, Chief Financial Officer, left the company on 30 June 2021 to return to the United States after almost six years in role. Kathryn has been succeeded by Lavanya Chandrashekar, who was appointed to the Board on 1 July 2021. The remuneration arrangements for both the outgoing and incoming Chief Financial Officers have been implemented in accordance with the external announcement and the approved 2020 Directors’ remuneration policy.

Kathryn Mikells' service contract provided for a 12-month notice period. As part of an orderly succession plan, notice commenced on 13 January 2021 and Kathryn remained an employee and director of the company until 30 June 2021. Details of payments on termination are outlined on pages 199-200. Kathryn remains eligible for a paymentmeasures under the ~~annual incentive plan for the year ended 30 June 2021, subject to the performance conditions in the normal way (see page 201-202 for more details). The Committee also~~

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~~Governance (continued)~~

~~exercised its discretion, in accordance with the Plan Rules and the remuneration policy, to prorate to the leaving date all unvested~~ long-term incentive ~~awards. These awards remain subject~~plans continue to performance conditions to be assessed at the end of the original performance periods in 2021, 2022 and 2023 with a subsequent two-year holding period. The new post employment shareholding requirement policy, which was introduced as part of the 2020 remuneration policy, will be applied for a period of two years post exit, requiring Kathryn to hold Diageo shares equal to 400% of salary until 30 June 2022 and 200% of salary for the 12-months thereafter. The policy will be implemented making use of a restricted nominee account, in which vested shares are already held in trust during the two-year post-vesting retention period. As at 30 June 2021, Kathryn held shares equivalent to 868% of salary.

The salary for the new Chief Financial Officer, Lavanya Chandrashekar, is 11% lower than that of her predecessor and the annual and long-term incentive opportunity is the same. Her pension contribution at 14% of salary is in line with the policy provision for the wider workforce in the United Kingdom. Further details on Lavanya Chandrashekar’s remuneration are shown on pages 212-213.

~~I would like to thank Kathryn for her service and valued contributions to Remuneration Committee discussions over the past six years and I look forward to working with Lavanya in the future.~~

~~Looking forward to the year ahead~~

There was no fee increase for Non-Executive Directors in the year ended 30 June 2021. The Chairman’s fee increase from £600,000 to £650,000 per annum, the first increase since his appointment in January 2017, had been approved prior to the outbreak of Covid-19 and planned to take effect on 1 January 2020. The Chairman asked to defer this fee increase until 2021 and it was implemented 18 months after the originally intended implementation date, on 1 July 2021. The fees for Non-Executive Directors will be reviewed in September 2021.

~~The Committee also reviewed~~ ~~annual~~ base salaries for the Chief Executive and Executive Committee. As part of their review, the Committee considered the current position of pay relative to the external market as well as the strong performance context, the approach for the annual pay review for the wider workforce as well as wider societal and shareholder expectations. Taking account of the historical track record of modest salary increases over the years since being appointed Chief Executive in 2013 (0% in 2014 and 2015, 2% in 2016-2018, 3% in 2019 and 0% in 2020), the Committee approved a base salary increase of 3% for Ivan Menezes effective 1 October 2021, which is consistent with the merit budget for the wider workforce in the United Kingdom and the United States in 2021.

The Committee reviewed the annual incentive plan for Executive Directors in the year ended 30 June 2022 and decided to retain the same structure as the year before, with 80% based on financial measures (net sales, operating profit and operating cash conversion) and 20% on individual business objectives, with a return to full-year targets now that pandemic restrictions are easing in many parts of the world.

For long-term incentive awards to be granted in September 2021, the Committee reviewed the design and selection of performance measures and decided to retain the same measures and weightings as in 2020: net sales, profit before exceptional items and tax, cumulative free cash flow, relative total shareholder return and ESG (environmental, social and governance). These measures reflect the company’s strategic priorities and key drivers of long-term ~~growth. I had the opportunity to discuss with a number of shareholders during the year our proposals on the ESG performance conditions,~~growth by incorporating organic net sales, organic profit before exceptional items and ~~welcomed the constructive input~~tax, free cash flow, TSR and ~~appreciation for the progressive stance the company is taking on its approach to ESG. As a reminder, the ESG measure covers carbon~~key Environmental, Social and Governance (ESG) measures (greenhouse gas reduction, water efficiency, positive drinking and ~~inclusion~~gender and ~~diversity, which are all strategic areas~~ethnic diversity).

Global pay competitiveness is another key remuneration principle for the company. Attracting and retaining key talent is critical for our business and remuneration is an important aspect of ~~focus under 'Diageo’s Society 2030: Spirit~~being able to meet our talent objectives. As we operate in a global talent market, the Committee takes into account global pay practices, including the US market, when reviewing executive pay. Global pay competitiveness has been considered by the Committee in the context of ~~Progress', our 10-year action plan to help create an inclusive and sustainable world (see pages 64-71 for more detail).~~a number of changes in the Executive Committee during the year.

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Governance (continued)

In summary ~~Diageo has had an exceptional year of~~

Diageo’s strong performance ~~and that~~in ongoing challenging market conditions is reflected in the incentive outcomes and the decisions the Committee has ~~made. I believe that~~made, which it considers are in line with the company’s philosophy of delivering market competitive pay in return for high performance against the company’s strategic objectives.

The Committee is interested in the views of shareholders and their representative bodies and values their ongoing engagement on remuneration matters. As our Directors’ remuneration policy ~~supports~~is due for renewal at the ~~business strategy, drives pay for performance and meets the needs of our stakeholders in a balanced and considered way.~~2023 AGM, I ~~would like~~look forward to ~~thank all of the~~engaging with shareholders and institutional advisors ~~for their constructive input over the course of the year. I look forward to continuing to engage with shareholders~~ in the coming ~~months as Diageo builds on an exceptional year of performance.~~year.

I hope that you will join the Board in approving the advisory resolution on the ~~annual~~Directors' remuneration report ~~on remuneration and voting in favour of the resolution~~ at the AGM on ~~30 September 2021.~~6 October 2022.

Susan Kilsby

Non-Executive Director and Chair of the Remuneration Committee

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Governance (continued)

Remuneration at a glance

Salary

Allowances and benefits

Annual incentive

Long-term incentives

Shareholding requirement

Purpose and link to strategy

– Supports the attraction and retention of the best global talent with the capability to deliver Diageo’s strategy

– Provision of market-competitive and cost-effective benefits supports attraction and retention of talent

– Incentivises delivery of Diageo’s financial and strategic targets
– Provides focus on key financial metrics and the individual’s contribution to the company’s performance

– Rewards consistent long-term performance in line with Diageo’s business strategy
– Provides focus on delivering superior long-term returns to shareholders

– Ensures alignment between the interests of Executive Directors and shareholders

Key features

– Normally reviewed annually on 1 October
– Salaries take account of external market and internal employee context

– Provision of competitive benefits linked to local market practice
– Maximum company pension contribution is 14% of salary for new Executive Director appointments, which is aligned to the offering for ~~new-hire employees~~the wider workforce in the United Kingdom

– Target opportunity is 100% of salary and maximum is 200% of salary
– Performance measures, weightings and stretching targets are set by the Remuneration Committee
– Subject to malus and clawback provisions
– Executive Directors defer one-third of earned bonus payment into Diageo shares held for three years, which first ~~taking~~took effect on the bonus for the year ended 30 June 2021
– Remainder paid out in cash after the end of the financial year

– Annual grant of performance shares and share options
   – CEO award up to 500% of salary
   – CFO award up to 480% of salary
   (% of salary for both CEO and CFO described in performance share equivalents)
– Performance measures, weightings and stretching targets are set annually
– Three-year performance period plus two-year retention period
– Subject to malus and clawback provisions
– Grant price based on six-month average to 30 June preceding grant date

– Minimum shareholding requirement within five years of appointment:
– CEO 500% of salary
– CFO 400% of salary
– Post-employment shareholding requirement for Executive Directors of 100% of in-employment requirement in the first year after leaving the
company and 50% in the second year after leaving the company

Planned for year ending 30 June ~~2022~~2023

– 3% salary increase for the CEO ~~in line with~~and CFO, slightly below the annual salary ~~budget~~budgets for the wider workforce in the United Kingdom and the United States
~~– New CFO appointment 1 July 2021 (salary 11% lower than previous incumbent)~~

– Allowances and benefits unchanged from prior year
– Company pension contribution:
– CEO 20% of salary until 1 January 2023, at which point the CEO's pension contribution will reduce to 14% of salary
– CFO 14% of salary
~~– Company intends to reduce CEO's pension contribution to 14% of salary by 1 January 2023~~

– Targets will be set ~~over~~for the full year
– For the year ending 30 June ~~2022,~~2023, measures on net sales growth, operating profit growth and operating cash conversion, 80% in total weighted equally, with remaining 20% on individual objectives

– Performance measures on net sales growth, relative TSR, cumulative free cash flow, profit before exceptional items and tax ~~growth,~~ and ESG
– Size of long-term incentive award opportunity is unchanged from prior year

– ~~Post-employment~~No change to shareholding requirement ~~will be maintained~~

Implementation in year ended 30 June 2022

– 3% salary increase for the CEO in line with ~~the policy~~wider workforce in the ~~case~~United Kingdom and the United States in 2021
– CFO appointed 1 July 2021 No salary increases post appointment in 2021

– Allowances and benefits unchanged from prior year
– Company pension contribution:
– CEO 20% of salary
– CFO 14% of salary

- Full year targets resumed for year ended 30 June 2022.
– Payout of 100% of maximum for the financial elements of the plan
– Total payout of 93.75% of maximum for the CEO and 90.0% of maximum for the CFO

– Vesting of 2019 performance shares at 59.3% of maximum for Ivan Menezes and 59.8% of maximum for Lavanya Chandrashekar
– Vesting of 2019 share options at 61.5% of maximum for Ivan Menezes. The CFO ~~Kathryn Mikells, who left the company on~~was not in her current role in 2019 and does not hold a share option award for that year

– As at 30 June ~~2021~~2022, CEO shareholding of 3,093% of salary
– As at 30 June 2022, CFO (Lavanya Chandrashekar) shareholding of 31% of salary (has until 1 July 2026 to meet requirement)

Implementation in year ended 30 June 2021

– No salary increase for Executive Directors or Executive Committee members
–members. Exceptional salary increases only (e.g. on promotion) for the wider workforce ~~during 2020~~

– Allowances and benefits unchanged from prior year
– Company pension contribution:
– CEO 20% of salary
– CFO 20% of salary

– Targets set over two half-year periods
– Payout of 100% of maximum for the financial element of the plan
– Total payout of ~~93.8%~~93.75% of maximum for the CEO and 91.3% of maximum for the CFO

– Vesting of 2018 performance shares at 29.3% of maximum
– Vesting of 2018 share options at 10% of maximum

– CEO shareholding 2,735% of salary

– CFO (Kathryn Mikells) shareholding 868% of salary1

~~Implementation in year ended 30 June 2020~~

– Effective 1 October 2019:
– CEO 3% increase to $1,661,427
– CFO 3% increase to $1,093,044
– In line with the pay budget for the wider workforce (3% for the United Kingdom and the United States in 2019)

– Company pension contribution:
– CEO 20% of salary (reduced from 30% of salary effective 1 July 2019)
– CFO 20% of salary

~~– No annual incentive payout for Executive Directors in 2020~~

– Vesting of 2017 performance shares at 10% of maximum
– Vesting of 2017 share options at 27.5% of maximum

~~– CEO shareholding 2,635% of salary~~

~~– CFO shareholding 791% of salary~~1

~~1. This relates to Kathryn Mikells, who left the company on 30 June 2021~~

Proportionality and management of risk

The structure of Diageo’s executive remuneration package ensures that executives have a vested interest in delivering performance over the short and ~~long term.~~long-term. There is a three-year deferral of ~~part~~one-third of the annual incentive payout into shares, a two-year retention period on any vested awards under the long-term incentive plan and a post-employment shareholding requirement that applies for two years after leaving the company. The performance, retention and ~~retention~~clawback periods for each element of remuneration are outlined below.

~~186~~179

Governance (continued)

Pay for performance at a glance

The charts below show performance outcomes against targets for the long-term and annual incentive plans. Targets under both incentive plans are set with reference to Diageo’s strategic plan and the historical and forecasted performance of Diageo and its peers.

Long-term incentives (for the period 1 July 2019 to 30 June 2022)

~~Historical~~Annual incentive(for the period 1 July 2021 to 30 June 2022)

Historic reward outcomes under the annual and long-term incentive plans over the past five years are shown below. Vesting outcomes under the long-term incentive plan are shown against annualised total shareholder return for the three-year period ended in the year of vesting (i.e. annualised TSR for the three years ended 30 June ~~2021~~2022 is shown against the vesting outcome for the ~~2018~~2019 long-term incentive awards vesting in ~~2021)~~2022). Outcomes against annual incentive financial measures are shown against organic operating profit growth for each respective financial year, as disclosed in prior-year annual reports.

~~187~~180

Governance (continued)

Remuneration Committee ~~governance~~Governance

Remuneration Committee

Over the year, the Remuneration Committee has consisted of the following independent Non-Executive Directors: Susan Kilsby, Melissa Bethell, Valérie Chapoulaud-Floquet, ~~Ho KwonPing,~~ Sir John Manzoni, Lady Mendelsohn, Alan Stewart and Ireena Vittal. Karen Blackett joined the Committee on 1 June 2022. Susan Kilsby is the Chair of the Remuneration Committee and also the Senior Independent Director. The Chairman of the Board and the Chief Executive may, by invitation, attend Remuneration Committee meetings except when their own remuneration is being discussed. Diageo’s Chief Human Resources Officer and Global Performance and Reward Director are also invited by the Remuneration Committee to provide their views and advice. The Chief Financial Officer may also attend to provide performance context to the Committee during its discussions about target ~~setting. Information on~~setting and incentive outcomes. Members of the Committee attended all meetings ~~held and Director attendance is~~during the year which they were eligible to attend - full details are disclosed in the corporate governance ~~report.~~report on page 90.

The Remuneration Committee’s principal responsibilities are:

– •making recommendations to the Board on remuneration policy as applied to the Executive Directors and the Executive Committee;

– •setting, reviewing and approving individual remuneration arrangements for the Chairman of the Board, Executive Directors and Executive Committee members, including terms and conditions of employment;

– •determining arrangements in relation to termination of employment of the Executive Directors and other designated senior executives;

– •making recommendations to the Board concerning the introduction of any new share incentive plans which require approval by shareholders;

– •ensuring that remuneration outcomes are appropriate in the context of underlying business performance, that remuneration practices are implemented in accordance with the approved remuneration policy, and that remuneration does not raise environmental, social and governance issues by inadvertently ~~motivating~~incentivising irresponsible ~~behaviour~~behaviour; and

– •reviewing workforce pay and related policies and the alignment of incentives with culture.

Full terms of reference for the Remuneration Committee are available atin the corporate governance section of the company's website and on request from the Company Secretary.

The Committee has considered the remuneration policy and practices in the context of the principles of the Corporate Governance Code, as ~~follows:~~follows

Clarity – the Committee engages regularly with executives, shareholders and their representative bodies in order to explain the approach to executive pay;

Simplicity – the purpose, structure and strategic alignment of each element of pay has been clearly laid out in the remuneration policy;

Risk – there is an appropriate mix of fixed and variable pay, and financial and non-financial objectives, and there are robust measures in place to ensure alignment with long-term shareholder interests, including the DLTIP post-vesting retention period, shareholding requirement, ~~and~~ bonus deferral into ~~shares;~~shares and malus and clawback provisions;

Predictability-the pay opportunity under different performance scenarios ~~are~~is set out on page ~~194~~188 of this report;

Proportionality – executives are incentivised to achieve stretching targets over annual and three-year performance periods, and the Committee assesses performance holistically at the end of each period, taking into account underlying business performance and the internal and external context. The Committee may exercise discretion to ensure that payouts are appropriate; and

Alignment with culture – non-financial objectives may be incentivised under the individual business objective element of the annual incentive plan and ESG priorities are incentivised under the long-term incentive plan, which reinforces the company’s purpose and values.

External advisors

During the year ended 30 June ~~2021,~~2022, the Remuneration Committee received advice on executive remuneration from Deloitte. Deloitte was appointed by the Committee in May 2019, following a comprehensive tendering process with several consulting firms. Deloitte is a founding member of the Remuneration Consultants Group and adheres to its code in relation to executive remuneration consulting. The Committee requests Deloitte to attend meetings periodically during the year and is satisfied that the advice it has received has been objective and independent.

Deloitte provides unrelated services to the company in the areas of immigration services and management consultancy. During the year, Deloitte supported the Committee in providing: insights into external remuneration ~~benchmarking survey data to support the salary review for the Executive Committee,~~trends and best practice, advice on ~~the design of long-term incentives and~~ the level of stretch in the long-term incentive targets and

~~188~~

~~Governance (continued)~~

periodic updates on the TSR of Diageo and its peer companies for outstanding DLTIP

181

Governance (continued)

performance cycles. The fees paid to Deloitte in ~~relation to~~fiscal 22 for advice provided to the Committee were ~~£249,355~~£130,500 and were determined on a time and expenses basis.

~~Clifford Chance provided advice on the operation of share plans during the year. Fees paid in relation to this advice, again on a time and expenses basis, were £176,789.~~

The Committee is satisfied that the Deloitte ~~and Clifford Chance~~ engagement partners and teams that provide remuneration advice to the Committee do not have connections with Diageo that may impair their independence. The Committee reviewed the potential for conflicts of interest and judged that there were appropriate safeguards against such conflicts.

Statement of voting

The following table summarises the details of votes cast in respect of the resolutions on the Directors’ remuneration policy ~~and the annual report on remuneration~~ at the 2020 AGM and the Directors' remuneration report (excluding the policy) at the 2021 AGM.


		For		Against		Total votes cast		Abstentions			For		Against		Total votes cast		Abstentions
Directors’ remuneration policy	Total number of votes	1,644,443,671		121,538,951		1,765,982,622		3,321,427
	Percentage of votes cast	93.12	%	6.88	%	100	%	n/a
Annual report on remuneration	Total number of votes	1,715,489,143		51,495,925		1,766,985,068		2,229,889
	Percentage of votes cast	97.09	%	2.91	%	100	%	n/a
Directors’ remuneration policy1									Directors’ remuneration policy1	Total number of votes	1,644,443,671		121,538,951		1,765,982,622		3,321,427
										Percentage of votes cast	93.12	%	6.88	%	100	%	n/a
Directors' remuneration report (excluding the policy)2									Directors' remuneration report (excluding the policy)2	Total number of votes	1,661,293,734		68,483,076		1,729,776,810		23,650,135
										Percentage of votes cast	96.04	%	3.96	%	100	%	n/a

1.As shown on pages 89 – 94 of the 2020 Annual Report

2.As shown on pages 104 – 110 and 117 - 128 of the 2021 Annual Report

The Committee was pleased with the level of support shown for the Directors' remuneration policy and ~~implementation~~Directors' remuneration report, and ~~appreciated~~appreciates the active participation of shareholders and their representative advisory bodies in consulting on executive remuneration ~~matters.~~matters

~~Remuneration Committee governance~~

Approach to stakeholder engagement

The Committee ~~has taken into account stakeholder~~is interested in the views ~~through consultation~~of investors and maintains an ongoing dialogue with a broad group of shareholders and institutional advisors ~~throughout~~on remuneration matters. In July 2022, we wrote to our largest shareholders and the ~~year, as well as through~~proxy advisors about the implementation of the policy in fiscal 23 and the Committee Chairman is looking forward to engaging regarding the review of our Directors’ remuneration policy in advance of the 2023 AGM.

The Chairman leads global workforce engagement sessions ~~led by~~throughout the ~~Chairman,~~year and there are focus group sessions with other ~~Non-Executive Directors and feedback~~non-executive directors. Feedback from management and the wider workforce is received through the Your Voice employee engagement survey and ~~‘pulse’~~market specific pulse surveys. ~~A broad group of Diageo’s top 20 shareholders~~More information on workforce engagement can be found on page 96 and ~~key proxy advisors were engaged.~~ page 118.

An overall review of wider workforce remuneration and policies is tabled as a ~~discrete~~separate agenda item at the Committee’s October meeting and relevant aspects of wider workforce remuneration are referenced in other agenda items during the year. ~~This ensures~~

These activities ensure that shareholder views and interests, as well as the all-employee reward context at Diageo, are appropriately considered when making executive remuneration decisions.

~~Further details on pages 167-169.~~

FURTHER DETAILS ON PAGES 159-162

182

Governance (continued)

Allocation of time

The graph reflects an approximation of the allocated time for key agenda items at Remuneration Committee meetings throughout the year.

With no policy changes or significant changes to the implementation of policy in fiscal 22, there was less time spent engaging with shareholders this year than in recent years. This year, more time was spent on individual remuneration decisions as a result of Executive Committee changes. Given ongoing market volatility, the Committee also spent significant time on target setting and considering the impacts of the inflationary environment.

~~189~~183

Governance (continued)

Key decision

Link to Diageo remuneration principles

Link to corporate governance
principles

Stakeholder engagement

Manage the return to annual incentive plan ~~target-setting process in~~target-setting. In the previous year, performance was measured over two half-year periods ~~to reflect the significant levels of uncertainty facing the business across multiple markets~~

~~[1] [2] [4]~~

~~The Committee considered the views of key shareholders and investor bodies (clarity).~~

This decision ~~enabled~~represents a return to incentivising executives to achieve stretching targets over an annual period. Targets are aligned to short-term critical milestones within the ~~Remuneration Committee~~broader business plan.

(Proportionality)

As part of wider shareholder engagement, we noted the return to ~~ensure relevant and robust incentive targets were set, aligned with shareholder interests (risk and proportionality).~~

~~The proposal was shared with a group of key shareholders, UK institutional bodies and US proxy agencies in May 2020 and~~ the ~~response was broadly supportive. A similar change in~~usual annual approach to target-setting was made for employees below the Executive Committee: annual incentive plan targets were set on a quarterly basis, in line with the financial planning cycle, with payments subject to a holistic year-end assessment process.target setting.

~~ESG~~Setting targets for performance shares and share options granted under the Diageo Long Term Incentive Plan (DLTIP) in September ~~2020~~2021

~~[1] [2] [4]~~

The Committee ~~engaged shareholders on~~determined that retaining the ~~proposal for ESG~~measures already in place supported delivery of the business strategy, provided a balanced set of financial and non-financial measures, and targets ahead of publication (clarity). The purpose and strategic alignment of the measures and targets have been clearly laid out on page 205 of this report (simplicity). The ESG targets ensure focus on some of Diageo’s key non-financial objectives,supported our ~~'Society 2030: Spirits of Progress' ambition, with Diageo’s focus on inclusion and sustainability in the future interest of shareholders (risk and~~ alignment with ~~culture). Pay-out opportunity under~~company culture, particularly the ESG ~~measures is set out in page 205 of this report (predictability).~~component.

(Alignment with Strategy, Clarity, Simplicity)

In light of the significant impact of the pandemic on the business planning cycle and the company’s ability to forecast long-term performance, the Committee had delayed target-setting for 2020 long-term incentive targets for a period of six months. Shareholders were engaged ~~about~~regarding the ~~proposed ESG targets ahead~~performance measures underpinning the 2021 plans. Through regular global communication platforms, employees are made aware of ~~publication~~the business ambitions and focus, which aligns with how our executives are incentivised over the longer term. Those employees who also participate in February 2021, in line with the company’s intention to consult with shareholders on 2020 targets as signposted in the 2020 annual report. As part of this, the timeline for publishing financial targets was confirmed to shareholders.Through workforce engagement sessions and surveys, employees have shared theyperformance based long-term incentives are ~~proud of Diageo’s focus on championing inclusion and diversity, and wider societal impact.~~regularly engaged regarding performance against targets.

Payout under the annual incentive plan for the Executive Committee for the year ended 30 June ~~2021~~2022

~~[1] [2] [3] [4]~~

The company’s performance has resulted in strong returns to shareholders. By ensuring that executives are recognised for strong performance, the Remuneration Committee is able to motivate and retain the very best talent, which ~~also~~ creates shareholder ~~value (risk).~~value.

(Proportionality)

The Committee considers the experience of the wider workforce when making decisions on executive pay to ensure there is clear alignment ~~in principles and practice.~~ of principles.
The annual incentive payout for employees below the Executive Committee also reflects strong holistic business ~~performance.~~performance, and their bonus is derived from the same measures that underpin the Executive Directors' annual incentive.

Vesting of performance shares and share options granted in September ~~2018~~2019 in line with measured achievements, with no application of discretion

~~[1] [2] [4]~~

~~After considering carefully the~~

The company’s performance has resulted in strong returns to shareholders over the ~~remuneration opportunity in totality as well as that of the wider workforce,~~three-year performance period and the Committee ~~decided that~~considered the ~~annual~~formulaic vesting outcome a fair reflection of business performance which would appropriately reward what has been a challenging and uncertain three-year period.

(Proportionality)

As the Remuneration Committee was not minded to exercise any discretion regarding the long-term incentive ~~payout would provide appropriate recognition and reward of performance and leadership (proportionality).~~

~~Through conversations during the year, shareholders acknowledged the significant impact of the pandemic~~outcome, there was no consultation on executive pay. The Committee reviewed the outlook for unvested 2018 DLTIP awards in the broader context of overall performance during the three-year vesting period ending 30 June 2021 and considered, but decided against, the application of upward discretion.this matter.

Diageo’s remuneration principles

Delivery of business strategy;

Creating sustainable, long-term performance;

Winning best talent;

Consideration of stakeholder interests

~~Diageo’s remuneration principles~~ ~~[1] Delivery of business strategy; [2] Creating sustainable, long-term performance;~~
~~[3] Winning best talent; [4] Consideration of stakeholder interests;~~

184

Governance (continued)

Directors’ remuneration policy

This section of the report ~~summarises~~sets out the current policy for the remuneration of the company’s Directors. The policy was approved by shareholders at the AGM on 28 September ~~2020, in accordance with section 439A of the Companies Act 2006.~~2020. The policy approved in

~~190~~

~~Governance (continued)~~

September 2020 can be found on the company’s website ~~at www.diageo.com/en/investors/financial-results-and-presentations/directors-remuneration-report-2020/.~~https://media.diageocms.com/diageo-corporate-media/media/c54dsk3z/256_directors-remuneration-report.pdf


l			Base salary
			Purpose and link to strategy
			Supports the attraction and retention of the best global talent with the capability to deliver Diageo’s strategy and performance goals.
			Operation
			• –Normally reviewed annually or following a change in responsibilities with any increases usually taking effect from 1 October. • –The Remuneration Committee considers the following parameters when reviewing base salary levels: • –Pay increases for other employees across the group. • –Economic conditions and governance trends. • –The individual’s performance, skills and responsibilities. • –Base salaries (and total remuneration) at companies of similar size and international scope to Diageo, with roles typically benchmarked against the FTSE 30 excluding financial services companies, or against similar comparator groups in other locations dependent on the Executive Director’s home market.
			Opportunity
			Salary increases will be made in the context of the broader employee pay environment, and will normally be in line with those made to other employees in relevant markets in which Diageo operates, typically the United Kingdom and the United States, unless there is a change in role or responsibility or other exceptional circumstances.
l			Benefits
			Purpose and link to strategy
			Provides market-competitive and cost-effective benefits.
			Operation
			• –The provision of benefits depends on the country of residence of the Executive Director and may include but is not limited to a company car or travel allowance, the provision of a contracted car service or equivalent, product allowance, life insurance, accidental death and disability insurance, medical cover, financial counselling and tax advice. • –The Remuneration Committee has discretion to offer additional allowances, or benefits, to Executive Directors, if considered appropriate and reasonable. These may include relocation expenses, housing allowance and school fees where a Director is asked to relocate from his/her home location as part of their appointment.
			Opportunity
			• –The benefits package is set at a level which the Remuneration Committee considers: • –provides an appropriate level of benefits depending on the role and individual circumstances; • –is appropriate in the context of the benefits offered to the wider workforce in the relevant market; and • –is in line with comparable roles in companies of a similar size and complexity in the relevant market.

~~191~~

~~Governance (continued)~~


l			Post-retirement provision
			Purpose and link to strategy
			Provides cost-effective, competitive post-retirement benefits.
			Operation
			• –Provision of market-competitive pension arrangements or a cash alternative based on a percentage of base salary.
			Opportunity
			• –The maximum company pension contribution under the 2020 remuneration policy is 14% of salary for any new Executive Director appointments. • –Current legacy company contributions for Ivan Menezes ~~and Kathryn Mikells~~ in the year ended 30 June ~~2021 were each~~2022 was 20% of base salary. The company contribution for Ivan Menezes was reduced from 40% to 30% effective 1 July 2016, and from 30% to 20% effective 1 July 2019. ~~• It is the company’s intention to~~–The company will reduce the pension contribution for Ivan Menezes to 14% of salary, in line with the maximum company contribution to ~~new-hire~~ employees in the United Kingdom, byon 1 January 2023. • –The ~~new~~ CFO, Lavanya Chandrashekar, who was appointed on 1 July 2021, receives a pension contribution of 14% of salary.

185

Governance (continued)


l			Annual Incentive Plan (AIP)
			Purpose and link to strategy
			Incentivises ~~year-on-year~~ delivery of Diageo’s financial and strategic targets over the year. Provides focus on key financial metrics and the individual’s contribution to the company’s performance.
			Operation
			• –Performance measures, weightings and targets are set by the Remuneration Committee. Appropriately stretching targets are set by reference to the operating plan and historical and projected performance for the company and its peer group. • –The level of award is determined with reference to Diageo’s overall financial and strategic performance and individual performance. • –A minimum of one-third of the actual earned bonus payment will normally be deferred into shares under the Deferred Bonus Share Plan, to be held for a minimum period of three years, other than in exceptional circumstances. The remainder of the bonus payment will be paid out in cash after the end of the financial year. • –The Committee has discretion to adjust the level of payment if it is not deemed to reflect appropriately the individual’s contribution or the overall business performance. Any discretionary adjustments will be detailed in the following year’s annual report on remuneration. .• –The Committee has discretion to apply malus or clawback to bonus, i.e. the company may seek to recover bonus paid or deferral into shares, in exceptional circumstances, such as gross misconduct or gross negligence during the performance period. • –Notional dividends accrue on deferred bonus share awards, delivered as shares or cash at the discretion of the Remuneration Committee at the end of the vesting period.
			Opportunity
			For threshold performance, up to 50% of salary may be earned, with up to 100% of salary earned for on-target performance and a maximum of 200% of salary payable for outstanding performance.
			Performance conditions
			Annual incentive plan awards are normally based 70%-100% on financial measures which may include, but are not limited to, measures of sales, profit and cash, and 0%-30% on broader objectives based on strategic goals and/or individual contribution.
l			Diageo Long-Term Incentive Plan (DLTIP)
			Purpose and link to strategy
			Provides focus on delivering superior long-term returns to shareholders.
			Operation
			• –An annual grant of performance shares and/or market-price share options which vest subject to a performance test and continued employment, normally over a period of three years. • –Measures and stretching targets are reviewed annually by the Remuneration Committee for each new award. • –The Remuneration Committee has the authority to exercise discretion to adjust the vesting outcome based on its assessment of underlying business performance over the performance period. This may include the consideration of factors such as holistic performance relative to peers, stakeholder outcomes and significant investment projects, for example. • –Following vesting, there is normally a further retention period of two years. Executive Directors are able to exercise an option or sell sufficient shares to cover any tax liability when an award vests, provided they retain the net shares arising for the two-year retention period. • –Notional dividends accrue on performance share awards to the extent that the performance conditions have been met, delivered as shares or cash at the discretion of the Remuneration Committee at the end of the vesting period. • –The Committee has discretion to reduce the number of shares which vest (subject to HMRC rules regarding approved share options), for example in the event of a material performance failure, or a material restatement of the financial statements. There is an extensive malus clause for awards made from September 2014. The Committee has discretion to decide that: • –the number of shares subject to the award will be reduced; • –the award will lapse; • –retention shares (i.e. vested shares subject to the additional two-year retention period) will be forfeited; • –vesting of the award or the end of any retention period will be delayed (e.g. until an investigation is completed); • –additional conditions will be imposed on the vesting of the award or the end of the retention period; and/or • –any award, bonus or other benefit which might have been granted or paid to the participant in any later year will be reduced or not awarded. • –Malus and clawback provisions will apply up to delivery of shares at the end of the retention period (as opposed to the vesting date). The company also has the standard discretion to take account of unforeseen events, such as a variation to share capital.
			Opportunity
			• –The maximum annual grants for the Chief Executive and Chief Financial Officer are 500% and 480% of salary in performance share equivalents respectively (where a market-price option is valued at one-third of a performance share). Included within that maximum, no more than 375% of salary will be awarded in face-value terms in options to any Executive Director in any year. • –Awards vest at 20% of maximum for threshold performance and 100% of maximum if the performance conditions are met in full. The vesting schedule related to the levels of performance between threshold and maximum, including whether or not this will include an interim stretch performance level, will be determined by the Committee on an annual basis and disclosed in the relevant remuneration report for that year. There is a ranking profile for the vesting of the part of the award based on relative total shareholder return, starting at 20% of maximum for achieving the threshold.

~~192~~

~~Governance (continued)~~


			Performance conditions
			–The vesting of awards is linked to a range of measures which may include, but are not limited to: • –a growth measure (e.g. net sales growth, operating profit growth); • –a measure of efficiency (e.g. operating margin, cumulative free cash flow, return on invested capital); • –a measure of Diageo’s performance in relation to its peers (e.g. relative total shareholder return); and • –a measure relating to ESG (environmental, social or governance) priorities. • –Measures that apply to performance shares and market-price options may differ, as is the case for current awards. Weightings of these measures may also vary year on year. • –The Remuneration Committee has discretion to amend the performance conditions in exceptional circumstances if it considers it appropriate to do so, e.g. in cases of accounting policy changes, merger and acquisition activities or disposals. Any such amendments would be fully disclosed and explained in the following year’s annual report on remuneration.

186

Governance (continued)


l			All-employee share plans
			Purpose and link to strategy
			To encourage broader employee share ownership through locally approved plans.
			Operation
			• –The company operates tax-efficient all-employee share acquisition plans in various jurisdictions. • –Executive Directors’ eligibility may depend on their country of residence, tax status and employment company.
			Opportunity
			• –Limits for all-employee share plans are set by the tax authorities. The company may choose to set its own lower limits.
			Performance conditions
			• –Under the UK Share Incentive Plan, the annual award of Freeshares is based on Diageo plc financial measures which may include, but are not limited to, measures of sales, profit and cash.
l			Shareholding requirement
			Purpose and link to strategy
			• –Ensures alignment between the interests of Executive Directors and shareholders.
			Operation
			• –The minimum in-employment shareholding requirement is 500% of base salary for the Chief Executive and 400% of base salary for any other Executive Directors. • –Executive Directors are expected to build up their in-employment shareholding within five years of their appointment to the Board. • –Executive Directors will be restricted from selling more than 50% of shares which vest under the long-term incentive plan or deferred bonus share plan (excluding the sale of shares to cover tax on vesting and other exceptional circumstances to be specifically approved by the Chief Executive and/or Chairman), until the shareholding requirement is met. • –In order to provide further long-term alignment with shareholders, Executive Directors will normally be expected to maintain a holding of shares in Diageo for a two-year period after leaving the company. Executive Directors will normally be required to continue to hold 100% of the in-employment shareholding requirement (or, if lower, their actual shareholding on cessation) for the first year after leaving the company, reducing to 50% for the second year after leaving the company.

l			Chairman of the Board and Non-Executive Directors
			Purpose and link to strategy
			• –Supports the attraction, motivation and retention of world-class talent and reflects the value of the individual, their skills and experience, and performance.
			Operation
			• –Fees for the Chairman and Non-Executive Directors are normally reviewed every year. • –A proportion of the Chairman’s annual fee is used for the monthly purchase of Diageo ordinary shares, which have to be retained until the Chairman retires from the company or ceases to be a Director. • –Fees are reviewed in ~~the~~ light of market practice in the FTSE 30, excluding financial services companies, and anticipated workload, tasks and potential liabilities. • –The Chairman and Non-Executive Directors do not participate in any of the company’s incentive plans nor do they receive pension contributions or benefits. Their travel and accommodation expenses in connection with attendance at Board meetings (and any tax thereon) are paid by the company. • –The Chairman and the Non-Executive Directors are eligible to receive a product allowance or cash equivalent at the same level as the Executive Directors. • –All Non-Executive Directors have letters of appointment. A summary of their terms and conditions of appointment is available at www.diageo.com. The Chairman of the Board, Javier Ferrán, was ~~re- appointed~~re-appointed on 10 October 2019 for a three-year term, terminable on three months’ notice by either party or, if terminated by the company, by payment of three months’ fees in lieu of notice.






			Opportunity
			• –Fees for Non-Executive Directors are within the limits set by the shareholders from time to time, with an aggregate limit of £1,750,000, excluding the Chairman’s fees.

~~193~~187

Governance (continued)

Policy considerations

Performance measures

Further details of the performance measures under the annual incentive plan for the year ending 30 June ~~2022~~2023, as well as targets under the long-term incentive plan for awards to be made in September ~~2021,~~2022, and how they are aligned with company strategy and the creation of shareholder value, are set out in the annual report on remuneration, on ~~pages 212-213.~~page 193.

Annual incentive targets will be disclosed retrospectively in next year’s annual report on remuneration.

Performance targets are set to be stretching yet achievable, and take into account the company’s strategic priorities and business environment. The Committee sets targets based on a range of reference points, including the corporate strategy and broker forecasts for both Diageo and its peers.

Projected total remuneration scenarios

The graphs below illustrate scenarios for the projected total remuneration of Executive Directors at four different levels of performance: minimum, target, maximum, and maximum including assumed share price appreciation of 50% (in accordance with the Corporate Governance Code). The impact of potential share price movements is excluded from the other three scenarios. These charts have been updated from the charts included in the 2021 Directors' remuneration report and reflect projected remuneration for the ~~financial~~ year ending 30 June ~~2022.~~2023.

188

Governance (continued)

Basis of calculation and assumptions:

The ‘Minimum’ scenario shows fixed remuneration only, i.e. base salary for the year ending 30 June ~~2022, total value of contractually agreed benefits for 2022,~~2023 2023, and the pension benefits to be accrued over the year ending 30 June ~~2022.~~2023. These are the only elements of the Executive Directors’ remuneration packages that are not subject to performance conditions.

The ‘Target’ scenario shows fixed remuneration as above, plus a target payout of 50% of the maximum annual bonus and threshold performance vesting for long-term incentive awards at 20% of the maximum award.

The ‘Maximum’ scenario reflects fixed remuneration, plus full payout of annual and long-term incentives.

The ‘Maximum plus share price growth’ scenario reflects fixed remuneration, plus full payout of annual and long-term incentives, including for the latter an assumed 50% share price appreciation over the performance period.

For long-term incentives, the awards are treated as though they were granted all in performance shares.

The amounts shown in sterling are converted using the cumulative weighted average exchange rate for the year ended 30 June ~~2021~~2022 of £1 = ~~$1.35.~~$1.33.

~~194~~

~~Governance (continued)~~

Approach to recruitment remuneration

Diageo is a global organisation selling its products in more than 180 countries around the world. The ability to recruit and retain the best talent from all over the world is critical to the future success of the business. People diversity in all its forms is a core element of Diageo’s global talent strategy and, managed effectively, is a key driver in delivering Diageo’s Performance Ambition.

The Remuneration Committee’s overarching principle for recruitment remuneration is to pay no more than is necessary to attract an Executive Director of the calibre required to shape and deliver Diageo’s business strategy, recognising that Diageo competes for talent in a global marketplace. The Committee will seek to align any remuneration package with Diageo’s remuneration policy, ~~as laid out above,~~ but retains the discretion to offer a remuneration package which is necessary to meet the individual circumstances of the recruited Executive Director and to enable the hiring of an individual with the necessary skills and expertise. However, the maximum ~~short-~~short-term and long-term incentive opportunity will follow the policy, although awards may be granted with different performance measures and targets in the first year. On appointment of an external Executive Director, the Committee may decide to compensate for variable remuneration elements the Director forfeits when leaving their current employer. In doing so, the Committee will ensure that any such compensation would have a fair value no higher than that of the awards forfeited, and would generally be determined on a comparable basis taking into account factors including the form in which the awards were granted, performance conditions attached, the probability of the awards vesting (e.g. past, current and likely future performance), as well as the vesting schedules. Depending on individual circumstances at the time, the Committee has the discretion to determine the type of award (i.e. cash, shares or ~~options,~~options), holding period and whether or not performance conditions would ~~apply).~~apply.

Any such award would be fully disclosed and explained in the following year’s annual report on remuneration. When exercising its discretion in establishing the reward package for a new Executive Director, the Committee will carefully consider the balance between the need to secure an individual in the best interests of the company against the concerns of investors about the quantum of remuneration and, if considered appropriate at the time, will consult with the company’s biggest shareholders. The Remuneration Committee will provide timely disclosure of the reward package of any new Executive Director.

~~195~~189

Governance (continued)

Service contracts and policy on payment for loss of office (including takeover provisions)

Executive Directors have rolling service contracts, details of which are set out below. These are available for inspection at the company’s registered office.


Executive Director			Date of service contract
Ivan Menezes Kathryn Mikells Lavanya Chandrashekar			7 May 2013 1 October 2015 1 July
Lavanya Chandrashekar			13 January 2021


Notice period			The contracts provide for a period of six months’ notice by the Executive Director or 12 months’ notice by the company, the same as would apply for any newly-appointed Executive Director. A payment may be made in lieu of notice equivalent to 12 months’ base salary and the cost to the company of providing contractual benefits (including pension contributions but excluding incentive plans). The service contracts also provide for the payment of outstanding pay and bonus if an Executive Directors leaves following a takeover, or other change of control of Diageo plc. If, on the termination date, the Executive Director has exceeded his/her accrued holiday entitlement, the value of such excess may be deducted by the company from any sums due to him/her, except to the extent that such deduction would subject the Executive Director to additional tax under section 409A of the Code (in the case of Ivan Menezes). If the Executive Director on the termination date has accrued but untaken holiday entitlement, the company will, at its discretion, either require the Executive Director to take such unused holiday during any notice period or make a payment to him/her in lieu of it, provided always that if the employment is terminated for cause then the Executive Director will not be entitled to any such payment.
Mitigation			The Remuneration Committee may exercise its discretion to require a proportion of the termination payment to be paid in instalments and, upon the Executive Director commencing new employment, to be subject to mitigation except where termination is within 12 months of a takeover, or within such 12 months the Executive Director leaves due to a material diminution in status.
Annual Incentive Plan (AIP)			Where the Executive Director leaves for reasons including retirement, death in service, disability, ill-health, injury, redundancy, transfer out of the group and other circumstances at the Remuneration Committee’s discretion during the financial year, the Executive Director is usually entitled to an incentive payment pro-rated for the period of service during the performance period, which is typically payable at the usual payment date. Where the Executive Director leaves for any other reason, no payment or bonus deferral will be made. The amount is subject to performance conditions being met and is at the discretion of the Committee. The Committee has discretion to determine an earlier payment date, for example, on death in service. The bonus may, if the Committee decides, be paid wholly in cash.
2020 Deferred Bonus Share Plan (DBSP)			Where the Executive Director leaves for any reason other than dismissal, they are entitled to retain any deferred bonus shares, which will vest on departure, subject to any holding requirements under the post-employment shareholding policy. It is not considered necessary for the bonus deferral to continue to apply after leaving, since the bonus is already earned based on performance, and there is a post-employment shareholding requirement that ensures the Executive Director continues to be invested in the company’s longer-term interests. On a takeover or other corporate event, awards vest in full.
Diageo 2014 Long-Term Incentive Plan (DLTIP)			Where the Executive Director leaves for reasons including retirement, death in service, disability, ill-health, injury, redundancy, transfer out of the group and other circumstances at the Remuneration Committee’s discretion during the financial year, awards vest on the original vesting date unless the Remuneration Committee decides otherwise (for example, in the case of death in service). When an Executive Director leaves for any other reason, all unvested awards generally lapse immediately. The retention period for vested awards continues for all leavers other than in cases of disability, ~~ill health~~ill-health or death in service, unless the Remuneration Committee decides otherwise. The proportion of the award released depends on the extent to which the performance condition is met. The number of shares is reduced on a pro-rata basis reflecting the length of time the Executive Director was employed by the company during the performance period, unless the Committee decides otherwise (for example, in the case of death in service). On a takeover or other corporate event, awards vest subject to the extent to which the performance conditions are met and, unless the Committee decides otherwise, the awards are time pro-rated. Otherwise the Committee, in agreement with the new company, may decide that awards should be swapped for awards over shares in the new company; where awards are granted in the form of options, then on vesting they are generally exercisable for 12 months (or six months for approved options).
Repatriation/other			In cases where an Executive Director was recruited from outside the United Kingdom and has been relocated to the United Kingdom as part of their appointment, the company will pay reasonable repatriation costs for leavers at the Committee’s discretion. The company may also pay for reasonable costs in relation to the termination, for example, tax, legal and outplacement support, where appropriate.

~~196~~190

Governance (continued)

Non-Executive ~~Directors��~~Directors’ unexpired terms of appointment

All ~~Non-Executive Directors~~non-executive directors are on three-year terms which are expected to be extended up to a total of nine ~~years.The~~years. The date of initial appointment to the Board and the point at which the current letter of appointment expires for ~~Non-Executive Directors~~non-executive directors are shown in the table below.


Non-Executive Directors	Date of appointment to the Board	Current letter of appointment expires

Javier Ferrán	22 July 2016	AGM 2022
Susan Kilsby	4 April 2018	AGM ~~2021~~2024
Melissa Bethell	30 June 2020	AGM 2023
Valérie Chapoulaud-Floquet	1 January 2021	AGM 2024
Sir John Manzoni	1 October 2020	AGM 2023
Lady Mendelsohn	1 September 2014	AGM 2023
Alan Stewart	1 September 2014	AGM 2023
Ireena Vittal	2 October 2020	AGM 2023
Karen Blackett	1 June 2022	AGM 2025

Payments under previous policies

The Committee reserves the right to make any remuneration payments and payments for loss of office, notwithstanding that they are not in line with the policy set out above, where the terms of the payment were agreed (i) under a previous policy, in which case the provision of that policy shall continue to apply until such payments have been made; (ii) before the policy or the relevant legislation came into effect; or (iii) at a time when the relevant individual was not a Director of the company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a Director of the company.

Remuneration for the wider workforce

The structure of the reward package for the wider employee population is based on the principle that it should be sufficient to attract and retain the best talent and be competitive within our broader industry, remunerating employees for their contribution linked to our holistic performance. It is driven by local market practice, as well as level of seniority and accountability, reflecting the global nature of Diageo’s business.

There is clear alignment in the pay structures for ~~executives~~Executives and the wider workforce in the way that remuneration principles are followed, as well as the mechanics of the salary review process and incentive plan design, which are broadly consistent throughout the organisation. The performance measures under the annual incentive plan and long-term incentive plan are the same for ~~executives~~Executives and other eligible employees. There is a strong focus on performance-related pay, with appropriate levels of differentiation to ensure that reward is invested in the talent that will make the biggest contribution to the execution of Diageo’s strategy. Where possible, the company also encourages employee share ownership through a number of share plans that allow employees to benefit from the company’s success.

The remuneration approach for Executive Directors is consistent with the reward package for members of the Executive Committee and the senior management population. Generally speaking, a much higher proportion of total remuneration for the Executive Directors is linked to business performance, compared to the rest of the employee population, so that remuneration will increase or decrease in line with business performance and to align the interests of Executive Directors and shareholders.

Each year the Remuneration Committee is briefed on the structure and quantum of the all-employee remuneration framework, as well as throughout the year being informed about the context, challenges and opportunities relating to the remuneration of the wider workforce across the world, to enable the Committee to consider the broader employee context when making executive remuneration decisions.

In ~~2021,~~2022, the Remuneration Committee has considered:

~~– the impact of the pandemic~~•external factors impacting on business performance and reward outcomes;

– •the continued focus on appropriate and competitive pay positioning around the ~~world, with an emphasis on key markets such as the US and China;~~world;

– •ongoing commitment to inclusion and ~~diversity;~~diversity and achieving Diageo's broader ESG ambition; and

– •review of global benefits, with a consistent core benefit offering implemented across the world.

The Committee also considers the annual salary increase budgets for employees in key markets, as well as pay for the global senior management population.

~~197~~191

Governance (continued)

Shareholder engagement

The Committee greatly values the continued dialogue with Diageo’s shareholders and regularly engages with shareholders and representative bodies to take their views into account when setting and implementing the company’s remuneration policies.

This year, the company has engaged extensively with shareholders and their proxy advisors on the impact of the pandemic on the vesting outcome for outstanding long-term incentives, the introduction of the new ESG measure under the long-term incentive plan and the setting of stretching and measurable targets under the annual and long-term incentive plans.

More detail on engagement with shareholders in ~~2021~~2022 can be found ~~in the Remuneration Committee governance section~~ on page ~~190.~~182.

Workforce engagement

Diageo runs annual employee engagement surveys, ~~as well as more recently regular ‘pulse’ surveys on the company’s handling of the impact of the pandemic on the workforce,~~ which give employees the opportunity to give feedback and express their views on a variety of topics including their own remuneration, working environment and workforce policies and practices. Any comments relating to Executive Directors’ remuneration are fed back to the Remuneration Committee.

The Chairman was appointed to lead workforce engagement on behalf of the Board on 1 July ~~2019~~2019. In fiscal 22, the Chairman and ~~throughout~~ the ~~year has~~Non-Executive Directors met with ~~a range of~~1,435 Diageo employees ~~across all~~in 16 meetings, representing different levels, functions and ~~regions~~regions. The insights gathered from the sessions are reviewed and discussed periodically at Board meetings, something that helps to ~~hear their views~~inform key board decisions. More detail on the ~~company, culture~~approach and ~~working environment. A number of Non-Executive Directors also met with employees around the world to broaden the reach~~impact of workforce engagement ~~activities.~~ in the year ended 30 June 2022 is outlined in the Corporate Governance report on page 161.

As part of this engagement, the Chairman has taken the opportunity to explain to employees the role of the Board and its delegated Committees, including the role of the Remuneration Committee in setting executive pay. ~~In the~~The sessions this year ~~ending 30 June 2022, it is intended that workforce engagement sessions will include~~included a more detailed ~~explanation of~~discussion about the executive remuneration ~~framework.~~

~~A workforce engagement statement has been shared~~framework, executive remuneration principles and structure and how executive pay aligns with employees to feed back the key insights and outcomes from all of the engagement activities during 2021, and this included information on the way in which workforce engagement discussions on the management of employee health, safety and wellbeing during the pandemic provided valuable insights and contextpay for the ~~Remuneration Committee’s decision making on the incentive plan outcomes for the year ended 30 June 2021 for executives and the~~ wider workforce. ~~More detail on the approach and impact of workforce engagement in the year ended 30 June 2021 is outlined in the governance report on pages 169-170.~~

~~198~~192

Governance (continued)

Annual report on remuneration

The following section provides details of how the company’s 2020 remuneration policy was implemented during the year ended 30 June ~~2021~~,2022, and how the Remuneration Committee intends to implement the proposed remuneration policy in the year ending 30 June ~~2022~~.2023.

Single total figure of remuneration for Executive Directors

The table below details the Executive Directors’ remuneration for the year ended 30 June ~~2021~~.2022.

Ivan Menezes1
Kathryn Mikells1
Fixed pay 2021 2021 2020 2020 2021 2021 2020 2020

'000 '000 '000 '000 '000 '000 '000 '000
Salary £1,231 $1,661 £1,309 $1,649 £810 $1,093 £861 $1,085
Benefit2
£82 $111 £99 $124 £47 $63 £42 $53
Pension3
£306 $413 £281 $354 £172 $232 £176 $221
Total fixed pay £1,619 $2,185 £1,689 $2,127 £1,029 $1,388 £1,079 $1,359

Performance related pay

Annual incentive4
£2,308 $3,115 £0 $0 £1,478 $1,995 £0 $0
Long-term incentives 5
£1,975 $2,666 £584 $736 £1,247 $1,684 £369 $465
Other incentives6
£0 $0 £0 $0 £1 $1 £4 $5
Total variable pay £4,283 $5,781 £584 $736 £2,726 $3,680 £373 $470
Total single figure of remuneration £5,902 $7,966 £2,273 $2,863 £3,755 $5,068 £1,452 $1,829


	Ivan Menezes1				Lavanya Chandrashekar1
	2022	2022	2021	2021	2022	2022	2021	2021
	£ '000	$ '000	£ 000	$ 000	£ '000	$ '000	'000	'000
Salary	£1,277	$1,699	£1,231	$1,661	£733	$975	n/a	n/a
Benefits2	£133	$177	£82	$111	£429	$571
Pension3	£209	$278	£306	$413	£103	$138
Total fixed pay6	£1,619	$2,153	£1,619	$2,185	£1,265	$1,684

Performance related pay
Annual incentive4	£2,413	$3,209	£2,308	$3,115	£1,320	$1,755
Long-term incentives5	£3,850	$5,120	£2,092	$2,825	£131	$174



Total variable pay6	£6,262	$8,329	£4,400	$5,940	£1,450	$1,929

Total single figure of remuneration6	£7,881	$10,482	£6,019	$8,125	£2,716	$3,613


1	Exchange rate	The amounts shown in ~~sterling~~US dollars are converted to sterling using the cumulative weighted average exchange rate for the respective financial year. For the year ended 30 June 2022 the exchange rate was £1 = $1.33 and for the year ended 30 June 2021 the exchange rate was £1 = ~~$1.35 and for the year ended 30 June 2020 the exchange rate was £1 = $1.26.~~$1.35. Ivan Menezes and ~~Kathryn Mikells~~Lavanya Chandrashekar are both paid in US dollars.
2	Benefits	The Benefits isnumber includes the gross value of all taxable benefits. For Ivan Menezes, these include medical insurance (£15k), company car allowance (£~~15k)~~16k), contracted car service (£~~11k)~~11.5k), financial counselling and tax return preparation (£~~38k)~~86k), product allowance, life and long-term disability cover. ~~Kathryn Mikells’~~Lavanya Chandrashekar's benefits include flexible benefits allowance (£18k), ~~financial counselling~~travel allowance (£~~19k), contracted car service (£3k), life cover (£6k)~~10k) and product allowance. £397k relates to one-time gross relocation costs following her relocation from the US to the UK in July 2021.
3	Pension	Pension benefits earned during the year represent the increase in the pension fund balances over the year in the Diageo North America Inc. pension plans over and above the increase due to inflation. As Ivan Menezes has been a deferred member of the Diageo Pension Scheme (DPS) in the United Kingdom since 31 January 2012, ~~and receives standard statutory increases in deferment~~ the United Kingdom pension amount that accrued over the two years in excess of inflation is nil. ~~Kathryn Mikells~~Lavanya Chandrashekar became a Director and started accruing benefits in the Supplemental Executive Retirement Plan (SERP) with effect from ~~9 November 2015.~~1 July 2021.	Pages 204-205Page 198
4	Annual incentive	The ~~maximum~~ performance ~~level~~levels achieved for ~~each~~the financial ~~measure was exceeded~~measures underpinning the annual incentive plan for the year ended 30 June ~~2021, resulting~~2022 resulted in an ~~annual incentive~~ outcome of 100% of maximum for the financial ~~element~~elements of the plan, which represented 80% of the maximum incentive opportunity. Taking account of performance against individual objectives, the annual incentive payout is ~~93.8%~~93.75% of maximum for Ivan Menezes and ~~91.3%~~90.00% of maximum for ~~Kathryn Mikells.~~Lavanya Chandrashekar. In accordance with the 2020 remuneration policy, one-third of Executive Director AIP after tax will be deferred into Diageo shares that will be held for a period of three years in a nominee account.	Pages 201-202Page 194
5	Long-term incentives	Long-term incentives represent the estimated gain delivered through share options and performance shares where performance conditions have been met in the respective financial year. It also includes the value of additional shares ~~granted~~earned in lieu of dividends on these vested performance shares. For 2022, long-term incentives comprise performance shares and share options awarded in 2019 and due to vest in September 2022 at 59.3% and 61.5% of maximum respectively for Ivan Menezes. Lavanya Chandrashekar became an Executive Director on 1 July 2021. In 2019, before she became an Executive Director, Lavanya Chandrashekar was awarded a 2019 PSP award, which is due to vest in September 2022 at 59.8%. £642k of the value reported above for Ivan Menezes and £11k for Lavanya Chandrashekar related to share price appreciation over the performance period. For 2021, long-term incentives comprise performance shares and share options awarded in 2018 ~~and due to vest~~that vested in September 2021 at 29.3% and 10% of maximum respectively. £576k of the value reported above for Ivan Menezes and £364k for Kathryn Mikells related to share price appreciation over the performance period. For 2020, long-term incentives comprise performance shares and share options awarded in 2017 that vested in September 2020 at 10% and 27.5% of maximum respectively, and dividend shares arising on performance shares that vested in September ~~2020.~~2021. Long-term incentives have been re-stated to reflect the share price on the vesting date ~~($133.25 compared to~~of $195.47 instead of the average three-month share price used in last year’s report of $137.21). The 2017 performance share award vested in September 2020 at 6.9% of maximum, as disclosed in the 2020 remuneration report, and a further 3.1% of the award vested in February 2021 following the resolution of the arbitration proceedings with Moët Hennessy SAS and Moët Hennessy International SAS in relation to the non-payment of a dividend payment for the year ended 31 December 2019.$186.00.	Page ~~203~~ 196
6	~~Other incentives~~Totals	~~Other incentives include~~Some figures and sub-totals add up to slightly different amounts than the ~~face value of awards made under the all-employee share plans (number of shares multiplied by the share price on the date of grant). Awards do not have performance conditions attached.~~totals due to rounding.

~~Payments to former Directors~~

~~There were no payments to former Directors in the year ended 30 June 2021.~~

~~Payments for loss of office~~

~~There were no payments for loss of office to Executive Directors in the year ended 30 June 2021.~~

Kathryn Mikells left the company on 30 June 2021 as part of an orderly succession plan, with notice beginning on 13 January 2021 upon the announcement of her intended departure. In accordance with the approved 2020 remuneration policy and her service contract which provided for a 12-month notice period, Kathryn received half of the payment in lieu of the remainder of her notice period (six months and 12 days) in July 2021 in respect of salary, benefits and pension ($362,174). In accordance with her service contract,

~~199~~

~~Governance (continued)~~

Kathryn was entitled to the remaining half of the payment in lieu of notice in monthly instalments over a six-month period between January and June 2022, but these payments will no longer become payable as a result of Kathryn taking up alternative employment (announced on 19 July 2021). Kathryn remains eligible for an annual incentive payment for the year ended 30 June 2021, subject to the performance conditions in the usual way (see page 201 for more details). The Committee also exercised its discretion, in accordance with the plan rules and the remuneration policy, to prorate to the leaving date all unvested long-term incentive awards. These awards remain subject to performance conditions to be assessed at the end of the original performance periods in 2021, 2022 and 2023 with a subsequent two-year holding period. The post-employment shareholding requirement policy will be applied for a period of two years post-exit, requiring Kathryn to hold Diageo shares equal to 400% of salary until 30 June 2022 and 200% of salary until 30 June 2023. Kathryn is also entitled to receive pension payments under the SERP in line with the disclosure on pages 204-205. In line with internal policies and the remuneration policy, the company supported Kathryn with the cost of her repatriation back to the United States. This support amounted to £106,000 in addition to shipping costs of £23,507 and £7,640 in flights (amounts paid net of tax, with the company covering the cost of tax on top). The company has also paid £12,000 of legal support for Kathryn and will be providing tax return preparation support for a period of up to three years following her departure (up to a maximum cost of £15,000 per annum).

~~200~~193

Governance (continued)

Looking back on ~~2021~~2022


Annual incentive plan (AIP)

AIP payout for the year ended 30 June ~~2021~~2022

AIP payouts for the Executive Directors are based 80% on performance against the group financial measures and 20% on performance against Individual Business Objectives (IBOs), as assessed by the Remuneration Committee and summarised in the table below.

Group financial measures1
Measure Weighting Threshold
Target6
Maximum Actual Payout
(% of total AIP opportunity)
Payout opportunity (% maximum) 25.0 % 50.0 % 100.00 %
Net sales (% growth)2
13.3 % (27.4) % (22.9) % (18.4) % 1.0 % 13.3 %
Operating profit (% growth)2
13.3 % (55.3) % (46.3) % (37.3) % (3.4) % 13.3 %
Operating cash conversion3
13.3 % 45.0 % 55.0 % 65.0 % 100.8 % 13.3 %
Half-year performance for 1 July 2020 - 31 December 2020 40.0 % 40.0 %
Net sales (% growth)2
13.3 % 25.5 % 31.3 % 37.1 % 39.3 % 13.3 %
Operating profit (% growth)2
13.3 % 38.1 % 53.1 % 68.0 % 69.7 % 13.3 %
Operating cash conversion3
13.3 % 90.0 % 100.0 % 101.0 % 110.5 % 13.3 %
Half-year performance for 1 January 2021 - 30 June 2021 40.0 % 40.0 %
Actual
Full-year net sales (% growth)2
16.0 %
Full-year operating profit (% growth)2
17.7 %
Full-year operating cash conversion3
110.5 %

Individual business objectives
Measure (IBOs equally weighted) and target Weighting Result Payout
(% of total AIP opportunity)
Ivan Menezes Chief Executive 20 % 13.75 %
Global employee engagement
Achieve consistent levels of employee engagement compared to 2019 levels, as measured by the 'Your Voice' survey The Chief Executive’s strong leadership in galvanising the company through unprecedented challenges over the past year has deepened employees’ sense of purpose, community and connection to Diageo, with the result that overall employee engagement at 81% was 1% higher than 2019. A strong response to pandemic included regular and effective employee communications, clear protocols on the return to office and trade as well as enhanced support to employees such as additional leave, flexible working practices and wellbeing resources. Employee engagement has been driven further through the focus on sustainability ('Society 2030: Spirit of Progress' ambition) and inclusion & diversity (e.g. support for the Black Lives Matter movement and International Women’s Day), all of which have been championed extensively within the organisation. 6.25 %
Supporting communities and trade
Support the recovery and build resilience from Covid-19 in communities and the hospitality industry Promotion of moderation and tackling harm in the home through DRINKiQ campaign, which reached 1.4m people (vs target of 600k). Tackled hospitality unemployment through the delivery of a business and hospitality skills training programme, which reached 8.6k people (vs target of 5.5k) across 21 markets and all 6 regions, despite Covid-19 restrictions. Delivered access to enhanced hygiene, sanitation and clean water through community WASH programme, which reached 54.7k people (vs target of 17.5k). 7.50 %
Kathryn Mikells Chief Financial Officer 20 % 11.25 %
Organisation effectiveness
Deliver effectiveness improvements in the technology and shared services functions Driven transformation within the technology and shared service functions, delivering operational efficiencies in areas such as the resolution of critical technology service incidents and strategic project deliverables as well as shared services effectiveness. 5.00 %
Productivity
Deliver productivity benefits Productivity benefits delivered in excess of target across supply, marketing, indirects and organisation effectiveness. 6.25 %


Group financial measures1
Measure	Weighting		Threshold		Target6		Maximum		Actual		Payout (% of total AIP opportunity)
Payout opportunity (% maximum)			25	%	50	%	100	%
Net sales (% growth)2	26.6	%	5.2	%	8.2	%	11.2	%	21.4	%	26.6	%
Operating profit (% growth)2	26.6	%	8.0	%	14.0	%	20.0	%	26.3	%	26.6	%
Operating cash conversion3	26.6	%	94.0	%	99.0	%	104.0	%	105.1	%	26.6	%
Full year performance for 1 July 2021 - 30 June 2022	80.0	%									80.0	%

Net sales (% growth)2	26.6	%	25.5	%	31.3	%	37.1	%	39.3	%	26.6	%
Operating profit (% growth)2	26.6	%	38.1	%	53.1	%	68.0	%	69.7	%	26.6	%
Operating cash conversion3	26.6	%	90.0	%	100.0	%	101.0	%	110.5	%	26.6	%
Half-year performance for 1 January 2021 - 30 June 2021	80.0	%									80.0	%

	Actual
Full-year net sales (% growth)2	16.0	%
Full-year operating profit (% growth)2	17.7	%
Full-year operating cash conversion3	110.5	%

~~201~~194

Governance (continued)

Payout
Group
(weighted 80%) IBO
(weighted 20%) Total
(% max) Total
(% salary)
Total (’000)4
Total (’000)
Ivan Menezes5
80.0 % 13.75 % 93.75 % 187.5 % £2,308 $3,115
Kathryn Mikells 80.0 % 11.25 % 91.25 % 182.5 % £1,478 $1,995


Individual business objectives
Measure (IBOs equally weighted) and target	Weighting		Result	Payout (% of total AIP opportunity)
Ivan Menezes Chief Executive	20	%		13.75	%
Global Market Share Performance - Grow or hold off-trade market share in 2/3rds of total net sales in measured markets.			We grew or held off-trade market share in over 85% of total net sales in measured markets.6	7.50	%
Positive drinking Achieve improvement in Positive Drinking in fiscal 22 Launch revamped DRINKiQ platform in 46 countries and ensure campaigns to amplify awareness running in all markets. Launch and amplify Wrong Side of the Road (WSOTR) Programme and educate 375,000 people on the dangers of drink driving. Reach 450 million consumers with a dedicated responsible drinking message from Diageo and our brands.			DRINKiQ (our responsible drinking tool) is now available in 73 countries in 23 languages, with amplification campaigns running around the world. This achievement means we have reached our 2030 target of launching DRINKiQ in all of our markets. WSOTR is a hard-hitting new programme to support changes in attitudes to drink driving globally. Despite the impacts from Covid-19 delaying and/or preventing campaign launches in multiple markets, the WSOTR Programme reached 500,415 people in 24 countries by the end of fiscal 22. By the end of fiscal 22, we reached 456 million people with messages of moderation.	6.25	%
Lavanya Chandrashekar Chief Financial Officer	20	%		10.00	%
Global Operating Margin - Grow operating margin in line with overall AOP.			Achieved the overall financial performance of the company versus AOP in fiscal 22.	5.00	%
Transformation of Global Business Operations Reduce time taken to set up customers and suppliers to increase speed to market and support growth. Reduction of 30% in manual journal entries. Improve Service Level Agreement (SLA) performance by resolving 80% of critical and high priority incidents within the specified SLA timeframe.			Significant progress made with the pilot market exceeding the target set and the global average time to set up customers substantially reduced from prior year. Technology solution designed to hit the target number of days to set up customers has been finalised and implementation was commenced in fiscal 22. Set up time for onboarding new suppliers has been reduced and the lead market has hit the supplier set up target in fiscal 22. Approximate reduction in manual journal entries of 75%, exceeding the target. Target exceeded, with 83% of combined critical and high priority incidents resolved within SLA timeframe in fiscal 22.	5.00	%


Payout
	Group (weighted 80%)		IBO (weighted 20%)		Total (% max)		Total (% salary)		Total (’000)4 GBP	Total (’000) USD
Ivan Menezes4,5	80.0	%	13.75	%	93.75	%	187.50	%	£2,413	$3,209
Lavanya Chandrashekar4,5	80.0	%	10.00	%	90.00	%	180.00	%	£1,320	$1,755

1. Performance against the AIP measures is calculated using ~~2021~~2022 budgeted exchange rates ~~in line with management reporting~~ and ~~excludes the impact of exchange and any exceptional items.~~measured on a currency-neutral basis.

2. For AIP purposes, the net sales and operating profit measures are calculated on budgeted currency exchange rates, after adjustments for acquisitions and disposals ~~at budgeted foreign exchange rates.~~and incorporate the new organic treatment of hyperinflationary economies.

3. For AIP purposes, ~~operating cash conversion~~Operating Cash Conversion (OCC) is calculated by dividing cash generated from operations excluding cash inflows/outflows in respect of exceptional items, dividends, maturing inventories and post-employment payments in excess of the amount charged to operating profit by operating profit before depreciation, amortisation, impairment and exceptional items. The measure incorporates the new organic treatment of hyperinflationary economies. The components of the ratio isare stated at the budgeted exchange rate for the year.

4. AIP payments are calculated using base salary as at 30 June ~~2021,~~2022, in line with the global policy that applies to other employees across the company.

5. In accordance with the 2020 remuneration policy, one-third of Ivan Menezes’ and Lavanya Chandrashekar's AIP payment after tax will be deferred into Diageo shares that will be held for a period of three years in a nominee ~~account managed by the company’s trustees.~~account. These shares will be acquired in September ~~2021.~~2022. The number of shares will be disclosed in the ~~2022~~2023 remuneration report.

~~6. The targets for the financial measures for the first half~~6 Internal estimates incorporating AC Nielsen, Association of ~~the year (1 July 2020 - 31 December 2020) were set before the results announcement for fiscal 2020, at a time when there was extensive trade shutdown across many parts of the world~~Canadian Distillers, Dichter and an unprecedented level of uncertainty for the year ahead. The targets for the first half are growth rates compared to the first half baseline of the prior year (1 July 2019 - 31 December 2019), which was unaffected by the Covid-19 pandemic. The targets for the second half of the year are growth rates compared to 1 January 2020 - 30 June 2020.Neira, Frontline, Intage, IRI, ISCAM, NABCA, Scentia, State Monopolies, TRAC, Ipsos and other third-party providers.

~~202~~195

Governance (continued)


Long-term incentive plans (LTIPs)

~~As approved by shareholders at the AGM in September 2014, long-term~~Long-term incentive awards are made under the Diageo Long-Term Incentive Plan (DLTIP)., which was approved shareholders at the AGM in September 2014. Awards are designed to incentivise Executive Directors and senior managers to deliver long-term sustainable performance and are subject to performance conditions ~~normally~~ measured over a three-year period. Awards are ~~delivered~~granted on an annual basis in both performance shares and share options. ~~With~~For Executive Directors, with the exception of the TSR measure, awards vest at 20% of maximum for threshold performance, and 100% of the award will vest if the performance conditions are met in full, with a straight-line payout between threshold and maximum.

Share options – granted in September ~~2018,~~2019, vesting in September ~~2021~~2022

~~On 4~~In September ~~2018,~~2019, Ivan Menezes ~~and Kathryn Mikells~~ received share option awards under the DLTIP, with an exercise price of ~~$140.89.~~$170.28. The award was subject to a performance condition assessed over a three-year period based on the achievement of the following equally weighted performance measures:

– •Diageo’s three-year total shareholder return (TSR) ranked against the TSR of a peer group of international drinks and consumer goods companies; and

– •growth in compound annual adjusted profit before exceptional items and tax.

The vesting profile for relative TSR is shown below:


TSR ranking (out of 17)	Vesting (% max)
1st, 2nd or 3rd	100	%
4th	95	%
5th	75	%
6th	65	%
7th	55	%
8th	45	%
9th	20	%
10th or below	0	%


TSR peer group (16 companies)
AB Inbev	Heineken	Pernod Ricard
Brown-Forman	Kimberly-Clark	Procter & Gamble
Carlsberg	~~Mondelēz International~~L'Oréal	Reckitt Benckiser
The Coca-Cola Company	~~Nestlé~~Mondelēz International	~~L'Oréal~~Unilever
Colgate-Palmolive	~~PepsiCo~~Nestlé	~~Unilever~~
Groupe Danone	PepsiCo

Performance shares – awarded in September ~~2018,~~2019, vesting in September ~~2021~~2022

~~On 3~~In September ~~2018,~~2019, Ivan Menezes and ~~Kathryn Mikells~~Lavanya Chandrashekar (although not an Executive Director at the time of grant) received performance share awards under the DLTIP. Awards vest after a three-year period subject to the achievement of three equally weighted performance conditions outlined below:

– •growth in compound annual adjusted profit before exceptional items and tax;

– •growth in organic net sales on a compound annual basis; and

– •cumulative adjusted free cash flow.

Notional dividends accrue on awards and are paid out either in cash or shares ~~in accordance with~~on the ~~vesting schedule.~~number of shares which vest.

196

Governance (continued)

Vesting outcome for ~~2018~~2019 performance share and share option awards in September ~~2021~~2022

~~The 2018~~For Ivan Menezes, the 2019 performance share award vested at ~~29.3%~~59.3% of maximum and the ~~2018~~2019 share option award vested at ~~10%~~61.5% of the maximum, as detailed below:


Vesting of 2018 DLTIP		Weighting		Threshold		Midpoint		Maximum		Actual		Vesting (% maximum)5
Vesting of 2019 DLTIP5														Vesting of 2019 DLTIP5	Weighting		Threshold		Midpoint		Maximum		Actual		Vesting (% maximum)5
Vesting if performance achieved (% maximum)	Vesting if performance achieved (% maximum)			20	%	60	%	100	%					Vesting if performance achieved (% maximum)			20	%	60	%	100	%
Organic net sales growth (CAGR)1	Organic net sales growth (CAGR)1	33	%	3.75	%	4.875	%	6.0	%	4.125	%	11.1	%	Organic net sales growth (CAGR)1	33	%	3.75	%	4.875	%	6.0	%	8.9	%	33.3	%
Adjusted profit before exceptional items and tax (CAGR)2	Adjusted profit before exceptional items and tax (CAGR)2	33	%	4.5	%	7.5	%	10.5	%	3.1	%	0.0	%	Adjusted profit before exceptional items and tax (CAGR)2	33	%	4.5	%	7.5	%	10.5	%	8.8	%	26.0	%
Cumulative free cash flow3	Cumulative free cash flow3	33	%	£7,400m		£8,050m		£8,700m		£7,962m		18.2	%	Cumulative free cash flow3	33	%	£8,600m		£9,100m		£9,600m		£8,271m		0.0	%
Vesting of performance shares (% maximum)	Vesting of performance shares (% maximum)											29.3	%	Vesting of performance shares (% maximum)											59.3	%
Adjusted profit before exceptional items and tax (CAGR)2	Adjusted profit before exceptional items and tax (CAGR)2	50	%	4.5	%	7.5	%	10.5	%	3.1	%	0.0	%	Adjusted profit before exceptional items and tax (CAGR)2	50	%	4.5	%	7.5	%	10.5	%	8.8	%	39.0	%
Relative total shareholder return4	Relative total shareholder return4	50	%	9th		–		3rd		9th		10.0	%	Relative total shareholder return4	50	%	9th		–		3rd		8th		22.5	%
Vesting of share options (% maximum)	Vesting of share options (% maximum)											10.0	%	Vesting of share options (% maximum)											61.5	%

1. ~~The compound annual growth rate (CAGR) for organic net sales is based on the application of annual organic net~~Net sales growth ~~rates in each~~is calculated on an organic basis consistent with the methodology of external reporting which is presented on a constant currency basis excluding the ~~individual years ended June 2019, June 2020~~impact of acquisitions and ~~June 2021 (using~~disposals and excluding any hyperinflation impact above the ~~year ended 30 June 2018 as a base)~~new organic treatment of hyperinflationary economies.

2. The compound annual growth rate (CAGR) for profit before exceptional items and tax is based on the application of annual ~~adjusted~~ PBET growth rates in each of the individual years ended June ~~2019,~~2020, June ~~2020~~2021 and June ~~2021~~2022 (using the year ended June ~~2018~~2019 as a base) excluding the impact of exchange, exceptional items, acquisition and disposals, share buyback programmes, and the ~~post employment~~post-employment net income/~~charges included in~~charges. The impact of hyperinflation on operating profit is considered under the same new organic methodology as for net sales while the impact on other ~~financial charges~~lines (primarily on finance charges) is excluded.

3. Cumulative free cash flow is the aggregate of free cash flow for the three-year period excluding the impact of exchange, cash flows from exceptional items, ~~and~~ the interest cost on share buyback programmes,

~~203~~

~~Governance (continued)~~

acquisition and disposals and incorporates the new organic treatment of hyperinflationary economies.

4. Relative ~~total shareholder return~~Total Shareholder Return (TSR) is measured as the percentage growth in Diageo’s ~~ordinary~~ share price (assuming all dividends and capital distributions are re-invested) compared to the ~~total shareholder return~~TSR of ~~the~~a peer group of 16 ~~other~~ international drinks and consumer goods ~~companies,~~companies. TSR calculations are based on an ~~average~~averaging period of ~~six~~6 months and converted to a common currency (US dollars). ~~20% of the part of the award based on relative total shareholder return vests if the threshold~~Calculation is achieved at a ranking of 9th, with full vesting for a ranking of 1st, 2nd or 3rd. As outlined in the TSR table above, the vesting profile for this measure does not operate on a straight-line basis between thresholdperformed and ~~maximum.~~provided by Deloitte.

5. No discretion was exercised by the Remuneration Committee in determining the long-term incentive outcomes.

Vesting outcome for 2019 performance share award in September 2022 - award made to Lavanya Chandrashekar

For Lavanya Chandrashekar, the 2019 performance share award vested at 59.8% for employees below Executive Director level, which Lavanya Chandrashekar was at the time of grant. The vesting outcome is different for Lavanya Chandrashekar (compared to Ivan Menezes) because below Executive Committee awards have a threshold vesting level of 25% for all measures apart from TSR. The midpoint is calculated on a straight-line basis from the threshold.


Vesting of 2019 DLTIP4	Weighting		Threshold		Midpoint		Maximum		Actual		Vesting (% maximum)4
Vesting if performance achieved (% maximum)			25	%	62.5	%	100	%
Organic net sales growth (CAGR)1	33	%	3.75	%	4.875	%	6.0	%	8.9	%	33.3	%
Adjusted profit before exceptional items and tax (CAGR)2	33	%	4.5	%	7.5	%	10.5	%	8.8	%	26.5	%
Cumulative free cash flow3	33	%	£8,600m		£9,100m		£9,600m		£8,271m		0.0	%
Vesting of performance shares (% maximum)											59.8	%

1. Net sales growth is calculated on an organic basis consistent with the methodology of external reporting which is presented on a constant currency basis excluding the impact of acquisitions and disposals and excluding any hyperinflation impact above the new organic treatment of hyperinflationary economies.

2. The compound annual growth rate (CAGR) for profit before exceptional items and tax is based on the application of annual PBET growth rates in each of the individual years ended June 2020, June 2021 and June 2022 (using the year ended June 2019 as a base) excluding the impact of exchange, exceptional items, acquisition and disposals, share buyback programmes, and the post-employment net income/charges. The impact of hyperinflation on operating profit is considered under the same new organic methodology as for net sales while the impact on other lines (primarily on finance charges) is excluded.

3. Cumulative free cash flow is the aggregate of free cash flow for the three-year period excluding the impact of exchange, cash flows from exceptional items, the interest cost on share buyback programmes, acquisition and disposals and incorporates the new organic treatment of hyperinflationary economie

4. No discretion was exercised by the Remuneration Committee in determining the long-term incentive outcomes

197

Governance (continued)

Summary of performance share awards and options vesting for Ivan Menezes and Lavanya Chandrashekar


	Award	Award Date	Awarded (ADRs)	Vesting (% Max)		Vesting (ADRs)	Option price		ADR price	Dividend Equivalent share	Estimated Value ($'000)1	Estimated Value (£'000)
Ivan Menezes	Performance shares	02/09/2019	38,827	59.3	%	23,024	—		$190	1,390	$4,644	£3,492
	Share options	02/09/2019	38,827	61.5	%	23,878	$	170.28	$190	—	$476	£358
Lavanya Chandrashekar	Performance shares	02/09/2019	1,444	59.8	%	863	—		$190	52	$174	£131

1. The value shown in the single figure of remuneration on page ~~199,~~119, outlined in more detail in the table ~~below,~~above, is based on an average ADR price for the last three months of the financial ~~year~~year.

Award Award Date Awarded
(ADRs) Vesting
(% Max) Vesting
(ADRs) Option price ADR price Dividend Equivalent share Value
($ '000) Value
(£ '000)
Ivan Menezes Performance shares 03/09/2018 42,848 29.3 % 12,554 — $186 740 $2,473 £1,832
Share option 03/09/2018 42,848 10.0 % 4,284 $ 140.89 $186 — $193 £143
Kathryn Mikells Performance shares 03/09/2018 27,062 29.3 % 7,929 — $186 467 $1,562 £1,157
Share option 03/09/2018 27,062 10.0 % 2,706 $ 140.89 $186 — $122 £90

Pension and benefits in the year ended 30 June ~~2021~~2022

Benefits provisions for the Executive Directors are in accordance with the information set out in the Directors’ remuneration policy table.

Pension arrangements

Ivan Menezes and ~~Kathryn Mikells~~Lavanya Chandrashekar are members of the Diageo North America Inc. Supplemental Executive Retirement Plan (SERP) with an accrual rate of 20% of base salary and 14% of base salary respectively during the year ended 30 June ~~2021.~~2022. The accrual rate for Ivan Menezes was reduced from 30% to 20% of salary with effect 1 July 2019 and, in accordance with the 2020 remuneration policy, ~~it is~~ the ~~company’s intention to~~company will reduce the accrual rate further to 14% of salary byon 1 January 2023.

The SERP is an unfunded, non-qualified supplemental retirement programme. Under the plan, accrued company contributions are subject to quarterly interest credits. Under the rules of the SERP, employees can withdraw the balance of the plan six months after leaving service (in the case of Ivan Menezes) or six months after leaving service or age 55, if later (in the case of ~~Kathryn Mikells)~~Lavanya Chandrashekar). The balance may be withdrawn in either a lump sum or five equal annual instalments, depending on the size of the balance.

Both Ivan Menezes and Lavanya Chandrashekar participated in the US Cash Balance Plan and the Benefit Supplemental Plan (BSP) until August 2012 and ~~has~~June 2021 respectively, and have accrued benefits under both plans. The Cash Balance Plan is a qualified funded pension arrangement. Employer contributions are 10% of pay capped at the Internal Revenue Service (IRS) limit. The BSP is a non-qualified unfunded arrangement; notional employer contributions are 10% of pay above the IRS limit. Interest (notional for the BSP) is credited quarterly on both plans.

Ivan Menezes was also a member of the Diageo Pension Scheme (DPS) in the United Kingdom between 1 February 1997 and 30 November 1999. The accrual of pensionable service ceased in 1999 but the linkage to salary remained until January 2012. ~~Under the Rules of the Scheme, this benefit is payable unreduced from age 60.~~ Ivan Menezes ~~is able to take~~has reached his ~~UK pension benefits from~~normal retirement age ~~58 without consent, and his benefit would not be subject to any actuarial reduction in respect of early payment. This is a discretionary policy Diageo offers that is not set out~~ in the ~~DPS Scheme Rules.~~DPS.

Upon death in service, a life insurance benefit of $3 million is payable for Ivan Menezes and a lump sum of four times base salary is payable for ~~Kathryn Mikells.~~Lavanya Chandrashekar.

The table below shows the pension benefits accrued by each Director to date. The accrued UKUnited Kingdom benefits for Ivan Menezes are annual pension amounts, whereas the accrued US benefits for Ivan Menezes and ~~Kathryn Mikells~~Lavanya Chandreshekar are one-off cash balance amounts.

30 June 2021

30 June 2020

30 June 2022

30 June 2021

Executive Director

UK pension
£'000 p.a.

US benefit
£'000

UK pension
£'000 p.a.

US benefit
£'000

Executive Director

UK pension
£'000 p.a.

US benefit
£'000

UK pension
£'000 p.a.

US benefit
£'000

Ivan Menezes1

7,645

8,225

Ivan Menezes1

9,251

7,645

Kathryn Mikells2

Nil

876

Nil

797

Lavanya Chandrashekar2

Nil

302

Nil

160

1. Ivan Menezes' US benefits are ~~lower~~higher at 30 June 2022 than at 30 June 2021 ~~than at 30 June 2020~~ by ~~£580k~~

~~–£333k~~£1,606k. £369k of which is due to pension benefits earned over the year (£~~306k~~209k of which is over and above the increase due to inflation – as reported in the single figure of remuneration, see page ~~199);~~

~~–£45k~~193). £57k of which is due to interest earned on his deferred US benefits over the ~~year; and~~

~~–(£958k)~~year. 1,180k of which is due to exchange rate movements over the year.

2. ~~Kathryn Mikells’~~Lavanya Chandrashekar's US benefits are higher at 30 June ~~2021~~2022 than at 30 June ~~2020~~2021 by ~~£79k~~

~~(–£176k~~£142k. £103k of which is due to pension benefits earned over the year (£~~172k~~103k of which is over and above the increase due to inflation – as reported in the single figure of remuneration, see page ~~199);~~193). £4k of which is due to interest earned on her deferred US benefits over the year; and

~~–(£97k)~~35k of which is due to exchange rate movements over the year.

~~204~~

~~Governance (continued)~~

The ~~normal retirement age~~Normal Retirement Age applicable to each Director’s benefits depends on the pension scheme, as outlined below.

Executive Director UK benefits
(DPS) US benefits
(Cash Balance Plan) US benefits
(BSP) US benefits
(SERP)
Ivan Menezes 60 65 6 months after leaving service 6 months after leaving service
Kathryn Mikells n/a n/a n/a 6 months after leaving service, or age 55 if later

198

Governance (continued)

Executive Director

UK benefits
(DPS)

US benefits
(Cash Balance Plan)

US benefits
(BSP)

US benefits
(SERP)

Ivan Menezes

6 months after leaving service

Lavanya Chandrashekar

n/a

6 months after leaving service, or age 55 if later

Long-term incentive awards made during the year ended 30 June ~~2021~~2022

On 3 September ~~2020,~~2021, Ivan Menezes and ~~Kathryn Mikells~~Lavanya Chandrashekar received awards of performance shares and market-price share options under the DLTIP as a percentage of base salary as outlined below. The three-year period over which performance will be measured is 1 July ~~2020~~2021 to 30 June ~~2023. The targets were not set at the time of the 2020 remuneration report due to the impact of the pandemic and were instead disclosed in full in an RNS announcement on 10 February 2021.~~2024.

The performance measures and targets for awards made in September ~~2020~~2021 are outlined below. Net sales and profit before exceptional items and tax are key levers for driving top and bottom line growth. The free cash flow measure was selected because it represents a robust measure of cash performance consistent with typical external practice and is a key strategic priority. Total shareholder return is the only relative performance measure under the plan, provides good alignment with shareholder interests and increases the leverage based on share price growth. Finally, the environmental, social and governance (ESG) measure (20% of total performance share award), which was introduced ~~for the first time for this award~~ in 2020, reinforces the stretching and strategically important goals under the ‘Society 2030: Spirit of Progress’ ambition, Diageo’s 10-year action plan to help create an inclusive and sustainable world. The definition of the ESG measures ~~are~~is the same as the ~~2021~~2022 award, outlined in more detail on page ~~213.~~207.


		Performance shares														Share options					Performance shares														Share options
2020 DLTIP		Organic net sales value growth		Organic profit before exceptional items and tax growth		Reduction in greenhouse gas emission		Improvement in water efficiency		Changed attitudes on dangers of underage drinking		% Female leaders		% Ethnically diverse leaders		Cumulative free cash flow		Relative TSR
2021 DLTIP																				2021 DLTIP	Organic net sales growth		Organic profit before exceptional items and tax growth		Reduction in greenhouse gas emission		Improvement in water efficiency		Changed attitudes on dangers of underage drinking		% Female leaders		% Ethnically diverse leaders		Cumulative free cash flow		Relative TSR
Weighting	Weighting	40	%	40	%	5	%	5	%	5	%	2.5	%	2.5	%	50	%	50	%	Weighting	40	%	40	%	5	%	5	%	5	%	2.5	%	2.5	%	50	%	50	%
Target range	Target range	4% - 8%		4.5% - 12%		6.3% - 14.3%		5.8% - 11.2%		0.75m - 1.25m		41% - 43%		38% - 40%		£6,200m - £8,200m		Median - upper quintile		Target range	5% - 9%		6.5% - 13.5%		19.1% - 27.1%		6.3% - 12.1%		2.3m - 3.7m		44% - 46%		39% - 41%		£7,450m - £9,250m		Median - upper quintile

20% of DLTIP awards will vest at threshold, with vesting up to 100% if the maximum level of performance is achieved. As explained in the remuneration policy table, one performance share is deemed equal in value at grant to three share options.

Executive Director

Date of grant

Plan

Share type

Awards made
during the year

Exercise
price

Face value
'000

Face value
(% of salary)

Executive Director

Date of grant

Plan

Share type

Awards made
during the year

Exercise
price

Face value

The proportion of the awards outlined above that will vest is dependent ~~upon~~on the achievement of performance conditions and continued employment, and the actual value may be nil. The vesting outcomes will be disclosed in the ~~2023~~2024 Annual Report.

~~The face value of each award has been calculated using the award price.~~

In accordance with the ~~Plan Rules,~~plan rules, the number of performance shares and share options granted under the DLTIP was calculated by using the average closing ADR price for the last six months of the preceding financial year ($~~143.63)~~174.97). This price is used to determine the face value in the table above. In accordance with the plan rules, the exercise price was calculated using the average closing ADR price of the three days preceding the grant date ($~~133.88)~~194.75).

The ADR price on the date of grant was ~~$133.70.~~$195.97.

~~205~~199

Governance (continued)

Outstanding share plan interests

Plan name Date of award Performance period Date of vesting Share type Share price on date of grant Exercise price
Number of shares/options at 30 June 2020 1
Granted Vested/exercised Dividends awarded and released Lapsed Number of shares/options at 30 June 2021
Ivan Menezes
DLTIP – share options3
Sep 2015 2015-2018 2018 ADR

$104.93 29,895

29,895
DLTIP – share options3
Sep 2016 2016-2019 2019 ADR

$113.66 39,734

39,734
DLTIP – share options3
Sep 2017 2017-2020 2020 ADR $134.06 51,268 37,170 14,098
Total vested but unexercised share options in Ords2
334,908
DLTIP - share options4
Sep 2018 2018-2021 2021 ADR $140.89 42,848

42,848
DLTIP - share options5
Sep 2019 2019-2022 2022 ADR $170.28 38,827

38,827
DLTIP - share options Sep 2020 2020-2023 2023 ADR $133.88 0 43,377

43,377
Total unvested share options subject to performance in Ords2
500,208
DLTIP - performance shares7
Sep 2017 2017-2020 2020 ADR $134.83 51,268 5,126 400 46,142 0
DLTIP - performance shares4
Sep 2018 2018-2021 2021 ADR $139.41 42,848

42,848
DLTIP - performance shares5
Sep 2019 2019-2022 2022 ADR $174.72 38,827

38,827
DLTIP - performance shares11
Sep 2020 2020-2023 2023 ADR $133.70 0 43,377

43,377
Total unvested shares subject to performance in Ords2
500,208
Kathryn Mikells9
DLTIP – share options3,6,10
Sep 2016 2016-2019 2019 Ord 2113p 93,752 1,037

92,715
DLTIP – share options3
Sep 2017 2017-2020 2020 ADR $134.06 32,380 23,476 8,904
Total vested but unexercised share options in Ords2
128,331
DLTIP – share options4,11
Sep 2018 2018-2021 2021 ADR $140.89 27,062

27,062
DLTIP – share options5,11
Sep 2019 2019-2022 2022 ADR $170.28 24,522

8,167 16,355
DLTIP – share options11
Sep 2020 2020-2023 2023 ADR $133.88 0 27,396 18,264 9,132
Total unvested share options subject to performance in Ords2
210,196
DLTIP – performance shares8
Sep 2017 2017-2020 2020 ADR $134.83 32,380 3,237 252 29,143 0
DLTIP – performance shares4,11
Sep 2018 2018-2021 2021 ADR $139.41 27,062

27,062
DLTIP – performance shares5,11
Sep 2019 2019-2022 2022 ADR $174.72 24,522

8,167 16,355
DLTIP – performance shares11
Sep 2020 2020-2023 2023 ADR $133.70 0 27,396

18,264 9,132
Total unvested shares subject to performance in Ords2
210,196


Plan name	Date of award	Performance period	Date of vesting	Share type	Share price on date of grant	Exercise price	Number of shares/options at 30 June 2021 1	Granted	Vested/exercised	Dividend Equivalent Shares released	Lapsed	Number of shares/options at 30 June 2022
Ivan Menezes
DLTIP – share options10	Sep 2015	2015-2018	2018	ADR		$104.93	29,895		29,895			0
DLTIP – share options10	Sep 2016	2016-2019	2019	ADR		$113.66	39,734		39,734			—
DLTIP – share options3	Sep 2017	2017-2020	2020	ADR		$134.06	14,098					14,098
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	42,848				38,564	4,284
Total vested but unexercised share options in Ords2												73,528

DLTIP - share options4,5	Sep 2019	2019-2022	2022	ADR		$170.28	38,827					38,827
DLTIP - share options6	Sep 2020	2020-2023	2023	ADR		$133.88	43,377					43,377
DLTIP - share options7	Sep 2021	2021-2024	2024	ADR		$194.75	0	36,675				36,675
Total unvested share options subject to performance in Ords2												475,516
DLTIP - performance shares8	Sep 2018	2018-2021	2021	ADR	$139.41		42,848		12,554	701	30,294	0
DLTIP - performance shares4,5	Sep 2019	2019-2022	2022	ADR	$174.72		38,827					38,827
DLTIP - performance shares6	Sep 2020	2020-2023	2023	ADR	$133.70		43,377					43,377
DLTIP - performance shares7	Sep 2021	2021-2024	2024	ADR	$195.97		0	36,675				36,675
Total unvested shares subject to performance in Ords2												475,516
Lavanya Chandrashekar
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	3,832					3,832
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	1,064					1,064
Total vested but unexercised share options in Ords2												19,584

DLTIP – share options7	Sep 2021	2021-2024	2024	ADR		$194.75		20,060				20,060
Total unvested share options subject to performance in Ords2												80,240
DLTIP – performance shares	Sep 2018	2018-2021	2021	ADR	$139.41		1,593		503	28	1,090	0
DLTIP – performance shares4,5	Sep 2019	2019-2022	2022	ADR	$174.72		1,444					1,444
DLTIP – performance shares6	Sep 2020	2020-2023	2023	ADR	$133.70		1,827					1,827
DLTIP – performance shares7	Sep 2021	2021-2024	2024	ADR	$195.97			20,060				20,060
Total unvested shares subject to performance in Ords2												93,324
DLTIP – restricted stock units	Sep 2018	2018-2021	2021	ADR	$139.41		766		766			0
DLTIP – restricted stock units	Sep 2018	2018-2021	2021	ADR	$139.41		1774		1,774			0
DLTIP – restricted stock units	Sep 2019	2019-2022	2022	ADR	$174.72		1567					1,567
DLTIP – restricted stock units	Sep 2020	2020-2023	2023	ADR	$133.70		2,635					2,635
Total unvested shares not subject to performance in Ords2,9												16,808

1. For unvested awards this is the number of shares/options initially awarded. For exercisable share options, this is the number of outstanding options. All share options have an expiry date of 10 years after the date of grant.

2. ADRs have been converted to Ords (one ADR is equivalent to four ordinary shares) for the purpose of calculating the total number of vested and unvested shares and ~~options~~options.

3. The total number of share options granted under the DLTIP in September ~~2015, 2016~~2017 and ~~2017 and~~2018 showing as outstanding as at 30 June ~~2021~~2022 are vested but unexercised share ~~options~~options.

4. Performance shares and share options granted under the DLTIP in September ~~2018~~2019 and due to vest in September ~~2021~~2022 are included here as unvested share awards subject to performance conditions, although the awards have also been included in the single figure of remuneration table on page~~199,~~ 193, since the performance period ended during the year ended 30 June ~~2021~~2022.

5. Details of the performance conditions attached to DLTIP awards of performance shares and share options granted in 2019 are organic net sales growth (3.75%-6%), organic growth in profit before exceptional items and tax (4.5%-10.5%), cumulative free cash flow (£8,600m-£9,600m) and relative total shareholder return (median-upper quintile). ~~Full details~~
6. Details of the performance conditions ~~were disclosed~~attached to DLTIP awards of performance shares and share options granted in ~~Diageo’s 2019 annual report~~2020 are organic net sales growth (4%-8%), organic growth in profit before exceptional items and tax (4.5%-12%), reduction in greenhouse gas emissions (6.3%-14.3%), improvement in water efficiency (5.8% - 11.2%), changing attitudes on ~~remuneration.~~

~~6. 1,037 Ords~~dangers of ~~this award were delivered as tax-qualified~~underage drinking (0.75m-1.25m), % of female leader (41% - 43%), ethnically diverse leaders (38% - 40%), cumulative free cash flow (£6,200m-£8,200m) and relative total shareholder return (median-upper quintile).
7. Details of the performance conditions attached to DLTIP awards of performance shares and share options

7. granted in 2021 are organic net sales growth (5%-9%), organic growth in profit before exceptional items and tax (6.5%-13.5%), reduction in greenhouse gas emissions (19.1%-27.1%), improvement in water efficiency (6.3% - 12.1%), changing attitudes on dangers of underage drinking (2.3m-3.7m), % of female leader (44% - 46%), ethnically diverse leaders (39% - 41%), cumulative free cash flow (£7,450m-£9,250m) and relative total shareholder return (median-upper quintile).
8. Ivan Menezes must retain ~~2,880 ADRs of~~ the ~~5,126 ADRs~~net shares resulting from the award that vested (including dividend equivalent shares) on 43 September ~~2020~~2021 until 43 September ~~2022~~2023 under the ~~post-vesting~~post vesting retention ~~period~~

~~8. Kathryn Mikells must retain 1,844 ADRs~~period.
9. Lavanya Chandrashekar was granted a number of restricted stock units prior to her appointment as CFO and joining the ~~3,237 ADRs that vested on 4~~Board.
10. On 14 September ~~2020 until 4~~2021, Ivan Menezes exercised 23,229 share options under his 2015 award. The option price was $104.93 and the share price at exercise was $193.55. On 15 September ~~2022~~2021, Ivan Menezes exercised the remaining 6,666 share options under his 2015 award. The option price was $104.93 and the ~~post-vesting retention period~~

~~9. Kathryn Mikells~~share price at exercise was $192.04. Ivan Menezes also ~~holds 1,031 outstanding~~exercised 39,734 share options ~~over ordinary shares~~ under ~~an all-employee~~2016 award - the option price was $113.66 and the share ~~plan, which are not subject to performance and not included in this table~~

~~10. Kathryn Mikells exercised 1,037 tax-approved options on 24 June 2021~~price at ~~a market price of £34.87 and~~ exercise ~~price of £21.13~~

~~11. Kathryn Mikells’ retained unvested performance share and share option awards, pro-rated for employment over the performance period, when she left the company on 30 June 2021.~~

~~These awards will vest, subject to the achievement of the performance conditions, on the normal vesting date, together with any accrued dividend equivalents.~~was $192.04.

~~206~~200

Governance (continued)


Directors’ shareholding requirements and share and other interests

The beneficial interests of the Directors inwho held office atduring the year ended 30 June ~~2021~~2022 (and their connected persons) in the ordinary shares (or ordinary share equivalents) of the company are shown in the table below.

Ordinary shares or equivalent1,2

27 July 2021 30 June 2021(or date of departure, if earlier) 30 June 2020 (or date of appointment if later)
Shareholding requirement
(% salary)3
Shareholding at 27 July 2021
(% salary)3
Shareholding requirement met
Chairman
Javier Ferrán6
254,482 254,242 250,496 — — —
Executive Directors
Ivan Menezes4,6
1,145,894 1,145,894 1,134,374 500 % 2,735 % Yes
Kathryn Mikells5,6,12,13
239,347 239,732 233,964 400 % 868 % Yes
Non-Executive Directors
Susan Kilsby6
2,600 2,600 2,600
Melissa Bethell7
— — —
Valérie Chapoulaud-Floquet8
2,017 2,017 — — — —
Sir John Manzoni9
2,816 2,816 — — — —
Lady Mendelsohn 5,000 5,000 5,000
Alan Stewart 7,069 7,069 6,905
Ireena Vittal10
— — —
Ho KwonPing11
— 4,649 4,649


	Ordinary shares or equivalent1,2
	26 July 2022	30 June 2022(or date of departure, if earlier)	30 June 2021 (or date of appointment if later)	Shareholding requirement (% salary)3		Shareholding at 26 July 2022 (% salary)3		Shareholding requirement met
Chairman
Javier Ferrán7,9	307,522	307,288	254,242
Executive Directors
Ivan Menezes4,5,7	1,078,566	1,078,566	1,145,894	500	%	3,093	%	Yes
Lavanya Chandrashekar6,7	6,228	6,228		400	%	31	%	No - to be met by July 2026
Non-Executive Directors
Susan Kilsby7	2,600	2,600	2,600
Melissa Bethell	2,668	2,668
Valérie Chapoulaud-Floquet	2,055	2,055	2,017
Sir John Manzoni	2,870	2,870	2,816
Lady Mendelsohn	5,000	5,000	5,000
Alan Stewart	7,120	7,120	7,069
Ireena Vittal	0	0
Karen Blackett8	0	0

Notes

1. Each person listed beneficially owns less than 1% of Diageo’s ordinary shares. Ordinary shares held by Directors have the same voting rights as all other ordinary shares.

2. Any change in shareholding between the end of the financial year on 30 June ~~2021~~2022 and the last practicable date before publication of this report, being 2726 July ~~2021,~~2022, is outlined in the table above.

~~The last practicable date is within one month of the AGM notice.~~

3. Both the shareholding requirement and shareholding at 2726 July ~~2021~~2022 are expressed as a percentage of base salary on 30 June ~~2021~~2022 and calculated using an average share price for the year ended 30 June ~~2021~~2022 of ~~2938 pence~~£36.89.

4. In addition to the number of shares reported in the table above, Ivan Menezes holds ~~83,727~~73,528 vested but unexercised share ~~options (over ADRs; equal to 334,908 ordinary shares)~~options.

5. Ivan Menezes 2021 Deferred Bonus Plan Shares (2,826 ADSs) is included in his total share interests shown above.

6. In addition to the number of shares reported in the table above, ~~Kathryn Mikells~~Lavanya Chandrashekar holds ~~92,715~~19,584 vested but unexercised share ~~options (over ordinary shares) and 8,904 share options (over ADRs, equal to 128,331 ordinary shares)~~options.

6.7. Javier Ferrán, Ivan Menezes, ~~Kathryn Mikells~~Lavanya Chandrashekar and Susan Kilsby have share interests in ADRs (one ADR is equivalent to four ordinary shares); the share interests in the table are stated as ordinary

share ~~equivalent~~

~~7. Melissa Bethell was appointed to the Board on 30 June 2020~~equivalents.

8. ~~Valérie Chapoulaud-Floquet was appointed to~~Karen Blackett joined the Board on 1 ~~January 2021~~June 2022.

9. ~~Sir John Manzoni was appointed~~With regard to Javier Ferrán, included in the ~~Board on 1 October 2020~~

~~10. Ireena Vittal was appointed~~number of shares reported in the table above are 180,000 ordinary shares which Javier Ferrán transferred to ~~the Board on 2 October 2020~~

~~11. Ho Kwon Ping retired from the Board on 28 September 2020~~

~~12. Kathryn Mikells exercised 1,037 share options~~his daughters as a gift during the ~~year ended 30 June 2020~~financial year. While his daughters are not his connected persons, he has a power of attorney to make investment decisions to buy and sell shares on behalf of his daughters.

13. Under the post-employment shareholding requirement policy, Kathryn Mikells is required to continue to hold Diageo shares equal in value to 400% of salary until 30 June 2022, reducing to 200% of salary until 30 June 2023. This requirement will be satisfied making use of a restricted nominee account, in which shares are already held in trust during the two-year post-vesting retention period.

~~207~~201

Governance (continued)

Relative importance of spend on pay

The graph below illustrates the relative importance of spend on pay (total remuneration of all group employees) compared with distributions to shareholders (total dividends plus the share buyback programme but excluding transaction costs), and the percentage change from the year ended 30 June ~~2020~~2021 to the year ended 30 June ~~2021 . The Committee considers that there~~2022. There are no other significant distributions or payments of profit or cash ~~flow.~~flow

~~Dividends have increased by 4% on the year before and the reduction in distributions to shareholders is a result of the suspension of the share buyback programme.~~

Relative importance of spend on pay – percentage change

Distributions to shareholders

~~-39.6%~~127.3%

Staff pay

~~13.0%~~13.2%

Chief Executive total remuneration and TSR performance

The graph below shows the total shareholder return for Diageo and the FTSE 100 Index since 30 June ~~2011~~2012 and demonstrates the relationship between pay and performance for the Chief Executive, using current and previously published single total remuneration figures. The FTSE 100 Index has been chosen because it is a widely recognised performance benchmark for large companies in the United Kingdom.

~~208~~202

Governance (continued)


	Paul S Walsh £'000 F13		Ivan Menezes1 £'000 F14		Ivan Menezes1 £'000 F15		Ivan Menezes1 £'000 F16		Ivan Menezes1 £'000 F17		Ivan Menezes1 £'000 F18		Ivan Menezes1 £'000 F19		Ivan Menezes1 £'000 F20		Ivan Menezes1 £'000 F21		Ivan Menezes1 £'000 F22
Chief Executive total remuneration (includes legacy LTIP awards)	15,557		7,312		3,888		4,156		3,399		8,995		11,776		2,273		6,019		7,881
Annual incentive2	51	%	9	%	44	%	65	%	68	%	70	%	61.0	%	0	%	93.75	%	93.75	%
Share options2	100	%	71	%	0	%	0	%	0	%	60	%	73.1	%	27.5	%	10.0	%	61.5	%
Performance shares2	95	%	55	%	33	%	31	%	0	%	70	%	89.3	%	10.0	%	29.3	%	59.3	%

1. To enable comparison, Ivan Menezes’ single total figure of remuneration has been converted into sterling using the average weighted exchange rate for the relevant financial year.

2. % of maximum opportunity


Pay for Directors in the context of wider workforce remuneration

There is clear alignment in the approach to pay for executives and the wider workforce in the way that remuneration principles are followed, as well as the mechanics of the salary review process and incentive plan design, which are broadly consistent throughout the organisation. There is a strong focus on performance-related pay, and the performance measures under the annual incentive plan and long-term incentive plan are the same for executives and other eligible employees. The reward package for Executive Directors is consistent with that of the senior management population, however, a much higher proportion of total remuneration for the Executive Directors is linked to business performance, compared to the rest of the employee population.

The structure of the reward package for the wider employee population is based on the principle that it should enable Diageo to attract and retain the best talent within our broader industry. It is driven by local market practice, as well as level of seniority and accountability, reflecting the global nature of our business. Diageo is committed to fostering an inclusive and diverse workplace, and creating a culture where every individual can thrive. Reflective of this, pay parity and consistency of treatment for all employees are critical to the reward practices across the organisation. The reward framework is regularly reviewed to ensure employees are rewarded fairly and appropriately, in line with the business strategy, performance outcomes, competitive market practice and our diversity agenda.

CEO pay ratio

In accordance with The Companies (Miscellaneous Reporting) Regulations 2018, the table ~~below~~on the next page sets out Diageo’s CEO pay ratios for the year ended 30 June ~~2021.~~2022. These CEO pay ratios provide a comparison of the Chief Executive’s total remuneration – converted into ~~Sterling~~sterling – with the equivalent remuneration for the employees paid at the 25th (P25), 50th (P50) and 75th (P75) percentile of Diageo’s workforce in the United Kingdom. ~~A second table outlines~~Also shown are the salary and total remuneration for each quartile ~~employee, and the salary component within this.~~employee.

Year

Method

25th percentile pay ratio

Median pay ratio

75th percentile pay ratio

2019

Option A2

265:1

208:1

166:1

2020 1

Option A2

50:1

38:1

31:1

2021

Option A~~2,3~~2

~~125:~~127:1

~~98:~~100:1

~~77:~~79:1

~~2021~~2022

Option A2

157:1

122:1

96:1

2022

Total pay and benefits

£~~47,240~~50,260

£~~60,093~~64,627

£~~76,321~~81,888

~~2021~~2022

Salary

£~~32,141~~30,765

£~~42,578~~43,920

£~~48,550~~52,833

~~1 2020~~1. 2021 CEO pay ratios have been updated to reflect the value of the updated ~~2020~~2021 single figure which incorporates long-term incentives based on actual share price at vesting, rather than the average share price in the last three months of the financial year which had been used ~~as a proxy~~ for the ~~2020 disclosure~~2021 disclosure.

22. Only people employed in the United Kingdom and with the same number of contractual working hours throughout the full 12-month period have been included in the calculation. Inclusion of employees outside of this group would require a complex simulation of full-time annual remuneration based on a number of assumptions and would not have a meaningful impact on the ratio.

3 The total remuneration for employees is based on actual earnings for the 11 months to 31 May 2021, and a projection for June 2021 which replicates the relevant items of the previous month’s earnings. This pragmatic approach allows us to calculate the ratios accurately, while mitigating the challenge of the limited timeframe between our year-end and the publishing of the Annual Report, and has been tested following our first disclosure of the CEO pay-ratios in 2019: analysis showed that the maximum resulting variance in the median pay ratio in any given year would be only 1 point, since pay changes from May to June would seldom be material.

203

Governance (continued)

Methodology

Consistent with the approach for Diageo’s disclosure in previous years, the methodology used to identify the employees at each quartile for ~~2021~~2022 is Option A, as defined in the regulations. We believe this is the most robust and accurate approach, and is in line with shareholder expectations.

Total full-time equivalent remuneration for employees reflects all pay and benefits received by an individual in respect of the relevant year and has, other than where noted below, been calculated in line with the methodology for the ‘single figure of remuneration’ for the Chief Executive (shown on page ~~199~~193 of this report). The total remuneration calculations were based on data as at 30 June 2022. Actual remuneration was converted into the full-time equivalent for the role and location by pro-rating earnings to reflect full-time contractual working hours and these figures were then ranked to identify the employees sitting at the percentiles. In light of financial performance outcomes being signed off close to the publication of the Annual Report, the Diageo Group Business Multiple – applicable to the majority of UK employees – has been used to calculate all payments under the annual incentive, although some employees may receive a variation on this multiple in practice. Pension values for each employee are not calculated on an actuarial basis as for the Chief Executive, but rather as the notional cost of the company’s pension contribution during the financial year, according to the relevant section of the pension scheme for each individual. This approach allows meaningful data for a large group of people to be obtained in a more efficient way.

Points to note for the year ended 30 June ~~2021~~2022

Strong business performance in the year ended 30 June ~~2021~~2022 is reflected in the payout under the annual incentive plans both for Diageo’s Chief Executive and the wider UK workforce. The annual incentive plan outcome is directly linked to awards made under the ~~freeshares~~Freeshares scheme – in which all UK employees participate – and this further contributes to the 10% increase in median employee pay versus last year. In addition, the Manufacturing Incentive Plan was introduced for 2021, giving 1,800 manufacturing workers in Scotland and Northern Ireland an opportunityare eligible to participate ~~in a bonus scheme incentivising and rewarding team and site performance.~~

~~209~~

~~Governance (continued)~~

in. The median remuneration and resulting pay ratio for ~~2021~~2022 are consistent with the pay and progression policies for Diageo’s UK employees as a whole and reflect the impact of performance-related pay on total remuneration for the year. As the Chief Executive has a larger proportion of his total remuneration linked to business performance than other employees in the UK workforce, the ratio has increased versus last ~~year. However, vesting of long-term~~year due to a higher performance outcome under the 2019 long term incentive which vested this year compared to the 2018 awards ~~is limited – reflecting the impact of the pandemic – and as a result the ratios remain lower than when first disclosed in 2019.~~which vested last year.

~~Looking after~~Supporting our people and investing in talent

Our focus remains firmly on the wellbeing of our employees and in the year ended 30 June ~~2021,~~2022, we continued to provide stability and support to our ~~workforce by safeguarding jobs, pay~~workforce. Recently, we launched our Global Wellbeing Philosophy, outlining our commitment to creating an environment where people can thrive, along with practical frameworks and ~~benefits.~~tools to support our people in managing their wellbeing. In ~~line~~addition to local wellbeing initiatives, such as free Wellbeing Day and Mental Health capability programmes, we are designing our new office spaces with ~~this focus, Diageo’s benefits offering~~Wellbeing at the heart. For example, our new Global Headquarters in ~~the health~~Soho, London is equipped with wellness and ~~wellbeing space has been significantly upgraded in the past few years to include, for example, access to cancer-screening, health care cash plans~~fitness classes and ~~health-assessment for the wider workforce. The unionised population in Scotland will get access to private medical insurance in 2022, as part of~~ a ~~newly negotiated agreement.~~quiet multi-faith room.

We remain committed to attracting and retaining the right talent. ~~Although there was a need~~We carefully monitor our total remuneration levels for all roles to ~~exercise restraint in~~ensure we are paying competitively and appropriately. Our incentive plans are designed to be easily understood and reward our people for supporting the year ended 30 June 2021, we continued to review our approach to remuneration and have made some bold changes to reward structures and principles that will enable us to invest in top talent in priority areas going forward.delivery of key strategic milestones. Benefits such as competitive pension schemes, the opportunity to participate in employee share-ownership schemes, a product allowance to help employees enjoy Diageo products, generous leave policies, healthcare and life insurance remain key parts of our total reward offering. ~~All UK employees can now also access their total reward statement through the new benefits portal launched at~~

Towards the end of ~~2020, which provides people with~~fiscal 22, the Diageo Executive Committee considered the impact that the volatile macro-economic environment was having on the cost of living around the world. In addition to continuing to put in place support and tools to help employees be at their best and promote positive mental, physical and financial wellbeing, it was decided to give all Diageo employees below Executive Committee level a ~~better understanding~~one-time, special recognition payment of £1,000 gross (capped at 15% of local equivalent annual salary) as a thank you for their ~~benefits package~~contribution and commitment through challenging times. The Executive Committee will continue to monitor the ~~choices available to them.~~macro-economic environment and impact on employees.

Championing inclusion and diversity is one of Diageo’s strategic priorities and we want to leverage the broadest range of backgrounds and skills to create a fully inclusive, high-performing culture. Although we recognise that gender parity is just one measure of an inclusive workplace, we are proud that we have further reduced the gender pay gap across our UK businesses to +2.8%, among the lowest in the FTSE.

Change in pay for Directors compared to wider workforce

~~In line with the requirements in~~ The Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019, which implement Articles 9a and 9b of European Directive 2017/828/EC1 (commonly known as the Revised Shareholder Rights Directive or SRD), the table ~~on the next page~~below shows the percentage change in Directors’ remuneration and average remuneration of employees ~~from the financial year 2020 to the financial year 2021, as well as~~on an ~~update on last year’s disclosure.~~annual basis. Given the small size of Diageo plc’s workforce, data for all employees of the ~~Group~~group has also been included.

In the past year, limited salary increases have been implemented across the world, with changes implemented through a focussed approach in high-inflation markets or in other exceptional individual situations to support retention and business change. Although the table shows no change in the average global employee salary, this is in fact the result of the impact of currency conversion rates on calculations and, based on constant exchange rates, the year-on-year change in salary is +4.11%. The small number of people employed by the Diageo plc entity makes the reported year-on-year movement for this group more sensitive to individual anomalies and may be more volatile over time.

The year-on-year bonus increase for the average global employee is significant, as relatively few of our employees received a bonus for the year ended 30 June 2020 and many employees will be rewarded for their contributions to business performance through a strong bonus payout in the year ended 30 June 2021. We are focussed on making our benefit offering more inclusive and consistent globally and have reviewed our benefits landscape against newly established Standards of Care, to ensure we have best in class offerings supporting our diverse workforce. We continue to work with regional brokers to support us with driving improvements and efficiencies in our benefit offering. To support our employees during the pandemic we have focussed on employee assistance provision and consistent life insurance provision, as well as a more local focus on wellbeing. The year-on-year movement in salary for Executive Directors reflects the fact that for the first three months of the year ended 30 June 2020 they received a lower salary than in the year ended 30 June 2021, and the absence of a salary increase thereafter. Note that no year-on-year change in pay has been reported for Melissa Bethell, Valérie Chapoulaud-Floquet, Sir John Manzoni and Ireena Vittal as there is no comparable remuneration data for the year ended 30 June 2020. In previous years, benefits for Non-Executive Directors mostly related to travel expenses and the reported year-on-year decrease is therefore driven by the travel restrictions in place throughout 2020 and 2021.

~~210~~204

Governance (continued)


Year-on-year change in pay for Directors compared to the global average employee	Year-on-year change in pay for Directors compared to the global average employee													Year-on-year change in pay for Directors compared to the global average employee
		2021						2020							2022						2021						2020
		Salary		Bonus		Benefits		Salary		Bonus		Benefits			Salary		Bonus		Benefits		Salary		Bonus		Benefits		Salary		Bonus		Benefits
Plc employee average1	Plc employee average1	5.1	%	N/A6		38.8	%	7.5	%	-100	%	9.0	%	Plc employee average1	11.1	%	25.8	%	10.5	%	5.1	%	N/A		38.8	%	7.5	%	(100)	%	9.0	%
Average global employee2	Average global employee2	0.0	%	278.8	%	12.6	%	5.3	%	-67.8	%	6.9	%	Average global employee2	6.4	%	38.4	%	11.7	%	0.0	%	278.8	%	12.6	%	5.3	%	(68)	%	6.9	%
Calculated with constant FX rate		4.11	%					5.1	%
Executive Directors3	Executive Directors3													Executive Directors3
Ivan Menezes		0.7	%	N/A6		-10.7	%	2.7	%	-100	%	0.8	%
Kathryn Mikells		0.7	%	N/A6		17.9	%	2.8	%	-100	%	55.9	%
Ivan Menezes8														Ivan Menezes8	2.3	%	4.4		59.5	%	0.7	%	N/A5		(10.7)	%	2.7	%	(100)	%	0.8	%
Lavanya Chandrashekar														Lavanya Chandrashekar	N/A5						N/A5				N/A
Non-Executive Directors4	Non-Executive Directors4													Non-Executive Directors4
Melissa Bethell	Melissa Bethell	—		—		—		—		—		—		Melissa Bethell	2.3		—		16.0		N/A5		—		—		—		—		—
Valérie Chapoulaud-Floquet		—		—		—		—		—		—
Valérie Chapoulaud-Floquet6														Valérie Chapoulaud-Floquet6	—		—		—		N/A5		—		—		—		—		—
Javier Ferrán (Chairman)	Javier Ferrán (Chairman)	0.0	%	—		0.0	%	0.0	%	—		0.0	%	Javier Ferrán (Chairman)	8.3	%	—		28.8	%	0.0	%	—		0.0	%	0.0	%	—		0.0	%
Susan Kilsby		9.6	%	—		-87.7	%	37.3	%	—		68.9	%
Ho KwonPing5		3.2	%	—		-67.7	%	3.3	%	—		93.3	%
Sir John Manzoni		—		—		—		—		—		—
Susan Kilsby7														Susan Kilsby7	3.8	%	—		300.0	%	9.6	%	—		(87.7)	%	37.3	%	—		68.9	%
Sir John Manzoni6														Sir John Manzoni6	—		—		—		—		—		—		—		—		—
Lady Mendelsohn	Lady Mendelsohn	3.2	%	—		0.0	%	3.3	%	—		0.0	%	Lady Mendelsohn	2.3	%	—		0.0	%	3.2	%	—		0.0	%	3.3	%	—		0.0	%
Alan Stewart	Alan Stewart	2.4	%	—		0.0	%	2.5	%	—		0.0	%	Alan Stewart	4.7	%	—		0.0	%	2.4	%	—		0.0	%	2.5	%	—		0.0	%
Ireena Vittal		—		—		—		—		—		—
Ireena Vittal6														Ireena Vittal6	—		—		—		—		—		—		—		—		—
Karen Blackett														Karen Blackett	N/A5		—		N/A5		—		—		—		—		—		—

1. Around 50 UK-based employees are employed by Diageo plc. Their remuneration has been calculated in line with the approach used for the CEO pay-ratio calculation and the average year-on-year change has been reported. Only those employed during the full financial year have been included in calculations.

2. Calculated by dividing staff cost related to salaries, bonus and benefits by the average number of employees on a full-time equivalent basis, as disclosed in note 3c to the financial statement under staff costs and average number of employees ~~(note 3c)~~ on page ~~235,~~233, but reduced to account for the inclusion of Executive Directors in reported figures. The salary, bonus and benefits cost data used for calculation are subsets of the Wages and salaries figure disclosed in this note. The salary data used for calculation has been adjusted to exclude costs related to severance payments which are included in staff costs, and last year’s disclosure has been updated in line with this for consistency. In line with the approach for Directors, the bonus values used for the calculation reflect the bonus earned in relation to performance during the relevant financial year.

3. Calculated using the data from the single figure table in the annual report on remuneration (page ~~199)~~193) in US dollars, as both Ivan Menezes and ~~Kathryn Mikells~~Lavanya Chandrashekar are paid in this currency.

4. Calculated using the fees and taxable benefits disclosed under ~~Non-Executive Directors’~~non-executive directors’ remuneration in the table ~~below.~~on the next page. Taxable benefits for ~~Non-Executive Directors~~non-executive directors comprise a product allowance as well as expense reimbursements relating to attendance at Board meetings, which may be variable year-on-year. In the year ended 30 June 2021, no travel expenses were incurred as travel was restricted as a result of the pandemic.

5. Ho KwonPing retired as Non-Executive Director on 28 September 2020. To provide a meaningful reflection of annual percentage increase for the year ended 30 June 2021, his 2021 fee was adjusted to reflect full-year appointment to the Board.

6. N/A refers to a nil value in the previous year, meaning that the year-on-year change cannot be calculated.

6. No year-on-year change in pay has been reported for Valérie Chapoulaud-Floquet, Sir John Manzoni and Ireena Vittal as there is no comparable remuneration data for the year ended 30 June 2021 as they joined the Board mid F21.

7. The percentage increase in benefits for Susan Kilsby reflects an increase travel expenses.

8. The percentage increase in benefits for Ivan Menezes reflects an increase in tax support services.

Payments to former Directors

A payment was made to Kathryn Mikells at the start of the year ended 30 June 2022 as described below. These details were previously disclosed in the 2021 Directors' remuneration report.

Payments for loss of office

As reported last year, Kathryn Mikells left the company on 30 June 2021. In accordance with the approved 2020 remuneration policy and her service contract which provided for a 12-month notice period, Kathryn Mikells received half of the payment in lieu of the remainder of her notice period (six months and twelve days) in July 2021 in respect of salary, benefits and pension ($362,174). No further payments were made as a result of Kathryn Mikells taking up alternative employment (announced on 19 July 2021). 201The Committee also exercised its discretion, in accordance with the plan rules and the remuneration policy, to prorate to the leaving date all unvested long-term incentive awards. In September 2022, Kathryn's 2019 performance shares and share options are due to vest at 59.3% and 61.5% respectively with a total estimated value of $2.16m. These awards remain subject to a subsequent two-year holding period. The post-employment shareholding requirement policy applies for a period of two years post-exit, requiring Kathryn to hold Diageo shares equal to 400% of salary until 30 June 2022 and 200% of salary until 30 June 2023.s 204-205In line with internal policies and the remuneration policy, the company supported Kathryn Mikells with the cost of her repatriation back to the United States. This support amounted to a grossed up value of £200,000. Further costs included shipping costs of £23,507, £7,640 in flights and £12,000 of legal support. Kathryn Mikells will also be provided with tax return preparation support for a period of up to three years following her departure (up to a maximum cost of £15,000 per annum).

205

Governance (continued)


Non-Executive Directors

Fee policy

Javier Ferrán’s fee as non-executive Chairman was increased from £600,000 per annum to £650,000 on 1 July 2021. This was a planned increase for 1 January 2020 that was deferred, at the Chairman’s request, due to the Covid-19 pandemic. There had been no prior increase since his appointment on 1 January 2017. The Chairman’s fee is appropriately positioned against our comparator group of FTSE 30 companies excluding financial services.

~~There was no change to Non-Executive Director fees~~ The Executive Directors and the Chairman also approved an increase in the ~~year ended 30 June 2021. The next review is scheduled~~base fee for non-executive directors of 3% (from £98,000 to £101,000) and an increase in the Audit and Remuneration Committee Chair fees from £30,000 to £35,000, effective 1 October 2021.


		January 2021	January 2020		January 2022	January 2021
Per annum fees	Per annum fees	£'000		Per annum fees	£'000
Chairman of the Board	Chairman of the Board	600	600	Chairman of the Board	650	600
Non-Executive Directors	Non-Executive Directors			Non-Executive Directors
Base fee	Base fee	98	98	Base fee	101	98
Senior Non-Executive Director	Senior Non-Executive Director	30	30	Senior Non-Executive Director	30	30
Chairman of the Audit Committee	Chairman of the Audit Committee	30	30	Chairman of the Audit Committee	35	30
Chairman of the Remuneration Committee	Chairman of the Remuneration Committee	30	30	Chairman of the Remuneration Committee	35	30

~~211~~

~~Governance (continued)~~

Non-Executive Directors’ remuneration for the year ended 30 June ~~2021~~2022


		Fees £'000		Taxable benefits1 £'000		Total £'000			Fees £'000		Taxable benefits1 £'000		Total £'0004
		2021	2020	2021	2020	2021	2020		2022	2021	2022	2021	2022	2021
Chairman	Chairman							Chairman
Javier Ferrán2	Javier Ferrán2	600	600	1	1	601	601	Javier Ferrán2	650	600	2	1	652	601
Non-Executive Directors	Non-Executive Directors							Non-Executive Directors
Susan Kilsby	Susan Kilsby	158	144	1	10	159	154	Susan Kilsby	164	158	5	1	169	159
Melissa Bethell	Melissa Bethell	98	—	1	—	99	—	Melissa Bethell	100	98	1	1	102	99
Valérie Chapoulaud-Floquet5		49	—	1	—	50	—
Sir John Manzoni3		74	—	1	—	75	—
Valérie Chapoulaud-Floquet								Valérie Chapoulaud-Floquet	100	49	5	1	105	50
Sir John Manzoni								Sir John Manzoni	100	74	1	1	102	75
Lady Mendelsohn	Lady Mendelsohn	98	95	1	1	99	96	Lady Mendelsohn	100	98	1	1	102	99
Alan Stewart	Alan Stewart	128	125	1	1	129	126	Alan Stewart	134	128	1	1	135	129
Ireena Vittal4		73	—	1	—	74	—
Ho KwonPing6		24	95	—	4	24	99
Ireena Vittal								Ireena Vittal	100	73	1	1	102	74
Karen Blackett3								Karen Blackett3	8	n/a	—	n/a	9	n/a

1. Taxable benefits include a product allowance and expense reimbursements relating to travel, accommodation and subsistence in connection with attendance at Board meetings during the year, which are deemed by HMRC to be taxable in the United Kingdom. The amounts in the single figure of total remuneration table above include any tax gross-ups on the ~~grossed-up cost of UK tax paid~~benefits provided by the company on behalf of the Directors. Non-taxable expense reimbursements have not been included in the single figure of remuneration table above.

2. £100,000 of Javier Ferrán’s net remuneration in the year ended 30 June ~~2021~~2022 was used for the monthly purchase of Diageo ordinary shares, which must be retained until he retires from the company or ceases to be a Director for any other ~~reason~~reason.

3. ~~Sir John Manzoni~~Karen Blackett was appointed to the Board on 1 ~~October 2020~~June 2022.

4. ~~Ireena Vittal was appointed~~Some figures add up to ~~the Board on 2 October 2020~~

~~5. Valérie Chapoulaud-Floquet was appointed~~slightly different totals due to ~~the Board on 1 January 2021~~

~~6. Ho KwonPing retired from the Board on 28 September 2020~~rounding.

206

Governance (continued)

Looking ahead to ~~2022~~2023

~~Salary increases for the year ending30 June 2022~~

As outlined in the 2020 annual report on remuneration, in light of the impact of the Covid-19 pandemic, there was no change to base salaries for the Chief Executive and Chief Financial Officer during the year ended 30 June 2021.


Salary increases and pension reductions for the year ending 30 June 2023

In ~~April 2021,~~May 2022, the Remuneration Committee reviewed base salaries for senior management and agreed the following ~~increase~~increases for the Chief Executive and Chief Financial Officer, effective 1 October 2022.

On 1 January 2023, Ivan Menezes pension contribution will reduce from 20% of base salary to 14% in line with the ~~merit budget for the~~ wider ~~workforce for the United Kingdom and the United States, effective 1 October 2021:~~workforce.


		Ivan Menezes			Lavanya Chandrashekar			Ivan Menezes				Lavanya Chandrashekar
Salary at 1 October ('000)	Salary at 1 October ('000)	2021		2020	2021	2020	Salary at 1 October ('000)	2022		2021		2022		2021
Base salary	Base salary	$1,711		$1,661	$975	—	Base salary	$1,763		$1,711		$1,004		$975
% increase (over previous year)	% increase (over previous year)	3	%	—	—	—	% increase (over previous year)	3	%	3	%	3	%	—

~~Annual incentive design for the year ending 30 June 2022~~


Annual incentive design for the year ending 30 June 2023

The measures and targets for the annual incentive plan are reviewed annually by the Remuneration Committee and are carefully chosen to drive financial and individual business performance goals related to the company’s short-term strategic operational objectives. The plan design for Executive Directors in the year ending 30 June ~~2022~~2023 will comprise the following performance measures and weightings, with targets set for the full financial year:

–net sales (% growth) (26.67% weighting): a key performance measure of year-on-year top line growth;

–operating profit (%(% growth) (26.67% weighting): stretching profit targets drive operational efficiency and influence the level of returns that can be delivered to shareholders through increases in share price and dividend income not including exceptional items or exchange;

–~~net sales (% growth) (26.67% weighting): a key performance measure of year-on-year top line growth;~~

–operating cash conversion (26.67% weighting): ensures focus on efficient cash delivery by the end of the year; and

–individual business objectives (20% weighting): measurable deliverables that are specific to the individual and are focussed on supporting the delivery of key strategic objectives.

The Committee has discretion to adjust the payout to reflect underlying business performance and any other relevant factors.

Details of the targets for the year ending 30 June ~~2022~~2023 will be disclosed retrospectively in next year’s annual report on remuneration, by which time they will no longer be deemed commercially sensitive by the Board.

~~212~~

~~Governance (continued)~~


Long-term incentive awards to be made in the year ending 30 June 2023

~~Long-term incentive awards to be made in the year ending 30 June 2022~~

The long-term incentive plan measures are reviewed annually by the Remuneration Committee and are selected to reward long-term consistent performance in line with Diageo’s business strategy and to create alignment with the delivery of value for shareholders. The Committee has ensured that the incentive structure for senior management does not raise environmental, social and governance risks by inadvertently motivating irresponsible behaviour. As per last year, DLTIP awards made in September ~~2021~~2022 will comprise awards of both performance shares and share options, based on stretching targets against the key performance measures as outlined in the table below, assessed over a three-year performance period. The relative total shareholder return measure is based on the same constituent group and vesting schedule as outlined on page ~~203.~~196.

The performance share element of the DLTIP applies to the Executive Committee and the top ~~cadre~~level of senior leaders across the organisation worldwide, whilst the share option element is applicable to a much smaller population comprising only members of the Executive Committee. One market price option is valued at one-third of a performance share.

The ESG measure comprises four goals reflecting the 'Society 2030: Spirit of Progress' strategy, to make a positive impact on the environment and ~~society, as referenced on pages 64-67.~~society. Each goal is weighted equally:

–•reduction in greenhouse gas emissions;

–•improvement in water efficiency;

–•number of people who confirmed changed attitudes to the dangers of underage drinking, after participating in a Diageo supported education programme; and

–•inclusion and diversity metric (one measure on % female leaders globally, and another measure on % ethnically diverse leaders globally).

Awards are calculated on the basis of a six-month average share price for the period ending 30 June ~~2021.~~2022.

It is intended that a DLTIP award of 500% of base salary will be made to Ivan Menezes in September ~~2021,~~2022, comprising 375% of salary in performance shares and 125% of salary in ~~market-price share options (in performance share equivalents; one~~ market price ~~option is valued at one-third of a performance share).~~

share options. It is intended that a DLTIP award of 480% of salary will be made to Lavanya Chandrashekar in September ~~2021,~~2022, comprising 360% of salary in performance shares and 120% of salary in market price share ~~options (in~~options. In performance share ~~equivalents).~~equivalents; one market price option is valued at one-third of a performance share.

207

Governance (continued)

The table below summarises the annual DLTIP awards to Ivan Menezes and Lavanya Chandrashekar to be made in September ~~2021.~~2022.


Grant value (% salary)	Chief Executive		Chief Financial Officer
	Performance share equivalents (1 share: 3 options)
Performance shares	375	%	360	%
Share options	125	%	120	%
Total	500	%	480	%

Performance conditions for long-term incentive awards to be made in the year ending 30 June ~~2022~~2023


		Performance shares																Share options							Performance shares																Share options
				Organic profit before exceptional items and tax (CAGR)		Environmental, social & governance (ESG)																					Organic profit before exceptional items and tax (CAGR)		Environmental, social & governance (ESG)
		Organic net sales (CAGR)				Greenhouse gas reduction		Water efficiency		Positive drinking		% Female leaders		% Ethnically diverse leaders		Vesting schedule		Relative Total Shareholder Return		Cumulative free cash flow (£m)		Vesting schedule			Organic net sales (CAGR)				Greenhouse gas reduction1		Water efficiency		Positive drinking		% Female leaders		% Ethnically diverse leaders		Vesting schedule		Relative Total Shareholder Return		Cumulative free cash flow (£m)		Vesting schedule
Weighting (% total)	Weighting (% total)	40	%	40	%	5	%	5	%	5	%	2.5	%	2.5	%	100	%	50.0	%	50.0	%	100	%	Weighting (% total)	40	%	40	%	5	%	5	%	5	%	2.5	%	2.5	%	100	%	50.0	%	50.0	%	100	%
Maximum	Maximum	9.0	%	13.5	%	27.1	%	12.1	%	3.7m		46	%	41	%	100	%	3rd and above		£9,250		100	%	Maximum	8.5	%	12.0	%	17.6	%	12.1	%	4.0m		47	%	44	%	100	%	3rd and above		£9,450		100	%
Midpoint	Midpoint	7.0	%	10.0	%	23.1	%	9.2	%	3.0m		45	%	40	%	60	%	—		£8,350		60	%	Midpoint	6.5	%	8.5	%	14.2	%	9.2	%	3.3m		46	%	43	%	60	%	—		£8,550		60	%
Threshold	Threshold	5.0	%	6.5	%	19.1	%	6.3	%	2.3m		44	%	39	%	20	%	9th and above		£7,450		20	%	Threshold	4.5	%	5.0	%	10.7	%	6.3	%	2.6m		45	%	42	%	20	%	9th and above		£7,650		20	%

1.Further context for the 2022 long-term incentive greenhouse gas reduction targets is set out on page 45.

~~213~~208

Governance (continued)

Additional information

Emoluments and share interests of senior management

The total emoluments for the year ended 30 June ~~2021~~2022 of the Executive Directors and the Executive Committee members ~~and the Company Secretary~~ (together, the senior management) of Diageo comprising base salary, annual incentive plan, share incentive plan, termination payments and other benefits were ~~£24.9~~£23.9 million ~~(2020~~(2021 – ~~£12.1~~£24.9 million).

The aggregate amount of gains made by the senior management from the exercise of share options and from the vesting of awards during the year was ~~£9.4~~£19.1 million. In addition, they were granted ~~819,702~~718,092 performance-based share options under the Diageo Long-Term Incentive Plan (DLTIP) during the year at a weighted average share price of ~~2493~~3,609 pence, exercisable by ~~2030, and 29,522 options not subject to performance.~~2031. In addition, they were granted ~~597~~435 options over ordinary shares under the UK savings-related share options scheme (SAYE). They were also awarded ~~882,321~~680,438 performance shares under the DLTIP in September ~~2020,~~2021, which will vest in three years subject to the relevant performance ~~conditions,~~conditions. A further award of 142,977 restricted shares subject to performance, and ~~13,779~~127,867 restricted shares not subject to ~~performance.~~performance were also granted during the year.

Senior management options over ordinary shares

At 2726 July ~~2021,~~2022, the senior management had an aggregate beneficial interest in ~~1,474,626~~1,842,518 ordinary shares in the company and in the following options over ordinary shares in the company:


		Number of options	Weighted average exercise price	Option period		Number of options	Weighted average exercise price (£)	Exercise period
Ivan Menezes	Ivan Menezes	835,116	25.15	2015-2025	Ivan Menezes	549,044	30.67	2020-2031
Lavanya Chandrashekar	Lavanya Chandrashekar	19,584	27.15	2018-2028	Lavanya Chandrashekar	99,824	33.73	2021-2031
Other1	Other1	1,742,559	25.6	2012-2030	Other1	1,349,935	30.14	2015-2031

1. Other members of the Executive Committee ~~which includes the Company Secretary~~

Key management personnel related party transactions

Key management personnel of the group comprises the Executive and Non-Executive Directors, the members of the Executive Committee and the Company Secretary.

Diageo plc has granted rolling indemnities to the Directors and the Company Secretary, uncapped in amount, in relation to certain losses and liabilities which they may incur in the course of acting as Directors or Company Secretary (as applicable) of Diageo plc or of one or more of its subsidiaries. These indemnities continue to be in place at 30 June ~~2021.~~2022.

Other than disclosed in this report, no Director had any interest, beneficial or non-beneficial, in the share capital of the company. Save as disclosed above, no Director has or has had any interest in any transaction which is or was unusual in its nature, or which is or was significant to the business of the group and which was effected by any member of the group during the financial year, or which having been effected during an earlier financial year, remains in any respect outstanding or unperformed. There have been no material transactions during the last three years to which any Director or officer, or 3% or greater shareholder, or any spouse or dependent thereof, was a party. There is no significant outstanding indebtedness to the company from any Directors or officer or 3% or greater shareholder.

Statutory and audit requirements

This report was approved by a duly authorised Committee of the Board of Directors and was signed on its behalf on 2827 July ~~2021~~2022 by Susan Kilsby who is Chair of the Remuneration Committee.

The Board has followed the principles of good governance as set out in the UK Corporate Governance Code and complied with the regulations contained in the Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, the Listing Rules of the Financial Conduct Authority and the relevant schedules of the Companies Act 2006.

The Companies Act 2006 and the Listing Rules require the company’s auditor to report on the audited information in their report and to state that this section has been properly prepared in accordance with these regulations.

The ~~annual~~Directors' remuneration report ~~on remuneration~~(excluding the policy) is subject to shareholder approval at the AGM on ~~30 September 2021;~~6 October 2022; terms defined in this remuneration report are used solely herein.

~~214~~209

Governance (continued)

Directors’ report

The Directors present the Directors’ report for the year ended 30 June ~~2021.~~2022.

Company status

Diageo plc is a public limited liability company incorporated in England and Wales with registered number 23307 and registered office and principal place of business at 16 Great Marlborough Street, London W1F 7HS, United Kingdom. It is the ultimate holding company of the group, a full list of whose subsidiaries, partnerships, associates, joint ventures and joint arrangements is set out in Note 10 to the financial statements set out on pages 200-204 of the UK Annual Report.

Directors

The Directors of the company who currently serve are shown in the section ‘Board of Directors’ on pages ~~154-156~~ 145-146

and ~~the names of former Directors who served during the year are listed on page 163. In~~147 in accordance with the UK Corporate Governance Code, all the Directors will retire by rotation at the AGM and offer themselves for re-election. Further details of Directors’ contracts, remuneration and their interests in the shares of the company at 30 June ~~2021~~2022 are given in the Directors’ remuneration report. The Directors’ powers are determined by UK legislation and Diageo’s articles of association. The Directors may exercise all the company’s powers provided that Diageo’s articles of association or applicable legislation do not stipulate that any powers must be exercised by the members.

Auditor

The auditor, PricewaterhouseCoopers LLP, is willing to continue in office and a resolution for its re-appointment as auditor of the company will be submitted to the AGM.

Disclosure of information to the auditor

In accordance with section 418 of the Companies Act 2006, the Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are each aware, there is no relevant audit information of which the company’s auditor is unaware; and each Director has taken all reasonable steps to ascertain any relevant audit information and to ensure that the company’s auditor is aware of that information.

Corporate governance statement

The corporate governance statement, prepared in accordance with rule 7.2 of the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules, comprises the following sections of the Annual Report: the ‘Corporate governance report’, the ‘Audit Committee report’ and the ‘Additional information for shareholders’.

Significant agreements – change of control

The following significant agreements contain certain termination and other rights for Diageo’s counterparties upon a change of control of the company. Under the partners agreement governing the company’s 34% investment in Moët Hennessy SAS (MH) and Moët Hennessy International SAS (MHI), if a Competitor (as defined therein) directly or indirectly takes control of the company (which, for these purposes, would occur if such Competitor acquired more than 34% of the voting rights or equity interests in the company), LVMH Moët Hennessy – Louis Vuitton SA (LVMH) may require the company to sell its interests in MH and MHI to LVMH.

The master agreement governing the operation of the group’s market-level distribution joint ventures with LVMH states that if any person acquires interests and rights in the company resulting in a Control Event (as defined) occurring in respect of the company, LVMH may within 12 months of the Control Event either appoint and remove the chairman of each joint venture entity governed by such master agreement, who shall be given a casting vote, or require each distribution joint venture entity to be wound up. Control Event for these purposes is defined as the acquisition by any person of more than 30% of the outstanding voting rights or equity interests in the company, provided that no other person or entity (or group of affiliated persons or entities) holds directly or indirectly more than 30% of the voting rights in the company.

~~215~~210

Governance (continued)

Related party transactions

Transactions with ~~other~~ related parties are disclosed in note 2021 to the consolidated financial statements.

Major shareholders

At 30 June ~~2021,~~2022, the following substantial interests (3% or more) in the company’s ordinary share capital (voting securities) had been notified to the ~~company.~~company:


Shareholder	Shareholder	Number of ordinary shares	Percentage of issued ordinary share capital (excluding treasury shares)		Date of notification of interest	Shareholder	Number of ordinary shares	Percentage of issued ordinary share (excluding treasury shares)		Date of notification of interest
BlackRock Investment Management (UK) Limited (indirect holding)	BlackRock Investment Management (UK) Limited (indirect holding)	147,296,928	5.89	%	3 December 2009	BlackRock Investment Management (UK) Limited (indirect holding)	147,296,928	5.89	%	3 December 2009
Capital Research and Management Company (indirect holding)	Capital Research and Management Company (indirect holding)	124,653,096	4.99	%	28 April 2009	Capital Research and Management Company (indirect holding)	124,653,096	4.99	%	28 April 2009
Massachusetts Financial Services Company (indirect holding)						Massachusetts Financial Services Company (indirect holding)	114,036,646	4.95	%	1 June 2022

(i)On ~~29 January 2021,~~1 February 2022, BlackRock Inc. filed an Amendment to Schedule 13G with the SEC in respect of the calendar year ended 31 December 2010, reporting that, ~~166,483,849~~as of December 31, 2021, 173,739,088 ordinary shares representing ~~7.1%~~7.5% of the issued ordinary share capital were beneficially owned by BlackRock Inc. and its subsidiaries (including BlackRock Investment Management (UK) Limited).

(ii)On 142 February ~~2021,~~2022, Massachusetts Financial Services Company filed a an Amendment to Schedule 13G with the SEC in respect of the calendar year ended 31 December ~~2020~~2018, reporting that, ~~154,322,161~~as of December 31, 2021, 142,776,369 ordinary shares representing ~~6.6%~~6.1% of the issued ordinary share capital were beneficially owned by Massachusetts Financial Services Company.

The company has not been notified of any other substantial interests in its securities since 30 June ~~2021.~~2022. The company’s substantial shareholders do not have different voting rights. Diageo, so far as is known by the company, is not directly or indirectly owned or controlled by another corporation or by any government. Diageo knows of no arrangements, the operation of which may at a subsequent date result in a change of control of the company.

As at the close of business on 3129 July ~~2021, 341,041,989~~2022, 321,284,915 ordinary shares, including those held through American Depositary Shares ("ADSs"), were held by approximately ~~2,694~~2,680 holders (including American Depositary Receipt ("ADR") holders) with registered addresses in the United States, representing approximately ~~14.60%~~12.68% of the outstanding ordinary shares (excluding treasury shares). At such date, ~~85,171,058~~80,253,313 ADSs were held by ~~2,278~~2,262 registered ADR holders. Since certain of such ordinary shares and ADSs are held by nominees or former GrandMet PLC or Guinness Group PLC ADR holders who have not re-registered their ADSs, the number of holders may not be representative of the number of beneficial owners in the United States or the ordinary shares held by them.

Employment policies

A key strategic imperative of the company is to attract, retain and grow a pool of diverse, talented employees. Diageo recognises that a diversity of skills and experiences in its workplace and communities will provide a competitive advantage. To enable this, the company has various global employment policies and standards, covering such issues as resourcing, data protection, human rights, health, safety and wellbeing. These policies and standards seek to ensure that the company treats current or prospective employees justly, solely according to their abilities to meet the requirements and standards of their role and in a fair and consistent way. This includes giving full and fair consideration to applications from prospective employees who are disabled, having regard to their aptitudes and abilities, and not discriminating against employees under any circumstances (including in relation to applications, training, career development and promotion) on the grounds of any disability. In the event that an employee, worker or contractor becomes disabled in the course of their employment or engagement, Diageo aims to ensure that reasonable steps are taken to accommodate their disability by making reasonable adjustments to their existing employment or engagement.

Trading market for shares

Diageo plc ordinary shares are listed on the London Stock Exchange (LSE) and on the Dublin Euronext and Paris ~~Stock~~Euronext Exchanges. Diageo ADSs, representing four Diageo ordinary shares each, are listed on the New York Stock Exchange (NYSE).

The principal trading market for the ordinary shares is the LSE. Diageo shares are traded on the LSE’s electronic order book. Orders placed on the order book are displayed on-screen through a central electronic system and trades are automatically executed, in price and then time priority, when orders match with corresponding buy or sell orders.

Only member firms of the LSE, or the LSE itself if requested by the member firm, can enter or delete orders on behalf of clients or on their own account. All orders are anonymous. Although use of the order book is not mandatory, all trades, whether or not executed through the order book and regardless of size, must be reported within three minutes of execution, but may be eligible for deferred publication.

The Markets in Financial Instruments Directive (MiFID) allows for delayed publication of large trades with a sliding scale requirement based on qualifying minimum thresholds for the amount of consideration to be paid/the proportion of average daily turnover (ADT) of a stock represented by a trade. Provided that a trade/consideration equals or exceeds the qualifying minimum size, it will be eligible for deferred publication ranging from 60 minutes from time of trade to three trading days after time of trade.

Fluctuations in the exchange rate between ~~the pound~~ sterling and the US dollar will affect the US dollar equivalent of the ~~pound~~ sterling price of the ordinary shares on the LSE and, as a result, will affect the market price of the ADSs on the NYSE. In addition, such fluctuations will affect the US dollar amounts received by holders of ADSs on conversion of cash dividends paid in pounds sterling on the underlying ordinary shares.

~~216~~211

Governance (continued)

American depositary shares

Fees and charges payable by ADR holders

Citibank N.A. serves as the depositary (Depositary) for Diageo’s ADS programme. Pursuant to the deposit agreement dated 14 February 2013 between Diageo, the Depositary and owners and holders of ADSs (the ~~‘Deposit Agreement’)~~Deposit Agreement), ADR holders may be required to pay various fees to the Depositary, and the Depositary may refuse to provide any service for which a fee is assessed until the applicable fee has been paid. In particular, the Depositary, under the terms of the Deposit Agreement, shall charge a fee of up to $5.00 per 100 ADSs (or fraction thereof) relating to the issuance of ADSs; delivery of deposited securities against surrender of ADSs; distribution of cash dividends or other cash distributions (i.e. sale of rights and other entitlements); distribution of ADSs pursuant to stock dividends or other free stock distributions, or exercise of rights to purchase additional ADSs; distribution of securities other than ADSs or rights to purchase additional ADSs (i.e. spin-off shares); and depositary services. Citibank N.A. is located at 388 Greenwich Street, New York, New York, 10013, United States.

In addition, ADR holders may be required under the Deposit Agreement to pay the Depositary (a) taxes (including applicable interest and penalties) and other governmental charges; (b) registration fees; (c) certain cable, telex, and facsimile transmission and delivery expenses; (d) the expenses and charges incurred by the Depositary in the conversion of foreign currency; (e) such fees and expenses as are incurred by the Depositary in connection with compliance with exchange control regulations and other regulatory requirements; and (f) the fees and expenses incurred by the Depositary, the ~~Custodian,~~custodian, or any nominee in connection with the servicing or delivery of ADSs. The Depositary may (a) withhold dividends or other distributions or sell any or all of the shares underlying the ADSs in order to satisfy any tax or governmental charge and (b) deduct from any cash distribution the applicable fees and charges of, and expenses incurred by, the Depositary and any taxes, duties or other governmental charges on account.

Direct and indirect payments by the Depositary

The Depositary reimburses Diageo for certain expenses it incurs in connection with the ADR programme, subject to a ceiling set out in the Deposit Agreement pursuant to which the Depositary provides services to Diageo. The Depositary has also agreed to waive certain standard fees associated with the administration of the programme.

Under the contractual arrangements with the Depositary, Diageo has received approximately $2.3 million arising out of fees charged in respect of dividends paid during the year and a fixed contribution to the company’s ADR programme costs. These payments are received for expenses associated with non-deal road shows, third party investor relations consultant fees and expenses, Diageo’s cost for administration of the ADR programme not absorbed by the Depositary and related activities (e.g. expenses associated with the ~~annual general meeting)~~AGM), travel expenses to attend training and seminars, exchange listing fees, legal fees, auditing fees and expenses, the SEC filing fees, expenses related to Diageo’s compliance with US securities law and regulations (including, without limitation, the Sarbanes-Oxley Act) and other expenses incurred by Diageo in relation to the ADR programme.

Articles of association

~~Employment policies~~The company is incorporated under the name Diageo plc, and is registered in England and Wales under registered number 23307. The following description summarises certain provisions of Diageo’s articles of association (as adopted by special resolution at the Annual General Meeting on 28 September 2020) and applicable English law concerning companies (the Companies Acts), in each case as at 27 July 2022. This summary is qualified in its entirety by reference to the Companies Acts and Diageo’s articles of association. Investors can obtain copies of Diageo’s articles of association by contacting the Company Secretary at the.cosec@diageo.com. Any amendment to the articles of association of the company may be made in accordance with the provisions of the Companies Act 2006, by way of special resolution.

~~A key strategic imperative~~

Directors

Diageo’s articles of association provide for a board of directors, consisting (unless otherwise determined by an ordinary resolution of shareholders) of not fewer than three directors and not more than 25 directors, in which all powers to manage the business and affairs of Diageo are vested. Directors may be elected by the members in a general meeting or appointed by the Board. At each annual general meeting, all the directors shall retire from office and may offer themselves for re-election by members. There is no age limit requirement in respect of directors. Directors may also be removed before the expiration of their term of office in accordance with the provisions of the Companies Acts.

Voting rights

Voting on any resolution at any general meeting of the company is by a show of hands unless a poll is duly demanded. On a show of hands,

(a) every shareholder who is present in person at a general meeting, and every proxy appointed by any one shareholder and present at a general meeting, has/have one vote regardless of the number of shares held by the shareholder (or, subject to ~~attract, retain~~(b), represented by the proxy), and ~~grow~~

(b) every proxy present at a ~~pool~~general meeting who has been appointed by more than one shareholder has one vote regardless of ~~diverse, talented employees.~~the number of shareholders who have appointed him or the number of shares held by those shareholders, unless he has been instructed to vote for a resolution by one or more shareholders and to vote against the resolution by one or more shareholders, in which case he has one vote for and one vote against the resolution.

212

Governance (continued)

On a poll, every shareholder who is present in person or by proxy has one vote for every share held by that shareholder, but a shareholder or proxy entitled to more than one vote need not cast all his votes or cast them all in the same way (the deadline for exercising voting rights by proxy is set out in the form of proxy).

A poll may be demanded by any of the following:

•the chairman of the general meeting;

•at least three shareholders entitled to vote on the relevant resolution and present in person or by proxy at the meeting;

•any shareholder or shareholders present in person or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all shareholders entitled to vote on the relevant resolution; or

•any shareholder or shareholders present in person or by proxy and holding shares conferring a right to vote on the relevant resolution on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Diageo’s articles of association and the Companies Acts provide for matters to be transacted at general meetings of Diageo ~~recognises that~~by the proposing and passing of two kinds of resolutions:

•ordinary resolutions, which include resolutions for the election, re-election and removal of directors, the declaration of final dividends, the appointment and re-appointment of the external auditor, the remuneration report and remuneration policy, the increase of authorised share capital and the grant of authority to allot shares; and

•special resolutions, which include resolutions for the amendment of Diageo’s articles of association, resolutions relating to the disapplication of pre-emption rights, and resolutions modifying the rights of any class of Diageo’s shares at a ~~diversity~~meeting of ~~skills~~the holders of such class.

An ordinary resolution requires the affirmative vote of a simple majority of the votes cast by those entitled to vote at a meeting at which there is a quorum in order to be passed. Special resolutions require the affirmative vote of not less than three-quarters of the votes cast by those entitled to vote at a meeting at which there is a quorum in order to be passed. The necessary quorum for a meeting of Diageo is a minimum of two shareholders present in person or by proxy and ~~experiences~~entitled to vote.

A shareholder is not entitled to vote at any general meeting or class meeting in respect of any share held by them if they have been served with a restriction notice (as defined in Diageo’s articles of association) after failure to provide Diageo with information concerning interests in those shares required to be provided under the Companies Acts.

Pre-emption rights and new issues of shares

While holders of ordinary shares have no pre-emptive rights under Diageo’s articles of association, the ability of the Directors to cause Diageo to issue shares, securities convertible into shares or rights to shares, otherwise than pursuant to an employee share scheme, is restricted. Under the Companies Acts, the directors of a company are, with certain exceptions, unable to allot any equity securities without express authorisation, which may be contained in a company’s articles of association or given by its ~~workplace and communities will provide~~shareholders in a ~~competitive advantage. To enable this~~general meeting, but which in either event cannot last for more than five years. Under the ~~company has various global employment policies and standards, covering~~Companies Acts, Diageo may also not allot shares for cash (otherwise than pursuant to an employee share scheme) without first making an offer to existing shareholders to allot such ~~issues as resourcing, data protection, human rights, health, safety and wellbeing. These policies and standards seek~~shares to ~~ensure that~~them on the ~~company treats current~~same or ~~prospective employees justly, solely according~~more favourable terms in proportion to their ~~abilities~~respective shareholdings, unless this requirement is waived by a special resolution of the shareholders.

Repurchase of shares

Subject to ~~meet~~authorisation by special resolution, Diageo may purchase its own shares in accordance with the ~~requirements~~Companies Acts. Any shares which have been bought back may be held as treasury shares or, if not so held, must be cancelled immediately upon completion of the purchase, thereby reducing the amount of Diageo’s issued share capital.

Restrictions on transfers of shares

The Board may decline to register a transfer of a certificated Diageo share unless the instrument of transfer (a) is duly stamped or certified or otherwise shown to the satisfaction of the Board to be exempt from stamp duty, and ~~standards~~is accompanied by the relevant share certificate and such other evidence of ~~their role~~the right to transfer as the Board may reasonably require, (b) is in respect of only one class of share and (c) if to joint transferees, is in favour of not more than four such transferees. Registration of a ~~fair~~transfer of an uncertificated share may be refused in the circumstances set out in the uncertificated securities rules (as defined in Diageo’s articles of association) and ~~consistent way. This includes giving full and fair consideration~~where, in the case of a transfer to ~~applications from prospective employees who are disabled, having regard~~joint holders, the number of joint holders to ~~their aptitudes and abilities, and not discriminating against employees under any circumstances (including in relation~~whom the uncertificated share is to ~~applications, training, career development and promotion) on the grounds~~be transferred exceeds four.

The Board may decline to register a transfer of any ~~disability.~~of Diageo’s certificated shares by a person with a 0.25% interest (as defined in Diageo’s articles of association) if such a person has been served with a restriction notice (as defined in Diageo’s articles of association) after failure to provide Diageo with information concerning interests in those shares required to be provided under the Companies Acts, unless the transfer is shown to the Board to be pursuant to an arm’s-length sale (as defined in Diageo’s articles of association).

~~217~~213

Governance (continued)

Other information

Other information relevant to the Directors’ report may be found in the following sections of the Annual Report:


Information (including that required by UK Listing Authority Listing Rule 9.8.4)			Location in Annual Report
Agreements with controlling shareholders			Not applicable
Contracts of significance			Not applicable
Details of long-term incentive schemes			Directors’ remuneration report
Directors’ indemnities and compensation			Directors’ remuneration report - Additional information; ~~Financial Statements~~Consolidated financial statements - note 2021 Related party transactions
Dividends			Group financial review; ~~Financial Statements~~Consolidated financial statements - Unaudited financial information
Engagement with employees			Corporate governance report - Workforce engagement statement
Engagement with suppliers, customers and others			~~Stakeholder engagement;~~ Corporate governance report - Stakeholder engagement
Events post 30 June ~~2021~~2022			~~Not applicable~~Consolidated financial statements - note 23 Post balance sheet events
Financial risk management			~~Financial~~Consolidated financial statements - note 1516 Financial instruments and risk management
Future developments			Chairman’s statement; Chief Executive’s statement; Our market dynamics
Greenhouse gas emissions			Sustainability performance; Responding to climate-related risks
Interest capitalised			Not applicable
Non-pre-emptive issues of equity for cash (including in respect of major unlisted subsidiaries)			Not applicable
Parent participation in a placing by a listed subsidiary			Not applicable
Political donations			Corporate governance report
Provision of services by a controlling shareholder			Not applicable
Publication of unaudited financial information			Unaudited financial information
Purchase of own shares			Repurchase of shares; ~~Financial~~Consolidated financial statements - note 1718 Equity
Research and development			~~Financial~~Additional Disclosures - Research and development; Consolidated financial statements - note 3 Operating costs
Review of the business and principal risks and uncertainties			Chief Executive’s statement; Our principal risks and risk management; Responding to climate-related risks; Business reviews
Share capital - structure, voting and other rights			~~Financial~~Consolidated financial statements - note 1718 Equity
Share capital - employee share plan voting rights			~~Financial~~Consolidated financial statements - note 1718 Equity
Shareholder waivers of dividends			~~Financial~~Consolidated financial statements - note 1718 Equity
Shareholder waivers of future dividends			~~Financial~~Consolidated financial statements - note 1718 Equity
Sustainability and responsibility			Sustainability performance; Responding to climate-related risks
Waiver of emoluments by a director			Not applicable
Waiver of future emoluments by a director			Not applicable

The Directors’ report of Diageo plc for the year ended 30 June ~~2021~~2022 comprises these pages and the sections of the Annual Report referred to under ‘Directors’, ‘Corporate governance statement’ and ‘Other information’ above, which are incorporated into the Directors’ report by reference.

In addition, certain disclosures required to be contained in the Directors’ report have been incorporated into the ‘Strategic report’ as set out in ‘Other information’ above.

The Directors’ report, which has been approved by a duly appointed and authorised committee of the Board of Directors, was signed on its behalf by ~~Siobhán Moriarty,~~Tom Shropshire, the Company Secretary, on 2827 July ~~2021.~~2022.

~~218~~214

Financial statements

Report of Independent Registered Public Accounting Firm

To theBoard of Directors and Shareholders of Diageo plc,

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance ~~sheet~~sheets of Diageo plc and its subsidiaries (the ~~Company)~~“Company”) as of 30 June ~~2021~~2022 and ~~2020,~~2021, and the related consolidated income statement and consolidated statement of comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for each of the three years in the period ended 30 June ~~2021,~~2022, including the related notes (collectively referred to as the ~~consolidated~~“consolidated financial ~~statements)~~statements”). We also have audited the Company's internal control over financial reporting as of 30 June ~~2021,~~2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of 30 June ~~2021~~2022 and ~~2020,~~ 2021, and the results of its operations and its cash flows for each of the three years in the period ended 30 June ~~2021~~ 2022 i) in ~~accordance~~conformity with UK-adopted International Accounting Standards, ii) in conformity with the ~~requirements of the Companies Act 2006, ii) as prepared in accordance with~~ International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, and iii) ~~as prepared~~ in ~~accordance~~conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 30 June ~~2021,~~2022, based on criteria established in Internal Control - Integrated Framework (2013)issued by the COSO.

~~Change in Accounting Principle~~

~~As discussed in Note 1(f) to the consolidated financial statements, the Company changed the manner in which it accounts~~Basis for ~~leases in the period ended 30 June 2020 due to the adoption of IFRS 16.~~Opinions

~~Basis for Opinions~~

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under ~~Item~~Part II. 15.B. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matters communicated beloware mattersarising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or

215

Financial statements (continued)

disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or

~~219~~

~~Financial statements (continued)~~

complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment assessment of indefinite-lived brand intangible assets and goodwill

As described in note 9 to the consolidated financial statements, the Company’s consolidated indefinite-lived brand intangibles balance and goodwill balance as at 30 June ~~2021~~2022 were ~~£7,361~~£7,896 million and ~~£1,957~~£2,287 million respectively. Management conducts impairment tests for indefinite-lived brand intangibles and goodwill annually, or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. An impairment charge of £336 million was recognised in the consolidated income statement in respect of the current year, and opening balance adjustments recognised in the consolidated statement of changes in equity included £312 million impairment as a result of hyperinflation adjustments in respect of Turkey. The individual brands, other intangibles with indefinite useful lives and their associated tangible fixed assets are aggregated and tested as separate cash-generating units. Goodwill is attributed to each of the markets. Separate tests are carried out for each cash-generating unit and for each of the markets. ~~Judgment is required in determining the cash-generating units.~~ The impairment test compares the net carrying value of the cash-generating unit for indefinite-lived brand intangibles and market for goodwill with the recoverable amount. The tests are dependent on management’s estimates in respect of the forecasting of future cash flows, the discount rates applicable to the future cash flows and what expected growth rates are reasonable. Judgment is required in determining the cash-generating units. The value in use calculations ~~are~~is based on discounted forecast cash flows using the assumption that cash flows continue in perpetuity at the terminal growth rate of each country or region. Cash flows are extrapolated up to five years using expected growth rates in line with management’s best estimates. Growth rates reflect expectations of sales growth, operating costs and margin, based on past experience and external sources of information. Where applicable, multiple cash flow scenarios were populated to predict the potential outcome, considering the increased risk of uncertainty around the duration and severity of the Covid-19 pandemic in the different markets. The five-year forecast period is extended by up to an additional ten years at acquisition date for some indefinite-lived intangible assets and goodwill when management believes that this period is justified by the maturity of the market and expects to achieve growth in excess of the terminal growth rate driven by Diageo’s sales, marketing and distribution expertise. Cash flows beyond the five-year period are mainly projected using steady or progressively declining growth rates. These rates do not exceed the annual growth rate of the real gross domestic product (GDP) aggregated with the long-term annual inflation rate of the country or region. Cash flows for the subsequent years after the forecast period are extrapolated based on a terminal growth rate which does not exceed the long-term annual inflation rate of the country or region. The determination of discounted future cash flows ~~include~~includes significant management judgments and assumptions, including sales growth, operating costs, margin, discount rates and terminal growth rates.

The principal considerations for our determination that performing procedures related to the impairment assessment of indefinite-lived brand intangible assets and goodwill ~~are~~is a critical audit matter ~~is that there was~~are the significant ~~judgment~~judgments made by management when developing its assessment of the recoverable amount for the cash-generating units. This in turn led to a high degree of auditor judgment, subjectivity and effort in evaluating management’s significant assumptions, ~~including~~related to future cash flows, discount rates, and expected growth rates. In addition, the audit effort involved the use of professionals with specialised skill and ~~knowledge to assist in performing these procedures and evaluating the audit evidence obtained.~~knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill and indefinite-lived brand intangible assets impairment tests, including controls over the determination of recoverable amounts. These procedures also included, among others, testing management’s process for determining the recoverable amount of goodwill and indefinite-lived brand intangible assets, evaluating the appropriateness of the methodology used in the impairment models, testing the completeness, accuracy, and relevance of underlying data used in the models, and evaluating the significant assumptions used by management, including the forecasted cash flows, discount rates, ~~and~~ expected growth rates, as well as management’s sensitivities and related financial statement disclosures. Evaluating the reasonableness of management’s assumptions involved 1) evaluating key market-related assumptions (including the growth rates and discount ~~rate and management’s estimates of the duration and severity of the impact of the Covid-19 pandemic on cash flows)~~rate) used in the models to external data, 2) performing a retrospective comparison of forecasted cash flows to actual past performance and previous forecasts, 3) performing sensitivity analyses, and 4) using professionals with specialised skill and knowledge to assist in the evaluation of the discount rates.

Taxation – Provisions for tax uncertainties

As described in Note 7 and Note 1819 to the consolidated financial statements, the Company has a number of ongoing tax audits worldwide for which provisions are recognised based on management’s best estimates and judgments concerning the ultimate outcome. As at 30 June ~~2021~~2022 the current tax asset of ~~£145~~£149 million and tax liability of ~~£146~~£252 million includes ~~£129~~£156 million of provisions for tax uncertainties. The Company operates in a large number of markets with complex tax and legislative regimes that are open to subjective interpretation. Management is required to estimate the amount that should be recognised as a tax liability or tax asset in many countries which are subject to tax audits which by their nature are often complex and can take several years to resolve. Tax provisions are based on management’s judgment and interpretation of country specific tax law and the likelihood of settlement. As disclosed by management, the actual tax liabilities could differ from the provision for tax uncertainties and in such event the Company would be required to make an adjustment in a subsequent period which could have a material impact on the Company’s profit for the year.

The principal considerations for our determination that performing procedures related to the taxation - provision for tax uncertainties is a critical audit matter are ~~that there was~~the significant ~~judgment~~judgments made by management in determining the provisions for tax uncertainties, including

216

Financial statements (continued)

a high degree of estimation uncertainty due to the number and complexity of tax laws, frequency of tax audits and potential for adjustments which could have a material impact on the Company’s profit for the year as a result of such audits. This in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures to evaluate the timely identification and accurate

~~220~~

~~Financial statements (continued)~~

measurement of provisions for tax uncertainties. Also, the evaluation of audit evidence related to the provisions for tax uncertainties required significant auditor judgment as the nature of the evidence is often subjective, and the audit effort involved the use of professionals with specialised skill and ~~knowledge to assist in evaluating the audit evidence obtained.~~knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the liabilities for uncertain tax positions, and controls addressing completeness of the uncertain tax positions, as well as controls over measurement of the liabilities. These procedures also included, among others, (i) testing the information used in the calculation of the liability for uncertain tax positions; (ii) testing the calculation of the liability for uncertain tax positions by jurisdiction, including management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (iii) testing the completeness of management’s assessment of both the identification of uncertain tax positions and possible outcomes of each uncertain tax position; and (iv) evaluating the status and results of tax audits with the relevant tax authorities and (v) evaluating the sufficiency of the Company’s related disclosures. Professionals with specialised skill and knowledge were used to assist in the evaluation of the completeness and measurement of the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax positions are more-likely-than-not of being sustained, the application of relevant tax laws, and estimated interest and penalties, as well as evaluating the sufficiency of the Company’s related financial statement disclosures.

Post employment benefit obligations

As described in Note 1314 to the consolidated financial statements, the carrying value of defined benefit obligations was ~~£9,445~~£7,234 million as at 30 June ~~2021.~~2022. Application of IAS 19 requires the exercise of estimation and judgment in relation to various assumptions. Management determines the assumptions on a country by country basis in conjunction with its actuaries. Estimates are required in respect of uncertain future events, including the life expectancy of members of the plans, salary and pension increases, future inflation rates, and discount rates.

The principal considerations for our determination that post employment benefit obligations is a critical audit matter are ~~that there was~~the significant ~~judgment~~judgments made by management in selecting the assumptions used to develop its estimate of the present value of defined benefit obligations. This in turn led to a high degree of auditor judgment and effort in our evaluation of management’s significant assumptions, which were future inflation rates, discount rates and the life expectancy of members of the plans. In addition, the audit effort involved the use of professionals with specialised skill and ~~knowledge to assist in performing these procedures and evaluating the audit evidence obtained.~~knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination of the carrying value of defined benefit obligations, including future inflation rates, discount rates and the life expectancy of members of the plans. These procedures also included, among others, testing management’s process for determining the present value of the significant post employment benefit obligations, evaluating the appropriateness of the methodology used in the valuation models, testing the completeness, accuracy, and relevance of underlying data used in the models, and evaluating the significant assumptions used by management, including the future inflation rates, discount rates and the life expectancy of members of the plans, as well as management’s sensitivities and related financial statement disclosures. Evaluating the reasonableness of management’s assumptions involved i) comparing these assumptions to our independently compiled expected ranges based on market observable indices or relevant national and industry benchmarks, ii) performing sensitivity analyses, and iii) using professionals with specialised skill and knowledge to assist in the evaluation of the significant assumptions.

/s/ PricewaterhouseCoopers LLP

London, United Kingdom

54 August ~~2021~~2022

We have served as the Company's auditor since 2015.

~~221~~217

Financial statements (continued)

Consolidated income statement


		Notes	Year ended 30 June 2021 £ million	Year ended 30 June 2020 £ million	Year ended 30 June 2019 £ million		Notes	Year ended 30 June 2022 £ million	Year ended 30 June 2021 £ million	Year ended 30 June 2020 £ million
Sales	Sales	2	19,153	17,697	19,294	Sales	2	22,448	19,153	17,697
Excise duties	Excise duties	3	(6,420)	(5,945)	(6,427)	Excise duties	3	(6,996)	(6,420)	(5,945)
Net sales	Net sales	2	12,733	11,752	12,867	Net sales	2	15,452	12,733	11,752
Cost of sales	Cost of sales	3	(5,038)	(4,654)	(4,866)	Cost of sales	3	(5,973)	(5,038)	(4,654)
Gross profit	Gross profit		7,695	7,098	8,001	Gross profit		9,479	7,695	7,098
Marketing	Marketing	3	(2,163)	(1,841)	(2,042)	Marketing	3	(2,721)	(2,163)	(1,841)
Other operating items	Other operating items	3	(1,801)	(3,120)	(1,917)	Other operating items	3	(2,349)	(1,801)	(3,120)
Operating profit	Operating profit		3,731	2,137	4,042	Operating profit		4,409	3,731	2,137
Non-operating items	Non-operating items	4	14	(23)	144	Non-operating items	4	(17)	14	(23)
Finance income	Finance income	5	278	366	442	Finance income	5	497	278	366
Finance charges	Finance charges	5	(651)	(719)	(705)	Finance charges	5	(919)	(651)	(719)
Share of after tax results of associates and joint ventures	Share of after tax results of associates and joint ventures	6	334	282	312	Share of after tax results of associates and joint ventures	6	417	334	282
Profit before taxation	Profit before taxation		3,706	2,043	4,235	Profit before taxation		4,387	3,706	2,043
Taxation	Taxation	7	(907)	(589)	(898)	Taxation	7	(1,049)	(907)	(589)

Profit for the year	Profit for the year		2,799	1,454	3,337	Profit for the year		3,338	2,799	1,454
Attributable to:	Attributable to:					Attributable to:
Equity shareholders of the parent company	Equity shareholders of the parent company		2,660	1,409	3,160	Equity shareholders of the parent company		3,249	2,660	1,409

Non-controlling interests	Non-controlling interests		139	45	177	Non-controlling interests		89	139	45
			2,799	1,454	3,337			3,338	2,799	1,454
			million					million
Weighted average number of shares	Weighted average number of shares					Weighted average number of shares
Shares in issue excluding own shares	Shares in issue excluding own shares		2,337	2,346	2,418	Shares in issue excluding own shares		2,318	2,337	2,346
Dilutive potential ordinary shares	Dilutive potential ordinary shares		8	8	10	Dilutive potential ordinary shares		7	8	8
			2,345	2,354	2,428			2,325	2,345	2,354

			pence					pence
Basic earnings per share	Basic earnings per share		113.8	60.1	130.7	Basic earnings per share		140.2	113.8	60.1

Diluted earnings per share	Diluted earnings per share		113.4	59.9	130.1	Diluted earnings per share		139.7	113.4	59.9

The accompanying notes are an integral part of these consolidated financial statements.

~~222~~218

Financial statements (continued)

Consolidated statement of comprehensive income


		Year ended 30 June 2021 £ million	Year ended 30 June 2020 £ million	Year ended 30 June 2019 £ million		Notes	Year ended 30 June 2022 £ million	Year ended 30 June 2021 £ million	Year ended 30 June 2020 £ million
Other comprehensive income	Other comprehensive income				Other comprehensive income
Items that will not be recycled subsequently to the income statement	Items that will not be recycled subsequently to the income statement				Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment plans
Net remeasurement of post employment benefit plans					Net remeasurement of post employment benefit plans
Group	Group	16	38	33	Group	14	616	16	38
Associates and joint ventures	Associates and joint ventures	3	(14)	2	Associates and joint ventures		5	3	(14)

Tax on post employment plans		(46)	(21)	1
Non-controlling interests					Non-controlling interests	14	(1)	—	—
Tax on post employment benefit plans					Tax on post employment benefit plans		(123)	(46)	(21)
Changes in the fair value of equity investments at fair value through other comprehensive income					Changes in the fair value of equity investments at fair value through other comprehensive income		(12)	—	—
		(27)	3	36			485	(27)	3
Items that may be recycled subsequently to the income statement	Items that may be recycled subsequently to the income statement				Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations	Exchange differences on translation of foreign operations				Exchange differences on translation of foreign operations
Group	Group	(1,233)	(104)	274	Group		1,128	(1,233)	(104)
Associates and joint ventures	Associates and joint ventures	(240)	82	19	Associates and joint ventures	6	60	(240)	82
Non-controlling interests	Non-controlling interests	(173)	(37)	55	Non-controlling interests		171	(173)	(37)
Net investment hedges	Net investment hedges	810	(227)	(93)	Net investment hedges		(623)	810	(227)
Exchange loss recycled to the income statement	Exchange loss recycled to the income statement				Exchange loss recycled to the income statement
On translation of foreign operations		0	4	0
On disposal of foreign operations					On disposal of foreign operations	8	63	—	4

Tax on exchange differences – group	Tax on exchange differences – group	(9)	4	(19)	Tax on exchange differences – group		(6)	(9)	4
Tax on exchange differences – non-controlling interests	Tax on exchange differences – non-controlling interests	(1)	0	0	Tax on exchange differences – non-controlling interests		—	(1)	—
Effective portion of changes in fair value of cash flow hedges	Effective portion of changes in fair value of cash flow hedges				Effective portion of changes in fair value of cash flow hedges
Hedge of foreign currency debt of the group	Hedge of foreign currency debt of the group	(298)	221	180	Hedge of foreign currency debt of the group		233	(298)	221
Transaction exposure hedging of the group	Transaction exposure hedging of the group	101	(43)	(86)	Transaction exposure hedging of the group		(172)	101	(43)
Hedges by associates and joint ventures	Hedges by associates and joint ventures	(1)	6	(6)	Hedges by associates and joint ventures		(15)	(1)	6
Commodity price risk hedging of the group	Commodity price risk hedging of the group	41	(11)	(9)	Commodity price risk hedging of the group		78	41	(11)
Recycled to income statement – hedge of foreign currency debt of the group	Recycled to income statement – hedge of foreign currency debt of the group	175	(75)	(82)	Recycled to income statement – hedge of foreign currency debt of the group		(239)	175	(75)
Recycled to income statement – transaction exposure hedging of the group	Recycled to income statement – transaction exposure hedging of the group	10	42	45	Recycled to income statement – transaction exposure hedging of the group		42	10	42
Recycled to income statement – commodity price risk hedging of the group	Recycled to income statement – commodity price risk hedging of the group	(2)	8	0	Recycled to income statement – commodity price risk hedging of the group		(46)	(2)	8

Tax on effective portion of changes in fair value of cash flow hedges	Tax on effective portion of changes in fair value of cash flow hedges	(6)	(23)	(11)	Tax on effective portion of changes in fair value of cash flow hedges		32	(6)	(23)

Hyperinflation adjustment		(17)	(18)	(22)
Tax on hyperinflation adjustment		5	4	6
Hyperinflation adjustments					Hyperinflation adjustments		365	(17)	(18)
Tax on hyperinflation adjustments					Tax on hyperinflation adjustments		(74)	5	4
		(838)	(167)	251			997	(838)	(167)
Other comprehensive (loss)/profit, net of tax, for the year		(865)	(164)	287
Other comprehensive income/(loss), net of tax, for the year					Other comprehensive income/(loss), net of tax, for the year		1,482	(865)	(164)
Profit for the year	Profit for the year	2,799	1,454	3,337	Profit for the year		3,338	2,799	1,454
Total comprehensive income for the year	Total comprehensive income for the year	1,934	1,290	3,624	Total comprehensive income for the year		4,820	1,934	1,290
Attributable to:	Attributable to:				Attributable to:
Equity shareholders of the parent company	Equity shareholders of the parent company	1,969	1,282	3,392	Equity shareholders of the parent company		4,561	1,969	1,282

Non-controlling interests	Non-controlling interests	(35)	8	232	Non-controlling interests	18	259	(35)	8
Total comprehensive income for the year	Total comprehensive income for the year	1,934	1,290	3,624	Total comprehensive income for the year		4,820	1,934	1,290

The accompanying notes are an integral part of these consolidated financial statements.

~~223~~219

Financial statements (continued)

Consolidated balance sheet


			30 June 2021		30 June 2020				30 June 2022		30 June 2021
		Notes	£ million					Notes	£ million
Non-current assets	Non-current assets						Non-current assets
Intangible assets	Intangible assets	9	10,764		11,300		Intangible assets	9	11,902		10,764
Property, plant and equipment	Property, plant and equipment	10	4,849		4,926		Property, plant and equipment	10	5,848		4,849
Biological assets	Biological assets		66		51		Biological assets	11	94		66
Investments in associates and joint ventures	Investments in associates and joint ventures	6	3,308		3,557		Investments in associates and joint ventures	6	3,652		3,308
Other investments	Other investments	12	40		41		Other investments	13	37		40
Other receivables	Other receivables	14	36		46		Other receivables	15	37		36
Other financial assets	Other financial assets	15	327		686		Other financial assets	16	345		327
Deferred tax assets	Deferred tax assets	7	100		119		Deferred tax assets	7	114		100
Post employment benefit assets	Post employment benefit assets	13	1,018		1,111		Post employment benefit assets	14	1,553		1,018
				20,508		21,837				23,582		20,508
Current assets	Current assets						Current assets
Inventories	Inventories	14	6,045		5,772		Inventories	15	7,094		6,045
Trade and other receivables	Trade and other receivables	14	2,385		2,111		Trade and other receivables	15	2,933		2,385
Corporate tax receivables	Corporate tax receivables	7	145		190		Corporate tax receivables	7	149		145

Assets held for sale							Assets held for sale	8	222		—
Other financial assets	Other financial assets	15	121		75		Other financial assets	16	251		121
Cash and cash equivalents	Cash and cash equivalents	16	2,749		3,323		Cash and cash equivalents	17	2,285		2,749
				11,445		11,471				12,934		11,445
Total assets	Total assets			31,953		33,308	Total assets			36,516		31,953
Current liabilities	Current liabilities						Current liabilities
Borrowings and bank overdrafts	Borrowings and bank overdrafts	16	(1,862)		(1,995)		Borrowings and bank overdrafts	17	(1,522)		(1,862)
Other financial liabilities	Other financial liabilities	15	(257)		(389)		Other financial liabilities	16	(444)		(257)
Share buyback liability	Share buyback liability	17	(91)		0		Share buyback liability	18	(117)		(91)
Trade and other payables	Trade and other payables	14	(4,648)		(3,683)		Trade and other payables	15	(5,887)		(4,648)

Liabilities held for sale							Liabilities held for sale	8	(61)		—
Corporate tax payables	Corporate tax payables	7	(146)		(246)		Corporate tax payables	7	(252)		(146)
Provisions	Provisions	14	(138)		(183)		Provisions	15	(159)		(138)
				(7,142)		(6,496)				(8,442)		(7,142)
Non-current liabilities	Non-current liabilities						Non-current liabilities
Borrowings	Borrowings	16	(12,865)		(14,790)		Borrowings	17	(14,498)		(12,865)
Other financial liabilities	Other financial liabilities	15	(384)		(393)		Other financial liabilities	16	(703)		(384)
Other payables	Other payables	14	(338)		(175)		Other payables	15	(380)		(338)
Provisions	Provisions	14	(274)		(293)		Provisions	15	(258)		(274)
Deferred tax liabilities	Deferred tax liabilities	7	(1,945)		(1,972)		Deferred tax liabilities	7	(2,319)		(1,945)
Post employment benefit liabilities	Post employment benefit liabilities	13	(574)		(749)		Post employment benefit liabilities	14	(402)		(574)
				(16,380)		(18,372)				(18,560)		(16,380)
Total liabilities	Total liabilities			(23,522)		(24,868)	Total liabilities			(27,002)		(23,522)
Net assets	Net assets			8,431		8,440	Net assets			9,514		8,431
Equity	Equity						Equity
Share capital	Share capital	17	741		742		Share capital	18	723		741
Share premium	Share premium		1,351		1,351		Share premium		1,351		1,351
Other reserves	Other reserves		1,621		2,272		Other reserves		2,174		1,621
Retained earnings	Retained earnings		3,184		2,407		Retained earnings		3,550		3,184
Equity attributable to equity shareholders of the parent company	Equity attributable to equity shareholders of the parent company			6,897		6,772	Equity attributable to equity shareholders of the parent company			7,798		6,897
Non-controlling interests	Non-controlling interests	17		1,534		1,668	Non-controlling interests	18		1,716		1,534
Total equity	Total equity			8,431		8,440	Total equity			9,514		8,431

The accompanying notes are an integral part of these consolidated financial statements.

These consolidated financial statements have been approved by a duly appointed and authorised committee of the Board of Directors and were signed on its behalf by Ivan Menezes and Lavanya Chandrashekar, Directors and dated 54 August ~~2021.~~2022.

~~224~~220

Financial statements (continued)

Consolidated statement of changes in equity


				Other reserves		Retained earnings/(deficit)										Other reserves		Retained earnings/(deficit)
		Share capital £ million	Share premium £ million	Capital redemption reserve £ million	Hedging and exchange reserve £ million	Own shares £ million	Other retained earnings £ million	Total £ million	Equity attributable to parent company shareholders £ million	Non- controlling interests £ million	Total equity £ million		Notes	Share capital £ million	Share premium £ million	Capital redemption reserve £ million	Hedging and exchange reserve £ million	Own shares £ million	Other retained earnings £ million	Total £ million	Equity attributable to parent company shareholders £ million	Non- controlling interests £ million	Total equity £ million
At 30 June 2018		780	1,349	3,163	(1,030)	(2,144)	7,830	5,686	9,948	1,765	11,713
At 30 June 2019												At 30 June 2019		753	1,350	3,190	(818)	(2,026)	5,912	3,886	8,361	1,795	10,156

Profit for the year	Profit for the year	—	—	—	—	—	3,160	3,160	3,160	177	3,337	Profit for the year		—	—	—	—	—	1,409	1,409	1,409	45	1,454
Other comprehensive income		—	—	—	212	—	20	20	232	55	287
Total comprehensive income for the year		—	—	—	212	—	3,180	3,180	3,392	232	3,624
Other comprehensive loss												Other comprehensive loss		—	—	—	(116)	—	(11)	(11)	(127)	(37)	(164)
Total comprehensive (loss)/ income for the year												Total comprehensive (loss)/ income for the year		—	—	—	(116)	—	1,398	1,398	1,282	8	1,290
Employee share schemes	Employee share schemes	—	—	—	—	118	(49)	69	69	—	69	Employee share schemes		—	—	—	—	90	(36)	54	54	—	54
Share-based incentive plans	Share-based incentive plans	—	—	—	—	—	49	49	49	—	49	Share-based incentive plans	18	—	—	—	—	—	2	2	2	—	2
Share-based incentive plans in respect of associates	Share-based incentive plans in respect of associates	—	—	—	—	—	3	3	3	—	3	Share-based incentive plans in respect of associates		—	—	—	—	—	4	4	4	—	4
Tax on share-based incentive plans	Tax on share-based incentive plans	—	—	—	—	—	20	20	20	—	20	Tax on share-based incentive plans		—	—	—	—	—	1	1	1	—	1
Share-based payments and purchase of treasury shares in respect of subsidiaries												Share-based payments and purchase of treasury shares in respect of subsidiaries		—	—	—	—	—	(1)	(1)	(1)	—	(1)
Shares issued	Shares issued	—	1	—	—	—	—	—	1	—	1	Shares issued		—	1	—	—	—	—	—	1	—	1
Purchase of non-controlling interests (note 8)		—	—	—	—	—	(694)	(694)	(694)	(90)	(784)
Transfers												Transfers		—	—	—	5	—	(5)	(5)	—	—	—
Purchase of non-controlling interests												Purchase of non-controlling interests	8	—	—	—	—	—	(39)	(39)	(39)	(23)	(62)

Non-controlling interest in respect of new subsidiary	Non-controlling interest in respect of new subsidiary	—	—	—	—	—	—	—	—	2	2	Non-controlling interest in respect of new subsidiary		—	—	—	—	—	—	—	—	5	5
Change in fair value of put option	Change in fair value of put option	—	—	—	—	—	(3)	(3)	(3)	—	(3)	Change in fair value of put option		—	—	—	—	—	9	9	9	—	9
Share buyback programme	Share buyback programme	(27)	—	27	—	—	(2,801)	(2,801)	(2,801)	—	(2,801)	Share buyback programme		(11)	—	11	—	—	(1,256)	(1,256)	(1,256)	—	(1,256)
Dividends paid		—	—	—	—	—	(1,623)	(1,623)	(1,623)	(114)	(1,737)
At 30 June 2019		753	1,350	3,190	(818)	(2,026)	5,912	3,886	8,361	1,795	10,156
Profit for the year		—	—	—	—	—	1,409	1,409	1,409	45	1,454
Other comprehensive loss		—	—	—	(116)	—	(11)	(11)	(127)	(37)	(164)
Total comprehensive (loss)/income for the year		—	—	—	(116)	—	1,398	1,398	1,282	8	1,290
Employee share schemes		—	—	—	—	90	(36)	54	54	—	54
Share-based incentive plans		—	—	—	—	—	2	2	2	—	2
Share-based incentive plans in respect of associates		—	—	—	—	—	4	4	4	—	4
Tax on share-based incentive plans		—	—	—	—	—	1	1	1	—	1
Share based payments and purchase of treasury shares in respect of subsidiaries		—	—	—	—	—	(1)	(1)	(1)	—	(1)
Shares issued		—	1	—	—	—	—	—	1	—	1
Transfers		—	—	—	5	—	(5)	(5)	—	—	0
Purchase of non-controlling interests (note 8)		—	—	—	—	—	(39)	(39)	(39)	(23)	(62)

Non-controlling interest in respect of new subsidiary		—	—	—	—	—	—	—	—	5	5
Change in fair value of put option		—	—	—	—	—	9	9	9	—	9
Share buyback programme		(11)	—	11	—	—	(1,256)	(1,256)	(1,256)	—	(1,256)
Dividends paid		—	—	—	—	—	(1,646)	(1,646)	(1,646)	(117)	(1,763)
Dividend declared for the year												Dividend declared for the year		—	—	—	—	—	(1,646)	(1,646)	(1,646)	(117)	(1,763)
At 30 June 2020	At 30 June 2020	742	1,351	3,201	(929)	(1,936)	4,343	2,407	6,772	1,668	8,440	At 30 June 2020		742	1,351	3,201	(929)	(1,936)	4,343	2,407	6,772	1,668	8,440

Profit for the year	Profit for the year	—	—	—	—	—	2,660	2,660	2,660	139	2,799	Profit for the year		—	—	—	—	—	2,660	2,660	2,660	139	2,799
Other comprehensive loss	Other comprehensive loss	—	—	—	(652)	—	(39)	(39)	(691)	(174)	(865)	Other comprehensive loss		—	—	—	(652)	—	(39)	(39)	(691)	(174)	(865)
Total comprehensive (loss)/income for the year	Total comprehensive (loss)/income for the year	—	—	—	(652)	—	2,621	2,621	1,969	(35)	1,934	Total comprehensive (loss)/income for the year		—	—	—	(652)	—	2,621	2,621	1,969	(35)	1,934
Employee share schemes	Employee share schemes	—	—	—	—	59	(10)	49	49	—	49	Employee share schemes		—	—	—	—	59	(10)	49	49	—	49
Share-based incentive plans	Share-based incentive plans	—	—	—	—	—	49	49	49	—	49	Share-based incentive plans	18	—	—	—	—	—	49	49	49	—	49
Share-based incentive plans in respect of associates	Share-based incentive plans in respect of associates	—	—	—	—	—	3	3	3	—	3	Share-based incentive plans in respect of associates		—	—	—	—	—	3	3	3	—	3
Tax on share-based incentive plans	Tax on share-based incentive plans	—	—	—	—	—	9	9	9	—	9	Tax on share-based incentive plans		—	—	—	—	—	9	9	9	—	9

Purchase of non-controlling interests (note 8)		—	—	—	—	—	(15)	(15)	(15)	(27)	(42)
Purchase of non-controlling interests												Purchase of non-controlling interests	8	—	—	—	—	—	(15)	(15)	(15)	(27)	(42)

Associates' transactions with non-controlling interests	Associates' transactions with non-controlling interests	—	—	—	—	—	(91)	(91)	(91)	—	(91)	Associates' transactions with non-controlling interests		—	—	—	—	—	(91)	(91)	(91)	—	(91)

Change in fair value of put option	Change in fair value of put option	—	—	—	—	—	(2)	(2)	(2)	—	(2)	Change in fair value of put option		—	—	—	—	—	(2)	(2)	(2)	—	(2)
Share buyback programme	Share buyback programme	(1)	—	1	—	—	(200)	(200)	(200)	—	(200)	Share buyback programme		(1)	—	1	—	—	(200)	(200)	(200)	—	(200)
Dividends declared		—	—	—	—	—	(1,646)	(1,646)	(1,646)	(72)	(1,718)
Dividend declared for the year												Dividend declared for the year	18	—	—	—	—	—	(1,646)	(1,646)	(1,646)	(72)	(1,718)
At 30 June 2021	At 30 June 2021	741	1,351	3,202	(1,581)	(1,877)	5,061	3,184	6,897	1,534	8,431	At 30 June 2021		741	1,351	3,202	(1,581)	(1,877)	5,061	3,184	6,897	1,534	8,431
Adjustment to 2021 closing equity in respect of hyperinflation in Turkey												Adjustment to 2021 closing equity in respect of hyperinflation in Turkey		—	—	—	—	—	251	251	251	—	251
Adjusted opening balance												Adjusted opening balance		741	1,351	3,202	(1,581)	(1,877)	5,312	3,435	7,148	1,534	8,682
Profit for the year												Profit for the year		—	—	—	—	—	3,249	3,249	3,249	89	3,338
Other comprehensive income												Other comprehensive income		—	—	—	535	—	777	777	1,312	170	1,482
Total comprehensive income for the year												Total comprehensive income for the year		—	—	—	535	—	4,026	4,026	4,561	259	4,820
Employee share schemes												Employee share schemes		—	—	—	—	39	50	89	89	—	89
Share-based incentive plans												Share-based incentive plans	18	—	—	—	—	—	59	59	59	—	59
Share-based incentive plans in respect of associates												Share-based incentive plans in respect of associates		—	—	—	—	—	4	4	4	—	4
Tax on share-based incentive plans												Tax on share-based incentive plans		—	—	—	—	—	9	9	9	—	9
Share-based payments and purchase of own shares in respect of subsidiaries												Share-based payments and purchase of own shares in respect of subsidiaries		—	—	—	—	—	(11)	(11)	(11)	(6)	(17)

Unclaimed dividend												Unclaimed dividend		—	—	—	—	—	3	3	3	1	4
Change in fair value of put option												Change in fair value of put option		—	—	—	—	—	(34)	(34)	(34)	—	(34)
Share buyback programme												Share buyback programme		(18)	—	18	—	—	(2,310)	(2,310)	(2,310)	—	(2,310)
Dividend declared for the year												Dividend declared for the year	18	—	—	—	—	—	(1,720)	(1,720)	(1,720)	(72)	(1,792)
At 30 June 2022												At 30 June 2022		723	1,351	3,220	(1,046)	(1,838)	5,388	3,550	7,798	1,716	9,514

The accompanying notes are an integral part of these consolidated financial statements.

~~225~~221

Financial statements (continued)

Consolidated statement of cash flows


			Year ended 30 June 2021		Year ended 30 June 2020		Year ended 30 June 2019				Year ended 30 June 2022		Year ended 30 June 2021		Year ended 30 June 2020
		Notes	£ million							Notes	£ million
Cash flows from operating activities	Cash flows from operating activities								Cash flows from operating activities
Profit for the year	Profit for the year		2,799		1,454		3,337		Profit for the year		3,338		2,799		1,454

Taxation	Taxation		907		589		898		Taxation		1,049		907		589
Share of after tax results of associates and joint ventures	Share of after tax results of associates and joint ventures		(334)		(282)		(312)		Share of after tax results of associates and joint ventures		(417)		(334)		(282)
Net finance charges	Net finance charges		373		353		263		Net finance charges		422		373		353
Non-operating items	Non-operating items		(14)		23		(144)		Non-operating items		17		(14)		23
Operating profit	Operating profit			3,731		2,137		4,042	Operating profit			4,409		3,731		2,137
Increase in inventories	Increase in inventories		(443)		(366)		(434)		Increase in inventories		(740)		(443)		(366)
(Increase)/decrease in trade and other receivables	(Increase)/decrease in trade and other receivables		(446)		523		11		(Increase)/decrease in trade and other receivables		(378)		(446)		523
Increase/(decrease) in trade and other payables and provisions	Increase/(decrease) in trade and other payables and provisions		1,220		(485)		201		Increase/(decrease) in trade and other payables and provisions		939		1,220		(485)
Net decrease/(increase) in working capital				331		(328)		(222)
Net (increase)/decrease in working capital									Net (increase)/decrease in working capital			(179)		331		(328)
Depreciation, amortisation and impairment	Depreciation, amortisation and impairment		447		1,839		374		Depreciation, amortisation and impairment		828		447		1,839
Dividends received	Dividends received		290		4		168		Dividends received		190		290		4
Post employment payments less amounts included in operating profit	Post employment payments less amounts included in operating profit		(30)		(109)		(121)		Post employment payments less amounts included in operating profit		(89)		(30)		(109)
Other items	Other items		88		(14)		64		Other items		53		88		(14)
				795		1,720		485				982		795		1,720
Cash generated from operations	Cash generated from operations			4,857		3,529		4,305	Cash generated from operations			5,212		4,857		3,529
Interest received	Interest received		89		185		216		Interest received		110		89		185
Interest paid	Interest paid		(440)		(493)		(468)		Interest paid		(438)		(440)		(493)
Taxation paid	Taxation paid		(852)		(901)		(805)		Taxation paid		(949)		(852)		(901)
				(1,203)		(1,209)		(1,057)				(1,277)		(1,203)		(1,209)
Net cash inflow from operating activities	Net cash inflow from operating activities			3,654		2,320		3,248	Net cash inflow from operating activities			3,935		3,654		2,320
Cash flows from investing activities	Cash flows from investing activities								Cash flows from investing activities
Disposal of property, plant and equipment and computer software	Disposal of property, plant and equipment and computer software		13		14		32		Disposal of property, plant and equipment and computer software		17		13		14
Purchase of property, plant and equipment and computer software	Purchase of property, plant and equipment and computer software		(626)		(700)		(671)		Purchase of property, plant and equipment and computer software		(1,097)		(626)		(700)
Movements in loans and other investments	Movements in loans and other investments		(4)		0		(1)		Movements in loans and other investments		(72)		(4)		—
Sale of businesses and brands	Sale of businesses and brands	8	14		11		426		Sale of businesses and brands	8	82		14		11
Acquisition of businesses	Acquisition of businesses	8	(488)		(130)		(56)		Acquisition of businesses	8	(271)		(488)		(130)
Net cash outflow from investing activities	Net cash outflow from investing activities			(1,091)		(805)		(270)	Net cash outflow from investing activities			(1,341)		(1,091)		(805)
Cash flows from financing activities	Cash flows from financing activities								Cash flows from financing activities
Share buyback programme	Share buyback programme	17	(109)		(1,282)		(2,775)		Share buyback programme	18	(2,284)		(109)		(1,282)
Proceeds from issue of share capital	Proceeds from issue of share capital		0		1		1		Proceeds from issue of share capital		—		—		1
Net sale of own shares for share schemes	Net sale of own shares for share schemes		49		54		50		Net sale of own shares for share schemes		18		49		54
Purchase of treasury shares in respect of subsidiaries									Purchase of treasury shares in respect of subsidiaries		(15)		—		—
Dividends paid to non-controlling interests	Dividends paid to non-controlling interests		(77)		(111)		(112)		Dividends paid to non-controlling interests		(81)		(77)		(111)
Proceeds from bonds	Proceeds from bonds	16	1,031		5,188		2,766		Proceeds from bonds	17	2,263		1,031		5,188
Repayment of bonds	Repayment of bonds	16	(1,247)		(820)		(1,168)		Repayment of bonds	17	(1,521)		(1,247)		(820)
Purchase of shares of non-controlling interests	Purchase of shares of non-controlling interests	8	(42)		(62)		(784)		Purchase of shares of non-controlling interests	8	—		(42)		(62)

Net movements in other borrowings			(753)		(285)		721
Cash inflow from other borrowings(1)									Cash inflow from other borrowings(1)		503		34		497
Cash outflow from other borrowings(1)									Cash outflow from other borrowings(1)		(424)		(787)		(782)
Equity dividends paid	Equity dividends paid	17	(1,646)		(1,646)		(1,623)		Equity dividends paid		(1,718)		(1,646)		(1,646)

Net cash (outflow)/inflow from financing activities	Net cash (outflow)/inflow from financing activities			(2,794)		1,037		(2,924)	Net cash (outflow)/inflow from financing activities			(3,259)		(2,794)		1,037
Net (decrease)/increase in net cash and cash equivalents	Net (decrease)/increase in net cash and cash equivalents	16		(231)		2,552		54	Net (decrease)/increase in net cash and cash equivalents	17		(665)		(231)		2,552
Exchange differences	Exchange differences			(285)		(120)		(26)	Exchange differences			239		(285)		(120)
Net cash and cash equivalents at beginning of the year	Net cash and cash equivalents at beginning of the year			3,153		721		693	Net cash and cash equivalents at beginning of the year			2,637		3,153		721
Net cash and cash equivalents at end of the year	Net cash and cash equivalents at end of the year			2,637		3,153		721	Net cash and cash equivalents at end of the year			2,211		2,637		3,153
Net cash and cash equivalents consist of:	Net cash and cash equivalents consist of:								Net cash and cash equivalents consist of:
Cash and cash equivalents	Cash and cash equivalents	16		2,749		3,323		932	Cash and cash equivalents	17		2,285		2,749		3,323
Bank overdrafts	Bank overdrafts	16		(112)		(170)		(211)	Bank overdrafts	17		(74)		(112)		(170)
				2,637		3,153		721				2,211		2,637		3,153

(1) For the years ended 30 June 2021 and 30 June 2020, the previously reported line item of “Net movements in other borrowings” has been replaced with “Cash inflow from other borrowings” and “Cash outflow from other borrowings” to gross up the amounts shown above within these lines which had previously been shown net.

The accompanying notes are an integral part of these consolidated financial statements.

~~226~~222

Financial statements (continued)

Accounting information and policies

Introduction

This section describes the basis of preparation of the consolidated financial statements and the group’s accounting policies that are applicable to the financial statements as a whole. Accounting policies, critical accounting estimates and judgements specific to a note are included in the note to which they relate. Furthermore, the section details new accounting standards, amendments and interpretations, that the group has adopted in the current financial year or will adopt in subsequent years.

1. Accounting information and policies

(a) Basis of preparation

On 31 December 2020, International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) at that date

were brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to

endorsement by the UK Endorsement Board. Diageo plc transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 July 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

The consolidated financial statements are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted ~~pursuant to Regulation (EC) No 1606/2002~~by the UK, IFRSs as ~~it applies in~~adopted by the ~~European Union~~EU and ~~IFRS~~IFRSs, as issued by the ~~International Accounting Standards Board (IASB).~~IASB, including interpretations issued by the IFRS Interpretations Committee. IFRS as adopted by the UK and by the EU differs in certain respects from IFRS as issued by the IASB. The differences have no impact on the group’s consolidated financial statements for the years presented. The consolidated financial statements are prepared on a going concern basis under the historical cost convention, unless stated otherwise in the relevant accounting policy.

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates.

(b) Going concern

Management has prepared cash flow forecasts which have also been sensitised to reflect severe but plausible downside scenarios taking into consideration the group's principal risks. In ~~our~~the base case scenario, ~~we expect~~management has included assumptions for mid-single digit net sales ~~momentum to continue into~~growth, operating margin improvement and global TBA market share growth. In light of the ~~year ending 30 June 2022, however, we expect near-term~~ongoing geopolitical volatility, ~~to remain. The potential financial impact of~~the base case outlook and plausible downside scenarios have incorporated considerations for a slower ~~Covid-19 pandemic~~post-pandemic economic recovery, ~~has been modelled in the plausible downside scenarios.~~supply chain disruptions, higher inflation and further geopolitical deterioration. Even ~~with~~under these ~~negative sensitivities for each region taken into account,~~scenarios, the group’s cash position is still ~~considered~~expected to remain strong, as ~~we have~~the group's liquidity was protected ~~our liquidity~~ by ~~launching and pricing~~ ~~€700 million~~ ~~of fixed rate Euro and~~ ~~£400~~issuing €1,650 million of fixed rate ~~Sterling~~euro and £900 million of fixed rate sterling denominated bonds ~~under Diageo’s European Debt Issuance Programme.~~in the year ended 30 June 2022. Mitigating actions, should they be required, are all within management’s control and could include reductions in discretionary spending ~~including~~such as acquisitions and capital expenditure, as well as a temporary suspension of the share buyback programme and dividend payments in the next 12 months, or ~~drawdown~~drawdowns on committed facilities. Having considered the outcome of these assessments, the Directors are comfortable that the ~~Company~~company is a going concern for at least 12 months from the date of signing the ~~company's~~group's consolidated financial statements.

The consolidated financial statements include the results of the company and its subsidiaries together with the group’s attributable share of the results of associates and joint ventures. A subsidiary is an entity controlled by Diageo plc. The group controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Where the group has the ability to exercise joint control over an entity but has rights to specified assets and obligations for liabilities of that entity, the entity is included on the basis of the group’s rights over those assets and liabilities.

(d) Foreign currencies

Items included in the financial statements of the group’s subsidiaries, associates and joint ventures are measured using the currency of the primary economic environment in which each entity operates (its functional currency). The consolidated financial statements are presented in sterling, which is the functional currency of the parent company.

The income statements and cash flows of non-sterling entities are translated into sterling at weighted average rates of exchange, except for subsidiaries in hyperinflationary economies that are translated with the closing rate at the end of the period and other than substantial transactions that are translated at the rate on the date of the transaction. Exchange differences arising on the retranslation to closing rates are taken to the exchange reserve.

Assets and liabilities are translated at closing rates. Exchange differences arising on the retranslation at closing rates of the opening balance sheets of overseas entities are taken to the exchange reserve, as are exchange differences arising on foreign currency

223

Financial statements (continued)

borrowings and financial instruments designated as net investment hedges, to the extent that they are effective. Tax charges and credits arising on such items are also taken to the exchange reserve. Gains and losses accumulated in the exchange reserve are recycled to the income statement when the foreign operation is sold. Other exchange differences are taken to the income statement. Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction.

~~227~~

~~Financial statements (continued)~~

The principal foreign exchange rates used in the translation of financial statements for the three years ended 30 June ~~2021,~~2022, expressed in US dollars and euros per £1, were as follows:


		2021	2020	2019		2022	2021	2020
US dollar	US dollar				US dollar
Income statement and cash flows~~(i)~~(1)	Income statement and cash flows~~(i)~~(1)	1.35	1.26	1.29	Income statement and cash flows~~(i)~~(1)	1.33	1.35	1.26
Assets and liabilities(ii)		1.39	1.23	1.27
Assets and liabilities(2)					Assets and liabilities(2)	1.21	1.39	1.23
Euro	Euro				Euro
Income statement and cash flows~~(i)~~(1)	Income statement and cash flows~~(i)~~(1)	1.13	1.14	1.13	Income statement and cash flows~~(i)~~(1)	1.18	1.13	1.14
Assets and liabilities(ii)		1.17	1.09	1.12
Assets and liabilities(2)					Assets and liabilities(2)	1.16	1.17	1.09

~~(i)~~(1) Weighted average rates

~~(ii) Year end~~(2) Closing rates

The group uses foreign exchange hedges to mitigate the effect of exchange rate movements. For further information, see note ~~15.~~16.

(e) Critical accounting estimates and judgements

Details of critical estimates and judgements which the ~~directors~~Directors consider could have a significant impact upon the financial statements are set out in the related notes as follows:

–Exceptional items – management judgement whether exceptional or not – page ~~236~~233

–Taxation – management judgement of whether a provision is required and management estimate of amount of corporate tax payable or receivable, the recoverability of deferred tax assets and expectation on manner of recovery of deferred taxes – pages ~~241~~239 and ~~285~~289

–Brands, goodwill and other intangibles – management judgement of the assets to be recognised and synergies resulting from an acquisition. Management judgement and estimate are required in determining future cash flows and appropriate applicable assumptions to support the intangible asset value – page 249

–Post employment benefits – management judgement in determining whether a surplus can be recovered and management estimate in determining the assumptions in calculating the liabilities of the funds – page ~~257~~ 258

–Contingent liabilities and legal proceedings – management judgement in assessing the likelihood of whether a liability will arise and an estimate to quantify the possible range of any settlement and significant unprovided tax matters where maximum exposure is provided for each – page ~~285~~287

(f) Hyperinflationary accounting

The group applied hyperinflationary accounting for its operations in Turkey, Venezuela and Lebanon.

In March 2022, the three-year cumulative inflation in Turkey exceeded 100% and as a result, hyperinflationary accounting was applied for the year ended 30 June 2022 in respect of the group’s operations in Turkey. The group’s consolidated financial statements include the results and financial position of its Turkish operations restated to the measuring unit current at the end of the period, with hyperinflationary gains and losses in respect of monetary items being reported in finance charges. Comparative amounts presented in the consolidated financial statements were not restated. Hyperinflationary accounting needs to be applied as if Turkey has always been a hyperinflationary economy, hence, as per Diageo’s accounting policy choice, the differences between equity at 30 June 2021 as reported and the equity after the restatement of the non-monetary items to the measuring unit current at 30 June 2021 were recognised in retained earnings. Such restatement includes impairment of TRL 2,133 million (£177 million) recognised on the goodwill in the Turkey cash-generating unit and TRL 1,627 million (£135 million) in respect of the Yenì Raki brand, as a result of the increased carrying values for those due to hyperinflation adjustments.

When applying IAS 29 on an ongoing basis, comparatives in stable currency are not restated and the effect of inflating opening balances to the measuring unit current at the end of the reporting period is presented in other comprehensive income.

The inflation rate used by the group is the official rate published by the Turkish Statistical Institute, TurkStat. The movement in the publicly available official price index for the year ended 30 June 2022 was 79% (2021 – 18%).

Venezuela is a hyperinflationary economy where the government maintains a regime of strict currency controls with multiple foreign currency rate systems. Access to US dollars on these exchange systems is very limited. The foreign currency denominated transactions and balances of the group’s Venezuelan operations are translated into the local functional currency (Venezuelan bolivar) at the rate they are expected to be settled, applying the most appropriate official exchange rate (DICOM). For consolidation purposes, the group converts its Venezuelan operations using management’s estimate of the exchange rate considering forecast inflation and the most appropriate official exchange rate. The exchange rate used to translate the results of the group’s Venezuelan operations was VES/£ ~~236,878,083~~759 for the year ended 30 June ~~2021 (2020 -~~2022 (2021 – VES/£ ~~10,024,865)~~237). Movement in the price index for the year ended 30 June ~~2021~~2022 was 268% (2021 – 1,991% ~~(2020 - 2,464%~~)~~. The~~.The inflation rate used by the group is provided by an independent valuer because no reliable, ~~official~~officially published rate is available ~~that is representative of the situation in~~for Venezuela.

224

Financial statements (continued)

The following table presents the contribution of the group’s Venezuelan operations to the consolidated income statement, cash flow statement and net assets for the year ended 30 June ~~2021~~2022 and 30 June ~~2020~~2021 and with the amounts that would have resulted if the official ~~DICOM~~reference exchange rate had been applied:


		Year ended 30 June 2021		Year ended 30 June 2020			Year ended 30 June 2022		Year ended 30 June 2021
		At estimated exchange rate	At DICOM exchange rate	At estimated exchange rate	At DICOM exchange rate		At estimated exchange rate	At official reference exchange rate	At estimated exchange rate(1)	At official reference exchange rate(1)
		236,878,083 VES/£	4,449,579 VES/£	10,024,865 VES/£	252,558 VES/£		759 VES/£	7 VES/£	237 VES/£	4 VES/£
		£ million					£ million
Net sales	Net sales	0	4	0	3	Net sales	—	15	—	4
Operating (loss)/profit	Operating (loss)/profit	(1)	11	0	10	Operating (loss)/profit	(1)	(1)	(1)	11
Other finance income - hyperinflation adjustment	Other finance income - hyperinflation adjustment	2	122	6	222	Other finance income - hyperinflation adjustment	1	157	2	122
Net cash inflow from operating activities		0	9	0	6
Net cash (outflow)/inflow from operating activities						Net cash (outflow)/inflow from operating activities	—	(5)	—	9
Net assets	Net assets	38	2,016	48	1,893	Net assets	41	4,606	38	2,016

~~Lebanon became a hyperinflationary economy during~~1) Prior year rates have been restated to reflect the ~~year ended 30 June 2021. Hyperinflationary accounting has been applied for~~Central Bank of Venezuela's decision to cut six zeros from the ~~group’s Lebanese operations~~bolivar currency from 1 ~~July 2020, with hyperinflationary gains and foreign~~October 2021.

Sterling amounts presented at the official reference exchange ~~losses associated with monetary items being reported in finance charges. The impact~~rate are results of ~~applying hyperinflationary accounting was immaterial.~~simple mathematical conversion.

The impact of hyperinflationary accounting for Lebanon was immaterial both in the current and comparative periods.

~~228~~

~~Financial statements (continued)~~

~~(f)~~(g) New accounting standards and interpretations

The following ~~amendments~~amendment to the accounting standards, issued by the IASB ~~which have been~~and endorsed by the UK and EU, ~~have~~has been adopted by the group from 1 July ~~2020~~2021 with no impact on the group’s consolidated results, financial position or disclosures:

–Amendments to ~~References to the Conceptual Framework in IFRS Standards~~

–~~Amendments to IFRS 3 – Definition of a Business~~

–~~Amendments to IAS 1 and IAS 8 – Definition of Material~~

–~~Amendments to~~ IFRS 16 – Covid-19 - ~~Related Rent Concessions~~related rent concessions beyond 30 June 2021

The following ~~amendments and standards~~amendment issued by the IASB ~~which have been~~and endorsed by the UK and EU, ~~have~~has been adopted by the group:

Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform (phase 1)2). The amendment to IFRS 9 provides ~~temporary~~ relief from applying specific hedge accounting and financial instrument derecognition requirements ~~to hedging relationships~~ directly affected by interbank offered rate (IBOR) reform. ~~The reliefs have~~By applying the ~~effect that IBOR reform should~~practical expedient, Diageo is not ~~generally cause hedge accounting~~required to ~~terminate. The expectations are that the cash flows in relation to~~discontinue its hedging relationships ~~will not be altered by~~as a result of changes in reference rates due to IBOR reform. The amendment to IFRS 7 requires additional disclosure explaining the nature and extent of risk related to the reform and the ~~derivative instruments used~~progress of the transition, see note 16. The adoption of Phase 2 Amendments in ~~hedge~~respect of disclosures and other accounting ~~will still provide a close approximation~~matters relating to Interest Rate Benchmark Reform had no material impact on its consolidated results or financial position and not resulted in any change to the ~~extent of the managed~~entity’s risk ~~exposures.~~ management strategy.

~~Amendments to IAS 19 – Plan Amendment, Curtailment or Settlement.~~ The amendment requires the remeasurement of service cost and interest charge for the rest of the period following plan amendments, settlements and curtailments using actuarial assumptions prevailing at the date of these events. The amendment is applicable to Diageo from 1 July 2019 on a prospective basis and has resulted in an additional service cost of ~~£1 million~~ ~~in the year ended 30 June 2021 (2020~~ – ~~£1 million~~).

~~IFRS 16 - Leases.~~ ~~The group adopted IFRS 16 from 1 July 2019 by applying the modified retrospective method. Comparative periods have not been restated. The impact of the adoption is included in Note 11~~.

The following ~~amendment and~~ standard issued by the IASB has been endorsed by the UK and EU and has not been adopted by the group:

IFRS 17 – Insurance contracts ~~(effective in~~(effective from the year ending 30 June 2024) is ultimately intended to replace IFRS 4.

Based on a preliminary assessment, the group believes that the adoption of IFRS 17 will not have a significant impact on its consolidated results or financial position.

~~Amendments to IFRS 9, IAS 39 and IFRS 7 – Interest rate benchmark reform (phase 2).~~ The amendment to IFRS 9 provides relief from applying specific hedge accounting and financial instrument derecognition requirements directly affected by interbank offered rate (IBOR) reform. By applying the practical expedient, Diageo will not be required to discontinue its hedging relationships as a result of changes in reference rates due to the IBOR reform. The amendment to IFRS 7 will require additional disclosure explaining the nature and extent of risk related to the reform and the progress of the transition.

There are a number of other amendments and clarifications to ~~IFRS,~~IFRSs, effective in future years, which are not expected to significantly impact the group’s consolidated results or financial position.

g)(h) Climate change considerations

The impact of climate change assessment and the ~~stated~~ net zero carbon emission ~~on our~~target for Diageo's direct ~~operation~~operations (scope 1 & 2) by 2030 has been considered as part of the assessment of estimates and judgements in preparing the group accounts.

The ~~climate~~climate change scenario analyses performed in 2022 – conducted in line with TCFD recommendations (‘Transition Scenario’ (RCP 2.6), a ‘Moderate Warming’ Scenario (RCP 4.5) and a ‘Severe Warming Scenario (RCP 8.5)) – ~~undertaken this year did not identify any~~identified no material financial ~~impact.~~impact to these financial statements.

The following considerations were made in respect of the financial statements:

–•Impact of climate change is not expected to be material on the going concern period and the viability of the group over the next three years.

–•The impact of climate change on factors (like residual values, useful lives and depreciation methods) that determine the carrying value of non-current assets.

•The impact of climate change on forecasts of cash flows used (including forecasted depreciation in line with capital expenditure plans for Diageo's net zero carbon emission commitment) in impairment assessments for the value in use of non-current assets including goodwill (see Note 9).

–•The impact of climate change on ~~pension assets.~~

–~~The impact of climate change on the carrying value of the fixed~~post-employment assets.

~~229~~225

Financial statements (continued)

Results for the year

Introduction

This section explains the results and performance of the group for the three years ended 30 June ~~2021.~~2022. Disclosures are provided for segmental information, operating costs, exceptional items, finance income and charges, the group's share of results of associates and joint ventures, taxation. For associates, joint ventures and taxation, balance sheet disclosures are also provided in this section.

2. Segmental information

Accounting policies

Sales comprise revenue from contracts with customers from the sale of goods, royalties and rents receivable. Revenue from the sale of goods includes excise and other duties which the group pays as principal but excludes duties and taxes collected on behalf of third parties, such as value added tax. Sales are recognised as or when performance obligations are satisfied by transferring control of a good or service to the customer, which is determined by considering, among other factors, the delivery terms agreed with customers. For the sale of goods the transfer of control occurs, when the significant risks and rewards of ownership are passed to the customer. Based on the shipping terms agreed with customers, the transfer of control of goods occurs at the time of dispatch for the majority of sales. Where the transfer of control is subsequent to the dispatch of goods, the time between dispatch and receipt by the customer is generally less than 5five days. The group includes in sales the net consideration to which it expects to be entitled. Sales are recognised to the extent that it is highly probable that a significant reversal will not occur. Therefore, sales are stated net of expected price discounts, allowances for customer loyalty and certain promotional activities and similar items. Generally, payment of the transaction price is due within credit terms that are consistent with industry practices, with no element of financing.

Net sales are sales less excise duties. Diageo incurs excise duties throughout the world. In the majority of countries, excise duties are effectively a production tax which becomes payable when the product is removed from bonded premises and is not directly related to the value of sales. It is generally not included as a separate item on external invoices; increases in excise duty are not always passed on to the customer and where a customer fails to pay for products received the group cannot reclaim the excise duty. The group therefore recognises excise duty, unless it regards itself as an agent of the regulatory authorities, as a cost to the group.

Advertising costs, point of sale materials and sponsorship payments are charged to marketing in operating profit when the company has a right of access to the goods or services acquired.

Diageo is an international manufacturer and distributor of premium drinks. Diageo also owns a number of investments in associates and joint ventures as set out in note 6.

The segmental information presented is consistent with management reporting provided to the Executive Committee (the chief operating decision maker).

The Executive Committee considers the business principally from a geographical perspective based on the location of ~~third party~~third-party sales and the business analysis is presented by geographical segment. In addition to these geographical selling segments, a further segment reviewed by the Executive Committee is the Supply Chain and Procurement (SC&P) segment, which manufactures products for other group companies and includes the production sites in the United Kingdom, Ireland, Italy, Guatemala and Mexico, as well as comprises the global procurement ~~management functions.~~function.

~~Continuing~~The group's operations also include the Corporate ~~function.~~segment. Corporate revenues and costs are in respect of central costs, including finance, marketing, corporate relations, human resources and legal, as well as certain information systems, facilities and employee costs that are not allocable to the geographical segments or to the SC&P. They also include rents receivable and payable in respect of properties not used by the group in the manufacture, sale or distribution of premium drinks.

Diageo uses shared services operations to deliver transaction processing activities for markets and operational entities. These ~~centers~~centres are located in India, Hungary, Colombia and the ~~Philippines and India. The~~Philippines. These captive business service ~~centers in Budapest and Bangalore~~centres also perform certain central finance activities, including elements of financial planning and reporting, treasury and HR services. The costs of shared services operations are recharged to the ~~regions~~.regions.

~~As part of the annual~~For planning ~~process a budget exchange rate is set each year equal to the prior year’s weighted average rate. This rate is used for~~and management reporting purposes, ~~and, in~~Diageo uses budgeted exchange rates that are set at the prior year's weighted average exchange rate. In order to ensure a consistent basis on which performance is measured through the year, ~~the~~ prior period results are also restated to the ~~budget rate as well.~~budgeted exchange rate. Segmental information for net sales and operating profit before exceptional items are reported on a consistent basis with ~~our~~ management reporting. The adjustments required to retranslate the segmental information to actual exchange rates and to reconcile it to the group’s reported results are shown in the tables below. The comparative segmental information, prior to retranslation, has not been restated at the current year’s budgeted exchange rates but is presented at the budgeted rates for the respective year.

In addition, for management reporting purposes, Diageo presents ~~separately~~ the ~~results~~result of acquisitions and disposals completed in the current and prior year separately from the results of the geographical segments. The impact of acquisitions and disposals on net sales and operating profit is disclosed under the appropriate geographical segments in the ~~following~~ tables below at budgeted exchange rates.

~~230~~226

Financial statements (continued)

(a) Segmental information for the consolidated income statement


		North America	Europe and Turkey	Africa	Latin America and Caribbean	Asia Pacific	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total		North America	Europe	Asia Pacific	Africa	Latin America and Caribbean	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total
		£ million											£ million
2021
2022												2022
Sales	Sales	5,803	4,795	2,020	1,369	5,146	1,537	(1,537)	19,133	20	19,153	Sales	6,682	5,740	5,624	2,403	1,945	2,010	(2,010)	22,394	54	22,448
Net sales	Net sales											Net sales
At budgeted exchange rates(i)		5,527	2,579	1,541	1,176	2,561	1,627	(1,548)	13,463	20	13,483
At budgeted exchange rates(1)												At budgeted exchange rates(1)	5,955	3,258	2,879	1,699	1,486	2,095	(2,016)	15,356	55	15,411
Acquisitions and disposals	Acquisitions and disposals	28	2	5	0	0	0	0	35	0	35	Acquisitions and disposals	34	23	—	15	3	—	—	75	—	75
SC&P allocation	SC&P allocation	9	45	3	13	9	(79)	0	0	0	0	SC&P allocation	9	46	9	3	12	(79)	—	—	—	—
Retranslation to actual exchange rates	Retranslation to actual exchange rates	(355)	(68)	(137)	(143)	(82)	(11)	11	(785)	0	(785)	Retranslation to actual exchange rates	97	(304)	(4)	(35)	24	(6)	6	(222)	(1)	(223)
Hyperinflation												Hyperinflation	—	189	—	—	—	—	—	189	—	189
Net sales	Net sales	5,209	2,558	1,412	1,046	2,488	1,537	(1,537)	12,713	20	12,733	Net sales	6,095	3,212	2,884	1,682	1,525	2,010	(2,010)	15,398	54	15,452
Operating profit/(loss)	Operating profit/(loss)											Operating profit/(loss)
At budgeted exchange rates(i)		2,469	728	228	422	628	(97)	—	4,378	(218)	4,160
At budgeted exchange rates(1)												At budgeted exchange rates(1)	2,388	1,086	703	346	528	(22)	—	5,029	(256)	4,773
Acquisitions and disposals	Acquisitions and disposals	(18)	(3)	0	0	0	0	—	(21)	0	(21)	Acquisitions and disposals	(28)	11	—	(10)	—	—	—	(27)	—	(27)
SC&P allocation	SC&P allocation	(30)	(32)	(3)	(27)	(5)	97	—	0	0	0	SC&P allocation	(1)	(18)	(2)	(1)	—	22	—	—	—	—
Fair value remeasurement of contingent considerations, equity option and earn out arrangements	Fair value remeasurement of contingent considerations, equity option and earn out arrangements	(9)	(27)	0	0	0	0	—	(36)	0	(36)	Fair value remeasurement of contingent considerations, equity option and earn out arrangements	32	36	—	—	(3)	—	—	65	—	65
Fair value remeasurement of biological assets	Fair value remeasurement of biological assets	0	0	0	0	0	0	—	0	0	0	Fair value remeasurement of biological assets	—	—	—	—	(5)	—	—	(5)	—	(5)
Retranslation to actual exchange rates	Retranslation to actual exchange rates	(175)	(31)	(54)	(92)	(15)	0	—	(367)	10	(357)	Retranslation to actual exchange rates	63	(108)	10	(20)	18	—	—	(37)	18	(19)
Hyperinflation												Hyperinflation	—	10	—	—	—	—	—	10	—	10
Operating profit/(loss) before exceptional items	Operating profit/(loss) before exceptional items	2,237	635	171	303	608	0	—	3,954	(208)	3,746	Operating profit/(loss) before exceptional items	2,454	1,017	711	315	538	—	—	5,035	(238)	4,797
Exceptional items	Exceptional items	0	(15)	0	0	0	0	—	(15)	0	(15)	Exceptional items	(1)	(146)	(241)	—	—	—	—	(388)	—	(388)
Operating profit/(loss)	Operating profit/(loss)	2,237	620	171	303	608	0	—	3,939	(208)	3,731	Operating profit/(loss)	2,453	871	470	315	538	—	—	4,647	(238)	4,409
Non-operating items	Non-operating items										14	Non-operating items										(17)
Net finance charges	Net finance charges										(373)	Net finance charges										(422)
Share of after tax results of associates and joint ventures	Share of after tax results of associates and joint ventures											Share of after tax results of associates and joint ventures
Moët Hennessy	Moët Hennessy										335	Moët Hennessy										425
Other	Other										(1)	Other										(8)
Profit before taxation	Profit before taxation										3,706	Profit before taxation										4,387

~~231~~227

Financial statements (continued)

North America Europe
and
Turkey Africa Latin America and Caribbean Asia
Pacific SC&P Eliminate
inter-
segment
sales Total
operating
segments Corporate
and other Total
£ million £ million £ million £ million £ million £ million £ million £ million £ million £ million
2020
Sales 5,222 4,697 1,911 1,184 4,645 1,343 (1,343) 17,659 38 17,697
Net sales
At budgeted exchange rates(i)
4,445 2,501 1,300 944 2,253 1,439 (1,341) 11,541 38 11,579
Acquisitions and disposals 32 10 50 0 1 0 0 93 0 93
SC&P allocation 11 60 4 10 12 (98) 0 (1) 1 0
Retranslation to actual exchange rates 135 (4) (8) (46) 4 2 (2) 81 (1) 80
Net sales 4,623 2,567 1,346 908 2,270 1,343 (1,343) 11,714 38 11,752
Operating profit/(loss)
At budgeted exchange rates(i)
2,007 730 116 254 498 45 — 3,650 (152) 3,498
Acquisitions and disposals (1) (4) 0 0 0 0 — (5) 0 (5)
SC&P allocation 6 26 2 5 6 (45) — 0 0 0
Fair value remeasurement of contingent consideration (10) (4) 0 7 0 0 — (7) 0 (7)
Fair value remeasurement of biological assets 0 0 0 9 0 0 — 9 0 9
Retranslation to actual exchange rates 32 9 (17) (27) (3) 0 — (6) 5 (1)
Operating profit/(loss) before exceptional items 2,034 757 101 248 501 0 — 3,641 (147) 3,494
Exceptional items 54 (62) (145) (6) (1,198) 0 — (1,357) 0 (1,357)
Operating profit/(loss) 2,088 695 (44) 242 (697) 0 — 2,284 (147) 2,137
Non-operating items (23)
Net finance charges (353)
Share of after tax results of associates and joint ventures
Moët Hennessy 285
Other (3)
Profit before taxation 2,043


	North America	Europe	Asia Pacific	Africa	Latin America and Caribbean	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total
	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million
2021
Sales	5,803	4,795	5,146	2,020	1,369	1,537	(1,537)	19,133	20	19,153
Net sales
At budgeted exchange rates(1)	5,527	2,579	2,561	1,541	1,176	1,627	(1,548)	13,463	20	13,483
Acquisitions and disposals	28	2	—	5	—	—	—	35	—	35
SC&P allocation	9	45	9	3	13	(79)	—	—	—	—
Retranslation to actual exchange rates	(355)	(68)	(82)	(137)	(143)	(11)	11	(785)	—	(785)
Net sales	5,209	2,558	2,488	1,412	1,046	1,537	(1,537)	12,713	20	12,733
Operating profit/(loss)
At budgeted exchange rates(1)	2,469	728	628	228	422	(97)	—	4,378	(218)	4,160
Acquisitions and disposals	(18)	(3)	—	—	—	—	—	(21)	—	(21)
SC&P allocation	(30)	(32)	(5)	(3)	(27)	97	—	—	—	—
Fair value remeasurement of contingent considerations, equity option and earn out arrangements	(9)	(27)	—	—	—	—	—	(36)	—	(36)

Retranslation to actual exchange rates	(175)	(31)	(15)	(54)	(92)	—	—	(367)	10	(357)
Operating profit/(loss) before exceptional items	2,237	635	608	171	303	—	—	3,954	(208)	3,746
Exceptional items	—	(15)	—	—	—	—	—	(15)	—	(15)
Operating profit/(loss)	2,237	620	608	171	303	—	—	3,939	(208)	3,731
Non-operating items										14
Net finance charges										(373)
Share of after tax results of associates and joint ventures
Moët Hennessy										335
Other										(1)
Profit before taxation										3,706

~~232~~228

Financial statements (continued)


		North America	Europe and Turkey	Africa	Latin America and Caribbean	Asia Pacific	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total		North America	Europe	Asia Pacific	Africa	Latin America and Caribbean	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total
		£ million											£ million
2019
2020												2020
Sales	Sales	5,074	5,132	2,235	1,444	5,356	1,739	(1,739)	19,241	53	19,294	Sales	5,222	4,697	4,645	1,911	1,184	1,343	(1,343)	17,659	38	17,697
Net sales	Net sales											Net sales
At budgeted exchange rates(i)		4,034	2,951	1,529	1,095	2,656	1,843	(1,738)	12,370	54	12,424
At budgeted exchange rates(1)												At budgeted exchange rates(1)	4,445	2,501	2,253	1,300	944	1,439	(1,341)	11,541	38	11,579
Acquisitions and disposals	Acquisitions and disposals	88	1	1	1	1	0	0	92	0	92	Acquisitions and disposals	32	10	1	50	—	—	—	93	—	93
SC&P allocation	SC&P allocation	11	63	5	15	11	(105)	0	0	0	0	SC&P allocation	11	60	12	4	10	(98)	—	(1)	1	—
Retranslation to actual exchange rates	Retranslation to actual exchange rates	327	(76)	62	19	20	1	(1)	352	(1)	351	Retranslation to actual exchange rates	135	(4)	4	(8)	(46)	2	(2)	81	(1)	80
Net sales	Net sales	4,460	2,939	1,597	1,130	2,688	1,739	(1,739)	12,814	53	12,867	Net sales	4,623	2,567	2,270	1,346	908	1,343	(1,343)	11,714	38	11,752
Operating profit/(loss)	Operating profit/(loss)											Operating profit/(loss)
At budgeted exchange rates(i)		1,755	972	257	312	671	139	—	4,106	(186)	3,920
At budgeted exchange rates(1)												At budgeted exchange rates(1)	2,007	730	498	116	254	45	—	3,650	(152)	3,498
Acquisitions and disposals	Acquisitions and disposals	29	(1)	0	0	0	0	—	28	0	28	Acquisitions and disposals	(1)	(4)	—	—	—	—	—	(5)	—	(5)
SC&P allocation	SC&P allocation	13	72	6	32	16	(139)	—	0	0	0	SC&P allocation	6	26	6	2	5	(45)	—	—	—	—
Fair value remeasurement of contingent consideration												Fair value remeasurement of contingent consideration	(10)	(4)	—	—	7	—	—	(7)	—	(7)
Fair value remeasurement of biological assets												Fair value remeasurement of biological assets	—	—	—	—	9	—	—	9	—	9
Retranslation to actual exchange rates	Retranslation to actual exchange rates	151	(29)	12	21	16	0	—	171	(3)	168	Retranslation to actual exchange rates	32	9	(3)	(17)	(27)	—	—	(6)	5	(1)
Operating profit/(loss) before exceptional items	Operating profit/(loss) before exceptional items	1,948	1,014	275	365	703	0	—	4,305	(189)	4,116	Operating profit/(loss) before exceptional items	2,034	757	501	101	248	—	—	3,641	(147)	3,494
Exceptional items	Exceptional items	0	(18)	0	0	(35)	0	—	(53)	(21)	(74)	Exceptional items	54	(62)	(1,198)	(145)	(6)	—	—	(1,357)	—	(1,357)
Operating profit/(loss)	Operating profit/(loss)	1,948	996	275	365	668	0	—	4,252	(210)	4,042	Operating profit/(loss)	2,088	695	(697)	(44)	242	—	—	2,284	(147)	2,137
Non-operating items	Non-operating items										144	Non-operating items										(23)
Net finance charges	Net finance charges										(263)	Net finance charges										(353)
Share of after tax results of associates and joint ventures	Share of after tax results of associates and joint ventures											Share of after tax results of associates and joint ventures
Moët Hennessy	Moët Hennessy										310	Moët Hennessy										285
Other	Other										2	Other										(3)
Profit before taxation	Profit before taxation										4,235	Profit before taxation										2,043

~~(i)~~(1) These items represent the IFRS 8 performance measures for the geographical and SC&P segments.

~~(1)~~(i) The net sales figures for SC&P reported to the Executive Committee primarily comprise inter-segment sales and these are eliminated in a separate column in the above segmental analysis. Apart from sales by the SC&P segment to the other operating segments, inter-segmental sales are not material.

~~(2)~~(ii) The group’s net finance charges are managed centrally and are not attributable to individual operating segments.

~~(3)~~(iii) Approximately ~~40%~~37% of annual net sales occurred in the last four months of ~~the~~ calendar year ~~2020.~~2021.

~~(b) Other segmental information~~

North
America
£ million Europe and Turkey
£ million Africa
£ million Latin
America
and
Caribbean
£ million Asia
Pacific
£ million SC&P
£ million Corporate
and other
£ million Total
£ million
2021
Capital expenditure 153 23 125 20 56 125 124 626
Depreciation and intangible asset amortisation (76) (31) (79) (16) (60) (126) (59) (447)
2020
Capital expenditure 145 24 128 48 59 191 105 700
Depreciation and intangible asset amortisation (68) (37) (103) (21) (59) (119) (73) (480)
Underlying impairment 0 (7) 0 (7) 0 0 0 (14)
Exceptional impairment of tangible assets 0 0 (139) 0 (1) 0 0 (140)
Exceptional impairment of intangible assets 0 0 0 0 (1,205) 0 0 (1,205)
2019
Capital expenditure 150 32 160 48 40 197 44 671
Depreciation and intangible asset amortisation (51) (18) (81) (13) (42) (110) (59) (374)

~~233~~229

Financial statements (continued)

(b) Other segmental information


	North America £ million	Europe £ million	Asia Pacific £ million	Africa £ million	Latin America and Caribbean £ million	SC&P £ million	Corporate and other £ million	Total £ million
2022
Capital expenditure	230	187	146	139	128	256	11	1,097
Depreciation and intangible asset amortisation	(80)	(93)	(93)	(81)	(16)	(116)	(10)	(489)

Exceptional impairment of tangible assets	—	(3)	—	—	—	—	—	(3)
Exceptional impairment of intangible assets	—	(96)	(240)	—	—	—	—	(336)
2021
Capital expenditure	153	23	56	125	20	125	124	626
Depreciation and intangible asset amortisation	(76)	(31)	(60)	(79)	(16)	(126)	(59)	(447)



2020
Capital expenditure	145	24	59	128	48	191	105	700
Depreciation and intangible asset amortisation	(68)	(37)	(59)	(103)	(21)	(119)	(73)	(480)
Underlying impairment	—	(7)	—	—	(7)	—	—	(14)
Exceptional impairment of tangible assets	—	—	(1)	(139)	—	—	—	(140)
Exceptional impairment of intangible assets	—	—	(1,205)	—	—	—	—	(1,205)

Category analysis Geographic analysis
Spirits
£ million
Beer(iv)
£ million
Ready to
drink(iv)
£ million
Other
£ million Total
£ million Great
Britain
£ million United
States
£ million Nether-
lands
£ million India
£ million Rest of
World
£ million Total
£ million
2021
Sales(i)
15,634 2,562 741 216 19,153 1,822 5,441 70 3,011 8,809 19,153
Non-current assets(ii), (iii)
2,119 4,320 2,474 2,561 7,589 19,063
2020 (Restated)
Sales(i), (iv)
14,158 2,687 621 231 17,697 1,684 4,839 62 2,783 8,329 17,697
Non-current assets(ii), (iii)
1,911 5,028 2,661 2,758 7,563 19,921
2019 (Restated)
Sales(i), (iv)
15,283 3,041 662 308 19,294 1,706 4,724 70 3,236 9,558 19,294
Non-current assets(ii), (iii)
1,637 4,662 2,525 3,829 7,668 20,321


	Category analysis			Geographic analysis
	Spirits £ million	Beer £ million	Ready to drink £ million	Other £ million	Total £ million	United States £ million	India £ million	Great Britain £ million	Nether- lands £ million	Rest of World £ million	Total £ million
2022
Sales(1)	18,164	3,128	882	274	22,448	6,327	3,219	2,142	89	10,671	22,448
Non-current assets(2), (3)						5,899	2,396	2,413	2,600	8,261	21,569
2021
Sales(1)	15,634	2,562	741	216	19,153	5,441	3,011	1,822	70	8,809	19,153
Non-current assets(2), (3)						4,320	2,561	2,119	2,474	7,589	19,063
2020
Sales(1)	14,158	2,687	621	231	17,697	4,839	2,783	1,684	62	8,329	17,697
Non-current assets(2), (3)						5,028	2,758	1,911	2,661	7,563	19,921

~~(i)~~(1) The geographical analysis of sales is based on the location of ~~third party~~third-party sales.

~~(ii)~~(2) The geographical analysis of non-current assets is based on the geographical location of the assets and comprises intangible assets, property, plant and equipment, biological assets, investments in associates and joint ventures, other investments and non-current other receivables.

~~(iii)~~(3) The management information provided to the chief operating decision maker does not include an analysis of assets and liabilities by category and therefore is not disclosed.

(iv) Flavoured malt beverages have been reclassified from ready to drink to beer from 1 July 2020. This reporting is in line with the nature of these products and how management reviews the performance. Before the reclassification the beer sales would have been ~~£2,188 million~~ ~~in 2021 (2020 –~~ ~~£2,342 million; 2019 –~~ ~~£2,758 million), and the ready to drink sales would have been~~ ~~£1,115 million~~ ~~in 2021 (2020 –~~ ~~£966 million; 2019 –~~ ~~£945 million~~).

230

Financial statements (continued)

3. Operating costs


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Excise duties	Excise duties	6,420	5,945	6,427	Excise duties	6,996	6,420	5,945
Cost of sales	Cost of sales	5,038	4,654	4,866	Cost of sales	5,973	5,038	4,654
Marketing	Marketing	2,163	1,841	2,042	Marketing	2,721	2,163	1,841
Other operating items	Other operating items	1,801	3,120	1,917	Other operating items	2,349	1,801	3,120
		15,422	15,560	15,252		18,039	15,422	15,560
Comprising:	Comprising:				Comprising:
Excise duties	Excise duties				Excise duties
United States					United States	614	589	585
Great Britain	Great Britain	1,018	930	898	Great Britain	1,172	1,018	930
United States		589	585	587
India	India	2,127	1,927	2,202	India	2,182	2,127	1,927
Other	Other	2,686	2,503	2,740	Other	3,028	2,686	2,503
Increase in inventories	Increase in inventories	(293)	(275)	(446)	Increase in inventories	(909)	(293)	(275)
Raw materials and consumables	Raw materials and consumables	3,126	2,842	3,007	Raw materials and consumables	4,017	3,126	2,842
Marketing	Marketing	2,163	1,841	2,042	Marketing	2,721	2,163	1,841
Other external charges	Other external charges	1,978	2,044	2,285	Other external charges	2,597	1,978	2,044
Staff costs	Staff costs	1,586	1,404	1,580	Staff costs	1,795	1,586	1,404
Depreciation, amortisation and impairment	Depreciation, amortisation and impairment	447	1,839	374	Depreciation, amortisation and impairment	828	447	1,839
Gains on disposal of properties	Gains on disposal of properties	(1)	(2)	(5)	Gains on disposal of properties	(2)	(1)	(2)
Net foreign exchange losses/(gains)		22	15	(7)
Net foreign exchange losses					Net foreign exchange losses	10	22	15
Other operating income	Other operating income	(26)	(93)	(5)	Other operating income	(14)	(26)	(93)
		15,422	15,560	15,252		18,039	15,422	15,560

(a) Other external charges

Other external charges include research and development expenditure in respect of new drinks products and package design of £43 million (2021 – £40 ~~million (2020~~million; 2020 – £34 ~~million; 2019 – £35~~ million) and maintenance and repairs of £136 million (2021 – £107 ~~million (2020~~million; 2020 – £105 ~~million; 2019 – £103~~ million).

~~234~~

~~Financial statements (continued)~~

(b) ~~Auditor~~Auditors fees

Other external charges include the fees of the principal ~~auditor~~auditors of the group, PricewaterhouseCoopers LLP and its affiliates (PwC) and are analysed below.


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Audit of these financial statements	Audit of these financial statements	3.8	5.3	3.8	Audit of these financial statements	4.2	3.8	5.3
Audit of financial statements of subsidiaries	Audit of financial statements of subsidiaries	4.4	3.6	3.4	Audit of financial statements of subsidiaries	6.1	4.4	3.6
Audit related assurance services~~(i)~~(1)	Audit related assurance services~~(i)~~(1)	2.6	2.4	1.6	Audit related assurance services~~(i)~~(1)	2.5	2.6	2.4
Total audit fees (Audit fees)	Total audit fees (Audit fees)	10.8	11.3	8.8	Total audit fees (Audit fees)	12.8	10.8	11.3

Other assurance services (Audit related fees)(ii)		0.8	0.8	0.7
All other non-audit fees (All other fees)		0	0	0.2
Other assurance services (Audit related fees)(2)					Other assurance services (Audit related fees)(2)	0.7	0.8	0.8
		11.6	12.1	9.7
						13.5	11.6	12.1

~~(i)~~(1) Audit related assurance services are in respect of reporting under section 404 of the US Sarbanes-Oxley Act and the review of the interim financial information.

~~(ii)~~(2) Other assurance services comprise the aggregate fees for assurance and related services that are not reported under ‘total audit fees’.

~~(1)~~(i) Disclosure requirements for ~~auditor~~auditors fees in the United States are different from those required in the United Kingdom. The terminology by category required in the United States is disclosed in brackets in the above table. All figures are the same for the disclosures in the United Kingdom and the United States apart from ~~£0.4~~£0.3 million ~~(2020~~(2021 – £0.4 million; ~~2019~~2020 – £0.4 million) of the cost in respect of the review of the interim financial information which would be included in audit related fees in the United States rather than audit fees.

Audit services provided by firms other than PwC for the year ended 30 June ~~2021~~2022 were £0.1 million ~~(2020~~(2021 – £0.1 million; ~~2019~~2020 – £0.1 million). Further PwC fees for audit services in respect of ~~employee pension~~post employment plans were £0.2 million for the year ended 30 June ~~2021 (2020~~2022 (2021 – ~~£0.3~~£0.2 million; ~~2019~~2020 – £0.3 million).

231

Financial statements (continued)


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Aggregate remuneration	Aggregate remuneration				Aggregate remuneration
Wages and salaries	Wages and salaries	1,336	1,251	1,344	Wages and salaries	1,557	1,336	1,251
Share-based incentive plans	Share-based incentive plans	50	3	50	Share-based incentive plans	59	50	3
Employer’s social security	Employer’s social security	83	79	96	Employer’s social security	107	83	79
Employer’s pension	Employer’s pension				Employer’s pension
Defined benefit plans	Defined benefit plans	82	37	61	Defined benefit plans	36	82	37
Defined contribution plans	Defined contribution plans	25	24	19	Defined contribution plans	33	25	24
Other post employment plans	Other post employment plans	10	10	10	Other post employment plans	3	10	10
		1,586	1,404	1,580		1,795	1,586	1,404

The average number of employees on a full time equivalent basis (excluding employees of associates and joint ventures) was as follows:


		2021	2020	2019		2022	2021 (Restated)(i)	2020 (Restated)(i)
North America	North America	2,616	2,466	2,410	North America	2,811	2,562	2,459
Europe and Turkey		3,267	3,350	3,609
Europe					Europe	3,014	3,237	3,323
Asia Pacific					Asia Pacific	6,500	6,474	6,559
Africa	Africa	4,016	4,003	4,338	Africa	4,061	4,016	4,617
Latin America and Caribbean	Latin America and Caribbean	1,505	1,549	1,610	Latin America and Caribbean	1,500	1,505	1,549
Asia Pacific		6,474	6,559	7,038
SC&P	SC&P	5,085	4,908	4,919	SC&P	5,025	5,085	4,908
Corporate and other	Corporate and other	4,687	4,940	4,496	Corporate and other	5,076	4,687	4,940
		27,650	27,775	28,420		27,987	27,566	28,355

(1) The impact of acquisitions and disposals was changed and now disclosed restated where relevant.

At 30 June ~~2021~~2022 the group had, on a full time equivalent basis, ~~27,783 (2020~~28,558(2021 – ~~27,788; 2019~~27,783; 2020 – ~~28,150)~~27,788) employees. The average number of employees of the group, including part time employees, for the year was ~~28,025 (2020~~28,137(2021 – ~~28,490; 2019~~28,025; 2020 – ~~29,402)~~28,490).

~~235~~

~~Financial statements (continued)~~

(d) Exceptional operating items

Included in other operating items are the following:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Staff costs	Staff costs				Staff costs
Guaranteed minimum pension equalisation charge	Guaranteed minimum pension equalisation charge	5	0	21	Guaranteed minimum pension equalisation charge	—	5	—
Other external charges	Other external charges	13	95	53	Other external charges	52	13	95
Other operating income	Other operating income	(3)	(83)	0	Other operating income	—	(3)	(83)

Depreciation, amortisation and impairment	Depreciation, amortisation and impairment				Depreciation, amortisation and impairment
Brand, goodwill, tangible and other assets impairment	Brand, goodwill, tangible and other assets impairment	0	1,345	0	Brand, goodwill, tangible and other assets impairment	336	—	1,345
Total exceptional operating items (note 4)	Total exceptional operating items (note 4)	15	1,357	74	Total exceptional operating items (note 4)	388	15	1,357

4. Exceptional items

Accounting policies

Critical accounting judgements Exceptional items are those that in management’s judgement need to be disclosed separately. Such items are included within the income statement caption to which they relate. It is believed that separate disclosure of exceptional items and the classification between operating and non-operating further helps investors to understand the performance of the group.

Changes in estimates and reversals in relation to items previously recognised as exceptional are presented consistently as exceptional in the current year.

Operating items Exceptional operating items are those that are considered to be material and unusual or non-recurring in nature and are part of the operating activities of the group, such as impairment of intangible assets and fixed assets, indirect tax settlements, property disposals and changes in post employment plans.

232

Financial statements (continued)

Non-operating items Gains and losses on the sale or directly attributable to a prospective sale of businesses, brands or distribution rights, step up gains and losses that arise when an investment becomes an associate or an associate becomes a subsidiary and other material, unusual non-recurring items, that are not in respect of the production, marketing and distribution of premium drinks, are disclosed as non-operating exceptional items below operating profit in the consolidated income statement.

Taxation items Exceptional current and deferred tax items comprising material and unusual or non-recurring items that impact taxation. Examples include direct tax provisions and settlements in respect of prior years and the remeasurement of deferred tax assets and liabilities following tax rate changes.

~~236~~

~~Financial statements (continued)~~


	2022 £ million	2021 £ million	2020 £ million
Exceptional operating items
Brand, goodwill, tangible and other assets impairment (a)	(336)	—	(1,345)
Winding down Russian operations (b)	(50)	—	—
Donations (c)	(2)	(5)	(89)
Ongoing litigation in Turkey (d)	—	(15)	—
Guaranteed minimum pension equalisation (e)	—	(5)	—
Obsolete inventories (f)	—	7	(30)
Substitution drawback (g)	—	3	83
Indirect tax in Korea (h)	—	—	24

	(388)	(15)	(1,357)
Non-operating items
Sale of businesses and brands
Meta Abo Brewery (i)	(95)	—	—
Windsor business (j)	(19)	—	—
Picon brand (k)	91	—	—
United National Breweries (l)	6	10	(32)
USL businesses (m)	—	3	—
Portfolio of 19 brands (n)	—	1	2
Loss on disposal of associate (o)	—	—	(1)
Step acquisitions (p)	—	—	8
	(17)	14	(23)

Exceptional items before taxation	(405)	(1)	(1,380)
Items included in taxation (note 7 (b))	31	(84)	154

Total exceptional items	(374)	(85)	(1,226)
Attributable to:
Equity shareholders of the parent company	(271)	(86)	(1,157)
Non-controlling interests	(103)	1	(69)
Total exceptional items	(374)	(85)	(1,226)

2021
£ million
2020
£ million
2019
£ million
Exceptional operating items
Ongoing litigation in Turkey (a) (15) 0 0
Guaranteed minimum pension equalisation (b) (5) 0 (21)
Donations (c (i)) (5) (89) 0
Obsolete inventories (c (ii)) 7 (30) 0
Substitution drawback (c (iii)) 3 83 0
Brand, goodwill, tangible and other assets impairment (d) 0 (1,345) 0
Indirect tax in Korea (e) 0 24 (35)
French tax audit penalty (note 7 (b) (v)) 0 0 (18)
(15) (1,357) (74)
Non-operating items
Sale of businesses and brands
United National Breweries (f) 10 (32) (9)
USL businesses (g) 3 0 (2)
Portfolio of 19 brands (h) 1 2 155
Loss on disposal of associate (i) 0 (1) 0
Step acquisitions (j) 0 8 0
14 (23) 144
French tax audit interest (note 7 (b) (v)) 0 0 (9)
Exceptional items before taxation (1) (1,380) 61
Items included in taxation (note 7 (b)) (84) 154 (39)
Total exceptional items (85) (1,226) 22
Attributable to:
Equity shareholders of the parent company (86) (1,157) (4)
Non-controlling interests 1 (69) 26
Total exceptional items (85) (1,226) 22

(a) In the year ended 30 June ~~2021, based on recent developments,~~2022, an ~~additional provision~~impairment charge of ~~TRY 156~~£336 million ~~(£15 million)~~ was ~~recorded as an~~recognised in exceptional ~~item~~operating items in respect of ~~ongoing litigation in Turkey, bringing~~ the ~~provision’s balance to TRY 272 million~~McDowell's No.1 brand (£23240 million) ~~following a settlement of TRY 15 million~~, Bell's brand (£177 million) ~~during the year.~~

~~(b) On 20 November 2020, the High Court of Justice of England~~ and Wales issued a ruling that requires schemes to equalise pension benefits for men and women for the calculation of their guaranteed minimum pension liability (GMP) on historic transfers out, which resulted in an additional liability of £5 millionSmirnov related goodwill (£19 million). ~~The corresponding expense was recognised as an exceptional operating item, consistent with the charge~~ of ~~£21 million in relation to the initial GMP ruling in the year ended 30 June 2019.~~

~~(c) In line with the group’s accounting policy, given the unusual nature and magnitude of the below items, these were reported as exceptional operating items:~~

(i) An exceptional charge of $6 million (£5 million) was recognised as part of the 'Raising the Bar' programme in the year ended 30 June 2021. The additional charge represents the re-investment of corporate tax benefit in the fund in certain markets, where a corporate tax deduction is available.

In the year ended 30 June 2020, Diageo launched the 'Raising the Bar' programme, including a commitment of $100 million (£81 million) over a period of up to two years from 1 July 2020, to support pubs and bars to recover following the Covid-19 pandemic. Diageo also provided other forms of support to help the communities and the industry which amounted to £8 million.

(ii) In the year ended 30 June 2021, an inventory provision of £7 million was released (2020 - a charge of £30 million) in respect of inventories that had earlier been expected to be returned and destroyed as a consequence of the Covid-19 pandemic, resulting in an exceptional gain. Given the original charge was classified as an exceptional item in the year ended 30 June 2020, the change to the provision was also classified as exceptional.

(iii) In the year ended 30 June 2021, an additional gain of $4 million (£3 million) was recognised in other operating items for excess receipts in respect of substitution drawback claims on prior year accruals.

In the year ended 30 June 2020, an estimated benefit of $105 million (£83 million) for substitution drawback claims that had been filed and were to be filed with the US Government in relation to prior years was recognised in other operating items.

~~237~~

~~Financial statements (continued)~~

~~(d)~~ ~~In the year ended 30 June 2020~~, an impairment charge of £1,345 million was recognised in exceptional operating items, comprising of £655 million in respect of the India cash-generating unit containing the India goodwill, £116 million in respect of the USL popular brands category (Old Tavern brand £78 million and Bagpiper brand £38 million) and £1 million in respect of fixed assets in India; £434 million in respect of the Windsor Premier brand; £84 million in respect of ~~the group's Nigerian tangible fixed assets;~~property, plant and equipment in Nigeria; and £55 million in respect of ~~the group's Ethiopian tangible fixed assets.~~property, plant and equipment in Ethiopia.

For further information, see ~~notes~~note 9 (d).

(b) In March 2022, a decision was taken to suspend exporting to and ~~10, respectively.~~selling in Russia and on 28 June 2022, Diageo decided that it would wind down its operations in Russia over the following six months. Losses of £50 million directly attributable to the wind down primarily include provisions for onerous contracts (£14 million) and redundancies (£13 million). Total impact of winding down

~~(e)~~

233

Financial statements (continued)

operations in Russia resulted in a loss of £146 million, including impairment of the Bell’s brand (£77 million), Smirnov related goodwill (£19 million), and directly attributable items.

(c) An exceptional charge of $3 million (£2 million) (2021 – £5 million) was recognised as part of the 'Raising the Bar' programme, in addition to the commitment of $100 million (£81 million) announced in the year ended 30 June 2020. The additional charge represents the re-investment of corporate tax benefit in the fund in certain markets, where a corporate tax deduction is available, and was recognised as an exceptional operating item, consistent with the initial commitment. Diageo also provided other forms of support to help our communities and the industry, which amounted to £8 million in the year ended 30 June 2020.

(d)In the year ended 30 June ~~2019, the group recognised a~~2021, an additional provision of ~~£35~~£15 million ~~for indirect tax~~ was recorded as an exceptional item in respect of ~~certain channel accounts~~ongoing litigation in Turkey, bringing the provision’s balance to £23 million following a settlement of £1 million during that year.

(e) On 20 November 2020, the High Court of Justice of England and ~~regulatory change~~Wales issued a ruling that requires pension schemes to equalise pension benefits for men and women for the calculation of their guaranteed minimum pension liability (GMP) on historic transfers out, which resulted in ~~Korea~~an additional liability of £5 million in the year ended 30 June 2021. The corresponding expense was recognised as an exceptional operating item consistently with the charge in relation to the initial GMP ruling.

(f) In the year ended 30 June 2021, an inventory provision of £7 million (2020 - a charge of £30 million) was released in respect of obsolete inventories that had earlier been expected to be returned and destroyed as a direct consequence of the Covid-19 pandemic, resulting in an exceptional gain. The provision release was recognised as an exceptional operating item consistently with the original charge in the year ended 30 June 2020.

(g) In the year ended 30 June 2021, an additional gain of $4 million(£3 million) was recognised in exceptional operating items for excess receipts in respect of substitution drawback claims that had been filed and were to be filed with the US Government in relation to prior years. The changes in estimates were recognised as an exceptional operating item consistently with the initial income of £83 million in the year ended 30 June 2020.

(h) An assessment was issued by the Korea Tax Authority in the year ended 30 June 2020 that resulted in the reversal of the prior year's provision in the amount of £24 million.

~~(f)~~(i) On 25 April 2022, Diageo completed the sale of its Ethiopian subsidiary, Meta Abo Brewery Share Company. A loss of £95 million was recognised as a non-operating item attributable to the sale, including cumulative translation losses in the amount of £63 million recycled to the income statement.

(j) On 25 March 2022, Diageo agreed to the sale of its Windsor business in Korea. At 30 June 2022, assets and liabilities attributable to Windsor business were classified as held for sale and were measured at the lower of their cost and fair value less cost of disposal. In the year ended 30 June 2022, a loss of £19 million was recognised as a non-operating item, mainly in relation to transaction and other costs directly attributable to the prospective sale of the business. At 30 June 2022, cumulative translation gains recognised in exchange reserves were £141 million which will be recycled to the income statement on completion of the transaction, in the year ending 30 June 2023.

(k) On 10 May 2022, Diageo sold its Picon brand. The sale resulted in an exceptional non-operating gain of £91 million, net of disposal costs. Disposal costs relating to the transaction amounted to £9 million.

(l) In the year ended 30 June ~~2021,~~2022, ZAR ~~209~~133 million (~~£10 million~~)(£6 million) of deferred consideration was paid to Diageo in respect of the sale of United National Breweries, the full amount of which represented a non-operating gain ~~(2020~~(2021 – a gain of £10 million; 2020 - a loss of £32 ~~million; 2019 - loss of £9 million ).~~million).

~~(g)~~ (m) Certain subsidiaries of United Spirits Limited ~~subsidiaries~~(USL) were sold in the year ended 30 June 2021. The sale of ~~businesses~~these subsidiaries resulted in an exceptional gain of £3 million.

~~In the year ended 30 June 2019, the disposal of the Indian wine business resulted in an exceptional loss of £2 million.~~

~~(h)~~(n) In the year ended 30 June 2021, the group reversed $2£1 million ~~(£1 million)~~ (2020 - £2 million) from provisions in relation to the sale of a portfolio of 19 brands to Sazerac on 20 December 2018. ~~The aggregate consideration for the disposal was $550 million (£435 million) resulting in a profit before taxation of $198 million (£155 million) in the year ended 30 June 2019.~~

~~See note 8 (b) for further information.~~

~~(i)~~(o) In the year ended 30 June 2020, the disposal of an associate, Equal Parts, LLC resulted in an exceptional loss of ~~£1 million~~.£1 million.

~~(j)~~(p) In the year ended 30 June 2020, Diageo completed the acquisition of Seedlip and Anna Seed 83 and acquired controlling interests in certain Distill Ventures entities. As a result of these entities becoming subsidiaries of the group, a gain of £8 million arose, being the difference between the book value of the associates prior to the transaction and their fair value.

For further information on acquisition and sale of businesses and brands, see note 8 (a) and 8 (b).

234

Financial statements (continued)

Cash payments and receipts included in net cash inflow from operating activities in respect of exceptional items were as follows:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Substitution drawback		60	26	0
Donations	Donations	(50)	(7)	0	Donations	(37)	(50)	(7)
Thalidomide (note 14 (d) (a))		(15)	(17)	(15)
Thalidomide (note 15 (d) (i))					Thalidomide (note 15 (d) (i))	(16)	(15)	(17)
Winding down Russian operations					Winding down Russian operations	(13)	—	—
Indirect tax in Korea	Indirect tax in Korea	(10)	0	0	Indirect tax in Korea	—	(10)	—
Ongoing litigation in Turkey	Ongoing litigation in Turkey	(1)	0	0	Ongoing litigation in Turkey	—	(1)	—
Substitution drawback					Substitution drawback	—	60	26
French tax audit	French tax audit	0	(88)	0	French tax audit	—	—	(88)

Total cash payments	Total cash payments	(16)	(86)	(15)	Total cash payments	(66)	(16)	(86)

5. Finance income and charges

Accounting policies

Net interest includes interest income and charges in respect of financial instruments and the results of hedging transactions used to manage interest rate risk.

Finance charges directly attributable to the acquisition, construction or production of a qualifying asset, being an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, are added to the cost of that asset. Borrowing costs which are not capitalised are recognised in the income statement based on the effective interest method. All other finance charges are recognised primarily in the income statement in the year in which they are incurred.

Net other finance charges include items in respect of post employment plans, the discount unwind of long-term obligations and hyperinflation charges. The results of operations in hyperinflationary economies are adjusted to reflect the changes in the purchasing power of the local currency of the entity before being translated to sterling.

The impact of derivatives, excluding cash flow hedges that are in respect of commodity price risk management or those that are used to hedge the currency risk of highly probable future currency cash flows, is included in interest income or interest charge.

~~238~~235

Financial statements (continued)


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Interest income	Interest income	119	192	232	Interest income	127	119	192
Fair value gain on financial instruments	Fair value gain on financial instruments	124	123	155	Fair value gain on financial instruments	341	124	123
Total interest income~~(i)~~(1)	Total interest income~~(i)~~(1)	243	315	387	Total interest income~~(i)~~(1)	468	243	315
Interest charge on bank loans, bonds and overdrafts	Interest charge on bank loans, bonds and overdrafts	(365)	(390)	(349)	Interest charge on bank loans, bonds and overdrafts	(371)	(365)	(390)
Interest charge on leases	Interest charge on leases	(16)	(15)	(7)	Interest charge on leases	(12)	(16)	(15)

Interest charge on other borrowings	Interest charge on other borrowings	(84)	(120)	(122)	Interest charge on other borrowings	(92)	(84)	(120)
Fair value loss on financial instruments	Fair value loss on financial instruments	(126)	(123)	(157)	Fair value loss on financial instruments	(346)	(126)	(123)
Total interest charges~~(i)~~(1)	Total interest charges~~(i)~~(1)	(591)	(648)	(635)	Total interest charges~~(i)~~(1)	(821)	(591)	(648)
Net interest charges	Net interest charges	(348)	(333)	(248)	Net interest charges	(353)	(348)	(333)
Net finance income in respect of post employment plans in surplus (note 13)		18	26	29
Net finance income in respect of post employment plans in surplus (note 14)					Net finance income in respect of post employment plans in surplus (note 14)	22	18	26
Hyperinflation adjustment in respect of Venezuela (note 1)	Hyperinflation adjustment in respect of Venezuela (note 1)	2	6	10	Hyperinflation adjustment in respect of Venezuela (note 1)	1	2	6
Interest income in respect of direct and indirect tax	Interest income in respect of direct and indirect tax	15	16	16	Interest income in respect of direct and indirect tax	2	15	16
Unwinding of discounts					Unwinding of discounts	4	—	—
Other finance income	Other finance income	0	3	0	Other finance income	—	—	3
Total other finance income	Total other finance income	35	51	55	Total other finance income	29	35	51
Net finance charge in respect of post employment plans in deficit (note 13)		(13)	(17)	(22)
Net finance charge in respect of post employment plans in deficit (note 14)					Net finance charge in respect of post employment plans in deficit (note 14)	(12)	(13)	(17)
Hyperinflation adjustment and foreign exchange revaluation of monetary items in respect of Lebanon (note 1)	Hyperinflation adjustment and foreign exchange revaluation of monetary items in respect of Lebanon (note 1)	(8)	0	0	Hyperinflation adjustment and foreign exchange revaluation of monetary items in respect of Lebanon (note 1)	(3)	(8)	—
Unwinding of discounts	Unwinding of discounts	(20)	(24)	(17)	Unwinding of discounts	(11)	(20)	(24)
Interest charge in respect of direct and indirect tax	Interest charge in respect of direct and indirect tax	(11)	(22)	(11)	Interest charge in respect of direct and indirect tax	(16)	(11)	(22)
Change in financial liability (Level 3)	Change in financial liability (Level 3)	(7)	(6)	(8)	Change in financial liability (Level 3)	(20)	(7)	(6)
Hyperinflation adjustment in respect of Turkey (note 1)					Hyperinflation adjustment in respect of Turkey (note 1)	(34)	—	—

Other finance charges (exceptional)(ii)		0	0	(9)
Guarantee fees	Guarantee fees	(1)	(1)	0	Guarantee fees	(1)	(1)	(1)
Other finance charges	Other finance charges	0	(1)	(3)	Other finance charges	(1)	—	(1)
Total other finance charges	Total other finance charges	(60)	(71)	(70)	Total other finance charges	(98)	(60)	(71)
Net other finance charges	Net other finance charges	(25)	(20)	(15)	Net other finance charges	(69)	(25)	(20)

~~(i)~~(1) Includes ~~£28~~£27 million interest income and ~~£(429)~~£(417) million interest charge in respect of financial assets and liabilities that are not measured at fair value through ~~the~~ income statement ~~(2020~~(2021 – £28 million income and £(429) million charge; 2020 – £46 million income and £(471) million ~~charge; 2019 – £86 million income and £(439) million~~ charge).

~~(ii) In respect of the French tax audit settlement (see note 7(b)(v)).~~

~~239~~236

Financial statements (continued)

6. Investments in associates and joint ventures

Accounting policies

An associate is an undertaking in which the group has a long-term equity interest and over which it has the power to exercise significant influence. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The group’s interest in the net assets of associates and joint ventures is reported in investments in the consolidated balance sheet and its interest in their results (net of tax) is included in the consolidated income statement below the group’s operating profit. Associates and joint ventures are initially recorded at cost including transaction costs. Investments in associates and joint ventures are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. The impairment review compares the net carrying value with the recoverable amount, where the recoverable amount is the higher of the value in use calculated as the present value of the group’s share of the associate’s future cash flows and its fair value less costs of disposal.

Diageo’s principal associate is Moët Hennessy of which Diageo owns 34%. Moët Hennessy is the ~~spirits~~wines and ~~wine~~spirits subsidiary of LVMH Moët Hennessy – Louis Vuitton SA (LVMH). LVMH is based in France and is listed on the Paris Stock Exchange. Moët Hennessy is also based in France and is a producer and exporter of champagne and cognac brands.

A number of joint distribution arrangements have been established with LVMH in Asia Pacific and France, principally covering distribution of Diageo’s Scotch whisky and gin premium brands and Moët Hennessy’s champagne and cognac premium brands. Diageo and LVMH have each undertaken not to engage in any champagne or cognac activities competing with those of Moët Hennessy. The arrangements also contain certain provisions for the protection of Diageo as a non-controlling shareholder in Moët Hennessy.

(a) An analysis of the movement in the group’s investments in associates and joint ventures is as follows:


		Moët Hennessy £ million	Others £ million	Total £ million		Moët Hennessy £ million	Others £ million	Total £ million
Cost less provisions	Cost less provisions				Cost less provisions
At 30 June 2019		3,040	133	3,173
Exchange differences		78	4	82
Additions		0	47	47
Share of profit after tax		285	(3)	282
Disposals		0	(1)	(1)
Dividends		0	(4)	(4)
Share of movements in other comprehensive income and equity		(8)	0	(8)
Step acquisitions		0	(11)	(11)
Transfer		0	(2)	(2)
Other		0	(1)	(1)
At 30 June 2020	At 30 June 2020	3,395	162	3,557	At 30 June 2020	3,395	162	3,557
Exchange differences	Exchange differences	(228)	(12)	(240)	Exchange differences	(228)	(12)	(240)
Additions	Additions	0	38	38	Additions	—	38	38
Share of profit after tax		335	(1)	334
Share of profit/(loss) after tax					Share of profit/(loss) after tax	335	(1)	334

Dividends	Dividends	(289)	(1)	(290)	Dividends	(289)	(1)	(290)
Share of movements in other comprehensive income and equity	Share of movements in other comprehensive income and equity	(85)	0	(85)	Share of movements in other comprehensive income and equity	(85)	—	(85)

Transfer	Transfer	0	2	2	Transfer	—	2	2
Impairment charged during the year	Impairment charged during the year	0	(8)	(8)	Impairment charged during the year	—	(8)	(8)

At 30 June 2021	At 30 June 2021	3,128	180	3,308	At 30 June 2021	3,128	180	3,308
Exchange differences					Exchange differences	48	12	60
Additions					Additions	—	65	65
Share of profit/(loss) after tax					Share of profit/(loss) after tax	425	(8)	417

Dividends					Dividends	(186)	(4)	(190)
Share of movements in other comprehensive income and equity					Share of movements in other comprehensive income and equity	(6)	—	(6)

Impairment charged during the year					Impairment charged during the year	—	(2)	(2)
At 30 June 2022					At 30 June 2022	3,409	243	3,652

~~(1)~~(i) Investment in associates balance includes loans given to and preference shares invested in associates of ~~£108~~£163 million ~~(2020~~(2021 – ~~£82~~£108 million).

~~(2)~~(ii) If certain performance targets are met by associates in the Distill Ventures ~~programmes,~~programme, an additional £22 million (2021 – £33 ~~million (2020 –~~ ~~£22 million~~)million) will be invested in those associates.

(b) ~~Income statement information for the three years ended 30 June 2021 and balance sheet information as at 30 June 2021 and 30 June 2020 of Moët Hennessy is as follows:~~

2021
£ million 2020
£ million 2019
£ million
Sales 4,819 4,425 4,713
Profit for the year 985 838 911
Total comprehensive income 999 765 865

~~240~~

~~Financial statements (continued)~~

Moët Hennessy prepares its financial statements under IFRS as endorsed by the EU in euros to 31 December each year. The results are adjusted for alignment to Diageo accounting policies and are a major part of the Wines & Spirits division of LVMH. The results ~~are~~ translated at £1 = ~~€1.13 (2020~~€1.18 (2021 – £1£1 = ~~€1.14; 2019~~€1.13; 2020 – £1£1 = ~~€1.13)~~€1.14).
2021
£ million 2020
£ million
Non-current assets 5,320 5,310
Current assets 7,800 8,352
Total assets 13,120 13,662
Non-current liabilities (1,665) (1,480)
Current liabilities (2,256) (2,197)
Total liabilities (3,921) (3,677)
Net assets 9,199 9,985

~~(1)~~Income statement information for the three years ended 30 June 2022 and balance sheet information as at 30 June 2022 and 30 June 2021 of Moët Hennessy is as follows:


	2022 £ million	2021 £ million	2020 £ million
Sales	5,553	4,819	4,425
Profit for the year	1,250	985	838
Total comprehensive income	1,269	999	765

237

Financial statements (continued)


	2022 £ million	2021 £ million
Non-current assets	5,957	5,320
Current assets	8,447	7,800
Total assets	14,404	13,120
Non-current liabilities	(1,791)	(1,665)
Current liabilities	(2,415)	(2,256)
Total liabilities	(4,206)	(3,921)
Net assets	10,198	9,199

(i) Including acquisition fair value adjustments principally in respect of Moët Hennessy’s brands and translated at £1 = ~~€1.17 (2020~~€1.16 (2021 – £1 = ~~€1.09)~~€1.17).

(c) ~~Information~~Information on transactions between the group and its associates and joint ventures is disclosed in note ~~20.~~21.

(d) Investments in associates and joint ventures comprise the cost of shares less goodwill written off on acquisitions prior to 1 July 1998 of ~~£1,254~~£1,340 million ~~(2020~~(2021 – ~~£1,312~~£1,254 million), plus the group’s share of post acquisition reserves of ~~£2,054~~£2,312 million ~~(2020~~(2021 – ~~£2,245~~£2,054 million).

~~(e)~~(e) The associates and joint ventures have not reported any material contingent liabilities in their latest financial statements.

7. Taxation

Accounting policies

Current tax is based on taxable profit for the year. Taxable profit is different from accounting profit due to temporary differences between accounting and tax treatments, and due to items that are never taxable or tax deductible. Tax benefits are not recognised unless it is probable that the tax positions are sustainable. Once considered to be probable, tax benefits are reviewed each year to assess whether a provision should be taken against full recognition of the benefit on the basis of potential settlement through negotiation and/or litigation. Tax provisions are included in current liabilities. Penalties and interest on tax liabilities are included in operating profit and finance charges, respectively.

Full provision for deferred tax is made for temporary differences between the carrying value of assets and liabilities for financial reporting purposes and their value for tax purposes. The amount of deferred tax reflects the expected recoverable amount and is based on the expected manner of recovery or settlement of the carrying amount of assets and liabilities, using the basis of taxation enacted or substantively enacted by the balance sheet date. Deferred tax assets are not recognised where it is more likely than not that the assets will not be realised in the future. No deferred tax liability is provided in respect of any future remittance of earnings of foreign subsidiaries where the group is able to control the remittance of earnings and it is probable that such earnings will not be remitted in the foreseeable future, or where no liability would arise on the remittance.

Critical accounting estimates and judgements

The group is required to estimate the corporate tax in each of the ~~many~~ jurisdictions in which it operates. Management is required to estimate the amount that should be recognised as a tax liability or tax asset in many countries which are subject to tax audits which by their nature are often complex and can take several years to resolve; current tax balances are based on such estimations. Tax provisions are based on management’s judgement and interpretation of country specific tax law and the likelihood of settlement. However, the actual tax liabilities could differ from the provision and in such event the group would be required to make an adjustment in a subsequent period which could have a material impact on the group’s profit for the year.

The evaluation of deferred tax asset recoverability requires estimates to be made regarding the availability of future taxable income. For brands with an indefinite life, management’s primary intention is to recover the book value through a potential sale in the future, and therefore the deferred tax on the brand value is generally recognised using the appropriate country capital gains tax rate. To the extent brands with an indefinite life have been impaired, management considers this to be an indication of recovery through use and in such a case deferred tax on the brand value is recognised using the appropriate country corporate income tax rate.

~~241~~238

Financial statements (continued)

(a) Analysis of taxation charge for the year


		United Kingdom			Rest of world			Total				United Kingdom			Rest of world			Total
		2021 £ million	2020 £ million	2019 £ million	2021 £ million	2020 £ million	2019 £ million	2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million	2022 £ million	2021 £ million	2020 £ million	2022 £ million	2021 £ million	2020 £ million
Current tax	Current tax										Current tax
Current year	Current year	100	108	150	684	589	713	784	697	863	Current year	174	100	108	867	684	589	1,041	784	697
Adjustments in respect of prior years	Adjustments in respect of prior years	1	6	(3)	28	(25)	52	29	(19)	49	Adjustments in respect of prior years	10	1	6	16	28	(25)	26	29	(19)
		101	114	147	712	564	765	813	678	912		184	101	114	883	712	564	1,067	813	678
Deferred tax	Deferred tax										Deferred tax
Origination and reversal of temporary differences	Origination and reversal of temporary differences	13	24	29	18	(143)	(19)	31	(119)	10	Origination and reversal of temporary differences	—	13	24	21	18	(143)	21	31	(119)
Changes in tax rates	Changes in tax rates	46	6	(2)	32	39	(52)	78	45	(54)	Changes in tax rates	2	46	6	1	32	39	3	78	45
Adjustments in respect of prior years	Adjustments in respect of prior years	8	0	5	(23)	(15)	25	(15)	(15)	30	Adjustments in respect of prior years	—	8	—	(42)	(23)	(15)	(42)	(15)	(15)
		67	30	32	27	(119)	(46)	94	(89)	(14)		2	67	30	(20)	27	(119)	(18)	94	(89)
Taxation on profit	Taxation on profit	168	144	179	739	445	719	907	589	898	Taxation on profit	186	168	144	863	739	445	1,049	907	589

(b) Exceptional tax ~~charges/~~(credits)/charges

The taxation charge includes the following exceptional items:
2021
£ million 2020
£ million 2019
£ million
Tax rate change in the United Kingdom(i)
46 0 0
Tax rate change in the Netherlands(ii)
42 0 (51)
Donations(iii)
(5) 0 0
Obsolete inventories 1 (7) 0
Substitution drawback 1 20 0
Guaranteed minimum pension equalisation (1) 0 (4)
Brand and tangible asset impairment(iv)
0 (165) 0
Other items 0 (2) 0
French tax audit settlement(v)
0 0 61
Sale of businesses and brands 0 0 33
84 (154) 39


	2022 £ million	2021 £ million	2020 £ million
Brand and tangible asset impairment(1)	(55)	—	(165)
Sale of Picon brand	23	—	—
Winding down Russian operations	3	—	—
Donations(2)	(2)	(5)	—
Tax rate change in the United Kingdom(3)	—	46	—
Tax rate change in the Netherlands(4)	—	42	—


Obsolete inventories	—	1	(7)
Substitution drawback	—	1	20
Guaranteed minimum pension equalisation	—	(1)	—



Other items	—	—	(2)







	(31)	84	(154)

(i) On 24 May 2021, legislation was substantively enacted in the UK to increase the corporate tax rate to 25% with effect from 1 April 2023. As a result of the change, an exceptional tax charge of £46 million was recognised for

(1) In the year ended 30 June ~~2021 in relation to~~2022, the ~~remeasurement of deferred tax assets and liabilities. In addition, there was a one-off charge~~ of ~~£48 million to other comprehensive income and equity, mainly in respect of the remeasurement of the deferred tax liabilities on the post employment assets.~~

(ii) On 15 December 2020, legislation was substantively enacted in the Netherlands to maintain the headline corporate tax rate at 25%, reversing a previously enacted reduction in the corporate tax rate to 21.7% from 2021. As a result of the change, an exceptional tax charge of £42 million was recognised for the year ended 30 June 2021 in relation to the remeasurement of deferred tax liabilities. During the year ended 30 June 2019 the Dutch Senate agreed to a phased reduction in the Dutch corporate tax rate which was expected to be effective from 1 January 2020. An exceptional tax credit of ~~£51~~£55 million ~~was recorded in~~consists of tax impact on the ~~year ended 30 June 2019 principally from the remeasurement of deferred tax liabilities in respect~~impairment of the ~~Ketel One vodka distribution rights from 25% to a then enacted tax rate of 20.5%. During~~McDowell's and Bell's brand for £35 million and £20 million respectively. In the year ended 30 June 2020, the ~~Dutch Senate enacted an increased~~exceptional tax ~~rate~~credit of ~~21.7%, giving rise to a £12~~£165 million consisted of tax ~~charge which was recognised as underlying~~impact on the impairment of the Windsor and USL brands for £105 million and £25 million, respectively, and exceptional tax ~~charge.~~credits in respect of fixed assets impairments in Nigeria and Ethiopia of £25 million and £10 million, respectively.

~~(iii) As disclosed in~~(2) In the year ended 30 June 2020, ~~Annual Report,~~ Diageo launched the “Raising the Bar” programme to support pubs and bars to welcome customers back and recover following the Covid-19 pandemic, including a commitment of $100 million (£81 million) over a period of up to two years from 1 July 2020. Due to uncertainty on the precise nature of the spend, it could not be determined whether the amounts were deductible for tax purposes in future periods. As a result, no deferred tax asset was recognised in respect of the provision for the year ended 30 June 2020. ~~In 2021,~~Based on additional information ~~regarding the nature of the spend was~~becoming available ~~and this has been re-assessed and~~for re-assessment, a £2 million (30 June 2021 – £5 ~~million~~million) exceptional tax credit ~~has been~~was recognised ~~mainly in respect of spent in the United States, United Kingdom and Ireland~~ for the year ended 30 June ~~2021.~~2022.

~~(iv)~~(3) On 24 May 2021, legislation was substantively enacted in the UK to increase the corporate tax rate to 25% with effect from 1 April 2023. As a result of the change, an exceptional tax charge of £46 million was recognised for the year ended 30 June 2021 in relation to the remeasurement of deferred tax assets and liabilities. In addition, there was a one-off charge of £48 million to other comprehensive income and equity, mainly in respect of the remeasurement of the deferred tax liabilities on the post employment assets.

(4) On 15 December 2020, legislation was substantively enacted in the Netherlands to maintain the headline corporate tax rate at 25%, reversing a previously enacted reduction in the corporate tax rate to 21.7% from 2021. As a result of the change, an exceptional tax charge of £42 million was recognised for the year ended 30 June 2021 in relation to the remeasurement of deferred tax liabilities. During the year ended 30 June ~~2020~~2022, the ~~exceptional~~Dutch Senate enacted an increased tax ~~credit~~rate of ~~£165 million consists~~25.8%. The remeasurement of ~~the impairment of the Windsor and USL brands of £105 million and £25 million, respectively, exceptional~~deferred tax ~~credits in respect of fixed assets impairments in Nigeria and Ethiopia of £25 million and £10 million, respectively.~~

~~(v) As disclosed in the 2019 Annual Report, in July 2019 Diageo reached a resolution with the French~~liabilities was recognised as an underlying tax authorities on the treatment of interest costs for all open periods which resulted in a total exceptional charge of €100 million (£88 million), comprising a tax charge of €69 million (£61 million), penalties of €21 million (£18 million) and interest of €10 million (£9 million) This brought to a close all open issues with the French tax authorities for periods up to and including 30 June 2017.charge.

~~242~~239

Financial statements (continued)


		2021 £ million	2021 %	2020 £ million	2020 %	2019 £ million	2019 %		2022 £ million	2022 %	2021 £ million	2021 %	2020 £ million	2020 %
Profit before taxation	Profit before taxation	3,706		2,043		4,235		Profit before taxation	4,387		3,706		2,043
Notional charge at UK corporation tax rate	Notional charge at UK corporation tax rate	704	19.0	388	19.0	805	19.0	Notional charge at UK corporation tax rate	833	19.0	704	19.0	388	19.0
Elimination of notional tax on share of after tax results of associates and joint ventures	Elimination of notional tax on share of after tax results of associates and joint ventures	(63)	(1.7)	(54)	(2.6)	(59)	(1.4)	Elimination of notional tax on share of after tax results of associates and joint ventures	(79)	(1.8)	(63)	(1.7)	(54)	(2.6)
Differences in overseas tax rates	Differences in overseas tax rates	128	3.5	53	2.6	106	2.5	Differences in overseas tax rates	161	3.7	128	3.5	53	2.6
Effect of intra-group financing	Effect of intra-group financing	0	0	(13)	(0.6)	(34)	(0.8)	Effect of intra-group financing	—	—	—	—	(13)	(0.6)
Non taxable gain on disposals of businesses		(2)	(0.1)	0	0	(3)	0
Non-taxable gain on disposals of businesses								Non-taxable gain on disposals of businesses	—	—	(2)	(0.1)	—	—
Step-up gain	Step-up gain	0	0	(2)	(0.1)	0	0	Step-up gain	—	—	—	—	(2)	(0.1)
Other tax rate and tax base differences	Other tax rate and tax base differences	0	0	(47)	(2.3)	(79)	(1.9)	Other tax rate and tax base differences	—	—	—	—	(47)	(2.3)
Other items not chargeable	Other items not chargeable	(52)	(1.4)	(60)	(3.0)	(51)	(1.2)	Other items not chargeable	(49)	(1.1)	(52)	(1.4)	(60)	(3.0)
Impairment	Impairment	0	0	135	6.6	0	0	Impairment	36	0.8	—	—	135	6.6
Non deductible losses on disposals of businesses		0	0	6	0.3	0	0
Non-deductible losses on disposals of businesses								Non-deductible losses on disposals of businesses	21	0.5	—	—	6	0.3

Other items not deductible~~(i)~~(1)	Other items not deductible~~(i)~~(1)	67	1.8	115	5.6	122	2.9	Other items not deductible~~(i)~~(1)	58	1.3	67	1.8	115	5.6
Irrecoverable withholding taxes	Irrecoverable withholding taxes	25	0.7	36	1.7	24	0.6	Irrecoverable withholding taxes	39	0.9	25	0.7	36	1.7
Movement in provision related to uncertain tax positions(ii)		1	0	6	0.3	98	2.3
Changes in tax rates(iii)		78	2.1	45	2.2	(54)	(1.3)
Fair value adjustment in respect of assets held for sale		0	0	0	0	1	0
Adjustments in respect of prior years(iv)		21	0.6	(19)	(0.9)	22	0.5
Movement in provision in respect of uncertain tax positions(2)								Movement in provision in respect of uncertain tax positions(2)	42	0.9	1	—	6	0.3
Changes in tax rates(3)								Changes in tax rates(3)	3	0.1	78	2.1	45	2.2

Adjustments in respect of prior years(4)								Adjustments in respect of prior years(4)	(16)	(0.4)	21	0.6	(19)	(0.9)
Taxation on profit	Taxation on profit	907	24.5	589	28.8	898	21.2	Taxation on profit	1,049	23.9	907	24.5	589	28.8
Tax rate before exceptional items	Tax rate before exceptional items	—	22.2	—	21.7	—	20.6	Tax rate before exceptional items	—	22.5	—	22.2	—	21.7

~~(i)~~(1) Other items not deductible include additional state and local taxes and other expenses.

~~(ii)~~(2) Movement in provision ~~related to~~in respect of uncertain tax positions includes both current and prior year ~~related~~ uncertain tax position movements. ~~Movement in provision related to uncertain tax positions for the year ended 30 June 2019 includes £61 million exceptional tax charge in respect of the French tax audit settlement.~~

~~(iii)~~(3) Changes in tax rates for the year ended 30 June 2021 are mainly due to the tax rate change in the Netherlands and the United Kingdom. Changes in tax rates for the year ended 30 June 2020 are mainly due to the Netherlands, UK, India and Kenya. ~~Changes in tax rates for the year ended 30 June 2019 principally arose from the tax rate change in the Netherlands.~~

~~(iv)~~(4) Excludes prior year movement in provisions.

(1) As part of an exercise undertaken to amend the policy as to how items are presented, the tax rate reconciliation table has been restructured to separately show irrecoverable withholding tax and movements in provisions related to uncertain tax positions, previously reflected within other items not deductible, in order to provide more relevant information. The UK transfer pricing adjustments included for the years ended 2020 and 2019 have also been reclassified to other tax rate and tax base differences to better reflect their nature, previously included within other items not chargeable.

The table above reconciles the notional taxation charge calculated at the UK tax rate, to the actual total tax charge. As a group operating in multiple countries, the actual tax rates applicable to profits in those countries are different from the UK tax rate. The impact is shown in the table above as differences in overseas tax rates. The group’s worldwide business leads to the consideration of a number of important factors which may affect future tax charges, such ~~as:~~as the levels and mix of profitability in different jurisdictions, transfer pricing regulations, tax rates imposed and tax regime reforms, acquisitions, disposals, restructuring activities, and settlements or agreements with tax authorities.

Significant ongoing changes in the international tax environment and an increase in global tax audit activity means that tax uncertainties and associated risks have been gradually increasing. In the medium term, these risks could result in an increase in tax liabilities or adjustments to the carrying value of deferred tax assets and liabilities. See note ~~18 (g)~~19 (f).

The group has a number of ongoing tax audits worldwide for which provisions are recognised in line with the relevant accounting standard taking into account best estimates and management’s judgements concerning the ultimate outcome of the tax audit. ~~As at~~ For the year ended 30 June ~~2021~~2022, the ongoing audits that are provided for individually are not expected to result in a material tax liability. The current tax asset of £149 million (30 June 2021 – £145 million) and tax liability of £252 million (30 June 2021 – £146 million) include £~~145~~156 million (30 June ~~2020~~2021 – £~~190~~129 million) of provisions for tax uncertainties.

The cash tax paid for year ended 30 June 2022 amounts to £949 million (30 June 2021 – £852 million) and ~~tax liability of~~is £~~146~~100 million (~~30 June 2020~~ – ~~£246 million) includes £129 million (30 June 2020 – £189 million) of provisions for tax uncertainties with the reductions mainly driven by audit payments and foreign exchange movements.~~

~~The cash tax paid in the year 30 June 2021 amounts to £852 million (30 June 2020 – £901 million) and is £39 million higher~~lower than the current tax charge ~~(30~~(30 June ~~2020~~2021 – ~~£223~~£39 million higher). This arises as a result of timing differences between the accrual of income taxes, ~~and the actual payment of cash and~~ the movement in the provision for uncertain tax ~~positions.~~positions and the actual payment of cash.

On 20 December 2021, the OECD released a framework for Pillar Two Model Rules which will introduce a global minimum corporate tax rate of 15% applicable to multinational enterprise groups with global revenue over €750 million. In addition, on 20 July 2022, HM Treasury released draft UK legislation that would commence for accounting periods starting on or after 31 December 2023 (i.e. year ending 30 June 2025 for Diageo). Diageo is reviewing this draft legislation and monitoring the status of implementation outside of the UK to understand the potential impact on the group.

~~243~~240

Financial statements (continued)

(d) Deferred tax assets and liabilities

~~The amounts of deferred~~Deferred tax ~~accounted for~~recognised in the consolidated balance sheet comprise the following net deferred tax (liabilities)/assets:


		Property, plant and equipment £ million	Intangible assets £ million	Post employment plans £ million	Tax losses £ million	Other temporary differences(i) £ million	Total £ million		Property, plant and equipment £ million	Intangible assets £ million	Post employment plans £ million	Tax losses £ million	Other temporary differences(1) £ million	Total £ million
At 30 June 2019		(349)	(1,795)	(38)	24	264	(1,894)
At 30 June 2020								At 30 June 2020	(340)	(1,736)	(72)	61	234	(1,853)
Exchange differences	Exchange differences	0	12	1	(1)	(7)	5	Exchange differences	26	176	(7)	(5)	(17)	173
Recognised in income statement – continuing operations		(10)	115	(5)	7	27	134
Recognised in income statement								Recognised in income statement	(28)	(19)	2	—	29	(16)
Reclassification	Reclassification	8	6	0	(3)	(11)	0	Reclassification	—	7	—	—	(7)	—
Recognised in other comprehensive loss and equity	Recognised in other comprehensive loss and equity	0	(3)	(16)	34	(33)	(18)	Recognised in other comprehensive loss and equity	—	—	(6)	—	(2)	(8)

Tax rate change – recognised in income statement	Tax rate change – recognised in income statement	11	(52)	2	0	(6)	(45)	Tax rate change – recognised in income statement	(39)	(48)	(2)	1	10	(78)
Tax rate change – recognised in other comprehensive loss and equity	Tax rate change – recognised in other comprehensive loss and equity	0	0	(16)	0	0	(16)	Tax rate change – recognised in other comprehensive loss and equity	—	—	(44)	—	(4)	(48)
Acquisition of subsidiaries	Acquisition of subsidiaries	0	(19)	0	0	0	(19)	Acquisition of subsidiaries	—	(16)	—	—	1	(15)

At 30 June 2020		(340)	(1,736)	(72)	61	234	(1,853)
At 30 June 2021								At 30 June 2021	(381)	(1,636)	(129)	57	244	(1,845)
Exchange differences	Exchange differences	26	176	(7)	(5)	(17)	173	Exchange differences	(21)	(155)	3	3	17	(153)
Recognised in income statement – continuing operations		(28)	(19)	2	0	29	(16)
Recognised in income statement								Recognised in income statement	(42)	(3)	(10)	2	74	21
Reclassification	Reclassification	0	7	0	0	(7)	0	Reclassification	2	40	—	—	(7)	35
Recognised in other comprehensive loss and equity	Recognised in other comprehensive loss and equity	0	0	(6)	0	(2)	(8)	Recognised in other comprehensive loss and equity	(20)	(104)	(103)	—	20	(207)
Tax rate change – recognised in income statement	Tax rate change – recognised in income statement	(39)	(48)	(2)	1	10	(78)	Tax rate change – recognised in income statement	(1)	(3)	—	1	—	(3)
Tax rate change – recognised in other comprehensive loss and equity	Tax rate change – recognised in other comprehensive loss and equity	0	0	(44)	0	(4)	(48)	Tax rate change – recognised in other comprehensive loss and equity	—	—	(22)	—	2	(20)
Acquisition of subsidiaries		0	(16)	0	0	1	(15)
Acquisition of businesses								Acquisition of businesses	—	(31)	—	—	—	(31)
Sale of businesses								Sale of businesses	(5)	—	—	—	3	(2)

At 30 June 2021		(381)	(1,636)	(129)	57	244	(1,845)
At 30 June 2022								At 30 June 2022	(468)	(1,892)	(261)	63	353	(2,205)

~~(i)~~(1) Deferred tax on other temporary differences includes hyperinflation, fair value movement on cross-currency swaps, interest and finance costs, ~~restructuring provisions,~~ share-based payments and ~~intra group~~intra-group sales of products.

After offsetting deferred tax assets and liabilities where appropriate within territories, the net deferred tax liability comprises:


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Deferred tax assets	Deferred tax assets	100	119	Deferred tax assets	114	100
Deferred tax liabilities	Deferred tax liabilities	(1,945)	(1,972)	Deferred tax liabilities	(2,319)	(1,945)
		(1,845)	(1,853)		(2,205)	(1,845)

~~The deferred~~Deferred tax assets of ~~£100~~£114 million ~~includes~~ ~~£48~~ include £47 million (~~2020~~2021 – ~~£84 million~~)£48 million) arising in jurisdictions with prior year taxable ~~losses. The majority of the asset is~~losses, primarily in respect of Germany and Brazil. It is considered more likely than not that there will be sufficient future taxable profits to realise these deferred tax assets, the majority of which can be carried forward indefinitely.

(e) Unrecognised deferred tax assets

The table below shows the tax value of tax losses which has not been recognised due to uncertainty over their utilisation in future periods. The gross value of those losses is ~~£708~~£674 million ~~(2020~~ (2021 – ~~£809~~£708 million).


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Capital losses – indefinite	Capital losses – indefinite	105	76	Capital losses – indefinite	98	105
Trading losses – indefinite	Trading losses – indefinite	23	30	Trading losses – indefinite	25	23
Trading and Capital losses – expiry dates up to 2030		50	70
Trading and capital losses – expiry dates up to 2032				Trading and capital losses – expiry dates up to 2032	46	50
		178	176		169	178

Additionally, no deferred tax ~~assets have not~~asset has been recognised in ~~relation to deductible~~respect of certain temporary differences arising from brand valuations, as ~~any benefit of this temporary difference would not be realised unless certain of~~ the ~~group's brands were sold, which~~group is not ~~currently expected.~~planning to sell those brands thus the benefit from the temporary differences is unlikely to be realised.

~~244~~241

Financial statements (continued)

(f) Unrecognised deferred tax liabilities

Relevant legislation largely exempts overseas dividends remitted from tax. A tax liability is more likely to arise in respect of withholding taxes levied by the overseas jurisdiction. Deferred tax is provided where there is an intention to distribute earnings, and a tax liability arises. It is impractical to estimate the amount of unrecognised deferred tax liabilities in respect of these unremitted earnings.

The aggregate amount of temporary differences in respect of investments in subsidiaries, branches, interests in associates and joint ventures for which deferred tax liabilities have not been recognised is approximately ~~£16.4~~£21.0 billion ~~(2020~~(2021 – ~~£14.7~~£16.4 billion).

~~245~~242

Financial statements (continued)

Operating assets and liabilities

Introduction

This section describes the assets used ~~to generate~~in the group’s ~~performance~~operations and the liabilities incurred. Liabilities relating to the group’s financing activities are included in section ‘Risk management and capital structure’ and balance sheet information in respect of associates, joint ventures and taxation are covered in section ‘Results for the year’. This section also provides detailed disclosures on the group’s recent acquisitions and disposals, performance and financial position of its defined benefit post employment plans.

8. Acquisition and sale of businesses and brands and purchase of non-controlling interests

Accounting policies

Business combinations are accounted for using the acquisition method. Identifiable assets, liabilities and contingent liabilities acquired are measured at fair value at acquisition date. The consideration payable is measured at fair value and includes the fair value of any contingent consideration. Among other factors, the group considers the nature of, and compensation for the selling shareholders' continuing employment to determine if any contingent payments are for post-combination employee services, which are excluded from consideration.

On the acquisition of a business, or of an interest in an associate or joint venture, fair values, reflecting conditions at the date of acquisition, are attributed to the net assets, including identifiable intangible assets and contingent liabilities acquired. Directly attributable acquisition costs in respect of subsidiary companies acquired are recognised in other external charges as incurred.

The non-controlling interests on the date of acquisition can be measured either at the fair value or at the non-controlling shareholder’s proportion of the net fair value of the identifiable assets assumed. This choice is made separately for each acquisition.

Where the group has issued a put option over shares held by a non-controlling interest, the group derecognises the non-controlling interests and instead recognises a contingent deferred consideration liability for the estimated amount likely to be paid to the non-controlling interest on the exercise of those options. Movements in the estimated liability in respect of put options are recognised in retained earnings.

Transactions with non-controlling interests are recorded directly in retained earnings.

For all entities in which the company, directly or indirectly, owns equity a judgement is made to determine whether ~~the investor~~it controls ~~the investee~~ and therefore should fully consolidate the investee. An assessment is carried out to determine whether the group has the exposure or rights to the variable returns of the investee and has the ability to affect those returns through its power over the investee. To establish control an analysis is carried out of the substantive and protective rights that the group and the other investors hold. This assessment is dependent on the activities and purpose of the investee and the rights of the other shareholders, such as which party controls the board, executive committee and material policies of the investee. Determining whether the rights that the group holds are substantive, requires management judgement.

Where less than 50% of the equity of an investee is held, and the group holds significantly more voting rights than any other vote holder or organised group of vote holders, this may be an indicator of de facto control. An assessment is needed to determine all the factors relevant to the relationship with the investee to ascertain whether control has been established and whether the investee should be consolidated as a subsidiary. Where voting power and returns from an investment are split equally between two entities then the arrangement is accounted for as a joint venture.

On an acquisition, fair values are attributed to the assets and liabilities acquired. This may involve material judgement to determine these values.

~~246~~243

Financial statements (continued)

(a) Acquisition of businesses

Fair value of net assets acquired and cash consideration paid in respect of the acquisition of subsidiaries in the three years ended 30 June ~~2021~~2022 were as follows:


		Net assets acquired and consideration						Net assets acquired and consideration
		Aviation Gin and Davos Brands £ million	Other £ million	2021 £ million	2020 £ million	2019 £ million		21Seeds £ million	Other £ million	2022 £ million	2021 £ million	2020 £ million
Brands and other intangibles	Brands and other intangibles	206	128	334	102	25	Brands and other intangibles	84	36	120	334	102
Property, plant and equipment	Property, plant and equipment	11	4	15	0	0	Property, plant and equipment	—	—	—	15	—
Inventories	Inventories	7	5	12	2	0	Inventories	4	2	6	12	2
Other working capital	Other working capital	0	(3)	(3)	(3)	(2)	Other working capital	—	3	3	(3)	(3)
Deferred tax	Deferred tax	0	(15)	(15)	(19)	(5)	Deferred tax	(20)	(11)	(31)	(15)	(19)
Borrowings	Borrowings	(6)	(2)	(8)	0	0	Borrowings	—	—	—	(8)	—
Cash	Cash	2	2	4	2	0	Cash	1	—	1	4	2
Fair value of assets and liabilities	Fair value of assets and liabilities	220	119	339	84	18	Fair value of assets and liabilities	69	30	99	339	84
Goodwill arising on acquisition	Goodwill arising on acquisition	228	46	274	8	10	Goodwill arising on acquisition	48	22	70	274	8

Settlement of pre-existing relationship							Settlement of pre-existing relationship	—	(1)	(1)	—	—
Step acquisitions	Step acquisitions	0	0	0	(23)	(7)	Step acquisitions	—	(6)	(6)	—	(23)
Consideration payable	Consideration payable	448	165	613	69	21	Consideration payable	117	45	162	613	69
Satisfied by:	Satisfied by:						Satisfied by:
Cash consideration paid	Cash consideration paid	(263)	(95)	(358)	(27)	(6)	Cash consideration paid	(62)	(26)	(88)	(358)	(27)
Contingent consideration payable	Contingent consideration payable	(185)	(68)	(253)	(42)	(15)	Contingent consideration payable	(55)	(15)	(70)	(253)	(42)
Deferred consideration payable	Deferred consideration payable	0	(2)	(2)	0	0	Deferred consideration payable	—	(4)	(4)	(2)	—
		(448)	(165)	(613)	(69)	(21)		(117)	(45)	(162)	(613)	(69)

Cash consideration paid in respect of the acquisition of ~~business~~businesses and purchase of shares of non-controlling interests in the three years ended 30 June ~~2021~~2022 were as follows:

Consideration
2021
£ million 2020
£ million 2019
£ million
Cash consideration paid for subsidiaries (358) (27) (6)
Deferred consideration paid for subsidiaries (1) 0 0
Cash consideration paid for Casamigos (89) (49) (9)
Cash consideration paid in respect of other prior year acquisitions (6) (9) (9)
Cash consideration paid for investments in associates 0 (6) (15)
Capital injection in associates (38) (41) (17)
Cash acquired 4 2 0
Net cash outflow on acquisition of businesses (488) (130) (56)
Purchase of shares of non-controlling interests (42) (62) (784)
Total net cash outflow (530) (192) (840)


	Consideration
	2022 £ million	2021 £ million	2020 £ million
Acquisitions in the year - subsidiaries
Cash consideration paid	(88)	(358)	(27)

Prior year acquisitions - subsidiaries
Contingent consideration paid for Casamigos	(83)	(89)	(49)
Other consideration	(36)	(7)	(9)
Investments in associates
Cash consideration paid	(4)	—	(6)
Capital injection	(61)	(38)	(41)
Cash acquired	1	4	2
Net cash outflow on acquisition of businesses	(271)	(488)	(130)
Purchase of shares of non-controlling interests	—	(42)	(62)
Total net cash outflow	(271)	(530)	(192)

244

Financial statements (continued)

Acquisitions in the year

On 31 March 2022, Diageo acquired 100% equity interest in 21Seeds, to support Diageo's participation in the super premium flavoured tequila segment, for a total consideration of £62 million upfront in cash and a contingent consideration of up to £61 million linked to performance targets. The goodwill arising on the acquisition of 21Seeds represents expected revenue synergies and acquired workforce. The fair values of assets and liabilities acquired are provisional and will be finalised in the year ending 30 June 2023.

Diageo completed further acquisitions in the year ended 30 June 2022, including (i) on 27 January 2022, the acquisition of Casa UM, to expand Reserve portfolio with premium artisanal mezcal brand, Mezcal Unión and (ii) on 29 June 2022, the acquisition of Vivanda, owner of the technology behind 'What's your Whisky' platform and the Journey of Flavour experience at Johnnie Walker Princes Street, to support Diageo's ambition to provide customised brand experiences across all channels. The aggregate upfront cash consideration paid on completion of these transactions in the year ended 30 June 2022 was £26 million. In addition, these transactions included provision for further contingent consideration of up to £18 million in aggregate, linked to performance targets and a further deferred consideration of £4 million.

Prior year acquisitions

On 30 September 2020, Diageo completed the acquisition of Aviation Gin LLC (Aviation Gin) and Davos Brands LLC (Davos Brands) to support Diageo's participation in the ~~super premium~~super-premium gin segment for a total consideration of $337 million (£263 million) upfront in cash and contingent consideration of up to $275 million (£214 million) linked to performance targets.

It is expected that the goodwill and brand will be deductible for tax purposes. The goodwill arising on the acquisition of Aviation Gin and Davos Brands represents expected revenue and cost synergies and acquired workforce. Aviation Gin and Davos Brands contributed $33 million (£26 million) to sales and $15 million (£11 million) loss to the period, out of which $9 million (£7 million) is related to acquisition transaction costs in the year ended 30 June 2021.

Diageo also completed a number of additional acquisitions in the year ended 30 June 2021, comprising: (i) on 26 February 2021, the acquisition of Chase Distillery Limited, to further support ~~Diageo’s~~Diageo's participation in the premium-plus gin segment in the United Kingdom; (ii) on 8 March 2021, the acquisition of Far West Spirits LLC, owner of the Lone River Ranch Water brand, to improve Diageo's participation in the ready to drink category in the United States; and (iii) on 14 April 2021, the acquisition of Sons of Liberty Spirits Company, to expand Diageo's spirits-based ready to drink portfolio with Loyal 9 Cocktails. The aggregate ~~up-front~~upfront cash consideration paid on completion of these ~~three~~3 transactions in the year ended 30 June 2021 was £95 million. In addition, ~~two~~2 of these transactions ~~include~~included provision for further contingent consideration of up to £86 million in aggregate, in each case linked to

~~247~~

~~Financial statements (continued)~~

performance targets, and one of the transactions ~~provides~~provided for a further £2 million of deferred consideration, of which £1 million ~~has been~~was paid by 30 June 2021.

~~Prior~~During the year ended 30 June 2020, Diageo completed a number of acquisitions, the largest of these were Seedlip Ltd and Anna Seed 83 Ltd, the brand owners of Seedlip and Æcorn distilled non-alcoholic spirits and aperitifs, both of which completed on 6 August 2019.

During the prior years Diageo completed a number of smaller acquisitions of brands, distribution rights and equity interests in various drinks businesses and made contingent consideration payments in respect of prior year acquisitions.

Purchase of shares of non-controlling interests

~~On 21 October~~In the years ended 30 June 2021 and 2020, ~~and on 6 November 2020, EABL~~East African Breweries Ltd, a Diageo subsidiary completed the acquisition of ~~13.3%~~30% and ~~16.7%~~4%, respectively, of shares in Serengeti Breweries Limited for a ~~total~~ consideration of ~~$55~~$55 million (£ (£42 million) and $3 million (£2 million) in cash, respectively and £16 million in the form of shareholder ~~loans outstanding to EABL and~~loan from two Diageo ~~Holdings Netherlands B.V. at the date of completion,~~subsidiaries in 2021, increasing Diageo's effective economic interest from ~~40.2%~~39.2% to 47.0%. ~~Both~~All transactions ~~are~~were recognised ~~within~~in retained earnings.

On 29 July 2019, East African Breweries Limited completed the purchase of 4% of the share capital of Serengeti Breweries Limited for $3 million (£2 million). This increased Diageo’s effective economic interest from 39.2% to 40.2%.

In August 2019 and February 2020, in two separate purchases, Diageo acquired shares in United Spirits Limited (USL) for INR 5,495 million (£60 million), which increased Diageo’s percentage of shares owned in USL from 54.78% to 55.94% (excluding 2.38% owned by the USL Benefit Trust).

On 17 August 2018 and 9 April 2019, Diageo completed the purchase of 20.29% and 3.14% of the share capital of Sichuan Shuijingfang Company Limited (SJF) for an aggregate consideration of RMB 6,774 million (£775 million) and transaction costs of £9 million. This took Diageo’s shareholding in SJF from 39.71% to 63.14%. SJF was already controlled and therefore consolidated prior to these transactions.

245

Financial statements (continued)

(b) Sale of businesses and brands

Cash consideration received and net assets disposed of in respect of sale of businesses and brands in the three years ended 30 June 2022 were as follows:


	2022 £ million	2021 £ million	2020 £ million
Sale consideration
Cash received	106	14	11
Overdraft disposed of	2	—	—
Transaction and other directly attributable costs paid	(26)	—	—
Net cash received	82	14	11
Transaction costs payable	(16)	1	(1)
	66	15	10
Net assets disposed of

Goodwill	(14)	—	—
Property, plant and equipment	(11)	(2)	(1)
Investment in associates	—	—	(1)
Assets and liabilities held for sale	—	—	(30)
Inventories	(4)	—	—
Other working capital	15	1	—
Other borrowings	1	—	—
Corporate tax	(5)	—	—
Deferred tax	(2)	—	—
	(20)	(1)	(32)
Impairment charge recognised up until the date of sale	—	—	(7)
Exchange recycled from other comprehensive income	(63)	—	(4)
(Loss)/gain on disposal before taxation	(17)	14	(33)
Taxation	(23)	—	—
(Loss)/gain on disposal after taxation	(40)	14	(33)

On 25 April 2022, Diageo sold its Ethiopian subsidiary, Meta Abo Brewery Share Company. A loss of £95 million was recognised as a non-operating item attributable to the sale, including cumulative translation losses in the amount of £63 million recycled to the income statement.

On 10 May 2022, Diageo completed the sale of the Picon brand for an upfront consideration of €117 million (£100 million). The gain of £91 million, net of disposal cost, was recognised as a non-operating item in the income statement.

In the year ended 30 June ~~2021, ZAR 209~~2022, ZAR133 million (£106 million) (2021 – £10 million) of deferred consideration was paid to Diageo in respect of the sale of United National Breweries. The disposal was completed on 1 April 2020 for an aggregate consideration of ZAR 600 million (£27 million) from which ZAR 378 million (£17 million) was deferred.

~~Certain~~Prior year disposals further included the sale of certain United Spirits Limited subsidiaries ~~were sold~~ in the year ended 30 June 2021 for an aggregate consideration of £3 million, which ~~has~~ resulted in an exceptional gain of £3 million.

246

Financial statements (continued)


	Windsor business £ million	USL Popular brands £ million	2022 £ million
Intangible assets	145	20	165
Property, plant and equipment	3	9	12
Other investments	1	—	1
Inventories	6	15	21
Trade and other receivables	1	22	23


Assets held for sale	156	66	222
Trade and other payables	(5)	(13)	(18)
Corporation tax	(6)	—	(6)
Deferred tax	(28)	(7)	(35)
Leases	(2)	—	(2)
Liabilities held for sale	(41)	(20)	(61)
Total	115	46	161

Diageo signed a share purchase agreement on 25 March 2022 with Bayside/Metis Private Equity Consortium to dispose of the Windsor business in Korea. The sale is considered to be highly probable and it is anticipated to complete in the year ~~ended~~ending 30 June ~~2019, Diageo completed~~2023.

Following the strategic review of its selected Popular brands, on 27 May 2022, United Spirits Limited reached agreement with Inbrew Beverages Pvt Limited for the sale of 32 brands, including Old Tavern and White Mischief. The sale covers the related contracts, permits, intellectual property rights, associated employees, working capital and a ~~portfolio~~manufacturing facility. The transaction is highly probable to be completed in the year ending 30 June 2023.

It is unlikely that any significant change would take place to the plan to sell these asset groups, hence the impacted assets and liabilities were classified as held for sale at 30 June 2022. Assets and liabilities were measured at their cost as the lower of ~~19 brands to Sazerac for an aggregate consideration~~cost and fair value less cost of $550 million (£435 million). Diageo continued to provide manufacturing services for all disposed brands until December 2019 with some extended up to June 2020 and for five brands will continue up to December 2028.disposal.

~~248~~247

Financial statements (continued)

9. Intangible assets

Accounting policies

Acquired intangible assets are held on the consolidated balance sheet at cost less accumulated amortisation and impairment losses. Acquired brands and other intangible assets are initially recognised at fair value ~~when~~if they are controlled through contractual or other legal rights, or are separable from the rest of the business, and the fair value can be reliably measured. Where these assets are regarded as having indefinite useful economic lives, they are not amortised.

Goodwill represents the excess of the aggregate of the consideration transferred, the value of any non-controlling interests and the fair value of any previously held equity interest in the subsidiary acquired over the fair value of the identifiable net ~~assets acquired.~~assets. Goodwill arising on acquisitions prior to 1 July 1998 was eliminated against reserves, and this goodwill has not been reinstated. Goodwill arising subsequent to 1 July 1998 has been capitalised.

Amortisation and impairment of intangible assets is based on their useful economic lives and are amortised on a straight-line basis ~~over those lives~~ and reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. Goodwill and intangible assets that are regarded as having indefinite useful economic lives are not amortised and are reviewed for impairment at least annually or when there is an indication that the assets may be impaired. Impairment reviews compare the net carrying value with the recoverable amount (where recoverable amount is the higher of fair value less costs of disposal and value in use). Amortisation and any impairment write downs are charged to other operating expenses in the income statement.

Computer software is amortised on a straight-line basis to estimated residual value over its expected useful life. Residual values and useful lives are reviewed each year. Subject to these reviews, the estimated useful lives are up to eight years.

Critical accounting estimates and judgements

Assessment of the recoverable amount of an intangible asset and the useful economic life of an asset are based on management's estimates.

Impairment reviews are carried out to ensure that intangible assets, including brands, are not carried at above their recoverable amounts. Value in use and fair value less costs of disposal ~~were~~are both considered for these reviews and any impairment charge ~~was~~is based on these. The tests are dependent on management’s estimates in respect of the forecasting of future cash flows, the discount rates applicable to the future cash flows and what expected growth rates are reasonable. Judgement is required in determining the cash-generating units. Such estimates and judgements are subject to change as a result of changing economic conditions and actual cash flows may differ from forecasts.

~~Additional estimates~~The below additional considerations have been applied by management regarding the potential financial ~~impact~~impacts of ~~the Covid-19 pandemic across markets. In this regard a combination of the following factors was considered in every impairment model:~~increasing inflationary pressures, recently observable worldwide:

–changes in the ~~future development of~~interest rate environment are taken into consideration when determining the ~~virus, including the duration, scale and geographic extent of the closures;~~discount rates;

–terminal growth rates do not exceed the ~~expected scale and duration~~long-term annual inflation rate of the ~~economic recovery;~~country or region, thus excluding any increased inflation growth experienced in the short-term;

–additional sensitivity scenarios are applied for those markets or regions where the ~~size of~~inflation and/or the ~~on-trade channel in the market;~~

–~~the life cycle phase of the brand and the maturity of the market.~~exchange devaluation is considered significant based on management’s judgement.

Consideration of climate risk impact

The impact of climate risk on the future cash flows has also been considered for scenarios analysed in line with the climate change risk assessment. The climate change scenario analyses -performed in 2022 – conducted in line with TCFD recommendations ~~- undertaken this year did not identify any~~(‘Transition Scenario’ (RCP 2.6), a ‘Moderate Warming’ Scenario (RCP 4.5) and a ‘Severe Warming Scenario (RCP 8.5)) – identified no material financial ~~impact.~~impact to the current year impairment assessments.

248

Financial statements (continued)


	Brands £ million	Goodwill £ million	Other intangibles £ million	Computer software £ million	Total £ million
Cost
At 30 June 2020	8,923	2,664	1,587	698	13,872
Exchange differences	(799)	(311)	(174)	(30)	(1,314)
Additions	334	274	8	32	648
Disposals	—	—	—	(27)	(27)

At 30 June 2021	8,458	2,627	1,421	673	13,179
Hyperinflation adjustment in respect of Turkey	315	208	—	1	524
Exchange differences	639	145	194	28	1,006
Additions	109	70	55	67	301
Disposals	(23)	(42)	—	(23)	(88)
Reclassification to asset held for sale	(560)	—	—	(8)	(568)
At 30 June 2022	8,938	3,008	1,670	738	14,354
Amortisation and impairment
At 30 June 2020	1,168	752	78	574	2,572
Exchange differences	(71)	(82)	(3)	(26)	(182)
Amortisation for the year	—	—	5	44	49

Disposals	—	—	—	(24)	(24)
At 30 June 2021	1,097	670	80	568	2,415
Exchange differences	51	60	(1)	25	135
Amortisation for the year	—	—	7	38	45
Impairment	317	19	—	—	336
Disposals	(23)	(28)	—	(20)	(71)
Reclassification to asset held for sale	(400)	—	—	(8)	(408)
At 30 June 2022	1,042	721	86	603	2,452
Carrying amount
At 30 June 2022	7,896	2,287	1,584	135	11,902
At 30 June 2021	7,361	1,957	1,341	105	10,764
At 30 June 2020	7,755	1,912	1,509	124	11,300

249

Financial statements (continued)

Brands
£ million Goodwill
£ million Other
intangibles
£ million Computer
software
£ million Total
£ million
Cost
At 30 June 2019 8,895 2,795 1,540 653 13,883
Exchange differences (74) (139) 44 0 (169)
Additions 102 8 3 52 165
Disposals 0 0 0 (7) (7)
At 30 June 2020 8,923 2,664 1,587 698 13,872
Exchange differences (799) (311) (174) (30) (1,314)
Additions 334 274 8 32 648
Disposals 0 0 0 (27) (27)
At 30 June 2021 8,458 2,627 1,421 673 13,179
Amortisation and impairment
At 30 June 2019 621 113 78 514 1,326
Exchange differences (17) (16) (1) 2 (32)
Amortisation for the year — — 1 62 63
Impairment 564 655 0 0 1,219
Disposals 0 0 0 (4) (4)
At 30 June 2020 1,168 752 78 574 2,572
Exchange differences (71) (82) (3) (26) (182)
Amortisation for the year — — 5 44 49
Disposals 0 0 0 (24) (24)
At 30 June 2021 1,097 670 80 568 2,415
Carrying amount
At 30 June 2021 7,361 1,957 1,341 105 10,764
At 30 June 2020 7,755 1,912 1,509 124 11,300
At 30 June 2019 8,274 2,682 1,462 139 12,557

(a) Brands

At 30 June ~~2021,~~2022, the principal acquired brands, all of which are regarded as having indefinite useful economic lives, are as follows:


		Principal markets	2021 £ million	2020 £ million		Principal markets	2022 £ million	2021 £ million
Crown Royal whisky	Crown Royal whisky	United States	1,053	1,190	Crown Royal whisky	United States	1,210	1,053
Captain Morgan rum					Captain Morgan rum	Global	993	864
McDowell's No.1 whisky, rum and brandy	McDowell's No.1 whisky, rum and brandy	India	944	1,050	McDowell's No.1 whisky, rum and brandy	India	778	944
Captain Morgan rum		Global	864	977
Smirnoff vodka					Smirnoff vodka	Global	681	593
Johnnie Walker whisky	Johnnie Walker whisky	Global	625	625	Johnnie Walker whisky	Global	625	625
Smirnoff vodka		Global	593	670
Casamigos tequila	Casamigos tequila	United States	434	491	Casamigos tequila	United States	499	434
Yenì raki					Yenì raki	Turkey	294	141
Shui Jing Fang Chinese white spirit	Shui Jing Fang Chinese white spirit	Greater China	253	260	Shui Jing Fang Chinese white spirit	Greater China	279	253
Aviation American gin	Aviation American gin	United States	190	0	Aviation American gin	United States	218	190
Don Julio tequila	Don Julio tequila	United States	185	179	Don Julio tequila	United States	207	185
Bell's whisky		Europe	179	179
Signature whisky	Signature whisky	India	177	197	Signature whisky	India	191	177
Seagram's 7 Crown whiskey	Seagram's 7 Crown whiskey	United States	160	181	Seagram's 7 Crown whiskey	United States	184	160
Black Dog whisky	Black Dog whisky	India	150	167	Black Dog whisky	India	162	150
Antiquity whisky	Antiquity whisky	India	147	163	Antiquity whisky	India	158	147
Windsor Premier whisky		Korea	145	154
Yenì Raki		Turkey	141	202
Zacapa rum	Zacapa rum	Global	138	156	Zacapa rum	Global	158	138
Gordon's gin	Gordon's gin	Europe	119	119	Gordon's gin	Europe	119	119
Bell's whisky					Bell's whisky	Europe	102	179
Windsor Premier whisky					Windsor Premier whisky	Korea	—	145

Other brands	Other brands		864	795	Other brands		1,038	864
			7,361	7,755			7,896	7,361

~~250~~

~~Financial statements (continued)~~

The brands are protected by trademarks which are renewable indefinitely in all of the major markets where they are sold. There are not believed to be any legal, regulatory or contractual provisions that limit the useful lives of these brands. The nature of the premium drinks industry is that obsolescence is not a common issue, with indefinite brand lives being commonplace, and Diageo has a number of brands that were originally created more than 100 years ago. Accordingly, the Directors believe that it is appropriate that the brands are treated as having indefinite lives for accounting purposes and are therefore not amortised.

(b) Goodwill

For the purposes of impairment testing, goodwill has been attributed to the following cash-generating units:

2021
£ million
2020
£ million
North America 609 416
Europe and Turkey(i)
Turkey 143 205
Latin America and Caribbean – Mexico 126 123
Asia Pacific
Greater China 128 132
India 693 770
Other cash-generating units 258 266
1,957 1,912

(i) From 1 July 2020, the former Europe cash-generating unit has been structured as five individual cash-generating units: Great Britain, Ireland, Northern Europe, Eastern Europe and Southern Europe, included in other cash-generating units.


	2022 £ million	2021 £ million
North America	773	609
Europe

Turkey	255	143
Asia Pacific
Greater China	141	128
India	747	693
Latin America and Caribbean – Mexico	142	126



Other cash-generating units	229	258
	2,287	1,957

Goodwill has arisen on the acquisition of businesses and includes synergies arising from cost savings, the opportunity to utilise Diageo’s distribution network to leverage marketing of the acquired products and the extension of the group’s portfolio of brands in new markets around the world.

Other intangibles principally comprise distribution rights. Diageo owns the global distribution rights for Ketel One vodka products in perpetuity, and the Directors believe that it is appropriate to treat these rights as having an indefinite life for accounting purposes. The carrying value at 30 June ~~2021~~2022 was ~~£1,295~~£1,488 million ~~(2020~~(2021 – ~~£1,464~~£1,295 million).

250

Financial statements (continued)

(d) Impairment testing

Impairment tests are performed annually, or more frequently if events or circumstances indicate that the carrying amount may not be recoverable. Recoverable amounts are calculated based on the value in use approach, also considering fair value less costs of disposal. The value in use calculations are based on discounted forecast cash flows using the assumption that cash flows continue in perpetuity at the terminal growth rate of each country or region. The individual brands, other intangibles with indefinite useful lives and ~~their~~the associated ~~tangible fixed assets~~property, plant and equipment are aggregated as separate cash-generating units. Separate tests are carried out for each cash-generating unit and for each of the markets. Goodwill is attributed to each of the markets.

The key assumptions used for the value in use calculations are as follows:

Cash flows

Cash flows are ~~forecast~~forecasted for each cash-generating unit for the financial ~~year, which is~~years based on management's approved ~~by management~~plans and reflect the following assumptions:

–Cash flows are projected based on the actual operating results and a three-year strategic plan approved by ~~the~~ management. Cash flows are extrapolated up to five years using expected growth rates in line with management’s best estimates. Growth rates reflect expectations of sales growth, operating costs and margin, based on past experience and external sources of information. Where applicable, multiple cash flow scenarios were populated to predict the potential outcome, considering the increased risk of volatility with respect to the environment ~~after the Covid-19 pandemic~~ in ~~the different~~certain markets. A simple average of these projections served as the estimation of the recoverable amount of the cash-generating units including the ~~goodwill of USL, Indian brands and the Windsor Premier~~Bell's brand. Management has no information which would indicate that any of the scenarios are more likely than ~~the~~ others;

–The five-year forecast period is extended by up to an additional ten years at acquisition date for some intangible assets and goodwill when management believes that this period is justified by the maturity of the market and expects to achieve growth in excess of the terminal growth rate driven by Diageo’s sales, marketing and distribution ~~expertise;~~

–~~Cash~~expertise. These cash flows beyond the five-year period are projected using steady or progressively declining growth rates. The main exception is India and the USL brands, where the forecast period is extended by an additional ~~three~~two years of detailed forecasts;

~~251~~

~~Financial statements (continued)~~

–Cash flows for the subsequent years after the forecast period are extrapolated based on a terminal growth rate which does not exceed the long-term annual inflation rate of the country or region.

Discount rates

The discount rates used are the weighted average cost of capital which ~~reflects~~reflect the returns on government bonds and an equity risk premium adjusted for the drinks industry specific to the cash-generating units. ~~Further risk premiums can be applied according to management’s assessment of the risks in respect of the cash flows for a particular asset or cash-generating unit.~~ The group applies post-tax discount rates to post-tax cash flows as the valuation calculated using this method closely approximates to applying pre-tax discount rates to pre-tax cash flows.

For goodwill, these assumptions are based on the cash-generating unit or group of units to which the goodwill is attributed. For brands, they are based on a weighted average taking into account the country or countries where sales are made.

The pre-tax discount rates, terminal and long-term growth rates used for impairment testing are as follows:


		2021			2020				2022			2021
		Pre-tax discount rate %	Terminal growth rate %	Long-term growth rate %	Pre-tax discount rate %	Terminal growth rate %	Long-term growth rate %		Pre-tax discount rate %	Terminal growth rate %	Long-term growth rate %	Pre-tax discount rate %	Terminal growth rate %	Long-term growth rate %
North America – United States	North America – United States	7	2	4	8	2	4	North America – United States	8	2	4	7	2	4
Europe and Turkey
Europe								Europe
United Kingdom	United Kingdom	6	2	4	5	2	4	United Kingdom	8	2	4	6	2	4
Spain		5	2	4	8	2	3

Turkey	Turkey	22	11	16	22	11	15	Turkey	31	15	25	22	11	16
Russia		12	4	6	12	3	6

Asia Pacific								Asia Pacific
Australia								Australia	7	2	5	6	2	5
India								India	14	4	11	12	4	11

Africa	Africa							Africa

South Africa	South Africa	13	0	6	18	0	7	South Africa	16	—	6	13	—	6
Nigeria	Nigeria	19	10	14	21	11	14	Nigeria	24	12	15	19	10	14
Africa Emerging Markets		22	4	10	26	5	11

Latin America and Caribbean	Latin America and Caribbean							Latin America and Caribbean
Brazil	Brazil	11	3	6	15	3	6	Brazil	12	3	6	11	3	6
Mexico		17	3	6	16	3	5
Asia Pacific
Korea		10	(4)	0	10	(4)	0

India		12	4	11	12	4	12
Global Travel		7	2	5	8	2	5

InFollowing the announcement by USL of the sale and franchise agreements for selected Popular brands on 27 May 2022, the cash-generating unit structure of the USL brands has been revised, in order to reflect the strategic changes in the management and operation of USL's portfolio of the remaining brands. As a result, the former Popular brands category has been abandoned and the impairment reviews have been performed on an individual brand basis for the year ended 30 June ~~2020,~~2022.

251

Financial statements (continued)

Value in use calculation and fair value less costs of disposal methodologies were both considered to assess the recoverable amount of the McDowell's No.1 cash-generating unit. The value in use that was calculated exceeded the fair value less costs of disposal. As a result of the impairment review, an impairment charge of ~~£655~~£240 million ~~in respect of~~for the ~~India cash-generating unit containing the India goodwill, £78 million in respect of the Old Tavern brand and £38 million in respect of the Bagpiper brand in India were~~year ended 30 June 2022 was recognised in exceptional operating items ~~based~~in respect of the McDowell's No.1 brand. The charge was a result of higher discount rate reflecting the adverse inflationary and macroeconomic environment and of a reduction in forecast cash flow assumptions of McDowell’s No.1 Popular segment, which is reflective of USL’s stated position on ~~their value~~participation in ~~use.~~the popular segment and aligned with the recently announced sale and franchising of the majority of the portfolio of Popular brands. The brand impairment reduced the deferred tax liability by ~~£25~~£35 million. The recoverable amount of the McDowell's No.1 cash generating unit is £892 million.

~~Further,~~Value in use calculation and fair value less costs of disposal methodologies were both considered to assess the recoverable amount of the Bell's cash-generating unit. The value in use that was calculated exceeded the fair value less costs of disposal. As a result of the impairment review, an impairment charge of £77 million for the year ended 30 June ~~2020, an impairment charge of £434 million in respect of the Windsor Premier brand~~2022 was recognised in exceptional operating items ~~based on its value~~ in ~~use.~~respect of the Bell's brand. Forecast cash flow assumptions were reduced principally due to the wind down of the Russian operations, as well as the increase in discount rates due to the inflationary and higher macroeconomic risk environment in the world. The brand impairment reduced the deferred tax liability by £20 million. The recoverable amount of the Bell's cash-generating unit is £145 million.

In March 2022, a decision was taken to suspend exporting to and selling in Russia and on 28 June 2022, Diageo decided that it would wind down its operations in Russia over the following six months. As a result, an impairment charge of £19 million for the year ended 30 June 2022 in respect of the Smirnov goodwill was recognised in exceptional operating items.

The Turkish economy became hyperinflationary for the year ended 30 June 2022, resulting in the recognition of hyperinflation adjustments on the Turkey cash-generating unit for the opening balances at 1 July 2021 and for the year-end balances at 30 June 2022. During the impairment review of the Turkey cash-generating unit, including goodwill and the Yenì Raki brand, value in use calculation and fair value less costs of disposal methodologies were both considered to assess the recoverable amount. The value in use that was calculated exceeded the fair value less costs of disposal. As a result of the impairment reviews, an impairment charge of TRY 3,760 million (£312 million) on the opening carrying amount of the Turkey cash-generating unit was recognised in retained earnings. From this impairment charge, TRY 1,627 million (£135 million) was directly attributable to the Yenì Raki brand and the remaining TRY 2,133 million (£177 million) impairment charge was recognised on the Turkey goodwill. The hyperinflation adjustment reduced by ~~£105 million resulting in~~the opening impairment charge has been reflected as a net ~~exceptional loss~~amount within the movement table of ~~£329 million.~~intangible assets in note 9.

~~252~~

~~Financial statements (continued)~~

(e) Sensitivity to change in key assumptions

Impairment testing for the year ended 30 June ~~2021~~2022 has identified the following cash-generating units as being sensitive to reasonably possible changes in assumptions.

The table below shows the headroom at 30 June ~~2021~~2022 and the impairment charge that would be required if the assumptions in the calculation of their value in use were changed:

Carrying value of CGU
£ million Headroom
£ million
1ppt increase in discount rate
£ million
2ppt decrease in annual growth rate in forecast period 2022-2029
£ million
Category growth scenario
£ million
India(i)
2,997 170 (116) (114) n/a
Antiquity brand(i)
148 0 (20) (17) n/a
USL Popular brands(i)
448 23 (28) (35) n/a
Windsor Premier brand(ii)
152 45 0 n/a (13)

Increase in discount rate

Decrease in terminal growth rate

Decrease in annual growth rate in forecast period 2023-2029

Decrease in cash flows

Decrease in future volume forecast

Further devaluation of local currency

Carrying value of CGU
£ million

Headroom
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

McDowell's No.1

892

—

1ppt

(92)

n/a

2ppt

(121)

n/a

Bell's

145

—

3ppt

(27)

1ppt

(9)

n/a

(15)

n/a

Yenì Raki

346

7ppt

(95)

n/a

(20)

n/a

Turkey

688

7ppt

(249)

1ppt

(13)

n/a

(88)

(124)

(69)

(i) Reasonably possible changes in key assumptions that would result in an impairment of the India cash-generating unit, Antiquity and USL Popular brands would be a 1ppt increase in discount rate or a 2ppt decrease in the annual growth rate in the forecast period of 2022-2029.

(ii) The Windsor Premier brand is disclosed as sensitive due to challenging market conditions. The only change in key assumptions considered reasonably possible that would result in an impairment of the brand would be a scenario where volume growth rates are forecasted assuming permanent damage of local whisky category with no recovery to F19 levels based on latest outlook of IWSR reports, and the fact that the majority of sales are on-trade.

10. Property, plant and equipment

Accounting policies

Land and buildings are stated at cost less accumulated depreciation. Freehold land is not depreciated. Leaseholds are generally depreciated over the unexpired period of the lease. Other property, plant and equipment are depreciated on a straight-line basis to estimated residual values over their expected useful lives, and these values and lives are reviewed each year. Subject to these reviews, the estimated useful lives fall within the following ranges: buildings – 10 to 50 years; within plant and equipment casks and containers – 15 to 50 years; other plant and equipment – 5 to 2540 years; fixtures and fittings – 5 to 10 years; and returnable bottles and crates – 5 to 10 years.

Reviews are carried out if there is an indication that assets may be impaired, to ensure that property, plant and equipment are not carried at above their recoverable amounts.

252

Financial statements (continued)

Government grants

Government grants are not recognised until there is reasonable assurance that the group will comply with the conditions pursuant to which they have been granted and that the grants will be received. Government grants in respect of property, plant and equipment are deducted from the asset that they relate to, reducing the depreciation expense charged to the income statement.

~~253~~

~~Financial statements (continued)~~

Land and
buildings
£ million Plant and
equipment
£ million Fixtures
and
fittings
£ million Returnable
bottles and
crates
£ million Under
construction
£ million Total
£ million
Cost
At 30 June 2019 1,712 4,515 125 566 494 7,412
Recognition of right-of-use asset on adoption of IFRS 16 173 63 0 0 0 236
Adjusted balance at 1 July 2019 1,885 4,578 125 566 494 7,648
Exchange differences (10) (22) 0 (1) (9) (42)
Additions 202 156 13 34 439 844
Disposals (46) (86) (20) (37) (1) (190)
Transfers 110 242 9 13 (374) 0
At 30 June 2020 2,141 4,868 127 575 549 8,260
Exchange differences (137) (322) (10) (55) (34) (558)
Acquisitions 9 2 0 0 4 15
Sale of businesses (1) (3) 0 0 0 (4)
Additions 95 149 9 27 367 647
Disposals (24) (126) (7) (21) 0 (178)
Transfers 77 146 2 2 (227) 0
At 30 June 2021 2,160 4,714 121 528 659 8,182
Depreciation
At 30 June 2019 511 1,965 91 390 0 2,957
Exchange differences 0 (5) (1) (2) 0 (8)
Depreciation charge for the year 106 260 15 36 0 417
Exceptional impairment 20 114 0 6 0 140
Disposals (40) (78) (19) (35) 0 (172)
At 30 June 2020 597 2,256 86 395 0 3,334
Exchange differences (31) (167) (8) (39) 0 (245)
Depreciation charge for the year 110 244 15 29 0 398
Sale of businesses 0 (2) 0 0 0 (2)
Disposals (18) (113) (7) (14) 0 (152)
At 30 June 2021 658 2,218 86 371 0 3,333
Carrying amount
At 30 June 2021 1,502 2,496 35 157 659 4,849
At 30 June 2020 1,544 2,612 41 180 549 4,926
At 30 June 2019 1,201 2,550 34 176 494 4,455


	Land and buildings £ million	Plant and equipment £ million	Fixtures and fittings £ million	Returnable bottles and crates £ million	Under construction £ million	Total £ million
Cost
At 30 June 2020	2,141	4,868	127	575	549	8,260


Exchange differences	(137)	(322)	(10)	(55)	(34)	(558)
Acquisitions	9	2	—	—	4	15
Sale of businesses	(1)	(3)	—	—	—	(4)
Additions	95	149	9	27	367	647
Disposals	(24)	(126)	(7)	(21)	—	(178)
Transfers	77	146	2	2	(227)	—
At 30 June 2021	2,160	4,714	121	528	659	8,182


Hyperinflation adjustment in respect of Turkey	56	32	2	—	7	97
Exchange differences	107	226	1	11	45	390

Sale of businesses	(4)	(58)	(3)	(19)	(1)	(85)
Additions	230	245	8	41	612	1,136
Disposals	(65)	(122)	(15)	(32)	(3)	(237)
Transfers	177	249	10	13	(449)	—
Reclassification to assets held for sale	(8)	(25)	—	—	—	(33)
At 30 June 2022	2,653	5,261	124	542	870	9,450
Depreciation
30 June 2020	597	2,256	86	395	—	3,334
Exchange differences	(31)	(167)	(8)	(39)	—	(245)
Depreciation charge for the year	110	244	15	29	—	398

Sale of businesses	—	(2)	—	—	—	(2)
Disposals	(18)	(113)	(7)	(14)	—	(152)

At 30 June 2021	658	2,218	86	371	—	3,333
Exchange differences	31	94	1	9	—	135
Depreciation charge for the year	127	277	14	29	—	447


Sale of businesses	(4)	(50)	(2)	(18)	—	(74)
Disposals	(62)	(113)	(13)	(30)	—	(218)
Transfers	5	4	(9)	—	—	—
Reclassification to assets held for sale	(5)	(16)	—	—	—	(21)
At 30 June 2022	750	2,414	77	361	—	3,602
Carrying amount
At 30 June 2022	1,903	2,847	47	181	870	5,848
At 30 June 2021	1,502	2,496	35	157	659	4,849
At 30 June 2020	1,544	2,612	41	180	549	4,926

(a) The net book value of land and buildings comprises freeholds of ~~£1,218~~£1,444 million ~~(2020~~(2021 – £1,218 million), long leaseholds of £3 million ~~(2020~~(2021 – £6£3 million) and short leaseholds of ~~£281~~£410 million ~~(2020~~(2021 – ~~£320~~£281 million). Depreciation was not charged on ~~£180~~£114 million ~~(2020~~(2021 – ~~£161~~£180 million) of land.

(b) Property, plant and equipment is net of a government grant of ~~£133~~£153 million ~~(2020~~(2021 – ~~£150~~£133 million) received in prior years in respect of the construction of a rum distillery in the US Virgin Islands.

(c) In the year ended 30 June 2020, an impairment charge of £84 million in respect of the Nigeria tangible fixed asset has been recognised in exceptional operating items. The impairment reduced the deferred tax liability by £25 million resulting in a net exceptional loss of £59 million.

(d) In the year ended 30 June 2020, an impairment charge of £55 million in respect of the Ethiopia tangible fixed asset has been recognised in exceptional operating items. The impairment reduced the deferred tax liability by £10 million resulting in a net exceptional loss of £45 million.

~~254~~253

Financial statements (continued)

11. Biological assets

Accounting policies

Biological assets held by the group consist of agave (Agave Azul Tequilana Weber) plants. The harvested plants are used during the production of tequila.

Biological assets are measured at fair value less costs to sell on initial recognition and at the end of each reporting period based on the present value of future cash flows discounted at an appropriate rate for Mexico.

Agricultural produce is measured at fair value less costs to sell at the point of harvest which is used as the cost of inventory when the harvested agave is transferred.

Changes in biological assets were as follows:


			Biological assets £ million
Fair value
At 30 June 2020			51
Exchange differences			2
Transferred to inventories			(7)
Farming cost capitalised			20
At 30 June 2021			66
Exchange differences			10
Transferred to inventories			(11)
Fair value change			(5)
Farming cost capitalised			34
At 30 June 2022			94

At 30 June 2022, the number of agave plants were approximately 33 million (2021 – 20 million), ranging from new plantations up to eight year old plants.

12. Leases

Accounting policies

Where the group is the lessee, all leases are recognised on the balance sheet as right-of-use assets and depreciated on a straight-line basis with the charge recognised in cost of ~~sales.~~sales or in other operating items depending on the nature of the costs. The liability, recognised as part of net borrowings, is measured at a discounted value and any interest is charged to finance charges.
The group recognises services associated with a lease as other operating expenses. Payments associated with leases where the value of the asset when it is new is lower than $5,000 (leases of low value assets) and leases with a lease term of twelve months or less (short term leases) are recognised as other operating expenses. A judgement in calculating the lease liability at initial recognition includes determining the lease term where extension or termination options exist. In such instances, any economic incentive to retain or end a lease are considered and extension periods are only included when it is considered reasonably certain that an option to extend a lease will be exercised.
For the year ended 30 June 2019, where the group had substantially all the risks and rewards of ownership of an asset subject to a lease, the lease was treated as a finance lease. Assets held under finance leases were recognised as assets of the group at their fair value at the inception of the lease. The corresponding liability to the lessor was included in other financial liabilities on the consolidated balance sheet. Lease payments were apportioned between interest expense and a reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Other leases were treated as operating leases, with payments and receipts taken to the income statement on a straight-line basis over the life of the lease.

254

Financial statements (continued)

(a) Movement in right-of-use assets

The company principally leases warehouses, office buildings, plant and machinery, cars and distribution vehicles in the ordinary course of business.


		Land and buildings £ million	Plant and equipment £ million	Under construction £ million	Total £ million		Land and buildings £ million	Plant and equipment £ million	Under construction £ million	Total £ million
At 30 June 2019		2	228	0	230
IFRS16 Transition		173	63	0	236
Adjusted balance at 1 July 2019		175	291	0	466
Exchange differences		(3)	2	0	(1)
Additions		150	24	32	206
Disposals		(2)	0	0	(2)
Depreciation		(51)	(41)	0	(92)
At 30 June 2020	At 30 June 2020	269	276	32	577	At 30 June 2020	269	276	32	577

Exchange differences	Exchange differences	(21)	(18)	0	(39)	Exchange differences	(21)	(18)	—	(39)
Additions	Additions	33	23	0	56	Additions	33	23	—	56
Transfer		(1)	(63)	(3)	(67)
Transfers						Transfers	(1)	(63)	(3)	(67)

Acquisitions	Acquisitions	8	0	0	8	Acquisitions	8	—	—	8

Depreciation	Depreciation	(58)	(34)	0	(92)	Depreciation	(58)	(34)	—	(92)
At 30 June 2021	At 30 June 2021	230	184	29	443	At 30 June 2021	230	184	29	443

Exchange differences						Exchange differences	26	14	—	40
Additions						Additions	129	56	—	185
Transfers						Transfers	29	—	(29)	—
Reclassification to assets held for sale						Reclassification to assets held for sale	(1)	(1)	—	(2)

Disposal						Disposal	(6)	—	—	(6)
Depreciation						Depreciation	(54)	(41)	—	(95)
At 30 June 2022						At 30 June 2022	353	212	—	565

(b) Lease liabilities


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Current lease liabilities	Current lease liabilities	(82)	(106)	Current lease liabilities	(85)	(82)
Non-current lease liabilities	Non-current lease liabilities	(281)	(364)	Non-current lease liabilities	(390)	(281)
		(363)	(470)		(475)	(363)

The future cash outflows, which are not included in lease liabilities on the balance sheet, in respect of extension and termination options which are not reasonably expected to be exercised are estimated at £282 million (~~£255 million.~~2021 – £255 million).

In the year ended 30 June ~~2021~~2022, other external charges (within other operating ~~expenses (within other external charges)~~items) included ~~£28~~£39 million ~~(2020~~(2021 – £3928 million) in respect of leases of low value assets and short term leases and £3£9 million ~~(2020~~(2021 – ~~£11~~£3 million) in respect of variable lease payments. ~~In the year ended 30 June 2019 other external charges included operating lease expenses in respect of plant and machinery of £19 million and other assets (mainly properties) of £101 million~~. Refer to note 5 for further information relating to the interest expenses on lease liabilities.

The total cash outflow for leases in the year ended 30 June ~~2021~~2022 was ~~£179~~£154 million ~~(2020 - £180~~(2021 – £179 million).

255

Financial statements (continued)

~~12.~~13. Other investments

Accounting policies

Other investments are ~~such~~ equity investments that are not classified as investments in associates or joint arrangements nor investments in subsidiaries. They are included in non-current assets. Subsequent to initial measurement, other investments are stated at fair value. Gains and losses arising from the changes in fair value are recognised in the income statement or in other comprehensive income on a case by case basis. Accumulated gains and losses included in other comprehensive income are not recycled to the income statement. Dividends from other investments are recognised in the consolidated income statement.
Loans receivable are non-derivative financial assets that are not classified as equity investments. They are subsequently measured either at amortised cost using the effective interest method less allowance for impairment or at fair value with gains and losses arising from changes in fair value recognised in the income statement or in other comprehensive income that are recycled to the income statement on the de-recognition of the asset. Allowances for expected credit losses are made based on the risk of non-payment taking into account ageing, previous experience, economic conditions and forward-looking data. Such allowances are measured as either 12-months expected credit losses or lifetime expected credit losses depending on changes in the credit quality of the counterparty.


		Loans £ million	Others £ million	Total £ million		Loans £ million	Other investments £ million	Total £ million
Cost less allowances or fair value	Cost less allowances or fair value				Cost less allowances or fair value
At 30 June 2019		17	32	49
Exchange differences		1	1	2
Additions		3	0	3
Repayments and disposals		(1)	(2)	(3)
Fair value adjustment		0	2	2
Provision charged during the year		(14)	0	(14)
Capitalised interest		1	0	1
Transfer		0	1	1
At 30 June 2020	At 30 June 2020	7	34	41	At 30 June 2020	7	34	41
Exchange differences	Exchange differences	0	(3)	(3)	Exchange differences	—	(3)	(3)
Additions	Additions	5	0	5	Additions	5	—	5
Repayments and disposals	Repayments and disposals	(1)	0	(1)	Repayments and disposals	(1)	—	(1)

Transfer	Transfer	(1)	(1)	(2)	Transfer	(1)	(1)	(2)
At 30 June 2021	At 30 June 2021	10	30	40	At 30 June 2021	10	30	40
Exchange differences					Exchange differences	2	1	3
Additions					Additions	6	9	15
Repayments and disposals					Repayments and disposals	(1)	(1)	(2)
Fair value adjustment					Fair value adjustment	—	(13)	(13)
Step acquisitions					Step acquisitions	—	(6)	(6)

Capitalised interest					Capitalised interest	1	—	1
Transfer					Transfer	—	(1)	(1)
At 30 June 2022					At 30 June 2022	18	19	37

At 30 June ~~2021,~~2022, loans comprise £6 million (2021 – £3 ~~million (2020~~million; 2020 – £4 ~~million; 2019 – £17~~ million) of loans to customers and other third parties, after allowances of £129 million (2021 – £113 ~~million (2020~~million; 2020 – £127 ~~million; 2019 – £111~~ million), and £12 million (2021 – £7 ~~million (2020~~million; 2020 – £3 ~~million; 2019 – £NaN)~~million) of loans to associates.

256

Financial statements (continued)

~~13.~~14. Post employment benefits

Accounting policies

The group’s principal ~~pension~~post employment funds are defined benefit plans. In addition, the group has defined contribution plans, unfunded post employment medical benefit liabilities and other unfunded defined benefit post employment liabilities. For post employment plans other than defined contribution plans, the amount charged to operating profit is the cost of accruing pension benefits promised to employees over the year, plus any changes arising on benefits granted to members by the group during the year. Net finance charges comprise the net deficit/asset on the plans at the beginning of the year, adjusted for cash flows in the year, multiplied by the discount rate for plan liabilities. The differences between the fair value of the plans’ assets and the present value of the plans’ liabilities are disclosed as an asset or liability on the consolidated balance sheet. Any differences due to changes in assumptions or experience are recognised in other comprehensive income. The amount of any pension fund asset recognised on the balance sheet is limited to any future refunds from the plan or the present value of reductions in future contributions to the plan.
Contributions payable by the group in respect of defined contribution plans are charged to operating profit as incurred.

Critical accounting estimates and judgements

Application of IAS 19 requires the exercise of estimate and judgement in relation to various assumptions.
Diageo determines the assumptions on a country by country basis in conjunction with its actuaries. Estimates are required in respect of uncertain future events, including the life expectancy of members of the funds, salary and pension increases, future inflation rates, discount rates and employee and pensioner demographics. The application of different assumptions could have a significant effect on the amounts reflected in the income statement, other comprehensive income and the balance sheet. There may be interdependencies between the assumptions.
Where there is an accounting surplus on a defined benefit plan management judgement is necessary to determine whether the group can obtain economic benefits through a refund of the surplus or by reducing future contributions to the plan.

(a) Post employment benefit plans

The group operates a number of pension plans throughout the world, devised in accordance with local conditions and practices. ~~Our~~Diageo's most significant plans are defined benefit plans and are funded by payments to separately administered trusts or insurance companies. The group also operates a number of plans that are generally unfunded, primarily in the United States, which provide to employees post employment medical benefits.

The principal plans are in the United Kingdom, Ireland and the United States where benefits are based on employees’ length of service and salary at retirement. All valuations were performed by independent actuaries using the projected unit credit method to determine pension costs.

The most recent funding valuations of the significant defined benefit plans were carried out as follows:


Principal plans			Date of valuation
United Kingdom~~(i)~~(1)			1 April ~~2018~~2021
Ireland~~(ii)~~(2)			31 December 2018
United States			1 January 2021

(i) The triennial valuation of the Diageo Pension Scheme (the UK Scheme) as at 1 April 2021 is in progress and the results of this valuation are expected to be agreed by Diageo and the trustee later in calendar year 2021.(1) The Diageo Pension Scheme (DPS) closed to new members in November 2005. Employees who ~~have~~ joined Diageo in the United Kingdom ~~since the defined benefit scheme closed~~between November 2005 and January 2018, had been eligible to become members of the Diageo Lifestyle Plan (a cash balance defined benefit ~~pension~~ plan) ~~until 1 January 2018.~~. Since then, new employees have been eligible to become members of a Diageo administered defined contribution plan.

~~(ii)~~(2) The Irish scheme closed to new members in May 2013. Employees who have joined Diageo in Ireland since the defined benefit scheme closed have been eligible to become members of Diageo administered defined contribution plans. The triennial valuation of the Guinness Ireland Group Pension Scheme in Ireland (the Irish Scheme) is in progress and the results of this valuation are expected to be agreed by Diageo and the trustee later in calendar year 2022.

The assets of the UK and Irish pension plans are held in separate trusts administered by trustees who are required to act in the best interests of the plans’ beneficiaries. For DPS, the trustee is Diageo Pension Trust Limited. As required by legislation, one-third of the directors of the Trust are nominated by the members of the DPS, member nominated directors are appointed from both the pensioner member community and the active member community. For the Irish Scheme, Diageo Ireland makes four nominations and appoints three further candidates nominated by representative groupings.

257

Financial statements (continued)

The amounts charged to the consolidated income statement and statement of comprehensive income for the group’s defined benefit ~~post employment~~ plans ~~and the consolidated statement of comprehensive income~~ for the three years ended 30 June ~~2021~~2022 are as follows:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Current service cost and administrative expenses	Current service cost and administrative expenses	(105)	(109)	(110)	Current service cost and administrative expenses	(107)	(105)	(109)
Past service gains – ordinary activities	Past service gains – ordinary activities	0	50	56	Past service gains – ordinary activities	34	—	50
Past service losses – exceptional	Past service losses – exceptional	(5)	0	(21)	Past service losses – exceptional	—	(5)	—
Gains on curtailments and settlements	Gains on curtailments and settlements	18	12	4	Gains on curtailments and settlements	34	18	12
Charge to operating profit	Charge to operating profit	(92)	(47)	(71)	Charge to operating profit	(39)	(92)	(47)
Net finance gain in respect of post employment plans	Net finance gain in respect of post employment plans	5	9	7	Net finance gain in respect of post employment plans	10	5	9
Charge before taxation~~(i)~~(1)	Charge before taxation~~(i)~~(1)	(87)	(38)	(64)	Charge before taxation~~(i)~~(1)	(29)	(87)	(38)
Actual returns less amounts included in finance income	Actual returns less amounts included in finance income	(6)	774	438	Actual returns less amounts included in finance income	(1,432)	(6)	774
Experience gains		80	34	113
Experience (losses)/gains					Experience (losses)/gains	(35)	80	34
Changes in financial assumptions	Changes in financial assumptions	125	(754)	(514)	Changes in financial assumptions	2,133	125	(754)
Changes in demographic assumptions	Changes in demographic assumptions	(183)	(14)	(6)	Changes in demographic assumptions	(40)	(183)	(14)
Other comprehensive income	Other comprehensive income	16	40	31	Other comprehensive income	626	16	40
Changes in the surplus restriction	Changes in the surplus restriction	0	(2)	2	Changes in the surplus restriction	(11)	—	(2)
Total other comprehensive income	Total other comprehensive income	16	38	33	Total other comprehensive income	615	16	38

~~(1)~~(i) The year ended 30 June 2022 includes settlement gains of £27 million in respect of the Enhanced Transfer Values exercise carried out in the Irish Schemes and past service gains of £28 million as a result of the changes of the benefits in the Irish Scheme. In the year ended 30 June 2021, the exceptional past service loss of £5 million is in respect of the equalisation of Guaranteed Minimum Pension (GMP) benefits for men and ~~women. (2019 - £21 million)~~women). The year ended 30 June 2020 includes a past service gain of £47 million in respect of the Irish Scheme following communications to the deferred members in respect of changing their expectations of a full pension prior to reaching the age of 65 and to pensioners in respect of future pension increases. ~~The year ended 30 June 2019 includes credits of £54 million in respect of changes made to future pension increases for members of the UK Scheme and changes to the principal Irish Scheme.~~

~~(i)~~(1) The (charge)/income before taxation is in respect of the following ~~countries is:~~countries:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
United Kingdom	United Kingdom	(46)	(23)	(3)	United Kingdom	(27)	(46)	(23)
Ireland	Ireland	4	34	(13)	Ireland	45	4	34
United States	United States	(28)	(30)	(30)	United States	(31)	(28)	(30)
Other	Other	(17)	(19)	(18)	Other	(16)	(17)	(19)
		(87)	(38)	(64)		(29)	(87)	(38)

In addition to the charge in respect of defined benefit post employment plans, contributions to the group’s defined contribution plans were £33 million (2021 - £25 ~~million (2020~~million; 2020 – £24 ~~million; 2019 – £19~~ million).

258

Financial statements (continued)

The movement in the net surplus for the two years ended 30 June ~~2021~~2022 is set out below:


		Plan assets £ million	Plan liabilities £ million	Net surplus £ million		Plan assets £ million	Plan liabilities £ million	Net surplus £ million
At 30 June 2019		9,713	(9,498)	215
At 30 June 2020					At 30 June 2020	10,422	(10,057)	365
Exchange differences	Exchange differences	65	(73)	(8)	Exchange differences	(214)	245	31
Charge before taxation(1)	Charge before taxation(1)	198	(236)	(38)	Charge before taxation(1)	149	(236)	(87)
Other comprehensive income/(loss)~~(i)~~(2)	Other comprehensive income/(loss)~~(i)~~(2)	774	(734)	40	Other comprehensive income/(loss)~~(i)~~(2)	(6)	22	16
Contributions by the group	Contributions by the group	156	0	156	Contributions by the group	122	—	122
Employee contributions		5	(5)	0
Benefits paid		(489)	489	0
At 30 June 2020		10,422	(10,057)	365
Exchange differences		(214)	245	31
Charge before taxation(ii)		149	(236)	(87)
Other comprehensive income/(loss)(i)		(6)	22	16
Contributions by the group		122	0	122
Settlements paid(iii)		(169)	169	0
Settlements paid(3)					Settlements paid(3)	(169)	169	—
Employee contributions	Employee contributions	4	(4)	0	Employee contributions	4	(4)	—
Benefits paid	Benefits paid	(416)	416	0	Benefits paid	(416)	416	—
At 30 June 2021	At 30 June 2021	9,892	(9,445)	447	At 30 June 2021	9,892	(9,445)	447
Exchange differences					Exchange differences	93	(100)	(7)
Charge before taxation(1)					Charge before taxation(1)	176	(205)	(29)
Other comprehensive income/(loss)(2)					Other comprehensive income/(loss)(2)	(1,432)	2,058	626
Contributions by the group					Contributions by the group	128	—	128
Settlements paid(3)					Settlements paid(3)	(52)	52	—
Employee contributions					Employee contributions	5	(5)	—
Benefits paid					Benefits paid	(411)	411	—
At 30 June 2022					At 30 June 2022	8,399	(7,234)	1,165

(i) Excludes surplus restriction.
(ii)(1) Includes net settlement gain of £27 million (F21 - £14 ~~million~~.million) and past service gain of £28 million.

~~(iii)~~(2) Excludes surplus restriction.

(3) Includes settlement payment of £52 million on ETV exercise in Ireland (F21 – £151 million in respect of a settlement in the US Cash Balance ~~plan.~~plan).

The plan assets and liabilities by type of post employment benefit and country is as follows:


		2021		2020			2022		2021
		Plan assets £ million	Plan liabilities £ million	Plan assets £ million	Plan liabilities £ million		Plan assets £ million	Plan liabilities £ million	Plan assets £ million	Plan liabilities £ million
Pensions	Pensions					Pensions
United Kingdom	United Kingdom	7,341	(6,580)	7,696	(6,831)	United Kingdom	6,041	(4,897)	7,341	(6,580)
Ireland	Ireland	1,826	(1,926)	1,810	(2,031)	Ireland	1,645	(1,409)	1,826	(1,926)
United States	United States	470	(373)	660	(578)	United States	453	(408)	470	(373)
Other	Other	186	(225)	183	(240)	Other	191	(212)	186	(225)
Post employment medical	Post employment medical	2	(262)	2	(288)	Post employment medical	2	(225)	2	(262)
Other post employment	Other post employment	67	(79)	71	(89)	Other post employment	67	(83)	67	(79)
		9,892	(9,445)	10,422	(10,057)		8,399	(7,234)	9,892	(9,445)

The balance sheet analysis of the post employment plans is as follows:


		2021		2020			2022		2021
		Non- current assets(i) £ million	Non- current liabilities £ million	Non- current assets(i) £ million	Non- current liabilities £ million		Non- current assets(1) £ million	Non- current liabilities £ million	Non- current assets(1) £ million	Non- current liabilities £ million
Funded plans	Funded plans	1,018	(279)	1,111	(434)	Funded plans	1,553	(144)	1,018	(279)
Unfunded plans	Unfunded plans	—	(295)	—	(315)	Unfunded plans	—	(258)	—	(295)
		1,018	(574)	1,111	(749)		1,553	(402)	1,018	(574)

~~(i)~~(1) Includes surplus restriction of £3£14 million ~~(2020~~(2021 – £3 million).

The disclosures have been prepared in accordance with IFRIC 14. In particular, where the calculation for a plan results in a surplus, the recognised asset is limited to the present value of any available future refunds from the plan or reductions in future contributions to the plan, and any additional liabilities are recognised as required. ~~The DPS at~~At 30 June ~~2021~~2022, the DPS had a net surplus of £1,174 million (2021

259

Financial statements (continued)

– £840 ~~million (2020~~million; 2020 – £934 million) and the GIGPS had a net surplus of £221 million (2021 a deficit of £79 million; ~~2019~~2020 a deficit of £174 million) and other schemes in a net surplus totaled of £158 million (2021 – ~~£906~~£178 million; 2020 - £177 million). ~~This surplus has~~Both of these surpluses have been recognised, with no provision made against ~~it,~~them, as ~~it is~~they are expected to be recoverable through a combination of a reduction in future cash contributions or ultimately via a cash refund when the last member’s obligations have been met.

~~259~~

~~Financial statements (continued)~~

(b) Principal risks and assumptions

The material post employment plans are not exposed to any unusual, ~~entity specific~~entity-specific or ~~scheme specific~~scheme-specific risks but there are general risks:

Inflation – The majority of the plans’ obligations are linked to inflation. Higher inflation will lead to increased liabilities which is partially offset by the plans holding inflation linked gilts, swaps and caps against the level of inflationary increases.

Interest rate – The plan liabilities are determined using discount rates derived from yields on AA-rated corporate bonds. A decrease in corporate bond yields will increase plan liabilities though this will be partially offset by an increase in the value of the bonds held by the post employment plans.

Mortality – The majority of the obligations are to provide benefits for the life of the members and their partners, so any increase in life expectancy will result in an increase in the plans’ liabilities.

Asset returns – Assets held by the pension plans are invested in a diversified portfolio of equities, bonds and other assets. Volatility in asset values will lead to movements in the net deficit/surplus reported in the consolidated balance sheet for post employment plans which in addition will also impact the post employment expense in the consolidated income statement.

The following weighted average assumptions were used to determine the group’s deficit/surplus in the main post employment plans at 30 June in the relevant year. The assumptions used to calculate the charge/credit in the consolidated income statement for the year ending 30 June are based on the assumptions disclosed as at the previous 30 June.


		United Kingdom			Ireland			United States(i)				United Kingdom			Ireland			United States(1)
		2021%	2020%	2019%	2021%	2020%	2019%	2021%	2020%	2019%		2022%	2021%	2020%	2022%	2021%	2020%	2022%	2021%	2020%
Rate of general increase in salaries(ii)		3.4	3.2	3.6	3.0	2.6	2.3	—	0	0
Rate of general increase in salaries(2)											Rate of general increase in salaries(2)	3.6	3.4	3.2	3.8	3.0	2.6	—	—	—
Rate of increase to pensions in payment	Rate of increase to pensions in payment	3.1	3.0	3.2	1.7	1.4	1.5	0	0	0	Rate of increase to pensions in payment	2.9	3.1	3.0	2.2	1.7	1.4	—	—	—
Rate of increase to deferred pensions	Rate of increase to deferred pensions	2.5	2.1	2.2	1.6	1.2	1.3	0	0	0	Rate of increase to deferred pensions	2.6	2.5	2.1	2.3	1.6	1.2	—	—	—
Discount rate for plan liabilities	Discount rate for plan liabilities	1.9	1.5	2.3	1.0	1.2	1.2	2.7	2.6	3.4	Discount rate for plan liabilities	3.8	1.9	1.5	3.2	1.0	1.2	4.4	2.7	2.6
Inflation – CPI	Inflation – CPI	2.5	2.1	2.2	1.6	1.2	1.3	2.3	1.4	1.7	Inflation – CPI	2.6	2.5	2.1	2.4	1.6	1.2	2.3	2.3	1.4
Inflation - RPI	Inflation - RPI	3.0	2.8	3.2	—	—	—	—	—	—	Inflation - RPI	3.1	3.0	2.8	—	—	—	—	—	—

~~(i)~~(1) The salary increase assumption in the United States is not a significant assumption as only a minimal amount of members’ pension entitlement is dependent on a member’s projected final salary.

~~(ii)~~(2) The salary increase assumptions include an allowance for ~~age related~~age-related promotional salary increases.

For the principal UK and Irish pension funds, the table below illustrates the expected age at death of an average worker who retires currently at the age of 65, and one who is currently aged 45 and subsequently retires at the age of 65:


		United Kingdom(i)			Ireland(ii)			United States				United Kingdom(1)			Ireland(2)			United States
		2021 Age	2020 Age	2019 Age	2021 Age	2020 Age	2019 Age	2021 Age	2020 Age	2019 Age		2022 Age	2021 Age	2020 Age	2022 Age	2021 Age	2020 Age	2022 Age	2021 Age	2020 Age
Retiring currently at age 65	Retiring currently at age 65										Retiring currently at age 65
Male	Male	87.2	86.4	86.2	86.9	86.6	86.5	85.4	85.6	85.7	Male	87.1	87.2	86.4	87.7	86.9	86.6	85.5	85.4	85.6
Female	Female	88.7	88.7	88.5	89.3	89.3	89.2	87.1	87.3	87.7	Female	88.7	88.7		90.0	89.3		87.2	87.1	87.3
Currently aged 45, retiring at age 65	Currently aged 45, retiring at age 65										Currently aged 45, retiring at age 65
Male	Male	88.6	88.5	88.3	88.6	89.6	89.5	86.9	87.2	87.3	Male	88.5	88.6	88.5	89.3	88.6	89.6	87.0	86.9	87.2
Female	Female	90.8	90.8	90.6	91.1	92.3	92.2	88.5	88.9	89.3	Female	90.7	90.8		91.7	91.1	92.3	88.6	88.5	88.9

~~(i)~~(1) Based on the CMI’s S3 mortality tables with scaling factors based on the experience of the plan and where people live, with suitable future improvements.

~~(ii)~~(2) Based on the ~~‘00’ series of~~CMI's S3 mortality tables with scaling factors based on the experience of the plan, ~~and~~ with suitable future improvements.

260

Financial statements (continued)

For the significant assumptions, the following sensitivity analyses estimate the potential impacts on the consolidated income statement for the year ~~ended~~ending 30 June ~~2022~~2023 and on the plan liabilities at 30 June ~~2021~~2022:


		United Kingdom			Ireland			United States and other				United Kingdom			Ireland			United States
Benefit/(cost)	Benefit/(cost)	Operating profit £ million	Profit after taxation £ million	Plan liabilities(i) £ million	Operating profit £ million	Profit after taxation £ million	Plan liabilities(i) £ million	Operating profit £ million	Profit after taxation £ million	Plan liabilities(i) £ million	Benefit/(cost)	Operating profit £ million	Profit after taxation £ million	Plan liabilities(1) £ million	Operating profit £ million	Profit after taxation £ million	Plan liabilities(1) £ million	Operating profit £ million	Profit after taxation £ million	Plan liabilities(1) £ million
Effect of 0.5% increase in discount rate	Effect of 0.5% increase in discount rate	5	18	532	2	3	159	1	2	26	Effect of 0.5% increase in discount rate	2	19	336	1	4	96	1	3	22
Effect of 0.5% decrease in discount rate	Effect of 0.5% decrease in discount rate	(5)	(15)	(611)	(2)	(3)	(183)	(1)	(2)	(29)	Effect of 0.5% decrease in discount rate	(3)	(17)	(374)	(1)	(4)	(108)	(1)	(3)	(23)
Effect of 0.5% increase in inflation	Effect of 0.5% increase in inflation	(4)	(11)	(466)	(1)	(2)	(109)	(1)	(1)	(12)	Effect of 0.5% increase in inflation	(2)	(9)	(246)	(1)	(3)	(59)	—	(1)	(10)
Effect of 0.5% decrease in inflation	Effect of 0.5% decrease in inflation	5	10	351	1	2	131	1	1	12	Effect of 0.5% decrease in inflation	2	10	260	1	3	57	—	1	9
Effect of 1 year increase in life expectancy	Effect of 1 year increase in life expectancy	(1)	(5)	(279)	0	(1)	(87)	0	(1)	(19)	Effect of 1 year increase in life expectancy	—	(6)	(171)	—	(2)	(56)	—	(1)	(17)

~~(i)~~(1) The estimated effect on the liabilities excludes the impact of any interest rate and inflation swaps held by the pension plans.

~~(1)~~(i) The sensitivity analyses above have been determined based on reasonably possible changes of the respective assumptions and may not be representative of the actual change. Each sensitivity is calculated on a change in the key assumption while holding all other assumptions constant. The sensitivity to inflation includes the impact on all inflation linked assumptions (e.g. pension increases and salary increases where appropriate).

The investment strategy for the group’s funded post employment plans is determined locally by the trustees of the plan and/or Diageo, as appropriate, and takes account of the relevant statutory requirements. The objective of the investment strategy is to achieve a target rate of return in excess of the movement on the liabilities, whilst taking an acceptable level of investment risk relative to the liabilities. This objective is implemented by using the funds of the plans to invest in a variety of asset classes that are expected over the long-term to deliver a target rate of return. The majority of the investment strategies have significant amounts allocated to equities, with the intention that this will result in the ongoing cost to the group of the post employment plans being lower over the long-term, within acceptable boundaries of risk. Significant amounts are invested in bonds in order to provide a natural hedge against movements in the liabilities of the plans. At 30 June ~~2021,~~2022, approximately ~~86%~~88% and 90% ~~(2020~~(2021 – ~~82%~~86% and 90%) of the UK ~~Scheme’s~~plans’ liabilities measured on the Trustee's funding basis were hedged against future movements in gilt based interest rates and RPI inflation, respectively, through the combined effect of bonds and swaps. At 30 June ~~2021,~~2022, approximately 70% and 76% (2021 – 62% and 76% ~~(2020 – 48% and 70%~~) of the Irish ~~Scheme’s~~plans’ liabilities measured on the Trustee's funding basis were hedged against future movements in euro government bond based interest rates and euro inflation, respectively, through the combined effect of bonds and swaps.

The discount rates used are based on the yields of high-quality fixed income investments. For the UK plans, which represent approximately ~~70%~~68% of total plan liabilities, the discount rate is determined by reference to the yield curves of AA-rated corporate bonds for which the timing and amount of cash outflows are similar to those of the plans. A similar process is used to determine the discount rates used for the non-UK plans.

261

Financial statements (continued)

An analysis of the fair value of the plan assets is as follows:


											2022
		2021				2020					United Kingdom £ million		Ireland £ million		United States and other £ million		Total £ million
		United Kingdom £ million	Ireland £ million	United States and other £ million	Total £ million	United Kingdom £ million	Ireland £ million	United States and other £ million	Total £ million		Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Total
Equities	Equities									Equities	23	1,218	—	319	70	105	93	1,642	1,735
Quoted		0	308	158	466	1	315	255	571
Unquoted and private equity		604	0	18	622	501	1	21	523
Bonds	Bonds									Bonds
Fixed-interest government	Fixed-interest government	147	81	51	279	114	124	50	288	Fixed-interest government	2	86	—	30	49	152	51	268	319
Inflation-linked government	Inflation-linked government	0	239	0	239	0	247	0	247	Inflation-linked government	—	—	—	199	1	1	1	200	201
Investment grade corporate	Investment grade corporate	512	355	391	1,258	507	306	467	1,280	Investment grade corporate	—	68	—	388	25	222	25	678	703
Non-investment grade	Non-investment grade	151	117	12	280	137	77	17	231	Non-investment grade	44	557	2	200	1	1	47	758	805
Loan securities	Loan securities	1,789	279	0	2,068	1,697	328	0	2,025	Loan securities	11	1,271	—	98	—	—	11	1,369	1,380
Repurchase agreements	Repurchase agreements	3,608	0	0	3,608	4,809	0	0	4,809	Repurchase agreements	2,400	(215)	—	—	—	—	2,400	(215)	2,185
Liability driven investment (LDI)		212	66	0	278	222	64	0	286
Property - unquoted		685	72	1	758	620	85	1	706
Liability Driven Investment (LDI)										Liability Driven Investment (LDI)	—	119	—	46	—	—	—	165	165
Property										Property	28	716	—	74	—	1	28	791	819
Hedge funds	Hedge funds	101	139	4	244	92	134	4	230	Hedge funds	—	107	—	92	—	5	—	204	204
Interest rate and inflation swaps	Interest rate and inflation swaps	(994)	108	0	(886)	(1,048)	66	0	(982)	Interest rate and inflation swaps	—	(900)	—	37	—	—	—	(863)	(863)
Cash and other	Cash and other	526	62	90	678	44	63	101	208	Cash and other	24	481	7	154	—	80	31	715	746
Total bid value of assets	Total bid value of assets	7,341	1,826	725	9,892	7,696	1,810	916	10,422	Total bid value of assets	2,532	3,508	9	1,637	146	567	2,687	5,712	8,399

~~(1)~~


	2021
	United Kingdom £ million		Ireland £ million		United States and other £ million		Total £ million
	Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Total
Equities	—	604	2	306	70	106	72	1,016	1,088
Bonds
Fixed-interest government	86	61	—	81	47	4	133	146	279
Inflation-linked government	—	—	—	239	—	—	—	239	239
Investment grade corporate	13	499	—	355	24	367	37	1,221	1,258
Non-investment grade	17	134	2	115	2	10	21	259	280
Loan securities	58	1,731	1	278	—	—	59	2,009	2,068
Repurchase agreements	4,512	(904)	—	—	—	—	4,512	(904)	3,608
Liability Driven Investment (LDI)	2	210	—	66	—	—	2	276	278
Property	—	685	—	72	—	1	—	758	758
Hedge funds	—	101	—	139	—	4	—	244	244
Interest rate and inflation swaps	—	(994)	—	108	—	—	—	(886)	(886)
Cash and other	12	514	2	60	—	90	14	664	678
Total bid value of assets	4,700	2,641	7	1,819	143	582	4,850	5,042	9,892

(i) The asset classes include some cash holdings that are temporary. This cash is likely to be invested imminently and so has been included in the asset class where it is anticipated to be invested in the long-term.

Total cash contributions by the group to all post employment plans in the year ending 30 June ~~2022~~2023 are estimated to be approximately ~~£120~~£70 million.

262

Financial statements (continued)

(d) Deficit funding arrangements

UK plans

In the year ended 30 June 2011 the group established a Pension Funding Partnership (PFP) in respect of the UK Scheme. Whisky inventory was transferred into the partnership but the group retains control over the partnership which at 30 June ~~2021~~2022 held inventory with a book value of ~~£564~~£561 million ~~(2020~~(2021 – ~~£586~~£564 million). The partnership is fully consolidated in the group financial statements. The UK Scheme has a limited interest in the partnership and, as a partner, is entitled to a distribution from the profits of the partnership. ~~Following the finalisation of the trustee valuation at 1 April 2018 the PFP was amended and the contribution to the DPS in the year ended 30 June 2021 was NaN (2020 – £11 million).~~ The arrangement is expected to cease in 2030, and contributions to the UK scheme in any year will be dependent on the funding position of the UK scheme at the previous 31 March. Given the surplus funding position in the DPS, the contribution to the DPS in the year ended 30 June 2022 was nil (2021 - nil).

In 2030 the group will be required, dependent upon the funding position of the UK Scheme at that time, to pay an amount not greater than the actuarial deficit at that time, up to a maximum of £430 million in cash, to purchase the UK Scheme’s interest in the partnership. If the UK Scheme is in surplus at an actuarial triennial valuation excluding the value of the PFP, then the group can exit the PFP with the agreement of the trustees.

Irish plans

The group has agreed a deficit funding arrangement with the trustees of the Irish Scheme under which it contributes to the Irish Scheme €23 million (£20 million) per annum until the year ending 30 June 2028. The agreement also provides for additional cash contributions up to €106 million (£91 million) if the deficit is not reduced at each triennial valuation in line with agreed deficit targets up to 2027. As part of this funding plan, Diageo has also granted to the Irish Scheme a contingent asset, comprising mortgages over certain land and buildings and fixed and floating charges over certain receivables of the group up to a value of €200 million (£~~171~~172 million) or the amount of the deficit at each triennial valuation if less. The 31 December ~~2018~~2021 triennial actuarial valuation ~~did not result in any additional funding requirement.~~is currently underway and it will be agreed by Diageo and the trustee by the end of September.

(e) Timing of benefit payments

The following table provides information on the timing of the benefit payments and the average duration of the defined benefit obligations and the distribution of the timing of benefit payments:

~~262~~

~~Financial statements (continued)~~


		United Kingdom		Ireland		United States			United Kingdom		Ireland		United States
		2021 £ million	2020 £ million	2021 £ million	2020 £ million	2021 £ million	2020 £ million		2022 £ million	2021 £ million	2022 £ million	2021 £ million	2022 £ million	2021 £ million
Maturity analysis of benefits expected to be paid	Maturity analysis of benefits expected to be paid							Maturity analysis of benefits expected to be paid
Within one year	Within one year	288	346	84	76	52	56	Within one year	295	288	70	84	58	52
Between 1 to 5 years	Between 1 to 5 years	1,112	1,202	338	364	145	202	Between 1 to 5 years	1,082	1,112	353	338	187	145
Between 6 to 15 years	Between 6 to 15 years	2,606	2,556	656	691	247	357	Between 6 to 15 years	2,556	2,606	704	656	310	247
Between 16 to 25 years	Between 16 to 25 years	2,314	2,083	588	627	145	196	Between 16 to 25 years	2,252	2,314	634	588	183	145
Beyond 25 years	Beyond 25 years	2,840	2,648	746	918	138	173	Beyond 25 years	2,787	2,840	768	746	174	138
Total	Total	9,160	8,835	2,412	2,676	727	984	Total	8,972	9,160	2,529	2,412	912	727
		years							years
Average duration of the defined benefit obligation	Average duration of the defined benefit obligation	18	18	18	18	11	11	Average duration of the defined benefit obligation	15	18	15	18	9	11

The projected benefit payments are based on the assumptions underlying the assessment of the obligations, including inflation. They are disclosed undiscounted and therefore appear large relative to the discounted value of the plan liabilities recognised inon the consolidated balance sheet. They are in respect of benefits that have accrued at the balance sheet date and make no allowance for any benefits accrued subsequently.

(f) Related party disclosures

Information on transactions between the group and its pension plans is given in note ~~20.~~21.

263

Financial statements (continued)

~~14.~~15. Working capital

Accounting policies

Inventories are stated at the lower of cost and net realisable value. Cost includes raw materials, direct labour and expenses, an appropriate proportion of production and other overheads, but not borrowing costs. Cost is calculated at the weighted average cost incurred in acquiring inventories. Maturing inventories and raw materials which are retained for more than one year are classified as current assets, as they are expected to be realised in the normal operating cycle.

Trade and other receivables are initially recognised at fair value less transaction costs and subsequently carried at amortised cost less any allowance for discounts and doubtful debts. Trade receivables arise from contracts with customers, and are recognised when performance obligations are satisfied, and the consideration due is unconditional as only the passage of time is required before the payment is received. Allowance losses are calculated by reviewing lifetime expected credit losses using historic and forward-looking data on credit risk.

Trade and other payables are initially recognised at fair value including transaction costs and subsequently carried at amortised costs. Contingent ~~consideration~~considerations recognised in business combinations are subsequently measured at fair value through income statement. The group evaluates supplier arrangements against a number of indicators to assess if the liability has the characteristics of a trade payable or should be classified as borrowings. ~~These indicators include~~This assessment considers the commercial purpose of the facility, whether payment terms are similar to customary payment ~~terms.~~terms, whether the group is legally discharged from its obligation towards suppliers before the end of the original payment term, and the group’s involvement in agreeing terms between banks and suppliers.

Provisions are liabilities of uncertain timing or amount. A provision is recognised if, as a result of a past event, the group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are calculated on a discounted basis. The carrying amounts of provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

(a) Inventories


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Raw materials and consumables	Raw materials and consumables	348	363	Raw materials and consumables	489	348
Work in progress	Work in progress	60	48	Work in progress	86	60
Maturing inventories	Maturing inventories	4,668	4,562	Maturing inventories	5,229	4,668
Finished goods and goods for resale	Finished goods and goods for resale	969	799	Finished goods and goods for resale	1,290	969
		6,045	5,772		7,094	6,045

Maturing inventories include whisk(e)y, rum, tequila and Chinese white spirits. The following amounts of inventories are expected to be utilised after more than one year:


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Raw materials and consumables	Raw materials and consumables	17	18	Raw materials and consumables	15	17
Maturing inventories	Maturing inventories	3,296	3,740	Maturing inventories	3,713	3,296
		3,313	3,758		3,728	3,313

Inventories are disclosed net of provisions for obsolescence, an analysis of which is as follows:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Balance at beginning of the year	Balance at beginning of the year	98	63	71	Balance at beginning of the year	96	98	63
Exchange differences	Exchange differences	(8)	0	0	Exchange differences	6	(8)	—
Income statement charge/(release)(i)		20	47	(3)
Income statement charge					Income statement charge	6	20	47
Utilised	Utilised	(14)	(12)	(5)	Utilised	(13)	(14)	(12)
Sale of businesses					Sale of businesses	(1)	—	—
						94	96	98
		96	98	63

~~(i) Income statement charge in the year ended 30 June 2021 includes a release of £4 million exceptional gain (2020 – exceptional charge of £23 million) due to Covid-19 pandemic.~~

264

Financial statements (continued)

(b) Trade and other receivables


		2021		2020			2022		2021
		Current assets £ million	Non-current assets £ million	Current assets £ million	Non-current assets £ million		Current assets £ million	Non-current assets £ million	Current assets £ million	Non-current assets £ million
Trade receivables	Trade receivables	1,817	0	1,498	0	Trade receivables	2,155	—	1,817	—
Interest receivable	Interest receivable	35	0	29	0	Interest receivable	18	—	35	—
VAT recoverable and other prepaid taxes	VAT recoverable and other prepaid taxes	216	18	192	13	VAT recoverable and other prepaid taxes	290	15	216	18
Other receivables	Other receivables	148	18	210	31	Other receivables	158	13	148	18
Prepayments	Prepayments	150	0	157	2	Prepayments	290	9	150	—
Accrued income	Accrued income	19	0	25	0	Accrued income	22	—	19	—
		2,385	36	2,111	46		2,933	37	2,385	36

At 30 June ~~2021,~~2022, approximately ~~15%~~29%, ~~28%~~15% and 9% of the group’s trade receivables of ~~£1,817~~£2,155 million are due from counterparties based in the United ~~Kingdom, the~~States, United ~~States~~Kingdom and India, respectively. Accrued income primarily represents amounts receivable from customers in respect of performance obligations satisfied but not yet invoiced.

The aged analysis of trade receivables, net of expected credit loss allowance, is as follows:


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Not overdue	Not overdue	1,771	1,379	Not overdue	2,114	1,771
Overdue 1 – 30 days	Overdue 1 – 30 days	15	5	Overdue 1 – 30 days	19	15
Overdue 31 – 60 days	Overdue 31 – 60 days	8	23	Overdue 31 – 60 days	8	8
Overdue 61 – 90 days	Overdue 61 – 90 days	6	39	Overdue 61 – 90 days	5	6
Overdue 91 – 180 days	Overdue 91 – 180 days	7	39	Overdue 91 – 180 days	5	7
Overdue more than 180 days	Overdue more than 180 days	10	13	Overdue more than 180 days	4	10
		1,817	1,498		2,155	1,817

Trade and other receivables are disclosed net of expected credit loss allowance for doubtful debts, an analysis of which is as follows:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Balance at beginning of the year	Balance at beginning of the year	160	113	97	Balance at beginning of the year	112	160	113
Exchange differences	Exchange differences	(13)	(3)	3	Exchange differences	6	(13)	(3)
Income statement (income)/charge		(15)	55	23
Income statement charge/(release)					Income statement charge/(release)	21	(15)	55
Written off	Written off	(20)	(5)	(10)	Written off	(21)	(20)	(5)
		112	160	113		118	112	160

Management has considered the ~~elevated~~ credit risk on trade and other receivables. At 30 June ~~2020,~~2022, this resulted in a charge of ~~£55~~£21 million for impairment provisions recognised in the income ~~statement~~statement. At 30 June 2020, £29 million out of ~~which £29~~the charge of £55 million was related to the expected credit loss allowance ~~was~~ due to the global financial uncertainty arising from the Covid-19 pandemic.

265

Financial statements (continued)


		2021		2020			2022		2021
		Current liabilities £ million	Non-current liabilities £ million	Current liabilities £ million	Non-current liabilities £ million		Current liabilities £ million	Non-current liabilities £ million	Current liabilities £ million	Non-current liabilities £ million
Trade payables	Trade payables	2,014	0	1,333	0	Trade payables	2,705	—	2,014	—
Interest payable	Interest payable	124	0	152	0	Interest payable	143	—	124	—
Tax and social security excluding income tax	Tax and social security excluding income tax	656	0	698	0	Tax and social security excluding income tax	696	—	656	—
Other payables	Other payables	606	338	420	175	Other payables	600	380	606	338
Accruals	Accruals	1,152	0	971	0	Accruals	1,635	—	1,152	—
Deferred income	Deferred income	72	0	79	0	Deferred income	90	—	72	—
Dividend payable to non-controlling interests	Dividend payable to non-controlling interests	24	0	30	0	Dividend payable to non-controlling interests	18	—	24	—
		4,648	338	3,683	175		5,887	380	4,648	338

Interest payable at 30 June ~~2021~~2022 includes interest on non-derivative financial instruments of ~~£122~~£141 million ~~(2020~~(2021 – ~~£148~~£122 million). Accruals at 30 June ~~2021~~2022 include ~~£455~~£613 million ~~(2020~~(2021 – ~~£359~~£455 million) accrued discounts attributed to sales recognised. Deferred income represents amounts paid by customers in respect of performance obligations not yet satisfied. The amount of contract liabilities recognised as revenue in the current year is ~~£79~~£72 million ~~(2020~~(2021 – £5679 million). Non-current liabilities include net present value of contingent consideration in respect of prior acquisitions ~~for~~of £353 million (2021 – £320 ~~million (2020 – £156~~ million). For further information on contingent consideration, please refer to note ~~15g.~~16 (g).

Together with the group’s partner banks, supply chain financing (SCF) facilities are provided to ~~our~~ suppliers in certain countries. These arrangements enable suppliers to receive funding earlier than the invoice due date at their discretion and at their own cost. ~~The~~Payment terms continue to be agreed directly between the group ~~settles trade payables~~and suppliers, independently from the availability of SCF facilities. Liabilities are settled in accordance with ~~agreed payment terms~~the original due date of invoices. The group does not incur any fees or receive any rebates where the suppliers choose to utilise these facilities. The group has determined that it is appropriate to present amounts outstanding subject to SCF arrangements as trade payables. Consistent with this classification, cash flows are presented either as operating cash flows or cash flows from investing activities, when related to the ~~supplier.~~acquisition of non-current assets. At 30 June ~~2021,~~2022, the amount that has been subject to SCF and accounted for as trade payables was ~~£465~~£750 million ~~(2020~~(2021 – ~~£309~~£465 million).

(d) Provisions


		Thalidomide £ million	Other £ million	Total £ million		Thalidomide £ million	Other £ million	Total £ million
At 30 June 2020		199	277	476
At 30 June 2021					At 30 June 2021	190	222	412
Exchange differences	Exchange differences	(1)	(30)	(31)	Exchange differences	—	18	18

Disposal of businesses					Disposal of businesses	—	(6)	(6)
Provisions charged during the year	Provisions charged during the year	0	80	80	Provisions charged during the year	—	65	65
Provisions utilised during the year	Provisions utilised during the year	(15)	(105)	(120)	Provisions utilised during the year	(16)	(73)	(89)

Transfers from other payables					Transfers from other payables	—	12	12
Unwinding of discounts	Unwinding of discounts	7	0	7	Unwinding of discounts	4	1	5
At 30 June 2021		190	222	412
At 30 June 2022					At 30 June 2022	178	239	417
Current liabilities	Current liabilities	15	123	138	Current liabilities	12	147	159
Non-current liabilities	Non-current liabilities	175	99	274	Non-current liabilities	166	92	258
		190	222	412		178	239	417

~~(a)~~(i) Provisions have been established in respect of the discounted value of the group’s commitment to the UK and Australian Thalidomide Trusts. These provisions will be utilised over the period of the commitments up to 2037.

~~(b)~~(ii) The largest ~~items~~item in other provisions at 30 June ~~2021 are~~2022 is £49 million (2021 – £45 ~~million (2020 - £47~~ million) in respect of employee deferred compensation plans which will be utilised when employees leave the ~~group and~~ ~~£33 million (2020 - £81 million) in respect of 'Raising the Bar' programme launched in June 2020, a two-year global programme to support pubs and bars to welcome customers back and recover following the Covid-19 pandemic.~~group.

266

Financial statements (continued)

Risk management and capital structure

Introduction

This section sets out the policies and procedures applied to manage the group’s capital structure and the financial risks the group is exposed to. Diageo considers the following components of its balance sheet to be capital: borrowings and equity. Diageo manages its capital structure to achieve capital efficiency, provide flexibility to invest through the economic cycle and give efficient access to debt markets at attractive cost levels.

~~15.~~16. Financial instruments and risk management

Accounting policies

Financial assets and liabilities are initially recorded at fair value including, where permitted by IFRS 9, any directly attributable transaction costs. For those financial assets that are not subsequently held at fair value, the group assesses whether there is evidence of impairment at each balance sheet date.

The group classifies its financial assets and liabilities into the following categories: financial assets and liabilities at amortised cost, financial assets and liabilities at fair value through ~~profit and loss~~income statement and financial assets at fair value through other comprehensive income.

The accounting policies for other investments and loans are described in note ~~12,~~13, for trade and other receivables and payables in note 1415 and for cash and cash equivalents in note ~~16.~~17.

Financial assets and liabilities at fair value through ~~profit or loss~~income statement include derivative assets and liabilities. Where financial assets or liabilities are eligible to be carried at either amortised cost or fair value through other comprehensive income, the group does not apply the fair value option.

Derivative financial instruments are carried at fair value using a discounted cash flow model based on market data applied consistently for similar types of instruments. Gains and losses on derivatives that do not qualify for hedge accounting treatment are taken to the income statement as they arise.

Other financial liabilities are carried at amortised cost unless they are part of a fair value hedge relationship. The difference between the initial carrying amount of the financial liabilities and their redemption value is recognised in the income statement over the contractual terms using the effective interest rate method. ~~The~~Financial liabilities in respect of the Zacapa ~~related financial liabilities~~acquisition are recognised at fair value.

Hedge accounting

The group designates and documents certain derivatives as hedging instruments against changes in fair value of recognised assets and liabilities (fair value hedges), highly probable forecast transactions or the cash flow risk from a change in exchange or interest rates (cash flow hedges) and hedges of net investments in foreign operations (net investment hedges). The designated portion of the hedging instruments is included in other financial assets and liabilities on the consolidated balance sheet. The effectiveness of such hedges is assessed at inception and at least on a quarterly basis, using prospective testing. Methods used for testing effectiveness include dollar offset, critical terms, regression analysis and hypothetical models.

Fair value hedges are used to manage the currency and/or interest rate risks to which the fair value of certain assets and liabilities are exposed. Changes in the fair value of the derivatives are recognised in the income statement, along with any changes in the relevant fair value of the underlying hedged asset or liability.

If such a hedge relationship no longer meets hedge accounting criteria, fair value movements on the derivative continue to be taken to the income statement while any fair value adjustments made to the underlying hedged item to that date are amortised through the income statement over its remaining life using the effective interest rate method.

Cash flow hedges are used to hedge the foreign currency risk of highly probable future foreign currency cash flows, the commodity price risk of highly probable future transactions, as well as the cash flow risk from changes in exchange or interest rates. The effective portion of the gain or loss on the hedges is recognised in other comprehensive income, while any ineffective part is recognised in the income statement. Amounts recorded in other comprehensive income are recycled to the income statement in the same period in which the underlying foreign currency, commodity ~~exposure~~ or interest exposure affects the income statement.

Net investment hedges take the form of either foreign currency borrowings or derivatives. Foreign exchange differences arising on translation of net investments are recorded in other comprehensive income and included in the exchange reserve. Liabilities used as hedging instruments are revalued at closing exchange rates and the resulting gains or losses are also recognised in other comprehensive income to the extent that they are effective, with any ineffectiveness taken to the income statement. Foreign ~~exchange~~currency contracts hedging net investments are carried at fair value. Effective fair value movements are recognised in other comprehensive income, with any ineffectiveness taken to the income statement.

267

Financial statements (continued)

The group’s funding, liquidity and exposure to foreign currency and interest rate risks are managed by the group’s treasury department. The treasury department uses a range of financial instruments to manage these underlying risks.

Treasury operations are conducted within a framework of Board-approved policies and guidelines, which are recommended and monitored by the ~~finance committee,~~Finance Committee, chaired by the Chief Financial Officer. The policies and guidelines include benchmark exposure and/or hedge cover levels for key areas of treasury risk which are periodically reviewed by the Board following, for example, significant business, strategic or accounting changes. The framework provides for limited defined levels of flexibility in execution to allow for the optimal application of the Board-approved strategies. Transactions arising from the application of this flexibility are carried at fair value, gains or losses are taken to the income statement as they arise and are separately monitored on a daily basis using Value at Risk analysis. In the years ended 30 June ~~2021~~2022 and 30 June ~~2020~~2021 gains and losses on these transactions were not material. The group does not use derivatives for speculative purposes. All transactions in derivative financial instruments are initially undertaken to manage the risks arising from underlying business activities.

The group purchases insurance for commercial or, where required, for legal or contractual reasons. In addition, the group retains insurable risk where external insurance is not considered an economic means of mitigating these risks.

The ~~finance committee~~Finance Committee receives a ~~monthly~~quarterly report on the key activities of the treasury department, ~~which would identify~~however any exposures which differ from the defined benchmarks ~~should~~are reported as they arise.

(a) Currency risk

The group presents its consolidated financial statements in sterling and conducts business in many currencies. As a result, it is subject to foreign currency risk due to exchange rate movements, which will affect the group’s transactions and the translation of the results and underlying net assets of its operations. To manage the currency risk, the group uses certain financial instruments. Where hedge accounting is applied, hedges are documented and tested for effectiveness on an ongoing basis. The impact of the Covid-19 pandemic on the group's cash flow hedges has been considered to determine if the hedged forecast cash flows remain ‘highly probable’, in relation to forecasted sales transactions on the net US dollar exposure of the group and other hedged currency pairs. In making this assessment, the potential financial impact of the Covid-19 pandemic has been modelled in the group's cash flow projections and stress tested. For the year ended 30 June 2021, no material ineffectiveness was recognized based on the group’s assessment, however if there was a reduction in foreign currency forecast transactions, any potential ineffectiveness would be recognized in the consolidated income statement.

Hedge of net investment in foreign operations

The group hedges a certain portion of its exposure to fluctuations in the sterling value of its foreign operations by designating borrowings held in foreign currencies and using foreign currency spots, forwards, swaps and other financial derivatives. For the year ended 30 June ~~2021~~2022 the group’s guidance was to maintain total net investment Value at Risk to total ~~Net Asset~~net asset value below 20%, where Value at Risk is defined as the maximum amount of loss over a one-yearperiod with a 95% ~~probability~~ probability confidence level.

At 30 June ~~2021~~2022 foreign currency borrowings designated in net investment hedge relationships amounted to ~~£7,780~~£8,742 million ~~(2020 £9,127~~(2021 £7,780 million), including financial derivatives.

Hedge of foreign currency debt

The group uses cross currency interest rate swaps to hedge the foreign currency risk associated with certain foreign currency denominated borrowings.

Transaction exposure hedging

The group’s policy is to hedge ~~up to 24 months~~ forecast transactional foreign currency risk on the net US dollar exposure ~~of the group~~24 months targeting 75% coverage for the current financial year, and on other currency exposures up to 18 ~~months for other currency pairs.~~months. The group’s exposure to foreign currency risk arising principally on forecasted sales transactions is managed using forward agreements and options.

~~268~~

~~Financial statements (continued)~~

(b) Interest rate risk

The group has an exposure to interest rate risk, arising principally on changes in US dollar, euro and sterling interest rates. To manage interest rate risk, the group manages its proportion of fixed to floating rate borrowings within limits approved by the Board, primarily through issuing fixed and floating rate borrowings, and ~~commercial paper, and~~ by utilising interest rate swaps. These practices aim to minimise the group’s net finance charges with acceptable year-on-year volatility. To facilitate operational efficiency and effective hedge accounting, for the year ended 30 June ~~2021~~2022 the group’s policy was to maintain fixed rate borrowings within a band of 40% to 60% of forecast net borrowings. In July 2020 the Board approved to temporarily amend the approved 40% - 60% fixed debt band to 40% - 80% and subsequently in December 2020 the Board approved to temporarily increase the band range to 40% - 90% ~~for a period of 3 years until 31 December 2023.~~. For these calculations, net borrowings exclude interest rate related fair value adjustments. The majority of the group’s existing interest rate derivatives are designated as hedges and are expected to be effective. Fair value of these derivatives is recognised in the income statement, along with any changes in the relevant fair value of the underlying hedged asset or liability. The group's net borrowings interest rate profile as at 30 June ~~2021~~2022 and ~~2020~~2021 is as follows:


		2021		2020			2022		2021
		£ million	%	£ million	%		£ million	%	£ million	%
Fixed rate	Fixed rate	9,278	77	9,213	70	Fixed rate	11,070	78	9,278	77
Floating rate~~(i)~~(1)	Floating rate~~(i)~~(1)	2,521	21	3,746	28	Floating rate~~(i)~~(1)	2,612	19	2,521	21
Impact of financial derivatives and fair value adjustments	Impact of financial derivatives and fair value adjustments	(53)	(1)	(183)	(1)	Impact of financial derivatives and fair value adjustments	(20)	—	(53)	(1)
Lease liabilities	Lease liabilities	363	3	470	3	Lease liabilities	475	3	363	3
Net borrowings	Net borrowings	12,109	100	13,246	100	Net borrowings	14,137	100	12,109	100

~~(i)~~(1) The floating rate portion of net borrowings includes cash and cash equivalents, collaterals, floating rate loans and bonds and bank overdrafts.

268

Financial statements (continued)

The table below sets out the average monthly net borrowings and effective interest rate:

Average monthly net borrowings Effective interest rate
2021
£ million
2020
£ million
2019
£ million
2021
%
2020
%
2019
%
12,702 12,708 10,393 2.7 2.6 2.4


Average monthly net borrowings			Effective interest rate
2022 £ million	2021 £ million	2020 £ million	2022 %	2021 %	2020 %
12,692	12,702	12,708	2.7	2.7	2.6

~~(1)~~(i) For this calculation, net interest charge excludes fair value adjustments to derivative financial instruments and ~~borrowings and~~ average monthly net borrowings ~~includes~~include the impact of interest rate swaps that are no longer in a hedge relationship but ~~excludes~~exclude the market value adjustment for cross currency interest rate swaps.

IBOR reform

In accordance with the UK Financial Conduct Authority’s announcement on 5 March 2021, LIBOR benchmark rates ~~will be~~were discontinued after 31 December 2021, except for the majority of the US dollar settings which will be discontinued after 30 June 2023. There ~~will be~~have been amendments to the contractual terms of IBOR-referenced interest rates and the corresponding update of the hedge designations. ~~The changed reference rate may also affect other~~By 30 June 2022, changes required to systems and processes ~~risks and~~in relation to the fair valuation of financial instruments ~~however~~were implemented and the transition had no material tax or accounting implications. The group also evaluated the implications of the reference rate changes in relation to other valuation models and credit risk, and concluded that they were not material.

In line with the relief provided by the amendment, the group doassumes that the interest rate benchmark on which the cash flows of the hedged item, the hedging instrument or the hedged risk are based are not ~~expect material tax~~altered by the IBOR reform. The derivative hedging instruments provide a close approximation to the extent and ~~accounting implications.~~nature of the risk exposure the group manages through hedging relationships.

Included in ~~the~~ floating rate net borrowings are interest rate swaps designated in fair value hedges, with a notional amount of ~~£2,338~~£2,893 million ~~(2020: £3,156~~(2021: £2,338 million) whose interest rates are based on USD LIBOR. In preparation for the discontinuation of USD LIBOR, the group will amend these agreements to either reference the Secured Overnight Financing Rate or include mechanics for selecting an alternative rate ensuring that subsequent to the amendments the agreements will be economically equivalent on transition date.

Commodity price risk is managed in line with the principles approved by the Board either through long-term purchase contracts with suppliers or, where appropriate, derivative contracts. The group policy is to maintain the Value at Risk of commodity price risk ~~arisen~~arising from commodity exposures below 75 bps of forecast gross ~~margin~~profit in any given financial year. Where derivative contracts are used, the commodity price risk exposure is hedged up to 24 months of forecast volume through exchange-traded and over-the-counter contracts (futures, forwards and swaps) and cash flow hedge accounting is applied.

(d) Market risk sensitivity analysis

The group uses a sensitivity analysis that estimates the impacts on the consolidated income statement and other comprehensive income of either an instantaneous increase or decrease of 0.5% in market interest rates or a 10% strengthening or weakening in sterling against all other currencies, from the rates applicable at 30 June ~~2021~~2022 and 30 June ~~2020,~~2021, for each class of financial instruments on the consolidated balance sheet at these dates with all other variables remaining constant. The sensitivity analysis excludes the impact of market ~~risks~~risk on the net post employment benefit liabilities and assets, and corporate tax payable. This analysis is for illustrative purposes only, as in practice interest and foreign exchange rates rarely change in isolation.

The sensitivity analysis estimates the impact of changes in interest and foreign exchange rates. All hedges are expected to be highly effective for this analysis and it considers the impact of all financial instruments including financial derivatives, cash and cash equivalents, borrowings and other financial assets and liabilities. The results of the sensitivity analysis should not be considered as projections of likely future events, gains or losses as actual results in the future may differ materially due to developments in the

~~269~~

~~Financial statements (continued)~~

global financial markets which may cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the table below.


		Impact on income statement gain/(loss)		Impact on consolidated comprehensive income gain/(loss)(i) (ii)			Impact on income statement gain/(loss)		Impact on consolidated comprehensive income gain/(loss)(1) (2)
		2021	2020	2021	2020		2022	2021	2022	2021
		£ million					£ million
0.5% decrease in interest rates	0.5% decrease in interest rates	13	19	23	45	0.5% decrease in interest rates	13	13	31	23
0.5% increase in interest rates	0.5% increase in interest rates	(13)	(19)	(22)	(43)	0.5% increase in interest rates	(13)	(13)	(30)	(22)
10% weakening of sterling	10% weakening of sterling	(32)	(26)	(1,008)	(1,384)	10% weakening of sterling	(33)	(32)	(1,125)	(1,008)
10% strengthening of sterling	10% strengthening of sterling	27	22	825	1,132	10% strengthening of sterling	28	27	922	825

~~(i)~~(1) The impact on foreign currency borrowings and derivatives in net investment hedges is largely offset by the foreign exchange difference arising on the translation of net investments.

~~(ii)~~(2) The impact on the consolidated statement of comprehensive income includes the impact on the income statement.

269

Financial statements (continued)

(e) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. Credit risk arises on cash balances (including bank deposits and cash and cash equivalents), derivative financial instruments and credit exposures to customers, including outstanding loans, trade and other receivables, financial guarantees and committed transactions.

The carrying amount of financial assets of ~~£5,360~~£5,445 million ~~(2020~~(2021 – ~~£5,989~~£5,360 million) represents the group’s exposure to credit risk at the balance sheet date as disclosed in section (i), excluding the impact of any collateral held or other credit enhancements. A financial asset is in default when the counterparty fails to pay its contractual obligations. Financial assets are written off when there is no reasonable expectation of recovery.

Credit risk is managed separately for financial and business related credit exposures.

Financial credit risk

Diageo aims to minimise its financial credit risk through the application of risk management policies approved and monitored by the Board. Counterparties are predominantly limited to ~~major~~investment grade banks and financial institutions, ~~primarily with a long-term credit rating within the A band or better,~~ and ~~the~~ policy restricts the exposure to any one counterparty by setting credit limits taking into account the credit quality of the counterparty. The group’s policy is designed to ensure that individual counterparty limits are adhered to and that there are no significant concentrations of credit risk. The Board also defines the types of financial instruments which may be transacted. The credit risk arising through the use of financial instruments for currency, ~~and~~ interest rate and commodity price risk management is estimated with reference to the fair value of contracts with a positive value, rather than the notional amount of the instruments themselves. Diageo annually reviews the credit limits applied and regularly monitors the counterparties’ credit quality reflecting market credit conditions.

When derivative transactions are undertaken with bank counterparties, the group may, where appropriate, enter into certain agreements with such bank counterparties whereby the parties agree to post cash collateral for the benefit of the other if the net valuations of the derivatives are above a predetermined threshold. At 30 June ~~2021,~~2022, the collateral held under these agreements amounted to $23 million (£19 million) (2021 – $136 million (£98 ~~million) (2020 – $221 million (£180~~ million)).

Business related credit risk

~~Loan,~~Exposures from loan, trade and other receivables ~~exposures~~ are managed locally in the operating units where they arise and active risk management is applied, focusing on country risk, credit limits, ongoing credit evaluation and monitoring procedures. There is no significant concentration of credit risk with respect to loans, trade and other receivables as the group has a large number of customers which are internationally dispersed.

(f) Liquidity risk

Liquidity risk is the risk ~~that~~of Diageo ~~may encounter~~encountering difficulties in meeting its obligations associated with financial liabilities that are settled by delivering cash or other financial assets. The group uses short-term commercial paper to finance its day-to-day operations. The group’s policy with regard to the expected maturity profile of borrowings is to limit the amount of such borrowings maturing within 12 months to 50% of gross borrowings less money market demand deposits, and the level of commercial paper to 30% of gross borrowings less money market demand deposits. In addition, the group’s policy is to maintain backstop facilities with relationship banks to support commercial paper obligations.

The following tables provide an analysis of the anticipated contractual cash flows including interest payable for the group’s financial liabilities and derivative instruments on an undiscounted basis. Where interest payments are calculated at a floating rate, rates of each cash flow until maturity of the instruments are calculated based on the forward yield curve prevailing at the respective year ends. The gross cash flows of cross currency swaps are presented for the purposes of this table. All other derivative contracts are presented on a net basis. Financial assets and liabilities are presented gross in the consolidated balance sheet although, in practice, the group uses netting arrangements to reduce its liquidity requirements on these instruments.

270

Financial statements (continued)

Contractual cash flows


		Due within 1 year £ million	Due between 1 and 3 years £ million	Due between 3 and 5 years £ million	Due after 5 years £ million	Total £ million	Carrying amount at balance sheet date £ million		Due within 1 year £ million	Due between 1 and 3 years £ million	Due between 3 and 5 years £ million	Due after 5 years £ million	Total £ million	Carrying amount at balance sheet date £ million
2021
2022								2022
Borrowings~~(i)~~(1)	Borrowings~~(i)~~(1)	(1,859)	(2,590)	(2,788)	(7,498)	(14,735)	(14,727)	Borrowings~~(i)~~(1)	(1,524)	(2,842)	(2,738)	(9,276)	(16,380)	(16,020)
Interest on borrowings(i)(iii)		(390)	(552)	(467)	(1,375)	(2,784)	(122)
Interest on borrowings(1)(2)								Interest on borrowings(1)(2)	(427)	(626)	(560)	(1,622)	(3,235)	(141)
Lease capital repayments	Lease capital repayments	(82)	(92)	(45)	(144)	(363)	(363)	Lease capital repayments	(85)	(107)	(61)	(222)	(475)	(475)
Lease future interest payments	Lease future interest payments	(9)	(12)	(8)	(25)	(54)	0	Lease future interest payments	(13)	(20)	(16)	(44)	(93)	—
Trade and other financial liabilities(ii)		(3,800)	(71)	(108)	(191)	(4,170)	(4,125)
Trade and other financial liabilities(3)								Trade and other financial liabilities(3)	(4,765)	(123)	(142)	(126)	(5,156)	(5,145)
Non-derivative financial liabilities	Non-derivative financial liabilities	(6,140)	(3,317)	(3,416)	(9,233)	(22,106)	(19,337)	Non-derivative financial liabilities	(6,814)	(3,718)	(3,517)	(11,290)	(25,339)	(21,781)
Cross currency swaps (gross)	Cross currency swaps (gross)							Cross currency swaps (gross)
Receivable	Receivable	57	780	79	1,294	2,210	0	Receivable	851	90	90	1,442	2,473	—
Payable	Payable	(41)	(811)	(56)	(986)	(1,894)	0	Payable	(783)	(56)	(56)	(958)	(1,853)	—
Other derivative instruments (net)	Other derivative instruments (net)	143	54	0	(23)	174	0	Other derivative instruments (net)	(86)	(123)	(78)	(65)	(352)	—
Derivative instruments(iii)		159	23	23	285	490	312
2020
Derivative instruments(2)								Derivative instruments(2)	(18)	(89)	(44)	419	268	22
2021								2021
Borrowings~~(i)~~(1)	Borrowings~~(i)~~(1)	(1,994)	(2,980)	(3,080)	(8,615)	(16,669)	(16,785)	Borrowings~~(i)~~(1)	(1,859)	(2,590)	(2,788)	(7,498)	(14,735)	(14,727)
Interest on borrowings(i)(iii)		(466)	(669)	(541)	(1,741)	(3,417)	(148)
Interest on borrowings(1)(2)								Interest on borrowings(1)(2)	(390)	(552)	(467)	(1,375)	(2,784)	(122)
Lease capital repayments	Lease capital repayments	(106)	(135)	(71)	(158)	(470)	(470)	Lease capital repayments	(82)	(92)	(45)	(144)	(363)	(363)
Lease future interest payments	Lease future interest payments	(9)	(13)	(9)	(31)	(62)	0	Lease future interest payments	(9)	(12)	(8)	(25)	(54)	—
Trade and other financial liabilities(ii)		(2,833)	(127)	(48)	(35)	(3,043)	(3,006)
Trade and other financial liabilities(3)								Trade and other financial liabilities(3)	(3,800)	(71)	(108)	(191)	(4,170)	(4,125)
Non-derivative financial liabilities	Non-derivative financial liabilities	(5,408)	(3,924)	(3,749)	(10,580)	(23,661)	(20,409)	Non-derivative financial liabilities	(6,140)	(3,317)	(3,416)	(9,233)	(22,106)	(19,337)
Cross currency swaps (gross)	Cross currency swaps (gross)							Cross currency swaps (gross)
Receivable	Receivable	65	902	89	1,506	2,562	0	Receivable	57	780	79	1,294	2,210	—
Payable	Payable	(41)	(824)	(56)	(1,014)	(1,935)	0	Payable	(41)	(811)	(56)	(986)	(1,894)	—
Other derivative instruments (net)	Other derivative instruments (net)	21	89	45	19	174	0	Other derivative instruments (net)	143	54	—	(23)	174	—
Derivative instruments(iii)		45	167	78	511	801	610
Derivative instruments(2)								Derivative instruments(2)	159	23	23	285	490	312

~~(i)~~(1) For the purpose of these tables, ~~above,~~ borrowings are defined as gross borrowings excluding lease liabilities and fair value of derivative instruments as disclosed in note ~~16.~~17.

~~(ii) Primarily consists of trade and other payables that meet the definition of financial liabilities under IAS 32.~~

~~(iii)~~(2) Carrying amount of interest on borrowings, interest on derivatives and interest on other payable is included within interest payable in note ~~14.~~15.

(3) Primarily consists of trade and other payables that meet the definition of financial liabilities under IAS 32.

The group had available undrawn committed bank facilities as follows:


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Expiring within one year	Expiring within one year	540	2,439	Expiring within one year	793	540
Expiring between one and two years	Expiring between one and two years	691	610	Expiring between one and two years	103	691
Expiring after two years	Expiring after two years	1,287	2,236	Expiring after two years	1,893	1,287
		2,518	5,285		2,789	2,518

The facilities can be used for general corporate purposes and, together with cash and cash equivalents, support the group’s commercial paper programmes.

There are no financial covenants on the group’s material short- and long-term borrowings. Certain of these borrowings contain cross default provisions and negative pledges.

The committed bank facilities are subject to a single financial covenant, being minimum interest cover ratio of two times (defined as the ratio of operating profit before exceptional items, aggregated with share of after tax results of associates and joint ventures, to net ~~interest)~~interest charges). They are also subject to pari passu ranking and negative pledge covenants.

Any non-compliance with covenants underlying Diageo’s financing arrangements could, if not waived, constitute an event of default with respect to any such arrangements, and any non-compliance with covenants may, in particular circumstances, lead to an acceleration of maturity on certain borrowings and the inability to access committed facilities. Diageo was in full compliance with its financial, pari passu ranking and negative pledge covenants in respect of its material short- and long-term borrowings throughout each of the years presented.

271

Financial statements (continued)

(g) Fair value measurements

Fair value measurements of financial instruments are presented through the use of a three-level fair value hierarchy that prioritises the valuation techniques used in fair value calculations.

The group maintains policies and procedures to value instruments using the most relevant data available. If multiple inputs that fall into different levels of the hierarchy are used in the valuation of an instrument, the instrument is categorised on the basis of the most subjective input.

Foreign currency forwards and swaps, cross currency swaps and interest rate swaps are valued using discounted cash flow techniques. These techniques incorporate inputs at levels 1 and 2, such as foreign exchange rates and interest rates. These market inputs are used in the discounted cash flow calculation incorporating the instrument’s term, notional amount and discount rate, and taking credit risk into account. As significant inputs to the valuation are observable in active markets, these instruments are categorised as level 2 in the hierarchy.

Other financial liabilities include a put option, which does not have an expiry date, held by Industrias Licoreras de Guatemala (ILG) to sell the remaining 50% equity stake in Rum ~~Creations~~Creation & Products ~~Inc,~~Inc., the owner of the Zacapa rum brand, to Diageo. The liability is fair valued and as at 30 June ~~2021~~2022 an amount of ~~£149~~£216 million (30 June ~~2020 - £167~~2021 – £149 million) is recognised as a liability with changes in the fair value of the put option included in retained earnings. As the valuation of this option uses assumptions not observable in the market, it is categorised as level 3 in the hierarchy. As at 30 June ~~2021,~~2022, because it is unknown when or if ILG will exercise the option, the liability is measured as if the exercise date is on the last day of the next financial year considering forecast future performance. The option is sensitive to reasonably possible changes in assumptions. If the option were to be exercised as at 30 June ~~2023,~~2024, the fair value of the liability would increase by approximately £4£69 million.

Included in other financial liabilities, the contingent consideration on acquisition of businesses represents the present value of payments up to ~~£474~~£381 million linked to certain performance targets which are expected to be paid over the next 10eight years.

There were no significant changes in the measurement and valuation techniques, or significant transfers between the levels of the financial assets and liabilities in the year ended 30 June ~~2021.~~2022.

The group’s financial assets and liabilities measured at fair value are categorised as follows:


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Derivative assets	Derivative assets	443	758	Derivative assets	480	443
Derivative liabilities	Derivative liabilities	(129)	(145)	Derivative liabilities	(456)	(129)
Valuation techniques based on observable market input (Level 2)	Valuation techniques based on observable market input (Level 2)	314	613	Valuation techniques based on observable market input (Level 2)	24	314
Financial assets - other	Financial assets - other	138	116	Financial assets - other	184	138
Financial liabilities - other	Financial liabilities - other	(578)	(416)	Financial liabilities - other	(587)	(578)
Valuation techniques based on unobservable market input (Level 3)	Valuation techniques based on unobservable market input (Level 3)	(440)	(300)	Valuation techniques based on unobservable market input (Level 3)	(403)	(440)

In the years ended 30 June ~~2021~~2022 and 30 June ~~2020,~~2021, the increase in financial assets - other of ~~£22~~£46 million ~~(2020 - £30~~(2021 – £22 million) is principally ~~due to~~in respect of acquisitions.

The movements in level 3 instruments, measured on a recurring basis, are as follows:


		Zacapa financial liability	Contingent consideration recognised on acquisition of businesses(i)	Zacapa financial liability	Contingent consideration recognised on acquisition of businesses		Zacapa financial liability	Contingent consideration recognised on acquisition of businesses(1)	Zacapa financial liability	Contingent consideration recognised on acquisition of businesses(1)
		2021		2020			2022		2021
		£ million		£ million			£ million		£ million
At the beginning of the year	At the beginning of the year	(167)	(249)	(174)	(227)	At the beginning of the year	(149)	(429)	(167)	(249)
Net losses included in the income statement		(7)	(47)	(6)	(24)
Net gains/(losses) included in exchange in other comprehensive income		21	31	(5)	(5)
Net (losses)/gains included in retained earnings		(2)	0	9	0
Net (losses)/gains included in the income statement						Net (losses)/gains included in the income statement	(20)	62	(7)	(47)
Net (losses)/gains included in exchange in other comprehensive income						Net (losses)/gains included in exchange in other comprehensive income	(26)	(39)	21	31
Net losses included in retained earnings						Net losses included in retained earnings	(34)	—	(2)	—
Acquisitions	Acquisitions	0	(253)	0	(42)	Acquisitions	—	(70)	—	(253)
Settlement of liabilities	Settlement of liabilities	6	89	9	49	Settlement of liabilities	13	105	6	89
At the end of the year	At the end of the year	(149)	(429)	(167)	(249)	At the end of the year	(216)	(371)	(149)	(429)

~~(i)~~(1) Included in the balance at 30 June ~~2021~~2022 is ~~£80 million in respect of the acquisition of Casamigos (30 June 2020 - £173 million), and £177~~£157 million in respect of the acquisition of Aviation Gin and Davos ~~Brands.~~Brands (2021 – £177 million), £59 million in respect of the acquisition of 21Seeds, £57 million in respect of the acquisition of Lone River Ranch Water (2021 – £49 million) and £nil in respect of the acquisition of Casamigos as it was fully repaid on 17 September 2021 (2021- £80 million).

(h) Results of hedge relationships

The group targets a one-to-one hedge ratio. ~~Strengths~~Strength of the economic relationship between the hedged ~~item~~items and the hedging ~~instrument is~~instruments are analysed on an ongoing basis. Ineffectiveness can arise from subsequent change in the forecast transactions as a result of altered timing, cash flows or value except when the critical terms of the hedging instrument and hedged item are closely aligned.

272

Financial statements (continued)

The change in the credit risk of the hedging instruments or the hedged items is not expected to be the primary factor in the economic relationship.

~~272~~

~~Financial statements (continued)~~

The notional amounts, contractual maturities and rates of the hedging instruments designated in hedging relationships as of 30 June 2022 and 30 June 2021 by the main risk categories are as follows:


	Notional amounts £ million	Maturity	Range of hedged rates~~(i)~~(1)
2022
Net investment hedges
Derivatives in net investment hedges of foreign operations	11	July 2022	Turkish lira 22.27
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	1,694	April 2023 - April 2043	US dollar 1.22 - 1.88
Derivatives in cash flow hedge (foreign currency risk)	1,874	September 2022 - June 2024	US dollar 1.22 - 1.42, euro 1.13 - 1.17
Derivatives in cash flow hedge (commodity price risk)	234	July 2022 - March 2024	Natural Gas: 1.67 - 3.57 GBP/therm(ec) LME Aluminium: 2,009 - 3,399 USD/Mt
Fair value hedges
Derivatives in fair value hedge (interest rate risk)	4,444	September 2022 - April 2043	(0.01) - 3.09%
2021
Net investment hedges
Derivatives in net investment hedges of foreign operations	11	July 2021	Turkish lira 11.86 - 12.22
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	1,475	April 2023 - April 2043	US dollar 1.22 - 1.88
Derivatives in cash flow hedge (foreign currency ~~exchange~~ risk)	1,303	September 2021 - December 2022	US dollar 1.19 - 1.42, euro 1.07 - 1.16
Derivatives in cash flow hedge (commodity price risk)	93	July 2021 - May 2023	Corn: 3.63 - 5.17 USD/Bu LME Aluminium: 1,631 - 2,421 USD/Mt
Fair value hedges
Derivatives in fair value hedge (interest rate risk)	4,646	October 2021 - April 2030	(0.01) - 3.09%
~~2020~~


~~Cash flow hedges~~
~~Derivatives in cash flow hedge (foreign currency debt)~~	~~1,667~~	~~April 2023 - April 2043~~	~~US dollar 1.22 - 1.88~~
~~Derivatives in cash flow hedge (foreign currency exchange risk)~~	~~1,428~~	~~September 2020 - March 2022~~	~~US dollar 1.19 - 1.36, euro 1.06 - 1.18~~
~~Derivatives in cash flow hedge (commodity price risk)~~	~~133~~	~~July 2020 - February 2023~~	~~Corn: 3.45 - 4.04 USD/Bu~~ ~~Fuel Oil: 1.11 - 1.87 USD/gal~~
~~Fair value hedges~~
~~Derivatives in fair value hedge (interest rate risk)~~	~~6,092~~	~~July 2020 - April 2030~~	~~(0.01) - 4.83%~~

~~(i)~~(1) In case of derivatives in cash flow ~~hedge~~hedges (commodity price risk and foreign ~~exchange~~currency risk), the range of the most significant contract’s hedged rates are presented.

For hedges of the cash flow risk from a change in forward exchange rates using cross currency interest rate swaps, the retranslation of the related bond principal to closing exchange rates and recognition of interest on the related bonds will affect the income statement in each year until the related bonds mature in 2023, 2036 and 2043. Exchange retranslation and the interest on the hedged bonds in the income statement are expected to offset those on the cross currency swaps in each of the years.

In respect of cash flow hedging instruments, a ~~loss~~gain of £124 million (2021 – £157 million ~~(2020~~loss; 2020 – £173 million ~~gain; 2019 – £79 million~~ gain) ~~has been~~was recognised in other comprehensive income due to changes in fair value. A loss of ~~£10~~£42 million ~~has been~~was transferred out of other comprehensive income to other operating expenses and a ~~loss~~gain of ~~£175~~£239 million to other finance charges, respectively, ~~(2020~~(2021 – a loss of £10 million and a loss of £175 million; 2020 – a loss of £42 million and a gain of £75 ~~million; 2019 – a loss of £45 million and a gain of £82~~ million) to offset the foreign exchange impact on the underlying transactions. A gain of £46 million (2021 – £2 million ~~(2020~~gain, 2020 – £8 million ~~loss, 2019 – £NaN) has been~~loss) was transferred out of other comprehensive income to operating profit in relation to commodity hedges. The carrying amount of hedged items recognised in the ~~statement of financial position~~consolidated balance sheet in relation to hedges of cash flow risk arising from foreign currency debts equals the notional value of the hedging instruments at 30 June ~~2021~~2022 and are included within borrowings. The notional amount for cash flow hedges of foreign currency debt at 30 June ~~2021~~2022 was ~~£1,475~~£1,694 million ~~(2020~~(2021 – ~~£1,667~~£1,475 million).

For cash flow hedges of forecast transactions at 30 June ~~2021,~~2022, based on year end interest and exchange rates, ~~there is expected to be~~ a gain to the income statement of ~~£66~~£18 million in the year ending 30 June ~~2022~~2023 and a loss of ~~£48~~£7 million in the year ending 30 June ~~2023.~~2024 is expected to be recognised.

~~For~~In respect of hedges of foreign currency borrowings that are no longer applicable at 30 June ~~2021,~~2022, a loss of ~~£20~~£19 million ~~(2020~~(2021 – a loss of £20 million) ~~in respect of hedges of foreign currency borrowings is~~was reported in reserves. There was no significant ineffectiveness on net investment and cash flow hedges during the year ended 30 June ~~2021.~~2022.

The ~~£4,646~~£4,444 million ~~(2020~~(2021 – ~~£6,092~~£4,646 million) notional value of hedged items in fair value hedges equals to the notional value of hedging instruments designated in these relationships at 30 June ~~2021~~2022 and the carrying amount of hedged items are included within borrowings in the ~~statement of financial position.~~consolidated balance sheet.

For fair value hedges that are no longer applicable, the accumulated fair value changes shown on the ~~statement of financial position~~consolidated balance sheet at 30 June ~~2021~~2022 was £5£1 million ~~(2020~~(2021 – ~~£13~~£5 million).

273

Financial statements (continued)

The following table sets out information regarding the effectiveness of hedging relationships designated by the group, as well as the impacts on ~~profit or loss~~the income statement and other comprehensive income:


		At the beginning of the year £ million	Income statement £ million	Consolidated statement of comprehensive income £ million	Other £ million	At the end of the year £ million		At the beginning of the year £ million	Consolidated Income statement £ million	Consolidated statement of comprehensive income £ million	Other £ million	At the end of the year £ million
2022							2022
Net investment hedges							Net investment hedges
Derivatives in net investment hedges of foreign operations							Derivatives in net investment hedges of foreign operations	—	—	5	(6)	(1)
Cash flow hedges							Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)							Derivatives in cash flow hedge (foreign currency debt)	154	239	(6)	(20)	367
Derivatives in cash flow hedge (foreign currency risk)							Derivatives in cash flow hedge (foreign currency risk)	53	(11)	(130)	11	(77)
Derivatives in cash flow hedge (commodity price risk)							Derivatives in cash flow hedge (commodity price risk)	16	46	32	(44)	50
Fair value hedges							Fair value hedges
Derivatives in fair value hedge (interest rate risk)							Derivatives in fair value hedge (interest rate risk)	63	(346)	—	—	(283)
Fair value hedge hedged item							Fair value hedge hedged item	(65)	341	—	—	276
Instruments in fair value hedge relationship							Instruments in fair value hedge relationship	(2)	(5)	—	—	(7)
2021	2021						2021
Net investment hedges	Net investment hedges						Net investment hedges
Derivatives in net investment hedges of foreign operations	Derivatives in net investment hedges of foreign operations	0	0	3	(3)	0	Derivatives in net investment hedges of foreign operations	—	—	3	(3)	—
Cash flow hedges	Cash flow hedges						Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	Derivatives in cash flow hedge (foreign currency debt)	469	(175)	(123)	(17)	154	Derivatives in cash flow hedge (foreign currency debt)	469	(175)	(123)	(17)	154
Derivatives in cash flow hedge (foreign currency exchange risk)		(58)	(26)	111	26	53
Derivatives in cash flow hedge (foreign currency risk)							Derivatives in cash flow hedge (foreign currency risk)	(58)	(26)	111	26	53
Derivatives in cash flow hedge (commodity price risk)	Derivatives in cash flow hedge (commodity price risk)	(9)	2	39	(16)	16	Derivatives in cash flow hedge (commodity price risk)	(9)	2	39	(16)	16
Fair value hedges	Fair value hedges						Fair value hedges
Derivatives in fair value hedge (interest rate risk)	Derivatives in fair value hedge (interest rate risk)	189	(126)	—	—	63	Derivatives in fair value hedge (interest rate risk)	189	(126)	—	—	63
Fair value hedge hedged item	Fair value hedge hedged item	(189)	124	—	—	(65)	Fair value hedge hedged item	(189)	124	—	—	(65)
Instruments in fair value hedge relationship	Instruments in fair value hedge relationship	0	(2)	—	—	(2)	Instruments in fair value hedge relationship	—	(2)	—	—	(2)
2020
Net investment hedges
Derivatives in net investment hedges of foreign operations		(1)	0	(1)	2	0
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)		271	75	146	(23)	469
Derivatives in cash flow hedge (foreign currency exchange risk)		(57)	(47)	(1)	47	(58)
Derivatives in cash flow hedge (commodity price risk)		(9)	(8)	(3)	11	(9)
Fair value hedges
Derivatives in fair value hedge (interest rate risk)		104	85	—	—	189
Fair value hedge hedged item		(103)	(86)	—	—	(189)
Instruments in fair value hedge relationship		1	(1)	—	—	0

274

Financial statements (continued)

(i) Reconciliation of financial instruments

The table below sets out the group’s accounting classification of each class of financial assets and liabilities:


		Fair value through income statement £ million	Fair value through other comprehensive income £ million	Assets and liabilities at amortised cost £ million	Not categorised as a financial instrument £ million	Total £ million	Current £ million	Non-current £ million		Fair value through income statement £ million	Fair value through other comprehensive income £ million	Assets and liabilities at amortised cost £ million	Not categorised as a financial instrument £ million	Total £ million	Current £ million	Non-current £ million
2021
Other investments and loans(i)		121	17	8	2	148	—	148
2022									2022
Other investments and loans(1)									Other investments and loans(1)	180	4	15	1	200	—	200
Trade and other receivables	Trade and other receivables	—	—	2,017	404	2,421	2,385	36	Trade and other receivables	—	—	2,365	605	2,970	2,933	37
Cash and cash equivalents	Cash and cash equivalents	—	—	2,749	—	2,749	2,749	—	Cash and cash equivalents	—	—	2,285	—	2,285	2,285	—
Derivatives in fair value hedge (interest rate risk)	Derivatives in fair value hedge (interest rate risk)	106	—	—	—	106	4	102	Derivatives in fair value hedge (interest rate risk)	1	—	—	—	1	—	1
Derivatives in cash flow hedge (foreign currency debt)	Derivatives in cash flow hedge (foreign currency debt)	205	—	—	—	205	—	205	Derivatives in cash flow hedge (foreign currency debt)	367	—	—	—	367	43	324
Derivatives in cash flow hedge (foreign currency exchange risk)		61	—	—	—	61	57	4
Derivatives in cash flow hedge (foreign currency risk)									Derivatives in cash flow hedge (foreign currency risk)	32	—	—	—	32	15	17
Derivatives in cash flow hedge (commodity price risk)	Derivatives in cash flow hedge (commodity price risk)	16	—	—	—	16	14	2	Derivatives in cash flow hedge (commodity price risk)	57	—	—	—	57	57	—

Other instruments	Other instruments	55	—	—	—	55	46	9	Other instruments	136	—	—	—	136	136	—
Leases	Leases	—	—	5	—	5	—	5	Leases	—	—	3	—	3	—	3
Total other financial assets	Total other financial assets	443	—	5	—	448	121	327	Total other financial assets	593	—	3	—	596	251	345
Total financial assets	Total financial assets	564	17	4,779	406	5,766	5,255	511	Total financial assets	773	4	4,668	606	6,051	5,469	582
Borrowings(ii)		—	—	(14,727)	—	(14,727)	(1,862)	(12,865)
Borrowings(2)									Borrowings(2)	—	—	(16,020)	—	(16,020)	(1,522)	(14,498)
Trade and other payables									Trade and other payables	(371)	—	(4,774)	(1,122)	(6,267)	(5,887)	(380)
Derivatives in fair value hedge (interest rate risk)									Derivatives in fair value hedge (interest rate risk)	(284)	—	—	—	(284)	(1)	(283)

Derivatives in cash flow hedge (foreign currency risk)									Derivatives in cash flow hedge (foreign currency risk)	(109)	—	—	—	(109)	(81)	(28)
Derivatives in cash flow hedge (commodity price risk)									Derivatives in cash flow hedge (commodity price risk)	(7)	—	—	—	(7)	(5)	(2)
Derivatives in net investment hedge									Derivatives in net investment hedge	(1)	—	—	—	(1)	(1)	—
Other instruments									Other instruments	(271)	—	(117)	—	(388)	(388)	—
Leases									Leases	—	—	(475)	—	(475)	(85)	(390)
Total other financial liabilities									Total other financial liabilities	(672)	—	(592)	—	(1,264)	(561)	(703)
Total financial liabilities									Total financial liabilities	(1,043)	—	(21,386)	(1,122)	(23,551)	(7,970)	(15,581)
Total net financial (liabilities)/assets									Total net financial (liabilities)/assets	(270)	4	(16,718)	(516)	(17,500)	(2,501)	(14,999)
2021									2021
Other investments and loans(1)									Other investments and loans(1)	121	17	8	2	148	—	148
Trade and other receivables									Trade and other receivables	—	—	2,017	404	2,421	2,385	36
Cash and cash equivalents									Cash and cash equivalents	—	—	2,749	—	2,749	2,749	—
Derivatives in fair value hedge (interest rate risk)									Derivatives in fair value hedge (interest rate risk)	106	—	—	—	106	4	102
Derivatives in cash flow hedge (foreign currency debt)									Derivatives in cash flow hedge (foreign currency debt)	205	—	—	—	205	—	205
Derivatives in cash flow hedge (foreign currency risk)									Derivatives in cash flow hedge (foreign currency risk)	61	—	—	—	61	57	4
Derivatives in cash flow hedge (commodity price risk)									Derivatives in cash flow hedge (commodity price risk)	16	—	—	—	16	14	2

Other instruments									Other instruments	55	—	—	—	55	46	9
Leases									Leases	—	—	5	—	5	—	5
Total other financial assets									Total other financial assets	443	—	5	—	448	121	327
Total financial assets									Total financial assets	564	17	4,779	406	5,766	5,255	511
Borrowings(2)									Borrowings(2)	—	—	(14,727)	—	(14,727)	(1,862)	(12,865)
Trade and other payables	Trade and other payables	(429)	—	(3,580)	(977)	(4,986)	(4,648)	(338)	Trade and other payables	(429)	—	(3,580)	(977)	(4,986)	(4,648)	(338)
Derivatives in fair value hedge (interest rate risk)	Derivatives in fair value hedge (interest rate risk)	(43)	—	—	—	(43)	0	(43)	Derivatives in fair value hedge (interest rate risk)	(43)	—	—	—	(43)	—	(43)
Derivatives in cash flow hedge (foreign currency debt)	Derivatives in cash flow hedge (foreign currency debt)	(51)	—	—	—	(51)	—	(51)	Derivatives in cash flow hedge (foreign currency debt)	(51)	—	—	—	(51)	—	(51)
Derivatives in cash flow hedge (foreign currency exchange risk)		(8)	—	—	—	(8)	(5)	(3)
Derivatives in cash flow hedge (foreign currency risk)									Derivatives in cash flow hedge (foreign currency risk)	(8)	—	—	—	(8)	(5)	(3)

Other instruments	Other instruments	(176)	—	(91)	—	(267)	(261)	(6)	Other instruments	(176)	—	(91)	—	(267)	(261)	(6)
Leases	Leases	—	—	(363)	—	(363)	(82)	(281)	Leases	—	—	(363)	—	(363)	(82)	(281)
Total other financial liabilities	Total other financial liabilities	(278)	—	(454)	—	(732)	(348)	(384)	Total other financial liabilities	(278)	—	(454)	—	(732)	(348)	(384)
Total financial liabilities	Total financial liabilities	(707)	—	(18,761)	(977)	(20,445)	(6,858)	(13,587)	Total financial liabilities	(707)	—	(18,761)	(977)	(20,445)	(6,858)	(13,587)
Total net financial (liabilities)/assets	Total net financial (liabilities)/assets	(143)	17	(13,982)	(571)	(14,679)	(1,603)	(13,076)	Total net financial (liabilities)/assets	(143)	17	(13,982)	(571)	(14,679)	(1,603)	(13,076)
2020
Other investments and loans(i)		96	20	5	2	123	—	123
Trade and other receivables		—	—	1,784	373	2,157	2,111	46
Cash and cash equivalents		—	—	3,323	—	3,323	3,323	—
Derivatives in fair value hedge (interest rate risk)		189	—	—	—	189	0	189
Derivatives in cash flow hedge (foreign currency debt)		469	—	—	—	469	—	469
Derivatives in cash flow hedge (foreign currency exchange risk)		8	—	—	—	8	1	7
Derivatives in cash flow hedge (commodity price risk)		1	—	—	—	1	1	0

Other instruments		91	—	—	—	91	73	18
Leases		—	—	3	—	3	—	3
Total other financial assets		758	—	3	—	761	75	686
Total financial assets		854	20	5,115	375	6,364	5,509	855
Borrowings(ii)		—	—	(16,785)	—	(16,785)	(1,995)	(14,790)
Trade and other payables		(249)	—	(2,742)	(867)	(3,858)	(3,683)	(175)

Derivatives in cash flow hedge (foreign currency exchange risk)		(66)	—	—	—	(66)	(52)	(14)
Derivatives in cash flow hedge (commodity price risk)		(10)	—	—	—	(10)	(9)	(1)

Other instruments		(236)	—	0	—	(236)	(222)	(14)
Leases		—	—	(470)	—	(470)	(106)	(364)
Total other financial liabilities		(312)	—	(470)	—	(782)	(389)	(393)
Total financial liabilities		(561)	—	(19,997)	(867)	(21,425)	(6,067)	(15,358)
Total net financial assets/(liabilities)		293	20	(14,882)	(492)	(15,061)	(558)	(14,503)

~~(i)~~(1) Other investments and loans are including those in respect of associates.

~~(ii)~~(2) Borrowings are defined as gross borrowings excluding lease liabilities and the fair value of derivative instruments.

At 30 June ~~2021~~2022 and 30 June ~~2020,~~2021, the carrying values of cash and cash equivalents, other financial assets and liabilities approximate to fair values. At 30 June ~~2021~~2022 the fair value of borrowings, based on unadjusted quoted market data, was ~~£15,895~~£15,628 million ~~(2020~~(2021 – ~~£18,175~~£15,895 million).

275

Financial statements (continued)

(j) Capital management

The group’s management is committed to enhancing shareholder value in the long-term, both by investing in the business and brands so as to deliver continued improvement in the return from those investments and by managing the capital structure. Diageo manages its capital structure to achieve capital efficiency, provide flexibility to invest through the economic cycle and give efficient access to

~~275~~

~~Financial statements (continued)~~

debt markets at attractive cost levels. This is achieved by targeting an adjusted net borrowings (net borrowings aggregated with post employment benefit liabilities) to adjusted EBITDA leverage of 2.5 - 3.0 times, this range for Diageo being currently broadly consistent with an A band credit rating. Diageo would consider operating outside of this range in order to effect strategic initiatives within its stated goals, which could have an impact on its rating. If Diageo’s leverage was to be negatively impacted by the financing of an acquisition, it would seek over time to return to the range of 2.5 - 3.0 times. The group regularly assesses its debt and equity capital levels against its stated policy for capital structure. As at 30 June ~~2021~~2022 the adjusted net borrowings (£~~12,683~~14,539 million) to adjusted EBITDA ratio was ~~2.8~~2.5 times. For this calculation net borrowings are adjusted by post employment benefit liabilities before tax (£~~574~~402 million) whilst adjusted EBITDA (£~~4,527~~5,703 million) comprises operating profit excluding exceptional operating items and depreciation, amortisation and impairment and includes share of after tax results of associates and joint ventures.

~~16.~~17. Net borrowings

Accounting policies

Borrowings are initially recognised at fair value net of transaction costs and are subsequently reported at amortised cost. Certain bonds are designated in fair value hedge relationship. In these cases, the amortised cost is adjusted for the fair value of the risk being hedged, with changes in value recognised in the income statement. The fair value adjustment is calculated using a discounted cash flow technique based on unadjusted market data.

Bank overdrafts form an integral part of the group’s cash management and are included as a component of net cash and cash equivalents in the consolidated statement of cash flows.

Cash and cash equivalents comprise cash in hand and deposits which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value and have an original maturity of three months or less, including money market deposits, commercial paper and investments.

Net borrowings are defined as gross borrowings (short-term borrowings and long-term borrowings plus lease liabilities plus interest rate hedging instruments, cross currency interest rate swaps and ~~funding~~ foreign currency forwards and swaps used to manage borrowings) less cash and cash equivalents.

276

Financial statements (continued)


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Bank overdrafts	Bank overdrafts	112	170	Bank overdrafts	74	112

Bank and other loans	Bank and other loans	160	367	Bank and other loans	105	160
Credit support obligations	Credit support obligations	98	180	Credit support obligations	(19)	98
€ 775 million 0% bonds due 2020		0	711
US$ 696 million 4.828% bonds due 2020		0	566
€ 900 million 0.25% bonds due 2021	€ 900 million 0.25% bonds due 2021	769	0	€ 900 million 0.25% bonds due 2021	—	769
US$ 1,000 million 2.875% bonds due 2022(i)		719	0
$ 300 million 8% bonds due 2022(1)				$ 300 million 8% bonds due 2022(1)	248	—
$ 1,000 million 2.875% bonds due 2022(1)				$ 1,000 million 2.875% bonds due 2022(1)	—	719
$ 1,350 million 2.625% bonds due 2023				$ 1,350 million 2.625% bonds due 2023	1,115	—
Fair value adjustment to borrowings	Fair value adjustment to borrowings	4	1	Fair value adjustment to borrowings	(1)	4
Borrowings due within one year	Borrowings due within one year	1,862	1,995	Borrowings due within one year	1,522	1,862
€ 900 million 0.25% bonds due 2021		0	825
US$ 1,000 million 2.875% bonds due 2022(i)		0	812
US$ 300 million 8% bonds due 2022(i)		215	243
US$ 1,350 million 2.625% bonds due 2023		970	1,096

$ 300 million 8% bonds due 2022(1)				$ 300 million 8% bonds due 2022(1)	—	215
$ 1,350 million 2.625% bonds due 2023				$ 1,350 million 2.625% bonds due 2023	—	970
€ 600 million 0.125% bonds due 2023	€ 600 million 0.125% bonds due 2023	511	548	€ 600 million 0.125% bonds due 2023	516	511
US$ 500 million 3.5% bonds due 2023		360	405
US$ 600 million 2.125% bonds due 2024		431	487
$ 500 million 3.5% bonds due 2023				$ 500 million 3.5% bonds due 2023	413	360
$ 600 million 2.125% bonds due 2024				$ 600 million 2.125% bonds due 2024	495	431
€ 500 million 1.75% bonds due 2024	€ 500 million 1.75% bonds due 2024	426	456	€ 500 million 1.75% bonds due 2024	430	426
€ 500 million 0.5% bonds due 2024	€ 500 million 0.5% bonds due 2024	425	456	€ 500 million 0.5% bonds due 2024	430	425
US$ 750 million 1.375% bonds due 2025		537	606
$ 750 million 1.375% bonds due 2025				$ 750 million 1.375% bonds due 2025	618	537
€ 600 million 1% bonds due 2025	€ 600 million 1% bonds due 2025	510	546	€ 600 million 1% bonds due 2025	515	510
€ 850 million 2.375% bonds due 2026	€ 850 million 2.375% bonds due 2026	723	776	€ 850 million 2.375% bonds due 2026	731	723
£ 500 million 1.75% bonds due 2026	£ 500 million 1.75% bonds due 2026	497	496	£ 500 million 1.75% bonds due 2026	498	497
€ 750 million 1.875% bonds due 2027	€ 750 million 1.875% bonds due 2027	637	683	€ 750 million 1.875% bonds due 2027	643	637
€ 500 million 1.5% bonds due 2027	€ 500 million 1.5% bonds due 2027	426	457	€ 500 million 1.5% bonds due 2027	430	426
€ 700 million 0.125% bonds due 2028	€ 700 million 0.125% bonds due 2028	594	0	€ 700 million 0.125% bonds due 2028	600	594
US$ 500 million 3.875% bonds due 2028		358	404
US$ 1,000 million 2.375% bonds due 2029		711	804
$ 500 million 3.875% bonds due 2028				$ 500 million 3.875% bonds due 2028	411	358
£ 300 million 2.375% bonds due 2028				£ 300 million 2.375% bonds due 2028	298	—
$ 1,000 million 2.375% bonds due 2029				$ 1,000 million 2.375% bonds due 2029	819	711
£ 300 million 2.875% bonds due 2029	£ 300 million 2.875% bonds due 2029	298	298	£ 300 million 2.875% bonds due 2029	298	298
US$ 1,000 million 2% bonds due 2030		714	807
€ 750 million 1.15% bonds due 2029				€ 750 million 1.15% bonds due 2029	645	—
$ 1,000 million 2% bonds due 2030				$ 1,000 million 2% bonds due 2030	821	714
€ 1,000 million 2.5% bonds due 2032	€ 1,000 million 2.5% bonds due 2032	850	911	€ 1,000 million 2.5% bonds due 2032	856	850
US$ 750 million 2.125% bonds due 2032		534	603
$ 750 million 2.125% bonds due 2032				$ 750 million 2.125% bonds due 2032	614	534
£ 400 million 1.25% bonds due 2033	£ 400 million 1.25% bonds due 2033	395	0	£ 400 million 1.25% bonds due 2033	395	395
US$ 400 million 7.45% bonds due 2035(i)		288	325
US$ 600 million 5.875% bonds due 2036		427	483
US$ 500 million 4.25% bonds due 2042(i)		356	402
US$ 500 million 3.875% bonds due 2043		353	400
€ 900 million 1.15% bonds due 2034				€ 900 million 1.15% bonds due 2034	770	—
$ 400 million 7.45% bonds due 2035(1)				$ 400 million 7.45% bonds due 2035(1)	331	288
$ 600 million 5.875% bonds due 2036				$ 600 million 5.875% bonds due 2036	491	427
£ 600 million 2.75% bonds due 2038				£ 600 million 2.75% bonds due 2038	595	—
$ 500 million 4.25% bonds due 2042(1)				$ 500 million 4.25% bonds due 2042(1)	409	356
$ 500 million 3.875% bonds due 2043				$ 500 million 3.875% bonds due 2043	407	353
Bank and other loans	Bank and other loans	253	260	Bank and other loans	293	253
Fair value adjustment to borrowings	Fair value adjustment to borrowings	66	201	Fair value adjustment to borrowings	(274)	66
Borrowings due after one year	Borrowings due after one year	12,865	14,790	Borrowings due after one year	14,498	12,865
Total borrowings before derivative financial instruments	Total borrowings before derivative financial instruments	14,727	16,785	Total borrowings before derivative financial instruments	16,020	14,727
Fair value of cross currency interest rate swaps	Fair value of cross currency interest rate swaps	(154)	(469)	Fair value of cross currency interest rate swaps	(367)	(154)
Fair value of foreign exchange swaps and forwards		(15)	(28)
Fair value of foreign currency swaps and forwards				Fair value of foreign currency swaps and forwards	11	(15)
Fair value of interest rate hedging instruments	Fair value of interest rate hedging instruments	(63)	(189)	Fair value of interest rate hedging instruments	283	(63)
Lease liabilities	Lease liabilities	363	470	Lease liabilities	475	363
Gross borrowings	Gross borrowings	14,858	16,569	Gross borrowings	16,422	14,858
Less: Cash and cash equivalents	Less: Cash and cash equivalents	(2,749)	(3,323)	Less: Cash and cash equivalents	(2,285)	(2,749)
Net borrowings	Net borrowings	12,109	13,246	Net borrowings	14,137	12,109

~~(i)~~(1) SEC-registered debt issued on an unsecured basis by Diageo Investment Corporation, a 100% owned ~~finance~~ subsidiary of Diageo plc.

~~(1)~~(i) The interest rates shown are those contracted on the underlying borrowings before taking into account any interest rate hedges (see note ~~15)~~16).

~~(2)~~(ii) Bonds are stated net of unamortised finance costs of £85 million (2021 – £78 ~~million (2020~~million; 2020 – £86 ~~million; 2019 – £63~~ million).

~~(3)~~(iii) Bonds are reported above at amortised cost with a fair value adjustment shown separately.

~~(4)~~(iv) All bonds, medium-term notes and commercial paper issued on an unsecured basis by the group’s 100% owned subsidiaries are fully and unconditionally guaranteed on an unsecured basis by Diageo plc.

277

Financial statements (continued)

Gross borrowings before derivative financial instruments are expected to mature as follows:


		2021 £ million	2020 £ million		2022 £ million	2021 £ million
Within one year	Within one year	1,862	1,995	Within one year	1,522	1,862
Between one and three years	Between one and three years	2,623	3,013	Between one and three years	2,817	2,623
Between three and five years	Between three and five years	2,788	3,134	Between three and five years	2,625	2,788
Beyond five years	Beyond five years	7,454	8,643	Beyond five years	9,056	7,454
		14,727	16,785		16,020	14,727

During the year, the following bonds were issued and repaid:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Issued	Issued				Issued
€ denominated	€ denominated	636	1,594	2,270	€ denominated	1,371	636	1,594
£ denominated	£ denominated	395	298	496	£ denominated	892	395	298
US$ denominated		0	3,296	0
$ denominated					$ denominated	—	—	3,296
Repaid	Repaid				Repaid
€ denominated	€ denominated	(696)	0	(1,168)	€ denominated	(769)	(696)	—
US$ denominated		(551)	(820)	0
$ denominated					$ denominated	(752)	(551)	(820)
		(216)	4,368	1,598		742	(216)	4,368

(a) Reconciliation of movement in net borrowings

2021
£ million
2020
£ million
At beginning of the year 13,246 11,277
Net decrease/(increase) in cash and cash equivalents before exchange 231 (2,552)
Net (decrease)/increase in bonds and other borrowings(i)
(967) 4,089
Change in net borrowings from cash flows (736) 1,537
Exchange differences on net borrowings (598) 95
Other non-cash items(ii)
197 86
Adoption of IFRS 16 0 251
Net borrowings at end of the year 12,109 13,246


	2022 £ million	2021 £ million
At beginning of the year	12,109	13,246
Net decrease in cash and cash equivalents before exchange	665	231
Net increase/(decrease) in bonds and other borrowings(1)	825	(967)
Increase/(decrease) in net borrowings from cash flows	1,490	(736)
Exchange differences on net borrowings	334	(598)
Other non-cash items(2)	204	197

Net borrowings at end of the year	14,137	12,109

~~(i)~~(1) In the year ended 30 June ~~2021,~~2022, net ~~decrease~~increase in bonds and other borrowings excludes £2£4 million cash outflow in respect of derivatives designated in forward point hedges ~~(2020 - £6~~(2021 – £2 million).

~~(ii)~~(2) In the year ended 30 June 2022 other non-cash items are principally in respect of fair value changes of cross currency interest rate swaps and interest rate swaps of £(346) million and lease liabilities £(183) million partially offset by the £331 million fair value change of borrowings. In the year ended 30 June 2021, other non-cash items are principally in respect of fair value changes of cross currency interest rate swaps and interest rate swaps of £249 million, partially offset by the £(111) million fair value ~~changes~~change of borrowings. In the year ended 30 June 2020, other non-cash items are principally in respect of leases of £206 million entered into in the year, partially offset by the fair value changes of cross currency interest rate swaps.

278

Financial statements (continued)

(b) Analysis of net borrowings by currency


		2021		2020			2022		2021
		Cash and cash equivalents £ million	Gross borrowings(i) £ million	Cash and cash equivalents £ million	Gross borrowings(i) £ million		Cash and cash equivalents £ million	Gross borrowings(1) £ million	Cash and cash equivalents £ million	Gross borrowings(1) £ million
US dollar	US dollar	1,890	(4,001)	2,649	(6,300)	US dollar	1,315	(3,260)	1,890	(4,001)
Euro	Euro	82	(2,841)	57	(3,119)	Euro	61	(2,943)	82	(2,841)
Sterling	Sterling	38	(7,279)	19	(6,233)	Sterling	67	(9,214)	38	(7,279)
Indian rupee	Indian rupee	26	(109)	13	(253)	Indian rupee	26	(74)	26	(109)
Mexican peso						Mexican peso	14	(264)	9	(102)
Kenyan shilling	Kenyan shilling	16	(293)	28	(351)	Kenyan shilling	53	(254)	16	(293)
Hungarian forint	Hungarian forint	3	(241)	3	(239)	Hungarian forint	2	(214)	3	(241)
Mexican peso		9	(102)	16	(104)
Chinese yuan	Chinese yuan	255	(20)	207	(1)	Chinese yuan	290	(75)	255	(20)
Nigerian naira	Nigerian naira	60	(1)	6	(15)	Nigerian naira	133	—	60	(1)
Other(ii)		370	29	325	46
Other(2)						Other(2)	324	(124)	370	29
Total	Total	2,749	(14,858)	3,323	(16,569)	Total	2,285	(16,422)	2,749	(14,858)

~~(i)~~(1) Includes foreign currency forwards and swaps and leases.

~~(ii)~~(2) Includes ~~£31~~£23 million (Turkish ~~lira)~~lira and Euro) cash and cash equivalents in cash-pooling arrangements ~~(2020~~(2021 – ~~£100~~£31 million (Turkish lira)).

~~17.~~

18. Equity

Accounting policies

Own shares represent shares and share options of Diageo plc that are held in treasury or by employee share trusts for the purpose of fulfilling obligations in respect of various employee share plans or were acquired as part of a share buyback programme. Own shares are treated as a deduction from equity until the shares are cancelled, reissued or disposed of and when vest are transferred from own shares to retained earnings at their weighted average cost.

Share-based payments include share awards and options granted to directors and employees. The fair value of equity settled share options and share grants is initially measured at grant date based on ~~the binomial or~~ Monte Carlo and Black Scholes models and is charged to the income statement over the vesting period. For equity settled shares the credit is included in retained earnings. Cancellations of share options are treated as an acceleration of the vesting period and any outstanding charge is recognised in operating profit immediately. Any surplus or deficit arising on the sale of the Diageo plc shares held by the group is included as a movement in equity.

Dividends are included in the financial statements in the year in which they are approved.

(a) Allotted and fully paid share capital – ordinary shares of 28101⁄108 pence each

Number of shares
million Nominal value
£ million
At 30 June 2021 2,559 741
At 30 June 2020 2,562 742
At 30 June 2019 2,601 753

~~(b) Hedging and exchange reserve~~

Hedging
reserve
£ million Exchange
reserve
£ million Total
£ million
At 30 June 2018 (68) (962) (1,030)
Other comprehensive income 31 181 212
At 30 June 2019 (37) (781) (818)
Other comprehensive income/(loss) 125 (241) (116)
Transfers from other retained earnings 5 0 5
At 30 June 2020 93 (1,022) (929)
Other comprehensive income/(loss) 20 (672) (652)
At 30 June 2021 113 (1,694) (1,581)


	Number of shares million	Nominal value £ million
At 30 June 2022	2,498	723
At 30 June 2021	2,559	741
At 30 June 2020	2,562	742

279

Financial statements (continued)

(b) Hedging and exchange reserve


	Hedging reserve £ million	Exchange reserve £ million	Total £ million
At 30 June 2019	(37)	(781)	(818)
Other comprehensive income/(loss)	125	(241)	(116)
Transfers from other retained earnings	5	—	5

At 30 June 2020	93	(1,022)	(929)
Other comprehensive income/(loss)	20	(672)	(652)

At 30 June 2021	113	(1,694)	(1,581)
Other comprehensive (loss)/income	(87)	622	535

At 30 June 2022	26	(1,072)	(1,046)

Currency basis spreads included in the hedging reserve represent the cost of hedging arising as a result of imperfections of foreign exchange markets. Exclusion of currency basis spreads would result in a ~~surplus~~ £22 million ~~(2020~~(2021 – £22 million, 2020 – £30 ~~million surplus, 2019 – £1 million surplus) in the~~million) credit to hedging reserve.

Movements in own shares


		Number of shares million	Purchase consideration £ million		Number of shares million	Purchase consideration £ million
At 30 June 2018		238	2,144
Share trust arrangements		(1)	(14)

Shares used to satisfy options		(5)	(104)
Shares purchased - share buyback programme		95	2,775
Shares cancelled		(95)	(2,775)
At 30 June 2019	At 30 June 2019	232	2,026	At 30 June 2019	232	2,026
Share trust arrangements	Share trust arrangements	(1)	(7)	Share trust arrangements	(1)	(7)

Shares used to satisfy options	Shares used to satisfy options	(4)	(83)	Shares used to satisfy options	(4)	(83)
Shares purchased - share buyback programme	Shares purchased - share buyback programme	39	1,282	Shares purchased - share buyback programme	39	1,282
Shares cancelled	Shares cancelled	(39)	(1,282)	Shares cancelled	(39)	(1,282)
At 30 June 2020	At 30 June 2020	227	1,936	At 30 June 2020	227	1,936
Share trust arrangements	Share trust arrangements	(1)	(11)	Share trust arrangements	(1)	(11)

Shares used to satisfy options	Shares used to satisfy options	(3)	(48)	Shares used to satisfy options	(3)	(48)
Shares purchased - share buyback programme	Shares purchased - share buyback programme	3	109	Shares purchased - share buyback programme	3	109
Shares cancelled	Shares cancelled	(3)	(109)	Shares cancelled	(3)	(109)
At 30 June 2021	At 30 June 2021	223	1,877	At 30 June 2021	223	1,877
Share trust arrangements				Share trust arrangements	(2)	(23)

Shares used to satisfy options				Shares used to satisfy options	(2)	(16)
Shares purchased - share buyback programme				Shares purchased - share buyback programme	61	2,284
Shares cancelled				Shares cancelled	(61)	(2,284)
At 30 June 2022				At 30 June 2022	219	1,838

Share trust arrangements

At 30 June ~~2021~~2022, the employee share trusts owned 2 million of ordinary shares in Diageo plc (the company) at a cost of ~~£47~~£25 million and market value of £63 million (2021 – 2 million shares at a cost of £47 million, market value £74 ~~million (2020~~million; 2020 – 2 million shares at a cost of £51 million, market value £57 ~~million; 2019 – 3 million shares at a cost of £58 million, market value £92~~ million). Dividends receivable by the employee share trusts on the shares are waived and the trustee abstains from voting.

Purchase of own shares

Authorisation was given by shareholders on 2830 September ~~2020~~2021 to purchase a maximum of ~~232,820,888~~233,611,282 shares at a minimum price of 28101/108 pence and a maximum price of higher of (a) 105% of the average of the middle market quotations for an ordinary share for the five preceding business days and (b) the higher of the price of the last independent trade and the highest current independent bid on the London Stock Exchange at the time the purchase is carried out. The programme expires at the conclusion of the next Annual General Meeting or on 2729 December ~~2021~~2022 if earlier.

During the year ended 30 June ~~2019 the company purchased~~2022, Diageo sold call options ~~over~~on own shares for a consideration of £13 million ~~4 million shares at a cost of £14 million~~due to ~~hedge~~no longer being required for employee share ~~awards and share option grants. These are three-year call options, denominated in sterling.~~plan hedging.

~~On 25 July 2019, the Board approved a~~Diageo’s current return of capital programme, ~~with~~initially approved by the Board on 25 July 2019, seeks to return up to £4.5 billion to shareholders and is expected to be ~~returned to shareholders over the three-year period to~~completed by 30 June ~~2022.~~2023. Under the first ~~phase~~two phases of the programme, which ended on 31 January 2020 and 11 February 2022 respectively, the ~~group~~company returned ~~£1.25 billion~~capital to shareholders via share ~~buybacks.~~buyback, at a cost, excluding

280

Financial statements (continued)

transaction costs, of £2.25 billion. On ~~9 April 2020, due to uncertainties related to Covid-19 pandemic, Diageo~~21 February 2022, the company announced ~~that it had not initiated~~ the next phase of the programme. On 12 May 2021, the Board approved recommencing the return of capital programme. Due to the impact of Covid-19, the original completion date for the programme has been extended by two years to 30 June 2024. The secondthird phase of the programme with a value of up to £1£1.7 billion returned to shareholders, via share buybacks, ~~was also initiated on 12 May 2021 and it~~to be completed no later than 5 October 2022. At 30 June 2022, £1.4 billion had been completed as part of the third phase. The remaining £0.9 billion of the programme is expected to be completed by ~~the end of the financial year ending~~ 30 June ~~2022.~~2023.

During the year ended 30 June ~~2021~~2022, the group purchased ~~3.2~~61 million ordinary shares ~~(2020~~(2021 – 393.2 million; ~~2019~~2020 – ~~94.7~~39 million), representing approximately ~~0.1%~~2.4% of the issued ordinary share capital ~~(2020~~(2021 – ~~1.5%~~0.1%; ~~2019~~2020 – ~~3.5%~~1.5%) at an average price of ~~£34.07~~3709 pence per share, and an aggregate cost of £2,284 million (including £16 million of transaction costs) (2021 – 3407 pence per share, and an aggregate cost of £109 million, ~~(including~~including £1 million of transaction ~~costs) (2020~~costs; 2020 – ~~£32.43~~3243 pence per share, and an aggregate cost of £1,282 million, including £7 ~~million of transaction costs; 2019 – £29.24 per share, and an aggregate cost of £2,775 million, including £6~~ million of transaction costs) under the share buyback programme. The shares purchased under the share buyback programmes were cancelled.

~~280~~

~~Financial statements (continued)~~

A financial liability of ~~£91~~£117 million was established at 30 June ~~2021~~2022, representing the ~~2.6~~3.3 million shares that were expected to be purchased ~~before 29~~by 28 July ~~2021.~~2022.

The monthly breakdown of all shares purchased and the average price paid per share (excluding expenses) for the year ended 30 June ~~2021~~2022 were as follows:


Period	Period	Number of shares purchased under share buyback programme	Total number of shares purchased	Average price paid pence	Authorised purchases unutilised at month end	Period	Number of shares purchased under share buyback programme	Total number of shares purchased	Average price paid pence	Authorised purchases unutilised at month end
July 2021						July 2021	1,728,254	1,728,254	3457	227,758,747
August 2021						August 2021	2,396,223	2,396,223	3538	225,362,524
September 2021						September 2021	3,175,936	3,175,936	3493	222,186,588

May 2021		1,484,935	1,484,935	3360	231,335,953
June 2021		1,848,952	1,848,952	3453	229,487,001
October 2021(1)						October 2021(1)	1,565,980	1,565,980	3550	232,045,302
November 2021						November 2021	1,375,946	1,375,946	3785	230,669,356
December 2021						December 2021	4,423,031	4,423,031	3960	226,246,325
January 2022						January 2022	5,822,743	5,822,743	3797	220,423,582
February 2022						February 2022	5,865,710	5,865,710	3714	214,557,872
March 2022						March 2022	8,480,736	8,480,736	3588	206,077,136
April 2022						April 2022	7,260,564	7,260,564	3935	198,816,572
May 2022						May 2022	12,627,704	12,627,704	3724	186,188,868
June 2022						June 2022	6,771,405	6,771,405	3584	179,417,463
Total	Total	3,333,887	3,333,887	3411	229,487,001	Total	61,494,232	61,494,232	3708	179,417,463

(1) New maximum number of purchasable shares was authorised by shareholders at the AGM held on 30 September 2021

(d) Dividends

2021 2020 2019
£ million £ million £ million
Amounts recognised as distributions to equity shareholders in the year
Final dividend for the year ended 30 June 2020
42.47 pence per share (2019 – 42.47 pence; 2018 – 40.4 pence) 992 1,006 993
Interim dividend for the year ended 30 June 2021
27.96 pence per share (2020 – 27.41 pence; 2019 – 26.1 pence) 654 640 630
1,646 1,646 1,623


	2022	2021	2020
	£ million	£ million	£ million
Amounts recognised as distributions to equity shareholders in the year
Final dividend for the year ended 30 June 2021
44.59 pence per share (2020 – 42.47 pence; 2019 – 42.47 pence)	1,040	992	1,006
Interim dividend for the year ended 30 June 2022
29.36 pence per share (2021 – 27.96 pence; 2020 – 27.41 pence)	680	654	640
	1,720	1,646	1,646

The proposed final ~~dividend~~dividend of £~~1,042~~1,067 million ~~(44.59~~ (46.82 pence per share) for the year ended 30 June ~~2021~~2022 was approved by the Board of Directors on 27 July 2022~~28 July 2021.~~. As this was after the balance sheet date and the dividend is subject to approval by shareholders at the Annual General Meeting, this dividend has not been included as a liability in these consolidated financial statements. There are no corporate tax consequences arising from this treatment.

Dividends are waived on all treasury shares owned by the company and all shares owned by the employee share trusts.

281

Financial statements (continued)

(e) Non-controlling interests

Diageo consolidates USL, a company incorporated in India, with a 42.73% non-controlling interest and has a 50% controlling interest in Ketel One Worldwide B.V. (Ketel One), a company incorporated in the Netherlands. All other consolidated subsidiaries are fully owned or the non-controlling interests, including Ketel One, are not material.

Summarised financial information for USL and other subsidiaries, after fair value adjustments on acquisition, and the amounts attributable to non-controlling interests are as follows:


		2021			2020	2019		2022			2021	2020
		USL £ million	Others £ million	Total £ million				USL £ million	Others £ million	Total £ million
Income statement	Income statement						Income statement
Sales	Sales	3,005	2,135	5,140	4,688	5,346	Sales	3,194	2,603	5,797	5,140	4,688
Net sales	Net sales	877	1,676	2,553	2,314	2,656	Net sales	1,013	2,042	3,055	2,553	2,314
Profit for the year		85	213	298	85	383
Other comprehensive (loss)/income(i)		(182)	(252)	(434)	(96)	137
Total comprehensive (loss)/income		(97)	(39)	(136)	(11)	520
(Loss)/profit for the year							(Loss)/profit for the year	(127)	354	227	298	85
Other comprehensive income/(loss)(1)							Other comprehensive income/(loss)(1)	134	199	333	(434)	(96)
Total comprehensive income/(loss)							Total comprehensive income/(loss)	7	553	560	(136)	(11)
Attributable to non-controlling interests	Attributable to non-controlling interests	(42)	7	(35)	8	234	Attributable to non-controlling interests	3	256	259	(35)	8
Balance sheet	Balance sheet						Balance sheet
Non-current assets(ii)		1,823	2,846	4,669	5,170	5,313
Non-current assets(2)							Non-current assets(2)	1,668	3,349	5,017	4,669	5,170
Current assets	Current assets	584	908	1,492	1,280	1,469	Current assets	727	1,275	2,002	1,492	1,280
Non-current liabilities	Non-current liabilities	(302)	(1,054)	(1,356)	(1,459)	(1,526)	Non-current liabilities	(275)	(1,224)	(1,499)	(1,356)	(1,459)
Current liabilities	Current liabilities	(433)	(902)	(1,335)	(1,188)	(1,204)	Current liabilities	(441)	(1,205)	(1,646)	(1,335)	(1,188)
Net assets	Net assets	1,672	1,798	3,470	3,803	4,052	Net assets	1,679	2,195	3,874	3,470	3,803
Attributable to non-controlling interests	Attributable to non-controlling interests	714	820	1,534	1,668	1,795	Attributable to non-controlling interests	717	999	1,716	1,534	1,668
Cash flow	Cash flow						Cash flow
Net cash inflow from operating activities	Net cash inflow from operating activities	149	512	661	233	542	Net cash inflow from operating activities	149	541	690	661	233
Net cash outflow from investing activities	Net cash outflow from investing activities	(10)	(127)	(137)	(152)	(157)	Net cash outflow from investing activities	(74)	(215)	(289)	(137)	(152)
Net cash outflow from financing activities	Net cash outflow from financing activities	(142)	(229)	(371)	(209)	(266)	Net cash outflow from financing activities	(72)	(250)	(322)	(371)	(209)
Net increase/(decrease) in cash and cash equivalents	Net increase/(decrease) in cash and cash equivalents	(3)	156	153	(128)	119	Net increase/(decrease) in cash and cash equivalents	3	76	79	153	(128)
Exchange differences	Exchange differences	0	(19)	(19)	(3)	3	Exchange differences	—	52	52	(19)	(3)
Dividends payable to non-controlling interests	Dividends payable to non-controlling interests	0	(72)	(72)	(117)	(114)	Dividends payable to non-controlling interests	—	(72)	(72)	(72)	(117)

~~(i)~~(1) Other comprehensive income is principally in respect of exchange on translating the subsidiaries to sterling.

~~(ii)~~(2) Non-current assets include the global distribution rights to distribute Ketel One vodka products throughout the world. The carrying value of the distribution rights at 30 June ~~2021~~2022 was £1,488 million (2021 – £1,295 ~~million (2020~~million; 2020 – £1,464 ~~million; 2019 – £1,418~~ million).

(1) On 21 October 2020 and on 6 November 2020, East African Breweries Limited completed the purchase of 13.3% and 16.7% of the share capital of Serengeti Breweries Limited, respectively. This increased Diageo’s effective economic interest from 40.2% to 47.0%.

(2) During the financial year, Diageo's fully consolidated subsidiary, Shui Jing Fang, completed treasury share purchase of 0.02%. This increased Diageo's controlling interest from 63.14% to 63.17%.

282

Financial statements (continued)

(f) Employee share compensation

The group uses a number of share award and option plans to grant to its directors and employees.

The annual fair value charge in respect of the equity settled plans for the three years ended 30 June ~~2021~~2022 is as follows:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Executive share award plans	Executive share award plans	41	(3)	41	Executive share award plans	51	41	(3)
Executive share option plans	Executive share option plans	4	2	4	Executive share option plans	4	4	2
Savings plans	Savings plans	4	3	4	Savings plans	4	4	3
		49	2	49		59	49	2

Executive share awards ~~are~~have been made primarily ~~made~~ under the Diageo 2014 Long Term Incentive Plan (DLTIP) from September 2014 onwards and delivered in conditional awards in the form of performance shares, performance share options, time-vesting restricted stock units (RSUs) and/or time-vesting share options (or cash-based equivalents in certain locations for regulatory reasons). Share options are granted at the market value at the time of grant. Prior to the introduction of the DLTIP, employees in associated companies were granted awards under the Diageo plc 2011 Associated Companies Share Incentive Plan (DACSIP). In the case of Executive Directors, conditional awards of time-vesting RSUs or ~~Forfeitable~~forfeitable shares may be awarded under the 2020 Deferred Bonus Share Plan (DBSP), with vesting not subject to any performance conditions and not subject to a post-vesting retention period. The ~~2020~~ DBSP was approved by shareholders in September 2020.

Share awards normally vest and are released on the third anniversary of the grant date. Participants do not make a payment to receive the award at grant. Executive Directors are required to hold any vested shares awarded ~~from 2014~~ under ~~the 2014~~ DLTIP for a further two-year post-vesting ~~retention~~holding period. Share options may normally be exercised between three and ten years after the grant date. Executives in North America and Latin America and Caribbean are granted awards over the company’s ~~ADSs~~ADRs (one ~~ADS~~ADR is equivalent to four ordinary shares).

Performance shares under the DLTIP (for awards in 2020 and thereafter) are subject to the achievement of three performance ~~tests:~~measures: 1) compound annual growth in profit before exceptional items over three years; 2) compound annual growth in organic net sales over three years; 3) environmental, social and governance (ESG) priorities, weighted 40%, 40% and 20% of the maximum respectively, as set out in the Directors’ remuneration report. Performance share options under the DLTIP are subject to the achievement of two equally weighted performance ~~tests:~~measures: 1) a comparison of Diageo’s three-year TSR with a peer group; 2) cumulative free cash flow over a three-year period, measured at constant exchange rates. Performance measures and targets are set annually by the Remuneration Committee. The vesting range is 20% ~~or 25% (for~~ for Executive Directors and 25%for other participants ~~respectively)~~ for achieving minimum performance targets, up to 100% for achieving the maximum target level. Retesting of the performance ~~condition~~measures is not permitted.

For performance shares under the DLTIP, dividends are accrued on awards and are given to participants to the extent that the awards actually vest at the end of the performance period. Dividends are normally paid out in the form of shares.

Savings plans are provided in the form of a savings-related share option plan. For UK employees, awards ~~are~~were made under the Diageo 2010 Sharesave ~~plan.~~plan (for options granted up until 2020) and the Diageo 2020 Sharesave plan (for options granted from 2021). For Republic of Ireland (ROI) based employees, awards ~~are~~were made under the Diageo 2009 Irish Sharesave Scheme (for options granted up until 2019) and the Diageo 2019 Irish Sharesave Scheme (for options granted in 2020). These are HMRC and Irish Revenue approved all-employee savings plans.

For ROI employees, any grants from 2021 were made under the Diageo 2020 Sharesave plan which is not an approved plan in the Republic of Ireland. These plans are made available to UK and ROI employees who are employed on the annual results announcement date. Participants can save monthly, with deductions taken directly from net pay, for a period of 3 or 5 ~~years. In~~years.In return, employees are granted the option to buy Diageo shares using the savings accrued at the end of the relevant savings period and at a 20% discounted option price, which is set at the time of grant. Provided participants fulfil the terms set out within the relevant UK or ROI tax approved scheme rules, any gains from the option exercise are free from UK or ROI income tax. For ROI Sharesave awards granted from 2021, as these are not made under a Revenue tax approved plan, the gains from the option exercise are subject to ROI income tax.

For US employees the awards are made under the Diageo plc 2017 United States Employee Stock Purchase Plan. Employees agree to make regular monthly savings for a period of one year and acquire American Depositary Receipts (ADRs) at 15% discounted price (which is set at the time of grant) using their contributions at the end of the plan cycle. They receive the benefit of tax-relief if certain conditions are satisfied.

283

Financial statements (continued)

For the three years ended 30 June ~~2021,~~2022, the calculation of the fair value of each share award used the Monte Carlo and Black Scholes pricing model and the following assumptions:

2021 2020 2019
Risk free interest rate (0.1 %) 0.4 % 0.8 %
Expected life of the awards 36 months 37 months 37 months
Dividend yield 2.7 % 1.9 % 2.4 %
Weighted average share price 2557 p 3501 p 2736 p
Weighted average fair value of awards granted in the year 2107 p 899 p 1941 p
Number of awards granted in the year 2.1 million 1.7 million 2.5 million
Fair value of all awards granted in the year £45 million £16 million £48 million


	2022		2021		2020
Risk free interest rate	0.4	%	(0.1	%)	0.4	%
Expected life of the awards	40 months		36 months		37 months
Dividend yield	2.1	%	2.7	%	1.9	%
Weighted average share price	3545 p		2557 p		3501 p
Weighted average fair value of awards granted in the year	2729 p		2107 p		899 p
Number of awards granted in the year	2.1 million		2.1 million		1.7 million
Fair value of all awards granted in the year	£57 million		£45 million		£16 million

~~283~~284

Financial statements (continued)

Transactions on schemes

Transactions on the executive share award plans for the three years ended 30 June ~~2021~~2022 were as follows:


		2021 Number of awards million	2020 Number of awards million	2019 Number of awards million		2022 Number of awards million	2021 Number of awards million	2020 Number of awards million
Balance outstanding at 1 July	Balance outstanding at 1 July	5.6	7.0	7.8	Balance outstanding at 1 July	5.3	5.6	7.0
Granted	Granted	2.1	1.8	2.5	Granted	2.1	2.1	1.8
Awarded	Awarded	(1.2)	(2.5)	(2.1)	Awarded	(1.1)	(1.2)	(2.5)

Forfeited	Forfeited	(1.2)	(0.7)	(1.2)	Forfeited	(1.1)	(1.2)	(0.7)
Balance outstanding at 30 June	Balance outstanding at 30 June	5.3	5.6	7.0	Balance outstanding at 30 June	5.2	5.3	5.6

The exercise price of share options outstanding at 30 June ~~2021~~2022 was in the range of 1704 pence-4024 pence (2021 – 1232 pence-3483 ~~pence (2020~~pence; 2020 – 1080 pence-3483 ~~pence; 2019 – 952 pence-2773 pence).~~pence.)

At 30 June ~~2021, 3.2~~2022, 2.2 million share options were exercisable at a weighted average exercise price of ~~2050~~2394 pence. Weighted average remaining contractual life of share options was five years at 30 June 2022.

~~284~~285

Financial statements (continued)

Other financial ~~information~~statements disclosures

Introduction

This section includes additional financial information that are either required by the relevant accounting standards or management considers these to be material information for shareholders.

~~18.~~19. Contingent liabilities and legal proceedings

Accounting policies

Provision is made for the anticipated settlement costs of legal or other disputes against the group where it is considered to be probable that a liability exists and a reliable estimate can be made of the likely outcome. Where it is possible that a settlement may be reached or it is not possible to make a reliable estimate of the estimated financial effect, appropriate disclosure is made but no provision created.

Critical accounting judgements and estimates

Judgement is necessary in assessing the likelihood that a claim will succeed, or a liability will arise, and an estimate to quantify the possible range of any settlement. Due to the inherent uncertainty in this evaluation process, actual losses may be different from the liability originally estimated. The group may be involved in legal proceedings in respect of which it is not possible to make a reliable estimate of any expected ~~settlement, if any.~~settlement. In such cases, appropriate disclosure is provided but no provision is made and no contingent liability is quantified.

(a) Guarantees and related matters

As of 30 June ~~2021,~~2022, the group has no material unprovided guarantees or indemnities in respect of liabilities of third parties.

(b) Acquisition of USL shares from UBHL ~~winding-up petitions against UBHL~~ and ~~other~~related proceedings in relation to the USL transaction

On 4 July 2013, Diageo completed its acquisition, under a share purchase agreement with United Breweries (Holdings) Limited (UBHL) and various other sellers (the SPA), of ~~21,767,749~~ shares ~~(14.98%)~~representing 14.98% in ~~United Spirits Limited (USL) for a total consideration of INR 31.3 billion (£349 million),~~USL, including ~~10,141,437~~ shares ~~(6.98%)~~representing 6.98% from UBHL. The SPA was signed on 9 November 2012 ~~and was~~as part of the transaction announced by Diageo in relation to USL on that day (the Original USL Transaction). Following a series of further transactions, as of 30 June ~~2021,~~2022, Diageo has a 55.94% investment in USL (excluding 2.38% owned by the USL Benefit Trust).

Prior to the acquisition from UBHL on 4 July 2013, the High Court of Karnataka (High Court) had granted leave to UBHL under ~~sections 536 and 537 of~~ the Indian Companies Act 1956 (the Leave Order) to enable the sale by UBHL to Diageo to take place (the UBHL Share Sale) notwithstanding the continued existence of 5certain winding-up petitions that were pending against UBHL on ~~9 November 2012, being~~ the date of the SPA. ~~Additional winding-up petitions have been brought against UBHL since 9 November 2012, and the Leave Order did not extend to them.~~ At the time of the completion of the UBHL Share Sale, the Leave Order remained subject to review on appeal. However, as stated by Diageo at the time of closing, ~~on 4 July 2013,~~ it was considered unlikely that any appeal process in respect of the Leave Order would definitively conclude on a timely basis and, accordingly, Diageo waived the conditionality under the SPA relating to the absence of insolvency proceedings in relation to UBHL and acquired the ~~10,141,437~~6.98% stake in USL ~~shares~~ from UBHL at that time.

Following ~~closing of the UBHL Share Sale, appeals were filed by various petitioners~~appeal and counter-appeal in respect of the Leave ~~Order. On 20 December 2013, the division bench of the High Court set aside the Leave~~ Order, ~~(the December 2013 Order). Following the December 2013 Order, Diageo filed special leave petitions (SLPs) in~~this matter is now before the Supreme Court of India ~~against the December 2013 Order.~~

~~On 10 February 2014, the Supreme Court of India~~which has issued an order ~~giving notice in respect of the SLPs and ordering~~ that the status quo be maintained with regard to the UBHL Share Sale pending a hearing on the matter ~~in the Supreme Court.~~before it. Following a number of adjournments, the next date for a substantive hearing ~~of the SLPs (in respect of which leave has since been granted and which have been converted to civil appeals)~~ is yet to be fixed.

In separate proceedings, the High Court passed a winding-up order against UBHL on 7 February ~~2017. On 4 March~~ 2017, and appeals filed by UBHL ~~appealed~~ against ~~this~~that order ~~before~~have since been dismissed, initially by a division bench of the High ~~Court. On 6 March 2020, the division bench of the High~~ Court ~~confirmed the winding up order dated 7 February 2017,~~ and ~~dismissed the appeal filed~~subsequently by ~~UBHL. On 30 June 2020, UBHL filed a special leave petition in~~ the Supreme Court of ~~India against the order of the division bench of the High Court. On 26 October 2020, the Supreme Court of India dismissed the petition filed by UBHL.~~India.

Diageo continues to believe that the acquisition price of INR 1,440 per share paid to UBHL for the USL shares is fair and reasonable as regards UBHL, UBHL’s shareholders and UBHL’s secured and unsecured creditors. However, adverse results for Diageo in the proceedings referred to above could, absent leave or relief in other proceedings, ultimately result in Diageo losing title to the 6.98% stake in USL acquired from ~~UBHL (now represented by 50,707,185 USL shares following a share split).~~UBHL. Diageo believes, including by reason of its rights under USL’s articles of association to nominate USL’s CEO and CFO and the right to appoint, through USL, a

~~285~~

~~Financial statements (continued)~~

majority of the directors on the boards of USL’s subsidiaries as well as its ability as promoter to nominate for appointment up to two-thirds of USL’s directors for so long as the chairperson of USL is an independent director, that it would remain in control of USL and would continue to be able to consolidate USL as a subsidiary for accounting purposes regardless of the outcome of this litigation.

There can be no certainty as to the outcome of the existing or any further related legal proceedings or the ~~timeframe~~time frame within which they would be concluded.

Diageo also has the benefit of certain contractual undertakings and commitments from the relevant sellers in relation to potential challenges to its unencumbered title to the USL shares acquired on 4 July 2013, including relating to the winding-up petitions described above and/or certain losses and costs that may be incurred in the event of third party actions relating to the acquisition of the USL shares.

286

Financial statements (continued)

(c) Continuing matters relating to ~~the resignation of~~ Dr Vijay Mallya ~~from USL~~ and ~~USL internal inquiries~~affiliates

On 25 February 2016, Diageo and USL each announced that they had entered into arrangements with Dr Mallya under which he had agreed to resign from his position as a director and as chairman of USL and from his positions in USL’s subsidiaries. As specified by Diageo in its announcement at that time, these arrangements ended its prior agreement with Dr Mallya regarding his position at USL, therefore bringing to an end the uncertainty relating to the governance of USL, and put in place a five-year global non-compete (excluding the United Kingdom), non-interference, non-solicitation and standstill arrangement with Dr Mallya. As part of those arrangements, USL, Diageo and Dr Mallya agreed a mutual release in relation to matters arising out of an inquiry into certain matters referred to in USL’s financial statements and the qualified auditor’s report for the year ended 31 March 2014 (the Initial Inquiry) which had revealed, among other things, certain diversions of USL funds. Dr Mallya also agreed not to pursue any claims against Diageo, USL and their affiliates (including under the prior agreement with Diageo). In evaluating entering into such arrangements, Diageo considered the impact of the arrangements on USL and all of USL’s shareholders, and came to the view that the arrangements were in the best interests of USL and its shareholders.

Diageo’s agreement with Dr Mallya (the February 2016 Agreement) provided for a payment of $75 million (£5362 million) to Dr Mallya over a five-year period of which $40 million (£33 million) was paid on signing of the February 2016 Agreement with the balance being payable in ~~consideration for~~equal instalments of $7 million (£6 million) a year over five years (2017-2021). All payments were subject to and conditional on Dr Mallya’s compliance with the five-year global non-compete, non-interference, non-solicitation and standstill commitments referred to above, his resignation from USL and the termination of his USL-related appointment and governance rights, the relinquishing of rights and benefits attached to his position at USL, and his agreement not to pursue claims against Diageo and USL.agreement. The February 2016 Agreement also provided for the release of Dr Mallya’s personal obligations to indemnify ~~(i)~~ Diageo Holdings Netherlands B.V. (DHN) in respect of its earlier liability ($141 million (£96117 million)) under a backstop guarantee of certain borrowings of Watson Limited (Watson) (a company affiliated with Dr Mallya),.

On account of various breaches and ~~(ii)~~other provisions of agreements between Dr Mallya and persons connected with him and Diageo Finance plc in respect of its earlier liability (£30 million) under a guarantee of certain borrowings of United Breweries Overseas Limited, a subsidiary of UBHL. $40 million (£28 million) of the $75 million (£53 million) amount was paid on signing of the February 2016 Agreement with the balance being payable in equal instalments of $7 million (£5 million) a year over five years, subject to and conditional on Dr Mallya’s compliance with certain terms of the agreement.

~~While~~and/or USL, Diageo did not make the 5 instalment payments ~~of $7 million (£5 million) would have become~~ due ~~on 25 February~~during the five-year period between 2017 ~~25 February 2018, 25 February 2019 25 February 2020~~ and ~~25 February 2021, respectively, owing to various reasons (including breaches committed by~~2021. In addition, Diageo has also demanded that Dr Mallya ~~and certain persons connected with him of several provisions of~~repay the February 2016 Agreement and agreements of the same date between Dr Mallya and USL), Diageo believes that it was not liable to pay such amounts and did not do so. By notice to Dr Mallya and certain persons connected with him on 24 February 2017, 3 November 2017, 23 February 2018, 22 August 2018, 22 February 2019, 24 February 2020 and 22 February 2021, Diageo and other group companies have demanded from Dr Mallya the repayment of $40 million (£2833 million) ~~which was~~ paid by Diageo ~~on 25~~in February 2016 and ~~also~~ sought compensation ~~from him~~ for various losses incurred by the relevant members of the Diageo ~~group on account of the breaches committed by him and certain persons connected with him.~~ group.

On 16 November 2017, Diageo and other relevant members of the Diageo group commenced claims in the High Court of Justice in England and Wales (the English High Court) against Dr Mallya in relation to ~~certain of the matters specified in those notices.~~these matters. At the same time DHN also commenced claims in the English High Court against Dr Mallya, his son Sidhartha Mallya, Watson ~~(a company affiliated with Dr Mallya)~~ and Continental Administration Services Limited (CASL) (a company affiliated with Dr Mallya and understood to hold assets on trust for him and certain persons affiliated with him) for in excess of $142 million (£~~105~~117 million) (plus interest) in relation to Watson’s liability to DHN in respect of its borrowings referred to above and the breach of associated security documents. ~~These additional claims are described in paragraph (d) below.~~

Dr Mallya, Sidhartha Mallya and the relevant affiliated companies filed a defence to ~~such~~these claims, ~~and the additional claims on 12 March 2018,~~ and Dr Mallya also filed a counterclaim for payment of the 2 ~~$7 million (£5 million)~~ instalment payments that had ~~then~~by that time been withheld ~~by Diageo~~ as described above. ~~Diageo and the other relevant members of its group filed a reply to that defence and a defence to the counterclaim on 5 September 2018.~~

Diageo continues to prosecute its claims and to defend the counterclaim. As part of ~~this, on 18 December 2018,~~these proceedings, Diageo and the other relevant members of its group filed an application for strike out and/or summary judgement in respect of certain aspects of the defence filed by Dr Mallya and the other defendants, including their defence in relation to Watson and CASL’s liability to repay DHN. ~~That application was made by DHN on the basis that the defence filed by Dr Mallya and his co-defendants in relation to those matters had no real prospect of success.~~

~~As described in paragraph (d) below, this~~The application was successful resulting in ~~relation~~Watson being ordered to pay approximately $135 million (£112 million) plus various amounts in respect of interest to DHN, with CASL being held liable as co-surety for 50% of any such amount unpaid by Watson. These amounts were, contrary to the ~~predominant part of~~relevant orders, not paid by the relevant deadlines and Watson and CASL’s ~~liability to repay DHN and, since that application, Watson and CASL’s defence~~remaining defences in ~~relation to~~ the ~~remaining part of this liability has~~

~~286~~

~~Financial statements (continued)~~

~~also been~~proceedings were struck out. ~~Accordingly,~~ Diageo and DHN have accordingly sought asset disclosure and are considering further enforcement steps against Watson and CASL, both in the United Kingdom and in other jurisdictions where they are present or hold assets.

A trial of the remaining elements of these claims was due to commence on 21 November 2022. However, on 26 July 2021 Dr Mallya was declared bankrupt by the English High Court pursuant to a bankruptcy petition presented by a consortium of Indian banks. Diageo and the relevant members of its group have informed the Trustee in Bankruptcy of their position as creditors in the bankruptcy and have engaged with the Trustee regarding their claims and the status of the current proceedings. Dr Mallya has applied for permission to appeal the bankruptcy order and a prior order of the English High Court related to the bankruptcy. The consortium of Indian banks has also applied for permission to appeal a prior order of the English High Court related to the bankruptcy. The bankruptcy proceedings are ongoing. In light of the uncertainty posed by the ongoing bankruptcy proceedings the trial has been vacated to allow time for discussions between the parties regarding the future status and management of the proceedings in light of the bankruptcy and pending appeal to take place.

At this stage, it is not possible to assess the extent to which the various proceedings related to these bankruptcy matters will affect the remaining elements of the claims ~~originally commenced on 16 November 2017~~ by Diageo and the relevant members of its ~~group are proceeding~~group.

Upon completion of an initial inquiry in April 2015 into past improper transactions which identified references to ~~a trial, which is scheduled to take place from 21 November 2021 through 30 November 2021.~~

~~As previously announced by USL, the Initial Inquiry identified~~ certain additional parties and matters, ~~indicating the possible existence of other improper transactions. These transactions could not be fully analysed during the Initial Inquiry and, accordingly,~~ USL ~~as previously announced, mandated that its Managing Director and Chief Executive Officer conduct a further~~carried out an additional inquiry into ~~the~~these transactions ~~involving the additional parties and the additional matters to determine whether they also suffered from improprieties (the Additional~~(Additional Inquiry)~~. USL announced the results of the Additional Inquiry~~ which was completed in ~~a notice to the Indian Stock Exchange dated 9~~ July 2016. The ~~mutual release in relation to the Initial Inquiry agreed by Diageo and USL with Dr Mallya announced on 25 February 2016 does not extend to matters arising out of the Additional Inquiry.~~

~~As stated in USL’s previous announcement, the~~ Additional Inquiry, ~~revealed further instances~~prima facie, identified transactions indicating actual and potential diversion of ~~actual or potential fund diversions~~funds from USL and its Indian and overseas subsidiaries to, in most cases, ~~Indian and overseas~~ entities ~~in which~~that appeared to be affiliated or associated with Dr ~~Mallya appears to have a material direct or indirect interest, as well as other potentially improper transactions involving USL and its Indian and overseas subsidiaries.~~

In connection with the matters identified by the Additional Inquiry, USL has, pursuant to a detailed review of each case of such fund diversion and after obtaining expert legal advice, where appropriate, filed civil suits for recovery of funds from certain parties, including Dr Mallya, before the relevant courts in India.

~~The~~Mallya. All amounts identified in the Additional Inquiry have been ~~previously~~ provided for or expensed in the financial statements of USL or its subsidiaries ~~for~~in the respective prior periods. USL has filed recovery suits against relevant parities identified pursuant to the Additional Inquiry.

Further, at this stage, it is not possible for the management of USL to estimate the financial impact on USL, if any, arising out of potential non-compliance with applicable laws in relation to such fund diversions.

~~(d) Other continuing matters relating to Dr Mallya and affiliates~~

DHN issued a conditional backstop guarantee on 2 August 2013 to Standard Chartered Bank (Standard Chartered) pursuant to a guarantee commitment agreement (the Guarantee Agreement). The guarantee was in respect of the liabilities of Watson, a company affiliated with Dr Mallya, under a $135 million (£92 million) facility from Standard Chartered (the Facility Agreement). The Guarantee Agreement was entered into as part of the arrangements put in place and announced at the closing of the USL transaction on 4 July 2013.

DHN’s provision of the Guarantee Agreement enabled the refinancing of certain existing borrowings of Watson from a third party bank and facilitated the release by that bank of rights over certain USL shares that were to be acquired by Diageo as part of the USL transaction. The facility matured and entered into default in May 2015. In aggregate DHN paid Standard Chartered $141 million (£101 million) under this guarantee, i.e. including payments of default interest and various fees and expenses.

Watson remains liable for all amounts paid by DHN under the guarantee. Under the guarantee documentation with Standard Chartered, DHN is entitled to the benefit of the underlying security package for the loan, including: (a) certain shares in United Breweries Limited (UBL) held solely by Dr Mallya and certain other shares in UBL held by Dr Mallya jointly with his son Sidhartha Mallya, and (b) the shareholding in Watson.

Aspects of the security package are the subject of various proceedings in India in which third parties are alleging and asserting prior rights to certain assets comprised in the security package or otherwise seeking to restrain enforcement against certain assets by Standard Chartered and/or DHN. These proceedings are ongoing and DHN will continue to vigorously pursue these matters as part of its efforts for enforcement of the underlying security and recovery of outstanding amounts. Diageo believes that the existence of any prior rights or dispute in relation to the security would be in breach of representations and warranties given by Dr Mallya and others to Standard Chartered at the time the security was granted and further believes that certain actions taken by Dr Mallya in relation to the proceedings described above also breached his obligations to Standard Chartered. In addition to these third party proceedings, Dr Mallya is also subject to proceedings in India under the Prevention of Money Laundering Act and the Fugitive Economic Offenders Act in which the relevant Indian authority, the Directorate of Enforcement, is seeking confiscation of the UBL shares which were provided as security for Watson’s liabilities. DHN is participating in these proceedings in order to protect its security interest in respect of the UBL shares. Under the proceedings under the Prevention of Money Laundering Act, the Special Court passed an order on 24 May 2021 directing, among other things, the release of certain assets of Dr Mallya including the UBL shares in favour of third party banks. DHN has subsequently filed a writ petition before the Bombay High Court challenging this order of the Special Court insofar as it relates to its security interest in respect of the UBL shares.

Under the terms of the guarantee and as a matter of law, there are arrangements to pass on to DHN the benefit of the security package upon payment by DHN under the guarantee of all amounts owed to Standard Chartered. Payment under the guarantee has now occurred as described above. To the extent possible in the context of the proceedings described above, DHN continues to work towards enforcement of the security package, including, when appropriate, in conjunction with Standard Chartered. DHN’s ability to assume or enforce security over some elements of the security package is also subject to regulatory consent. It is not at this stage possible to determine whether such consent would be forthcoming.

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Financial statements (continued)

In addition to the Indian proceedings just described, certain of the assets comprised in the security package may also be affected by a worldwide freezing order of the English High Court granted on 24 November 2017 and continued on 8 December 2017 and 8 May 2018 in respect of the assets of Dr Mallya.

The agreement with Dr Mallya referenced in paragraph (c) above does not impact the security package. Watson remains liable for all amounts paid pursuant to the guarantee and DHN has the benefit of a counter-indemnity from Watson in respect of payments in connection with the guarantee, as well as a claim against CASL as a co-surety with DHN of Watson's obligations. The various security providers, including Dr Mallya and Watson, acknowledged in the February 2016 Agreement referred to in paragraph (c) above that DHN is entitled to the benefit of the security package underlying the Standard Chartered facility and have also undertaken to take all necessary actions in that regard. Further, Diageo believes that the existence of any prior rights or disputes in relation to the security package would be in breach of certain confirmations given to Diageo and DHN pursuant to that agreement by Dr Mallya, Watson and certain connected persons.

On 16 November 2017, DHN commenced various claims in the English High Court for, in aggregate, in excess of $142 million (£105 million) (plus interest) in relation to these matters, including the following: (i) a claim against Watson for $141 million (£101 million) (plus interest) under Watson’s counter-indemnity to DHN in respect of payments made by DHN to Standard Chartered under the guarantee referred to above; (ii) a claim against Dr Mallya and Sidhartha Mallya under various agreements creating or relating to the security package referred to above for (a) the costs incurred to date in the various Indian proceedings referred to above (plus interest), and (b) damages of $141 million (£101 million), being DHN’s loss as a result of those Indian proceedings which currently prevent enforcement of the security over shares in UBL (plus interest); and (iii) a claim against CASL, as a co-surety with DHN of Watson’s obligations under the Facility Agreement, for 50% of the difference between the amount claimed under (i) above and the amount (if any) that DHN is in fact able to recover from Watson, Dr Mallya and/or Sidhartha Mallya.

As noted in paragraph (c), Dr Mallya, Sidhartha Mallya and the relevant affiliated companies filed a defence to these claims on 12 March 2018. Diageo and the other relevant members of its group filed a reply to that defence on 5 September 2018.

DHN and Diageo continue to prosecute these claims. As part of that, on 18 December 2018, Diageo and the other relevant members of its group filed an application for strike out and/or summary judgment in respect of certain aspects of the defence filed by Dr Mallya, Sidhartha Mallya and the relevant affiliated companies, including in respect of Watson and CASL’s liability to repay DHN.

This summary judgement and strike out application was heard by the English High Court on 24 May 2019. The court decided in favour of DHN that (i) Watson is liable to pay, and has no defence against paying, $135 million (£92 million) plus interest of $11 million (£8 million) to DHN, and (ii) CASL is liable, as co-surety, to pay, and has no defence against paying, 50% of any such amount unpaid by Watson, i.e. up to $67.5 million (£49 million) plus interest of $5.5 million (£4 million) to DHN. Watson and CASL were ordered to pay such sums, as well as certain amounts in respect of DHN and Diageo’s costs, to DHN by 21 June 2019. Such amounts were not paid on that date by either Watson or CASL.

On 15 October 2020, as a result of applications made by DHN to recover certain outstanding costs owed by Watson and CASL (being approximately £260,000 plus interest, which remained unpaid), Dr Mallya and Sidhartha Mallya were ordered to pay those amounts by 27 November 2020. As Dr Mallya and Sidhartha Mallya, in default of the Court order, failed to make the required payments to DHN: (i) Watson and CASL’s defence to DHN’s remaining claim for payment of approximately $6 million (£4 million) (plus interest) has been struck out, with further judgment in DHN’s favour being entered which will be pursued along with the original judgment as set out above, and (ii) DHN is pursuing enforcement against Dr Mallya and Sidhartha Mallya for the judgment debt of approximately £260,000 plus interest.

~~(e)~~(d) Other matters in relation to USL

Following USL’s earlier updates concerning the Initial Inquiry as well as in relation to the arrangements with Dr Mallya that were the subject of the 25 February 2016 announcement, USL and Diageo have received various notices from Indian regulatory authorities, including the Ministry of Corporate Affairs, Enforcement Directorate and Securities and Exchange Board of India (SEBI).

~~288~~

~~Financial statements (continued)~~

Diageo and USL are co-operating fully with the authorities in relation to these matters. Diageo and USL have also received notices from SEBI requesting information in relation to, and explanation of the reasons for, the arrangements with Dr Mallya that were the subject of the 25 February 2016 announcement as well as, in the case of USL, in relation to the Initial Inquiry and the Additional Inquiry, and, in the case of Diageo, whether such arrangements with Dr Mallya or the Watson backstop guarantee arrangements referred to in paragraphs (c) and (d) above were part of agreements previously made with Dr Mallya at the time of the Original USL Transaction announced on 9 November 2012 and the open offer made as part of the Original USL Transaction. Diageo and USL have complied with such information requests and Diageo has confirmed that, consistent with prior disclosures, the Watson backstop guarantee arrangements and the matters described in the 25 February 2016 announcement were not the subject of any earlier agreement with Dr Mallya. In respect of the Watson backstop guarantee arrangements, ~~SEBI~~the Securities and Exchange Board of India (SEBI) issued a ~~further~~ notice to Diageo on 16 June 2016 that if there is any net liability incurred by Diageo (after any recovery under relevant security or other arrangements, which matters remain pending) on account of the Watson backstop guarantee, such liability, if any, would be considered to be part of the price paid for the acquisition of USL shares under the SPA which formed part of the Original USL Transaction and that, in that case, additional equivalent payments would be required to be made to those shareholders (representing 0.04% of the shares in USL) who tendered in the open offer made as part of the Original USL Transaction. Diageo ~~is clear~~believes that the Watson backstop guarantee arrangements were not part of the price paid or agreed to be paid for any USL shares under the Original USL Transaction and therefore ~~believes the~~that SEBI's decision ~~in the SEBI notice to be misconceived~~was not consistent with applicable law, and ~~wrong in law and~~Diageo appealed against it before the Securities Appellate Tribunal, Mumbai (SAT). On 1 November 2017, SAT issued an order in respect of Diageo’s appeal in which, amongst other things, it observed that the relevant officer at SEBI had neither considered Diageo’s earlier reply nor provided Diageo with an opportunity to be heard, and accordingly directed SEBI to pass a fresh order after giving Diageo an opportunity to be heard. Following SAT’s order, Diageo made its further submissions in the matter, including at a personal hearing before a Deputy General Manager of SEBI. On 26 June 2019, SEBI issued an order reiterating the directions contained in its previous notice dated 16 June 2016. As with the previous SEBI notice, Diageo believes that SEBI's latest order ~~to be misconceived and wrong in~~is not consistent with applicable law and has filed ananother appeal before the SAT against the order. ~~This~~Diageo's appeal is currently pending. Diageo is unable to assess if the notices or enquiries referred to above will result in enforcement action or, if this were to transpire, to quantify meaningfully the possible range of loss, if any, to which any such action might give rise to if determined against Diageo or USL.

In relation to the matters described in the 25 February 2016 announcement, Diageo had also responded to a show cause notice dated 12 May 2017 from SEBI arising out of the previous correspondence in this regard and made its further submissions in the matter, including at a personal hearing before a Whole Time Member of SEBI. On 6 September 2018, SEBI issued an order holding that Diageo had acquired sole control of USL following its earlier open offers, and that no fresh open offer was triggered by Diageo.

~~(f)~~(e) USL’s dispute with IDBI Bank Limited

Prior to the acquisition by Diageo of a controlling interest in USL, USL had prepaid a term loan of INR 6,280 million (£6166 million) taken through IDBI Bank Limited (IDBI), an Indian bank, which was secured on certain fixed assets and brands of USL, as well as by a pledge of certain shares in USL held by the USL Benefit Trust (of which USL is the sole beneficiary). The maturity date of the loan was 31 March 2015. IDBI disputed the prepayment, following which USL filed a writ petition in November 2013 before the High Court of Karnataka (the High Court) challenging the bank’s actions.

Following the original maturity date of the loan, USL received notices from IDBI seeking to recall the loan, demanding a further sum of INR 459 million ~~(£4 million)~~ (£5 million) on account of the outstanding principal, accrued interest and other amounts, and also threatening to enforce the security in the event that USL did not make these further payments. Pursuant to an application filed by USL before the High Court in the writ proceedings, the High Court directed that, subject to USL depositing such further amount with the bank (which amount was duly deposited by USL), the bank should hold the amount in a suspense account and not deal with any of the secured assets including the shares until disposal of the original writ petition filed by USL before the High Court.

On 27 June 2019, a single judge bench of the High Court issued an order dismissing the writ petition filed by USL, amongst other things, on the basis that the matter involved an issue of breach of contract by USL and was therefore not maintainable in exercise of the court’s writ jurisdiction. USL has since filed an appeal against this order before a division bench of the High Court, which on 30 July 2019 has issued an interim order directing the bank to not deal with any of the secured assets until the next date of hearing. On 13 January 2020, the division bench of the High Court admitted the writ appeal and extended the interim stay. This appeal is currently pending. Based on the assessment of USL’s management supported by external legal opinions, USL continues to believe that it has a strong case on the merits and therefore continues to believe that the secured assets will be released to USL and the aforesaid amount of INR 459 million (£45 million) remains recoverable from IDBI.

~~(g)~~(f) Tax

The international tax environment has seen increased scrutiny and rapid change over recent years bringing with it greater uncertainty for multinationals. Against this backdrop, Diageo has been monitoring developments and continues to engage transparently with the tax authorities in the countries where Diageo operates to ensure that the group manages its arrangements on a sustainable basis.

In April 2019, the European Commission issued its decision in a state aid investigation into the Group Financing Exemption in the UK controlled foreign company (CFC) rules. The European Commission found that part of the Group Financing Exemption constitutes state aid. The Group Financing Exemption was introduced in legislation by the UK government in 2013. In common with other UK-based international companies whose arrangements are in line with current UK CFC legislation, Diageo could have been affected by the ultimate outcome of this investigation. The UK government and other UK-based international companies, including

~~289~~

~~Financial statements (continued)~~

Diageo which calculated its maximum potential liability to be approximately £277 million, appealed to the General Court of the European Union against the decision. In February 2021, HMRC completed its review of the specific facts relating to Diageo and confirmed that Diageo was not a beneficiary of state aid and that no assessment would be issued.

The group operates in a large number of markets with complex tax and legislative regimes that are open to subjective interpretation. AsIn the context of these operations, it is possible that tax exposures which have not yet materialised (including those which could arise as a result of tax assessments) may result in losses to the group. In the circumstances where tax authorities have raised assessments, challenging interpretations which may lead to a possible material outflow, these have been included as contingent liabilities. Where the potential tax exposures are known to us and have not been assessed, the group considers disclosure of such matters taking into account their size and nature, relevant regulatory requirements and potential prejudice of the future resolution or assessment thereof.

Diageo has a large number of ongoing tax cases in Brazil and India. Since assessing an accurate value of contingent liabilities in these markets requires a high ~~level~~degree of judgement, contingent liabilities are disclosed on the basis of the current known possible exposure from tax assessment values.

~~Diageo has reviewed its disclosures in relation to Brazil and India, where Diageo has a large number of ongoing tax cases.~~ While not all of these cases are individually significant, the current aggregate known possible exposure from tax assessment ~~of the aggregate possible exposures~~values is up to approximately ~~£449~~£545 million for Brazil and up to approximately ~~£140~~£131 million for India. The group believes that the likelihood that the tax authorities will ultimately prevail is lower than probable but higher than remote. Due to the

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Financial statements (continued)

fiscal environment in Brazil and in India, the possibility of further tax assessments related to the same matters cannot be ruled ~~out.~~out and the judicial processes may take extended periods to conclude. Based on its current assessment, Diageo believes that no provision is required in respect of these issues.

Payments were made under protest in India in respect of the periods 1 April 2006 to 31 March ~~2017~~2019 in relation to tax assessments where the risk is considered to be remote or possible. These payments have to be made in order to be able to challenge the assessments and as such have been recognised as a receivable onin the ~~consolidated~~group's balance sheet. The total amount of payments under protest ~~payments~~ recognised as a receivable as at 30 June ~~2021~~2022 is ~~£106~~£120 million (corporate tax payments of ~~£96~~£108 million and indirect tax payments of ~~£10~~£12 million).

In the United States, a lawsuit was filed on 15 April 2019 by the National Association of Manufacturers (NAM) against the United States Department of the Treasury (US Treasury) and the United States Customs and Border Protection (CBP) on behalf of its affected industry members, including Diageo, to invalidate regulations published in February 2019 and to ensure that substitution drawback is permitted in accordance with 19 USC § 1313(j)(2) as amended by the Trade Facilitation and Trade Enforcement Act of 2015, which was enacted on 24 February 2016 (TFTEA). Substitution drawback permits the refund, including of excise taxes, paid on imported merchandise when sufficiently similar substitute merchandise is exported. The United States Congress passed the TFTEA to, among other things, clarify and broaden the standard for what constitutes substitute merchandise. This change should entitle Diageo to obtain substitution drawback in respect of certain eligible product categories. Despite this change in the law, the US Treasury and CBP issued final regulations in 2019 declaring that substitution drawback is not available for imports when substituted with an export on which no tax was paid. The Court of International Trade issued a ~~judgement~~judgment in favour of NAM on 18 February 2020, denying the request by the US Treasury and CBP for a stay of payment on 15 May 2020, and on 26 May 2020, ordered the immediate processing of claims. Total payments of $129 million (£94 million) had been received as of 30 June 2021 in respect of this matter, with approximately $33 million (£26 million) of this amount received during the year ended 30 June 2020 and another $96 million (£68 million) received during the year ended 30 June 2021. Remaining eligible outstanding claims of Diageo Americas Supply, Inc. are estimated at $12 million (£8 million). However, theThe US Treasury and CBP ~~has~~ filed an appeal with the US ~~Federal~~ Court of Appeals ~~which is now fully briefed. Although Diageo believes that~~for the ~~NAM is more likely than not~~Federal Circuit in 2021. During the year ended 30 June 2022, the US Court of Appeals dismissed the appeal, confirming the decision of the Court of International Trade. The deadline for the US Treasury and CBP to ~~ultimately prevail, if they were to fail,~~seek a review at the ~~CBP could be permitted to recover these payments.~~US Supreme Court level has passed and, as a result, this matter has been resolved.

~~(h)~~(g) Information request

Diageo has received an inquiry from the US Securities and Exchange Commission requesting information relating to Diageo’s business operations in certain markets and to its policies, procedures and compliance environment. Diageo is responding to this information request but is currently unable to assess whether the inquiry will evolve into any enforcement action or, if this were to transpire, to quantify meaningfully the possible loss or range of loss, if any, to which any such action might give rise.

~~(i)~~(h) Other

The group has extensive international operations and isroutinely makes judgements on a ~~defendant in a number~~range of legal, customs and tax ~~proceedings~~matters which are incidental to the group's operations. Some of these ~~operations,~~judgements are or may become the subject of challenges and involve proceedings, the outcome of which cannot ~~at present~~ be foreseen. In particular, the group is currently a defendant in various customs proceedings that challenge the declared customs value of products imported by certain Diageo companies. Diageo continues to defend its position vigorously in these proceedings.

Save as disclosed above, neither Diageo, nor any member of the Diageo group, is or has been engaged in, nor (so far as Diageo is aware) is there pending or threatened by or against it, any legal or arbitration proceedings which may have a significant effect on the financial position of the Diageo group.

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Financial statements (continued)

~~19.~~20. Commitments

(a) Capital commitments

Commitments for expenditure on intangibles and property, plant and equipment not provided for in these consolidated financial ~~statements~~statements are estimated at £399 million (2021 – £263 ~~million (2020~~million; 2020 – £312 ~~million; 2019 – £255~~ million).

(b) Other commitments

The minimum lease rentals payable in the year ended 30 June ~~2021~~2022 for short-term leases and leases of low-value assets are estimated at £13 million (2021 – £11 ~~million (2020 –~~million; 2020 - £19 million). The total future cash outflows for leases that had not yet commenced, and not recognised as lease liabilities at 30 June ~~2021,~~2022, are estimated at £11 million (2021 – £132 ~~million (2020 –~~million; 2020 - £133 million).

~~20.~~21. Related party transactions

Transactions between the group and its related parties are made on terms equivalent to those that prevail in arm’s length transactions.

(a) Subsidiaries

Transactions between the company and its subsidiaries are eliminated on consolidation and therefore are not disclosed. Details of the principal group companies are given in note ~~21.~~22.

(b) Associates and joint ventures

Sales and purchases to and from associates and joint ventures are principally in respect of premium drinks products but also include the provision of management services.

Transactions and balances with associates and joint ventures are set out in the table below:


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Income statement items	Income statement items				Income statement items
Sales	Sales	8	9	9	Sales	11	8	9
Purchases	Purchases	23	29	28	Purchases	31	23	29
Balance sheet items	Balance sheet items				Balance sheet items
Group payables	Group payables	5	2	12	Group payables	2	5	2
Group receivables	Group receivables	1	1	2	Group receivables	2	1	1
Loans payable	Loans payable	9	6	6	Loans payable	—	9	6
Loans receivable	Loans receivable	108	82	55	Loans receivable	175	108	82
Cash flow items	Cash flow items				Cash flow items
Loans and equity contributions, net	Loans and equity contributions, net	38	47	32	Loans and equity contributions, net	66	38	47

Other disclosures in respect of associates and joint ventures are included in note 6.

The key management of the group comprises the Executive and Non-Executive Directors, the members of the Executive Committee and the Company Secretary. They are listed under ‘Board of Directors and Company Secretary’ and ‘Executive Committee’.


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Salaries and short-term employee benefits	Salaries and short-term employee benefits	9	10	10	Salaries and short-term employee benefits	10	9	10
Annual incentive plan	Annual incentive plan	13	0	10	Annual incentive plan	13	13	—
Non-Executive Directors’ fees	Non-Executive Directors’ fees	1	1	1	Non-Executive Directors’ fees	1	1	1
Share-based payments~~(i)~~(1)	Share-based payments~~(i)~~(1)	12	(11)	20	Share-based payments~~(i)~~(1)	19	12	(11)
Post employment benefits	Post employment benefits	1	2	3	Post employment benefits	2	1	2
Termination benefits(ii)		2	2	0
Termination benefits					Termination benefits	—	2	2
		38	4	44		45	38	4

~~(i)~~(1) Time-apportioned fair value of unvested options and share awards.

~~(ii) £1 million of the termination benefits disclosed for 2021 have been paid in the year ended 30 June 2021; a further £1 million will be paid in the year ending 30 June 2022.~~

Non-Executive Directors do not receive share-based payments or post employment benefits.

~~291~~290

Financial statements (continued)

In April 2020, the Directors became aware that certain purchases by Diageo of its own shares and certain transactions related to Diageo’s employee share schemes between 10 May 2019 and 9 August 2019, amounting to approximately £320 million (‘the affected transactions’),There were undertaken contrary to the applicable provisions of the Companies Act 2006 as they were undertaken following utilisation in full of Diageo plc's distributable reserves as set out in its balance sheet as at 30 June 2018. At the Annual General Meeting on 28 September 2020, a resolution was passed to appropriate an equivalent amount of distributable profits of the company to the payments made in respect of the affected transactions and implement arrangements to put all potentially affected parties, so far as possible, in the position in which they were intended to be had the affected transactions been undertaken in accordance with the applicable provisions of the Companies Act 2006. This resolution and the arrangements that it has implemented constituted a related party transaction under IAS 24 and under the Listing Rules, as the Directors benefitted from the waiver of any claims that the company had or may have had against them as a result of the affected transactions.

~~There have been~~ no ~~other~~ transactions with these related parties during the year ended 30 June ~~2021~~2022 on terms other than those that prevail in arm’s length transactions.

(d) Pension plans

The Diageo pension plans are recharged with the cost of administration services provided by the group to the pension plans and with professional fees paid by the group on behalf of the pension plans. The total amount recharged for the year was ~~£NaN (2020~~£0.1 million (2021 – ~~£NaN~~£0.1 million; ~~2019~~2020 – £3£0.1 million).

(e) Directors’ remuneration


		2021 £ million	2020 £ million	2019 £ million		2022 £ million	2021 £ million	2020 £ million
Salaries and short-term employee benefits	Salaries and short-term employee benefits	2	2	2	Salaries and short-term employee benefits	3	2	2
Annual incentive plan	Annual incentive plan	4	0	2	Annual incentive plan	4	4	—
Non-Executive Directors' fees	Non-Executive Directors' fees	1	1	1	Non-Executive Directors' fees	1	1	1
Share option exercises~~(i)~~(1)	Share option exercises~~(i)~~(1)	0	0	2	Share option exercises~~(i)~~(1)	4	—	—
Shares vesting~~(i)~~(1)	Shares vesting~~(i)~~(1)	1	11	13	Shares vesting~~(i)~~(1)	3	1	11
Post employment benefits	Post employment benefits	0	1	1	Post employment benefits	—	—	1
		8	15	21		15	8	15

~~(i)~~(1) Gains on options realised in the year and the benefit from share awards, calculated by using the share price applicable on the date of exercise of the share options and release of the awards.

~~292~~

~~Financial statements (continued)~~

~~21.~~22. Principal group companies

The companies listed below include those which principally affect the profits and assets of the group. The operating companies listed below may carry on the business described in the countries listed in conjunction with their subsidiaries and other group companies.

Country of incorporation

Country of operation

Percentage of equity owned~~(i)~~(1)

Business description

Subsidiaries

Diageo Ireland

~~Republic of~~ Ireland

Worldwide

~~100~~

%100%

Production, marketing and distribution of premium drinks

Diageo Great Britain Limited

England

Great Britain

~~100~~

%100%

Marketing and distribution of premium drinks

Diageo Scotland Limited

Scotland

Worldwide

~~100~~

%100%

Production, marketing and distribution of premium drinks

Diageo Brands B.V.

Netherlands

Worldwide

~~100~~

%100%

Marketing and distribution of premium drinks

Diageo North America, Inc.

United States

Worldwide

~~100~~

%100%

Production, importing, marketing and distribution of premium drinks

United Spirits Limited~~(ii)~~(2)

India

~~55.94~~

%55.94%

Production, importing, marketing and distribution of premium drinks

Diageo Capital plc~~(iii)~~(3)

Scotland

United Kingdom

~~100~~ 100%

Financing company for the group

Diageo Capital B.V.(3)

Netherlands

%Netherlands

100%

Financing company for the group

Diageo Finance plc~~(iii)~~(3)

England

United Kingdom

~~100~~

%100%

Financing company for the group

Diageo Investment Corporation

United States

~~100~~

%100%

Financing company for the US group

Mey İçki Sanayi ve Ticaret A.Ş.

Turkey

~~100~~

%100%

Production, marketing and distribution of premium drinks

Associates

Moët Hennessy, SAS~~(iv)~~(4)

France

%34%

Production, marketing and distribution of premium drinks

~~(i)~~(1) All percentages, unless otherwise stated, are in respect of holdings of ordinary share capital and are equivalent to the percentages of voting rights held by the group.

~~(ii)~~(2) Percentage ownership excludes 2.38% owned by the USL Benefit Trust.

~~(iii)~~(3) Directly owned by Diageo plc.

~~(iv)~~(4) French limited liability company.

~~293~~291

Financial statements (continued)

23. Post balance sheet events

On 14 July 2022, Diageo announced that it had agreed to sell Guinness Cameroun S.A., its brewery in Cameroon, to Castel Group for £389 million. The transaction is expected to be completed in the first half of the year ending 30 June 2023, subject to regulatory clearances. As per management’s judgement, the criteria to classify the business of Guinness Cameroun S.A. as held for sale are not met, hence such classification was not applied on 30 June 2022 in respect of this business.

292

Unaudited financial information

1. Five years financial information

The following tables present selected consolidated financial data for Diageo for the five years ended 30 June 2022 and as at the respective year ends. The data presented below for the five years ended 30 June 2022 and the respective year ends has been derived from Diageo’s consolidated financial statements.


	Year ended 30 June
	2022	2021	2020	2019	2018
Income statement data	£ million	£ million	£ million	£ million	£ million
Sales	22,448	19,153	17,697	19,294	18,432
Excise duties	(6,996)	(6,420)	(5,945)	(6,427)	(6,269)
Net sales	15,452	12,733	11,752	12,867	12,163
Cost of sales	(5,973)	(5,038)	(4,654)	(4,866)	(4,634)
Gross profit	9,479	7,695	7,098	8,001	7,529
Marketing	(2,721)	(2,163)	(1,841)	(2,042)	(1,882)
Other operating items	(2,349)	(1,801)	(3,120)	(1,917)	(1,956)
Operating profit	4,409	3,731	2,137	4,042	3,691
Non-operating items	(17)	14	(23)	144	—
Net interest and other finance charges	(422)	(373)	(353)	(263)	(260)
Share of after tax results of associates and joint ventures	417	334	282	312	309
Profit before taxation	4,387	3,706	2,043	4,235	3,740
Tax before exceptional items	(1,080)	(823)	(743)	(859)	(799)
Exceptional taxation	31	(84)	154	(39)	203


Profit for the year	3,338	2,799	1,454	3,337	3,144

Weighted average number of shares	million	million	million	million	million
Shares in issue excluding own shares	2,318	2,337	2,346	2,418	2,484
Dilutive potential ordinary shares	7	8	8	10	11
	2,325	2,345	2,354	2,428	2,495

Per share data	pence	pence	pence	pence	pence
Basic earnings per share	140.2	113.8	60.1	130.7	121.7
Diluted earnings per share	139.7	113.4	59.9	130.1	121.1

Dividend per share	76.18	72.55	69.88	68.57	65.30

293

Unaudited financial information


	As at 30 June
	2022	2021	2020	2019	2018
Balance sheet data	£ million	£ million	£ million	£ million	£ million
Non-current assets	23,582	20,508	21,837	21,923	21,024
Current assets	12,934	11,445	11,471	9,373	8,691
Total assets	36,516	31,953	33,308	31,296	29,715
Current liabilities	(8,442)	(7,142)	(6,496)	(7,003)	(6,360)
Non-current liabilities	(18,560)	(16,380)	(18,372)	(14,137)	(11,642)
Total liabilities	(27,002)	(23,522)	(24,868)	(21,140)	(18,002)
Net assets	9,514	8,431	8,440	10,156	11,713
Share capital	723	741	742	753	780
Share premium	1,351	1,351	1,351	1,350	1,349
Other reserves	2,174	1,621	2,272	2,372	2,133
Retained earnings	3,550	3,184	2,407	3,886	5,686
Equity attributable to equity shareholders of the parent company	7,798	6,897	6,772	8,361	9,948
Non-controlling interests	1,716	1,534	1,668	1,795	1,765
Total equity	9,514	8,431	8,440	10,156	11,713
Net borrowings	(14,137)	(12,109)	(13,246)	(11,277)	(9,091)

294

Additional information for shareholders

Production

The company owns manufacturing production facilities across the globe, including malting facilities, distilleries, breweries, packaging plants, maturation warehouses, cooperages, and distribution warehouses. Diageo’s brands are also produced at plants owned and operated by third parties and joint ventures at several locations around the world. We believe that our facilities are in good condition and working order. We have adequate capacity to meet our current needs, and, in the beer and spirit categories, we have undertaken activities to increase our production capacity to address our anticipated future demand.

~~Legal proceedings~~The major facilities with locations, principal activities, products represented in the below table:


Location	Principal activities	Products
United Kingdom	distilling, bottling, warehousing, RTD canning, Filling/Disgorging, cooperage, visitor centre	beer, scotch whisky, gin, vodka, rum, RTD
Ireland	liquid production, blending, brewing, bottling, packaging, warehousing	beer and Baileys
Italy	distilling, bottling, warehousing	vodka, rum, RTD, non-alcoholic
Mexico	distilling, bottling, warehousing	tequila
India	distilling, bottling, warehousing, trading	rum, vodka, whisky, scotch, brandy, gin
United States, Canada, US Virgin Islands	distilling, bottling, warehousing, shipping, RTD canning, visitor centre	vodka, gin, tequila, rum, Canadian whisky, American whiskey, progressive adult beverages, RTD
East Africa (Uganda, Kenya, Tanzania)	distilling, brewing, bottling, packaging, warehousing	beer and spirits
Nigeria	distilling, brewing, bottling, packaging, warehousing	beer and spirits
South Africa	distilling, bottling, warehousing	spirits
Africa Regional Markets (Cameroon, Ghana, Seychelles)	distilling, brewing, bottling, warehousing	beer and spirits
Turkey	distilling, bottling, warehousing	raki, vodka, gin, liqueur, wine
Brazil	distilling, bottling, RTD canning, warehousing	cachaça, vodka, RTD
Australia	distilling, bottling, warehousing, RTD canning & bottling	rum, vodka, gin, RTD

~~Information~~

Spirits and investments

Spirits are produced in distilleries located worldwide. The group owns 30 Scotch whisky distilleries in Scotland, two whisky distilleries in Canada and two in the United States. Diageo produces Smirnoff internationally. Ketel One and Cîroc vodkas are purchased as finished product from The Nolet Group and Maison Villevert, respectively. Gin distilleries are in both the United Kingdom and in Santa Vittoria, Italy. Baileys is produced in the Republic of Ireland and Northern Ireland. Rum is blended and bottled in the United States, Canada, Italy, and the United Kingdom, and is distilled in the US Virgin Islands and in Australia, Venezuela and Guatemala. Raki is produced in Turkey, Chinese white spirits are produced in Chengdu, in the Sichuan province of China, cachaça is produced in Ceará State in Brazil and tequila in Mexico.

Diageo’s maturing Scotch whisky is in warehouses in Scotland (Clackmannanshire area between Blackgrange, Cambus West and Menstrie, where we are holding approximately 50% of the group’s maturing Scotch whisky), its maturing Canadian whisky in Valleyfield and Gimli in Canada, its maturing American whiskey in Kentucky and Tennessee in the United States and maturing Chinese white spirit in Chengdu, China.

We are currently investing £185 million in Scotch whisky and tourism in Scotland. This has included the creation of a major new Johnnie Walker global brand attraction in Edinburgh (Johnnie Walker Princes Street) which opened its doors to visitors in September 2021. The distillery visitor investment focuses on the ~~legal proceedings~~‘Four Corners distilleries’, Glenkinchie, Caol Ila, Clynelish and Cardhu, celebrating the important role these single malts play in the flavors of Johnnie Walker. The new visitor experiences at Glenkinchie, Clynelish and Cardhu are already operational and Caol Ila is ~~set out~~expected to open in ~~note 18~~summer 2022. The iconic lost distillery of Port Ellen is expected to be back in production in the summer of 2023.

Following a $130 million investment, the Lebanon Distillery in Kentucky opened and is Diageo’s first carbon neutral whiskey distillery. One of the largest of its kind in North America, the new distillery operates using 100% renewable electricity, zero fossil fuels for production and virtual metering technology.

295

Additional information for shareholders (continued)

In China, we broke ground with a $75 million investment to the ~~consolidated financial statements.~~Eryuan Malt Whisky Distillery. It will produce our first China-origin, single malt whisky and be carbon-neutral on opening.

Further capacity expansion projects are now underway to support future growth. C$245 million, in the construction of a carbon neutral Crown Royal Distillery in Canada to supplement existing manufacturing operations in Canada; $75 million to build a distillery to produce our first China-origin, single malt whisky in Yunnan Province.

Diageo’s end-to-end Tequila production is in Mexico and more than $500 million dollars to expand our manufacturing footprint in Mexico through an investment of in new facilities in the State of Jalisco to support the growth of Tequila.

Diageo owns a controlling equity stake in United Spirits Limited (USL) which is one of the leading alcoholic beverage companies in India selling close to $80 million equivalent cases in fiscal 22 of Indian Made Foreign Liquor (IMFL) and Imported Liquors. USL has a significant market presence across India and operates 15 owned sites, as well as a network of leased and third-party manufacturing facilities in India. USL owns several Indian brands, such as McDowell’s (Indian whisky, rum, and brandy), Black Dog (scotch), Signature (Indian whisky), Royal Challenge (Indian whisky), Antiquity (Indian whisky) and Bagpiper (Indian whisky).

Beer and investments

~~Articles~~Diageo’s principal brewing facility is at the St James’s Gate brewery in Dublin, Ireland. In addition, Diageo owns breweries in several African countries: Nigeria, Kenya, Ghana, Cameroon, Tanzania, Uganda, and the Seychelles. Meta Abo Brewery in Ethiopia was sold during the year ended 30 June 2022.

Guinness flavour extract is shipped from Ireland to all overseas Guinness brewing operations which use the flavour extract to brew beer locally. Guinness is transported from Ireland to Great Britain in bulk to the Runcorn facility which carries out the kegging of ~~association~~Guinness Draught.

Projects are underway to support future growth. In July 2022 Diageo announced plans to invest €200 million in Ireland’s first purpose-built carbon neutral brewery on a greenfield site in Littleconnell, Newbridge, Co. Kildare.

Furthermore a £41 million investment at the Belfast and Runcorn beer packaging facilities to expand capacity to support growth, with additional capacity expected to be available during 2023; and a £73 million investment in ‘Guinness at Old Brewer’s Yard’, a new microbrewery and culture hub in Covent Garden, London, set to open in autumn 2023.

The Diageo Global Technical Third-Party Partnerships Team are the technical brewers supporting the delivery of over two million hectolitres of beer through partner breweries. The team's focus is upon sustaining consistent quality of our brands through 48 partners globally while enhancing Diageo value through new partnerships and innovation projects. In addition to supporting Guinness and beer, the team has an expanding role in the support of licensed manufacturing of third-party ready to drink and mainstream spirits in Asia-Pacific and Africa.

~~The company~~Flavoured Malt Beverages (FMB) are made from original base containing malt, but then stripped of malt character and flavoured. This product segment is ~~incorporated under~~implemented mainly in the ~~name Diageo plc,~~US, Canada and ~~is registered in England and Wales under registered number 23307.~~

~~The following description summarises certain provisions of Diageo’s articles of association (as adopted by special resolution at~~ the Annual General Meeting on 28 September 2020) and applicable English law concerning companies (the Companies Acts), in each case as at 4 August 2021. This summary is qualified in its entirety by reference to the Companies Acts and Diageo’s articles of association.

~~Investors can obtain copies of Diageo’s articles of association by contacting the Company Secretary at the.cosec@diageo.com.~~

~~Any amendment to the articles of association of the company may be made in accordance with the provisions of the Companies Act 2006, by way of special resolution.~~Caribbean.

~~Directors~~Ready to drink (RTD)

~~Diageo’s articles~~Diageo produces a range of ~~association provide~~ready to drink products mainly in the United Kingdom, Italy, across Africa, Australia, the United States and Canada. Demand for ~~a Board of Directors, consisting (unless otherwise determined by an ordinary resolution of shareholders) of not fewer than three directors~~these products has increased significantly particularly in United States and ~~not more than 25 directors,~~Canada with volumes increased 15%. We are supporting this increase in ~~which all powers to manage the business~~demand through third-party production and ~~affairs of Diageo~~ are ~~vested. Directors may be elected by the members~~also investing in a general meeting or appointed by the Board of Diageo. At each annual general meeting, all the directors shall retire from office and may offer themselves for re-election by members. There is no age limit requirementnew production facility in ~~respect of directors. Directors may also be removed before the expiration of their term of office~~Plainfield, which opened in ~~accordance with the provisions of the Companies Acts.~~

Under Diageo’s articles of association, a director cannot vote in respect of any proposal in which the director has an interest. However, this restriction on voting does not apply where the interest cannot reasonably be regarded as giving rise to a conflict of interest, nor to resolutions (a) giving the director any guarantee, security or indemnity in respect of obligations or liabilities incurred for the benefit of Diageo, (b) giving any guarantee, security or indemnity to a third party in respect of obligations of Diageo for which the director has assumed responsibility under an indemnity or guarantee or by the giving of security, (c) relating to an offer of securities of Diageo in which the director participates or may participate as a holder of shares or other securities or in the underwriting, (d) relating to any contract in which the director is interested by virtue of the director’s interest in securities of Diageo or by reason of any other interest in or through Diageo, (e) concerning any other company in which the director is directly or indirectly interested, provided that the director does not have a relevant interest in that company, (f) relating to the arrangement of any employee benefit (including any retirement benefit plan) in which the director will share equally with other employees, (g) relating to any insurance that Diageo purchases or maintains for its directors or any group of people, including directors, (h) giving the director an indemnity where all the other directors are being offered indemnities on substantially the same terms, and (i) for the funding by Diageo of the director’s expenditure on defending proceedings or the doing by Diageo of anything to enable the director to avoid incurring such expenditure where all the other directors are being offered substantially the same arrangements. A director cannot vote in relation to any resolution of the board concerning his own appointment, or the settlement or variation of the terms or the termination of his own appointment, as the holder of any office or place of profit with Diageo or any company in which Diageo is interested.

Under Diageo’s articles of association, compensation awarded to directors may be decided by the Board or any authorised committee of the Board. The Remuneration Committee is responsible for making recommendations to the Board concerning matters relating to remuneration policy. It is comprised of all the non-executive directors except for the chairman.

The directors are empowered to exercise all the powers of Diageo to borrow money, subject to the limitation that the aggregate amount of all net external borrowings of the group outstanding at any time shall not exceed an amount equal to twice the aggregate of the group’s adjusted capital and reserves calculated in the manner prescribed in Diageo’s articles of association, unless sanctioned by an ordinary resolution of Diageo’s shareholders.

~~Directors are not required to hold any shares of Diageo as a qualification to act as a director.~~March 2022.

~~Dividend rights~~Raw materials and supply agreements

~~Holders~~The group has several long-term contracts in place for the purchase of ~~Diageo’s ordinary shares may, by ordinary resolution, declare dividends~~raw materials, including glass, other packaging, spirit, cream, rum and grapes. Forward contracts are in place for the purchase of cereals and packaging materials to minimise the effects of short-term price fluctuations. The global ocean freight crisis coupled with volatile but ~~may not declare dividends~~strong consumer demand, change in ~~excess~~consumer habits (for example, the increase in e-commerce) continued impact of Covid-19 and emerging impact of the ~~amount recommended by~~conflict in Ukraine are the ~~directors. The directors may also pay interim dividends or fixed rate dividends. No dividend may be paid~~key drivers of constraints that we are managing through.

Like other ~~than out~~consumer goods companies, we keep stocks in markets to compensate for extended lead times and demand volatility. Diageo is managing well through the current levels of ~~profits available for distribution. All~~uncertainty and constraints in our supply chain through expansion of ~~Diageo’s ordinary shares rank equally for dividends, but~~our supplier base and agility in our logistics networks.

Cream is the ~~Board may withhold payment~~principal raw material used in the production of ~~all or any part~~Irish cream liqueur and is sourced from Ireland. Grapes and aniseed are used in the production of ~~any dividends or other monies payable~~raki and are sourced from suppliers in ~~respect~~Turkey. Agave is a key raw material used in the production of ~~Diageo’s shares~~our tequila brands and is sourced from Mexico. Other raw materials purchased in significant quantities to produce spirits and beer are molasses, cereals, sugar, and several flavours (such as juniper berries, agave, chocolate, and herbs). These are sourced from suppliers around the world.

Many products are supplied to customers in glass bottles. Glass is purchased from a ~~person with a 0.25% interest (as defined~~variety of multinational and local suppliers. The largest suppliers are Ardagh Packaging in ~~Diageo’s articles of association) if such a person has been served with a restriction notice (as defined~~the United Kingdom and Owens-Illinois in ~~Diageo’s articles of association) after failure to provide Diageo with information concerning interests in those shares required to be provided under~~ the Companies Acts. Dividends may be paid in currencies other than sterling and such dividends will be calculated using an appropriate market exchange rate as determined by the directors in accordance with Diageo’s articles of association.United States.

~~294~~296

Additional information for shareholders (continued)

Competition

Diageo’s ~~articles~~brands compete primarily on the basis of ~~association permit payment or satisfaction~~quality and price. Its business is built on getting the right product to the right consumer for the right occasion, and at the right price, including through taking into account ever evolving shopper landscapes, technologies and consumer preferences. Diageo also seeks to recruit and re-recruit consumers to its portfolio of brands, including through meaningful consumer engagement, sustainable innovation and investments in its brands.

In spirits, Diageo’s major global competitors are Pernod Ricard, Beam Suntory, Bacardi and Brown-Forman, each of which has several brands that compete directly with Diageo’s brands. In addition, Diageo faces competition from regional and local companies in the countries in which it operates.

In beer, Diageo also competes globally, as well as on a ~~dividend wholly or partly by distribution of specific assets,~~regional and local basis (with the profile varying between regions) with several competitors, including ~~fully paid shares or debentures of any other company. Such action must be directed by the general meeting which declared the dividend~~AB InBev, Molson Coors, Heineken, Constellation Brands and ~~upon the recommendation of the directors.~~Carlsberg.

~~Voting rights~~Research and development

~~Voting~~Innovation forms an important part of Diageo’s growth strategy, playing a key role in positioning its brands for continued growth in both developed and emerging markets. The strength and depth of Diageo’s brand range also provides a solid platform from which to drive sustainable innovation that leads to new products and experiences for consumers, whether or not they choose to drink alcohol. Diageo focuses its innovation on ~~any resolution at any general meeting~~its strategic priorities and the most significant consumer opportunities, including the development of global brand extensions and new-to-world products, and continuously invests to deepen its understanding of evolving trends and consumer socialising occasions to inform product and packaging development, ranging from global brand redesigns to cutting edge innovations. Supporting this, the Diageo group has ongoing programmes to develop new beverage products which are managed internally by the innovation and research and development function.

Trademarks and other intellectual property

Diageo produces, sells and distributes branded goods, and is therefore substantially dependent on the maintenance and protection of its trademarks. All brand names mentioned in this document are protected by trademarks. The Diageo group also holds trade secrets, as well as has substantial trade knowledge related to its products. The group believes that its significant trademarks are registered and/or otherwise protected (insofar as legal protection is available) in all material respects in its most important markets. Diageo also owns valuable patents and trade secrets for technology and takes all reasonable steps to protect these rights.

Regulations and taxes

Diageo’s worldwide operations are subject to extensive regulatory requirements relating to production, product liability, distribution, importation, marketing, promotion, sales, pricing, labelling, packaging, advertising, antitrust, labour, pensions, compliance and control systems and environmental issues.

In the United States, the beverage alcohol industry is subject to strict federal and state government regulations. At the federal level, the Alcohol and Tobacco Tax and Trade Bureau, or TTB, of the ~~company is by a show~~US Treasury Department oversees the US beverage alcohol industry, including through regulating and collecting taxes on the production of ~~hands unless a poll is duly demanded. On a show~~alcohol within the United States and regulating trade practices. In addition, individual US states, as well as some local authorities in US jurisdictions in which Diageo sells or produces its products, administers and enforces industry-specific regulations and may apply additional excise taxes and, in many states, sales taxes. Federal, state and local regulations cover virtually every aspect of ~~hands, (a) every shareholder who is present in person at a general meeting,~~Diageo's US operations, including production, importation, distribution, marketing, promotion, sales, pricing, labelling, packaging and ~~every proxy appointed by any one shareholder~~advertising.

Spirits and ~~present at a general meeting, has/have one vote regardless of the number of shares held by the shareholder (or,~~beer are subject to ~~(b), represented by~~national import and excise duties in many markets around the proxy), and (b) every proxy present at a general meeting who has been appointed by more than one shareholder has one vote regardless of the number of shareholders who have appointed him or the number of shares held by those shareholders, unless he has been instructed to vote for a resolution by one or more shareholders and to vote against the resolution by one or more shareholders, in which case he has one vote for and one vote against the resolution. On a poll, every shareholder who is present in person or by proxy has one vote for every share held by that shareholder, but a shareholder or proxy entitled to more than one vote need not cast all his votes or cast them all in the same way (the deadline for exercising voting rights by proxy is set out inworld. Most countries impose excise duties on beverage alcohol products, although the form of ~~proxy).~~

~~A poll may be demanded~~such taxation varies significantly from a simple application to units of alcohol by ~~any~~volume, to advanced systems based on the imported or wholesale value of the ~~following:~~product. Several countries impose additional import duty on distilled spirits, often discriminating between categories (such as Scotch whisky or bourbon) in the rate of such tariffs. Within the European Union, such products are subject to different rates of excise duty in each country, but within the overall European Union framework there are minimum rates of excise duties that must first be applied to each relevant category of beverage alcohol. Following its departure from the European Union, the UK is no longer subject to the European Union’s rules on excise duties and has undertaken a review of its alcohol duty system. Any changes in the UK’s alcohol duty system could have an impact on Diageo’s business activities.

•Import and excise duties can have a significant impact on the ~~chairman~~final pricing of Diageo’s products to consumers. These duties can affect a product’s revenue or margin, both by reducing consumption and/or by encouraging consumers to switch to lower-taxed categories of beverages. The group devotes resources to encouraging the equitable taxation treatment of all beverage alcohol categories and to reducing government imposed barriers to fair trading.

The advertising, marketing and sale of alcohol are subject to various restrictions in markets around the world. These range from a complete prohibition of alcohol in certain cultures and jurisdictions, such as in certain states in India, to the prohibition of the ~~general meeting;~~

•~~at least three shareholders entitled~~import into a certain jurisdiction of spirits and beer, and to ~~vote~~restrictions on the ~~relevant resolution~~advertising style, media and ~~present in person or by proxy at the meeting;~~

•~~any shareholder or shareholders present in person or by proxy and representing in the aggregate not less than one-tenth~~content. In a number of ~~the total voting rights of all shareholders entitled to vote on the relevant resolution; or~~

•~~any shareholder or shareholders present in person or by proxy and holding shares conferring~~countries, television is a ~~right to vote on the relevant resolution on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.~~

~~Diageo’s articles of association and the Companies Acts provide for matters to be transacted at general meetings of Diageo by the proposing and passing of two kinds of resolutions:~~

•~~ordinary resolutions, which include resolutions~~prohibited medium for the ~~election, re-election~~marketing of spirits brands, while in other countries, television advertising, while permitted, is carefully regulated. Many countries also strictly regulate the use of internet-based advertising and removal of directors, the declaration of final dividends, the appointment and re-appointment of the external auditor, the remuneration report and remuneration policy, the increase of authorised share capital, and the grant of authority to allot shares; and

•~~special resolutions, which include resolutions for the amendment of~~social media in connection with alcohol sales. Any further prohibitions imposed on advertising or marketing, particularly within Diageo’s articles of association, resolutions relating to the disapplication of pre-emption rights, and resolutions modifying the rights of any class of Diageo’s shares at a meeting of the holders of such class.

A shareholder is not entitled to vote at any general meeting or class meeting in respect of any share held by him if he has been served with a restriction notice (as defined in Diageo’s articles of association) after failure to provide Diageo with information concerning interests in those shares required to be provided under the Companies Acts.

~~Liquidation rights~~

In the event of the liquidation of Diageo, after payment of all liabilities and deductions taking priority in accordance with English law, the balance of assets available for distribution will be distributed among the holders of ordinary shares according to the amounts paid upmost significant markets, could have an adverse impact on ~~the shares held by them.~~

~~Pre-emption rights and new issues of shares~~

While holders of ordinary shares have no pre-emptive rights under Diageo’s articles of association, the ability of the directors to cause Diageo to issue shares, securities convertible into shares or rights to shares, otherwise than pursuant to an employee share scheme, is restricted. Under the Companies Acts, the directors of a company are, with certain exceptions, unable to allot any equity securities without express authorisation, which may be contained in a company’s articles of association or given by its shareholders in a general meeting, but which in either event cannot last for more than five years. Under the Companies Acts, Diageo may also not allot shares for cash (otherwise than pursuant to an employee share scheme) without first making an offer to existing shareholders to allot such shares to them on the same or more favourable terms in proportion to their respective shareholdings, unless this requirement is waived by a special resolution of the shareholders.

beverage alcohol sales.

~~295~~297

Additional information for shareholders (continued)

~~Disclosure~~Labelling of ~~interests~~beverage alcohol products is also regulated in ~~Diageo’s shares~~

~~There are no provisions in Diageo’s articles~~many markets, varying from the required inclusion of ~~association whereby persons acquiring, holding~~health warning labels to manufacturer or ~~disposing~~importer identification, alcohol strength and other consumer information. As well as producer, importer or bottler identification, specific warning statements related to the risks of ~~a certain percentage of Diageo’s shares~~drinking beverage alcohol products are required to ~~make disclosure~~be included on all beverage alcohol products sold in the US, in certain countries within the EU, and in a number of ~~their ownership percentage, although there~~other jurisdictions in which Diageo operates.

Spirits and beer are ~~such requirements under~~also regulated in distribution. In many countries, alcohol may only be sold through licensed outlets, both on- and off-trade, varying from government- or state-operated monopoly outlets (for example, in the ~~Companies Acts. The basic disclosure requirement under Part 6~~off-trade channel in Norway, certain Canadian provinces, and certain US states) to the system of licensed on-trade outlets (for example, licensed bars and restaurants) which prevails in much of the ~~Financial Services~~Western world, including in the majority of US states, in the UK and ~~Markets Act 2000 and Rule 5~~in much of the ~~Disclosure Guidance~~EU. In a number of states in the US, wholesalers of alcoholic beverages must publish price lists periodically and/or must file price changes in some instances up to three months before they become effective. In a response to public health concerns, some governments have imposed or are considering imposing minimum pricing on beverage alcohol products and ~~Transparency Rules made by~~may consider raising the ~~Financial Conduct Authority (successor~~legal drinking age, further limiting the number, type or opening hours of retail outlets and/or expanding retail licensing requirements.

In response to the ~~UK Financial Services Authority) imposes a statutory obligation~~Covid-19 pandemic, many governments across the world implemented restrictions on ~~a person~~where and how people could gather, in an effort to ~~notify Diageo and the Financial Conduct Authority~~curb transmission of the ~~percentage~~virus. The extent of these restrictions has varied from country to country (and, in the US, from state to state) and throughout the duration of the ~~voting rights~~pandemic but, in many of the markets in which Diageo ~~he directly~~operates, they have resulted in, amongst other things, the temporary closure of or ~~indirectly holds or controls, or has rights over, through his direct or indirect holding of certain financial instruments, if the percentage of those voting rights:~~restricted opening hours for on-trade outlets.

•~~reaches, exceeds or falls below 3% and/or any subsequent whole percentage figure as a result of an acquisition or disposal of shares or financial instruments; or~~

•~~reaches, exceeds or falls below any such threshold as a result of any change~~Regulatory decisions and changes in the ~~breakdown~~ legal and regulatory environment could also increase Diageo’s costs and liabilities and/or ~~number of voting rights attached to shares in Diageo.~~

The Disclosure Guidance and Transparency Rules set out in detail the circumstances in which an obligation of disclosure will arise, as well as certain exemptions from those obligations for specified persons.

Under section 793 of the Companies Act 2006, Diageo may, by notice in writing, require a person that Diageo knows or has reasonable cause to believe is or was during the three years preceding the date of notice interested in Diageo’s shares to indicate whether or not that is the case and, if that person does or did hold an interest in Diageo’s shares, to provide certain information as set out in that Act.

Article 19 of the EU Market Abuse Regulation (2014/596), as incorporated into UK domestic law by the European Union (Withdrawal) Act 2018, further requires persons discharging managerial responsibilities within Diageo (and their persons closely associated) to notify Diageo of transactions conductedimpact on ~~their own account in Diageo shares or derivatives or certain financial instruments relating to Diageo shares.~~

The City Code on Takeovers and Mergers also imposes strict disclosure requirements with regard to dealings in the securities of an offeror or offeree company on all parties to a takeover and also on their respective associates during the course of an offer period.

~~General meetings and notices~~

At least 21 clear days’ written notice of an annual general meeting is required. Any general meeting which is not an annual general meeting is called a ‘general meeting’. The minimum notice period for general meetings is 21 clear days.

~~An annual general meeting of shareholders must be held within six months of Diageo’s accounting reference date and at a time and place determined by the directors.~~

The chairman of any general meeting is entitled to refuse admission to (or eject from) that general meeting any person who fails to comply with any security arrangements or restrictions that the Board may impose.

~~Variation of rights~~

If, at any time, Diageo’s share capital is divided into different classes of shares, the rights attached to any class of shares may be varied, subject to the provisions of the Companies Acts, either with the consent in writing of the holders of not less than three-quarters in nominal value of the issued shares of that class or upon the adoption of a special resolution passed at a separate meeting of the holders of the shares of that class.

At every such separate meeting, all of the provisions of Diageo’s articles of association relating to proceedings at a general meeting apply, except that (a) the quorum is to be the number of persons (which must be at least two) who hold or represent by proxy not less than one-third in nominal value of the issued shares of the class (excluding any shares of that class held as treasury shares) or, if such quorum is not present on an adjourned meeting, one person who holds shares of the class regardless of the number of shares he holds, (b) any holder of shares of the class who is present in person or by proxy may demand a poll, and (c) each shareholder present in person or by proxy and entitled to vote will have one vote per share held in that particular class in the event a poll is taken.

Class rights are deemed not to have been varied by the creation or issue of new shares ranking equally with or subsequent to that class of shares in all respects or by the reduction of the capital paid up on such shares or by the purchase or redemption by Diageo of its ~~own shares, in each case in accordance with the Companies Acts and Diageo’s articles of association.~~

~~Repurchase of shares~~

Subject to authorisation by shareholder resolution, Diageo may purchase its own shares in accordance with the Companies Acts. Any shares which have been bought back may be held as treasury shares or, if not so held, must be cancelled immediately upon completion of the purchase, thereby reducing the amount of Diageo’s issued share capital. Diageo currently has shareholder authority to buy back up to 232,820,888 ordinary shares during the period up to the next Annual General Meeting. The minimum price which must be paid for such shares is 28~~101~~/~~108~~ ~~pence and the maximum price is the higher of (a) 5% above the average market value of Diageo’s ordinary shares for the five~~ business days immediately preceding the day on which that ordinary share is contracted to be purchased and (b) the higher of the price of the last independent trade and the highest current independent purchase bid on the trading venue where the purchase is carried out.

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~~Additional information for shareholders (continued)~~

~~Restrictions on transfers of shares~~

Registration of a transfer of an uncertificated share may be refused in the circumstances set out in the uncertificated securities rules (as defined in Diageo’s articles of association) and where, in the case of a transfer to joint holders, the number of joint holders to whom the uncertificated share is to be transferred exceeds four.

The Board may decline to register a transfer of any of Diageo’s certificated shares by a person with a 0.25% interest (as defined in Diageo’s articles of association) if such a person has been served with a restriction notice (as defined in Diageo’s articles of association) after failure to provide Diageo with information concerning interests in those shares required to be provided under the Companies Acts, unless the transfer is shown to the Board to be pursuant to an arm’s length sale (as defined in Diageo’s articles of association).

~~297~~

~~Additional information for shareholders (continued)~~

~~Exchange controls~~

Other than certain economic sanctions which may be in effect from time to time, there are currently no UK foreign exchange control restrictions on the payment of dividends, interest or other payments to holders of Diageo’s securities who are non-residents of the UK or on the conduct of Diageo’s operations.

~~There are no restrictions under the company’s articles of association or under English law that limit the right of non-resident or foreign owners to hold or vote the company’s ordinary shares.~~

~~Please refer to the ‘Taxation’ section below for details relating to the taxation of dividend payments.~~

~~Documents on display~~

The Annual Report on Form 20-F and any other documents filed by the company with the SEC are publicly available through the website maintained by SEC at www.sec.gov. The SEC website contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The company's internet address is www.diageo.com/en/investors.activities.

Taxation

This section provides a descriptive summary of certain US federal income tax and UK tax consequences that are likely to be material to the holders of the ordinary shares or ADSs, but only those who hold their ordinary shares or ADSs as capital assets for tax purposes.

It does not purport to be a complete technical analysis or a listing of all potential tax effects relevant to the ownership of the ordinary shares ~~and~~or ADSs. This section does not apply to any holder who is subject to special rules, including:

•a dealer in securities or foreign currency;

•a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

•a tax-exempt organisation;

•a life insurance company;

•a person liable for alternative minimum tax;

•a person that actually or constructively owns 10% or more of the combined voting power of voting stock of Diageo or of the total value of stock of Diageo;

•a person that holds ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction;

•a person that holds ordinary shares or ADSs as part of a wash sale for tax purposes; or

•a US holder (as defined below) whose functional currency is not ~~the~~ US dollar.

If an entity or arrangement treated as a partnership for US federal income tax purposes holds ordinary shares or ADSs, the US federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding ordinary shares or ADSs should consult its tax advisor with regard to the US federal income tax treatment of an investment in ordinary shares or ADSs.

For UK tax purposes, this section applies only to persons who are the absolute beneficial owners of ~~their~~ordinary shares or ADSs and who hold their ordinary shares or ADSs as investments. It assumes that holders of ADSs will be treated as holders of the underlying ordinary shares. In addition to those persons mentioned above, this section does not apply to holders that are banks, regulated investment companies, other financial institutions, or to persons who have or are deemed to have acquired their ordinary shares or ADSs in the course of an employment or trade. This summary does not apply to persons who are treated as non-domiciled and resident in the United Kingdom for the purposes of UK tax law.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, the laws of the United Kingdom and the practice of Her Majesty’s Revenue and Customs, all as currently in effect, as well as on the Convention Between the Government of the United ~~States~~Kingdom of ~~America~~Great Britain and Northern Ireland and the Government of the United ~~Kingdom~~States of ~~Great Britain and Northern Ireland~~America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to ~~Tax~~Taxes on Income and Capital Gains (the Treaty). These laws are subject to change, possibly on a retroactive basis.

~~298~~

~~Additional information for shareholders (continued)~~

In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms. In general, and taking into account this assumption, for US federal income tax purposes and for the purposes of the Treaty, holders of ADRs evidencing ADSs should be

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treated as the owner of the shares represented by those ADSs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to US federal income tax or to UK tax on profits or gains.

A US holder is a beneficial owner of ordinary shares or ADSs that is for US federal income tax purposes:

•a citizen or resident for tax purposes of the United States and who is not and has at no point been resident in the United Kingdom;

•a US domestic corporation;

•an estate whose income is subject to US federal income tax regardless of its source; or

•a trust if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust.

This section is not intended to provide specific advice and no action should be taken or omitted in reliance upon it. This section addresses only certain aspects of US federal income tax and UK income tax, corporation tax, capital gains tax, inheritance tax and stamp taxes. Holders of the ordinary shares or ADSs are urged to consult their own tax advisors regarding the US federal, state and local, and UK and other tax consequences of owning and disposing of the shares or ADSs in their respective circumstances. In particular, holders are encouraged to confirm with their advisor whether they are US holders eligible for the benefits of the Treaty.

Dividends

UK taxation

The company will not be required to withhold tax at source when paying a dividend.

All dividends received by an individual shareholder or ADS holder who is resident in the UK for tax purposes will, except to the extent that they are earned through an ISA or other regime which exempts the dividends from tax, form part of that individual’s total income for income tax purposes and will represent the highest part of that income.

A nil rate of income tax will apply to the first £2,000 of taxable dividend income received by an individual shareholder in a tax year (the ~~“Nil~~Nil Rate ~~Amount”)~~Amount), regardless of what tax rate would otherwise apply to that dividend income.

Any taxable dividend income in excess of the Nil Rate Amount will be subject to income tax at the following special rates (as at the ~~2020/2021~~2022/2023 tax year):

•at the rate of ~~7.5%~~8.75%, to the extent that the relevant dividend income falls below the threshold for the higher rate of income tax;

•at the rate of ~~32.5%~~33.75%, to the extent that the relevant dividend income falls above the threshold for the higher rate of income tax but below the threshold for the additional rate of income tax; and

•at the rate of ~~38.1%~~39.35%, to the extent that the relevant dividend income falls above the threshold for the additional rate of income tax.

In determining whether and, if so, to what extent the relevant dividend income falls above or below the threshold for the higher rate of income tax or, as the case may be, the additional rate of income tax, the individual’s total taxable dividend income for the tax year in question (including the part within the Nil Rate Amount) will, as noted above, be treated as the highest part of that individual’s total income for income tax purposes.

Shareholders within the charge to UK corporation tax which are small companies (for the purposes of the UK taxation of dividends) will not generally be subject to tax on dividends from the company. Other shareholders within the charge to UK corporation tax will not be subject to tax on dividends from the company so long as the dividends fall within an exempt class and certain conditions are met. In general, dividends paid on shares that are ordinary share capital for UK tax purposes and are not redeemable and dividends paid to a person holding less than 10% of the issued share capital of the payer (or any class of that share capital) are examples of dividends that fall within an exempt class.

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US taxation

Under the US federal income tax laws, and subject to the passive foreign investment company ~~('PFIC')~~(PFIC) rules discussed below, the gross amount of any distribution (other than certain pro rata distribution of ordinary shares) paid to a US holder by Diageo in respect of its ordinary shares or ADSs out of its current or accumulated earnings and profits (as determined for US federal income tax purposes) will be treated as a dividend that is subject to US federal income taxation.

Dividends paid to a non-corporate US holder that constitute qualified dividend income will be taxed at the preferential rates applicable to long-term capital gains, provided that the ordinary shares or ADSs are held for more than 60 days during the ~~121 day~~121-day period beginning 60 days before the ex-dividend date and the holder meets other holding period requirements. Dividends paid by Diageo with respect to its ordinary shares or ADSs generally will be qualified dividend income to US holders that meet the holding period requirement, provided that, in the year that you receive the dividend, we are eligible for the benefits of the Treaty. We believe that we are currently eligible for the benefits of the Treaty and we therefore expect that dividends on the shares or ADSs will be qualified dividend income, but there can be no assurance that we will continue to be eligible for the benefits of the Treaty. Under UK law, dividends paid by the company are not subject to UK withholding tax. Therefore, the US holder will include in income for US federal income tax purposes the amount of the dividend received, and the receipt of a dividend will not entitle the US holder to a foreign tax credit.

The dividend must be included in income when the US holder, in the case of shares, or the Depositary, in the case of ADSs, receives the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. Dividends will generally be income from sources outside the United States and will generally be ‘passive’ income for purposes of computing the foreign tax credit allowable to a US holder. The amount of the dividend distribution that must be included in income of a US holder will be the US dollar value of the pounds sterling payments made, determined at the spot pounds sterling/US dollar foreign exchange rate on the date of the dividend distribution, ~~is included in income,~~ regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is ~~included in income~~distributed to the date the payment is converted into US dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for US federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the holder’s basis in the ordinary shares or ADSs and thereafter as capital gain. However, Diageo does not expect to calculate earnings and profits in accordance with US federal income tax principles. Accordingly, a US holder should expect to generally treat distributions Diageo makes as dividends.

Taxation of capital gains

UK taxation

A citizen or resident (for tax purposes) of the United States who has at no time been resident in the United Kingdom will not be liable for UK tax on capital gains realised or accrued on the sale or other disposal of ordinary shares or ADSs, unless the ordinary shares or ADSs are held in connection with a trade or business carried on by the holder in the United Kingdom through a UK branch, agency or a permanent establishment. A disposal (or deemed disposal) of shares or ADSs by a holder who is resident in the United Kingdom may, depending on the holder’s particular circumstances, and subject to any available exemption or relief, give rise to a chargeable gain or an allowable loss for the purposes of UK tax on capital gains.

US taxation

Subject to the PFIC rules discussed below, a US holder who sells or otherwise disposes of ordinary shares or ADSs will recognise capital gain or loss for US federal income tax purposes equal to the difference between the US dollar value of the amount that is realised and the tax basis, determined in US dollars, in the ordinary shares or ADSs. Capital gain of a non-corporate US holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

~~300~~

~~Additional information for shareholders (continued)~~

PFIC rules

Diageo believes that ordinary shares and ADSs should not currently be treated as stock of a PFIC for US federal income tax purposes, and we do not expect to become a PFIC in the foreseeable future. However this conclusion is a factual determination that is made annually and thus may be subject to change. It is therefore possible that we could become a PFIC in a future taxable year.

If treated as a PFIC, gain realised on the sale or other disposition of ordinary shares or ADSs would in general not be treated as capital gain. Instead, unless a US holder elects to be taxed annually on a mark-to-market basis with respect to the ordinary shares or ADSs, US holders would be treated as if the holder had realised such gain and certain ‘excess distributions’ pro-rated over the holder’s holding period for the ordinary shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain or distribution was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, a holder’s ordinary shares or ADSs will be treated as stock in a PFIC if Diageo were a PFIC at any time during the holding period in a holder’s ordinary shares or ADSs. In addition, dividends received from Diageo will not be eligible for the special tax rates applicable to qualified dividend income if Diageo is a PFIC (or is treated as a PFIC with respect to the holder) either in the taxable

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Additional information for shareholders (continued)

year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income. If you own our shares or ADSs during any year that we are a PFIC with respect to you, you may be required to file IRS Form 8621.

UK inheritance tax

Subject to certain provisions relating to trusts or settlements, an ordinary share or ADS held by an individual shareholder who is domiciled in the United States for the purposes of the Convention between the United States and the United Kingdom relating to estate and gift taxes (the Convention) and who is neither domiciled in the UK nor (where certain conditions are met) a UK national (as defined in the Convention), will generally not be subject to UK inheritance tax on the individual’s death (whether held on the date of death or gifted during the individual’s lifetime) except where the ordinary share or ADS is part of the business property of a UK permanent establishment of the individual or pertains to a UK fixed base of an individual who performs independent personal services. In a case where an ordinary share or ADS is subject both to UK inheritance tax and to US federal gift or estate tax, the Convention generally provides for inheritance tax paid in the United Kingdom to be credited against federal gift or estate tax payable in the United States, or for federal gift or estate tax paid in the United States to be credited against any inheritance tax payable in the United Kingdom, based on priority rules set forth in the Convention.

UK stamp duty and stamp duty reserve tax

Stamp duty and stamp reserve tax (SDRT) may arise upon the deposit of an underlying ordinary share with the Depositary, generally at the higher rate of 1.5% of its issue price or, as the case may be, of the consideration for transfer. The Depositary will pay the stamp duty or SDRT but will recover an amount in respect of such tax from the initial holders of ADSs. Following litigation, however, HMRC have confirmed that they will no longer seek to apply the 1.5% SDRT charge on an issue of shares to a depositary receipt issuer or to a person providing clearance services (or their nominee or agent) on the basis that this is not compatible with EU law. HMRC may continue to apply the 1.5% stamp duty or SDRT charge on transfers of shares to a depositary receipt issuer or to a person providing clearance services (or their nominee or agent) unless the transfer is an integral part of a raising of capital. It is not currently anticipated that HMRC will now seek to apply the 1.5% charge to issues of shares following Brexit.

Based on HM Revenue & Custom’s published practice, no UK stamp duty will be payable on the acquisition or transfer of ADRs. Furthermore, an agreement to transfer ADSs in the form of ADRs will not give rise to a liability to SDRT.

Purchases of ordinary shares (as opposed to ADRs) will be subject to UK stamp duty, and/or SDRT as the case may be, at the rate of 0.5% of the price payable for the ordinary shares at the time of the transfer. Stamp duty applies where a physical instrument of transfer is used to effect the transfer. SDRT applies to any agreement to transfer ordinary shares (regardless of whether or not the transfer is effected electronically or by way of an instrument of transfer). However, where ordinary shares being acquired are transferred direct to the Depositary’s nominee, the only charge will generally be the higher charge of 1.5% of the price payable for the ordinary shares so acquired.

Any stamp duty payable (as opposed to SDRT) is rounded up to the nearest £5. No stamp duty (as opposed to SDRT) will be payable if the amount or value of the consideration is (and is certified to be) £1,000 or less. Stamp duty and SDRT are usually paid or borne by the purchaser.

Whilst stamp duty and SDRT may in certain circumstances both apply to the same transaction, in practice usually only one or other will need to be paid.

Annual General Meeting (AGM)

The AGM will be held at etc.venues St Paul's, 200 Aldersgate, London EC1A 4HD at 2.30 pm on Thursday, 6 October 2022.

Documents on display

The Annual Report on Form 20-F and any other documents filed by the company with the US Securities Exchange Commission (SEC) may be inspected at the SEC’s office of Investor Education and Advocacy located at 100 F Street, NE, Washington, DC 20549-0213, USA. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. Filings with the SEC are also available to the public from commercial document retrieval services, and from the website maintained by the US Securities and Exchange Commission at www.sec.gov.

Warning to shareholders –- share fraud

Please beware of the share fraud of ‘boiler room’ scams, where shareholders are called ‘out of the blue’ by fraudsters (sometimes claiming to represent Diageo) attempting to obtain money or property dishonestly. Further information ~~is available in~~on boiler room scams can be found on the ~~investor section of Diageo’s~~Financial Conduct Authority’s website ~~(www.diageo.com)~~(https://www.fca.org.uk/ scamsmart/share-bond-boiler-room-scams) but in short, if in doubt, ~~obtain appropriate~~take proper professional advice before making any investment decision.

Electronic communications

Shareholders can register for an account to manage their shareholding online, including being able to: check the number of shares they own and the value of their shareholding; register for electronic communications; update their personal details; provide a dividend mandate instruction; access dividend confirmations; and use the online share dealing service. To register for an account, shareholders should visit www.diageoregistrars.com.

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Additional information for shareholders (continued)

Dividend payments

Direct payment into bank account

Shareholders can have their cash dividend paid directly into their UK bank account on the dividend payment date. To register UK bank account details, shareholders can register for an online account at www.diageoregistrars.com or call the Registrar on +44 (0)371 277 1010* to request the relevant application form. For shareholders outside the UK, Link Group (a trading name of Link Market Services Limited and Link Market Services Trustees Limited) may be able to provide you with a range of services relating to your shareholding. To learn more about the services available to you please visit the shareholder portal at www.diageoregistrars.com or call +44 (0)371 277 1010*.

Dividend Reinvestment Plan

A Dividend Reinvestment Plan is offered by the Registrar, Link Market Services Trustees Limited, to give shareholders the opportunity to build up their shareholding in Diageo by using their cash dividends to purchase additional Diageo shares. To join the Dividend Reinvestment Plan, shareholders can call the Registrar, Link Group on +44 (0)371 277 1010* to request the relevant application form.

Exchange controls

There are no restrictions under the company’s articles of association or under English law that limit the right of non-resident or foreign owners to hold or vote the company’s ordinary shares.

Please refer to the ‘Taxation’ section on page 238 for details relating to the taxation of dividend payments.

Useful contacts

The Registrar/Shareholder queries

Link Group acts as the company’s registrar and can be contacted as follows:

By email: Diageo@linkgroup.co.uk

By telephone: +44 (0) 371 277 1010*

In writing: Registrars – Link Group, Diageo Registrar, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 1DL.

* Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. Lines are open 08:00 to 17:30, Monday to Friday, excluding public holidays in England and Wales.

ADR administration

Citibank Shareholder Services acts as the company’s ADR administrator and can be contacted as follows:

By email: citibank@shareholders-online.com

By telephone: +1 866 253 0933/ (International) +1 781 575 4555*

In writing: Citibank Shareholder Services. PO Box 43077, Providence, RI 02940-3077

*Lines are open Monday to Friday 8:30 to 18:00 EST

General Counsel and Company Secretary

Tom Shropshire

The.cosec@diageo.com

Investor Relations

investor.relations@diageo.com

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Additional information for shareholders (continued)

Exhibits



1.1			Articles of Association of Diageo plc (incorporated by reference to Exhibit 1.1 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 August 2021).
2.1			Indenture, dated as of 3 August 1998, among Diageo Capital plc, Diageo plc and The Bank of New York Mellon (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form F-1 (File No. 333-8874) filed with the Securities and Exchange Commission on 24 July 1998 (pages 365 to 504 of paper filing)).(i)
2.2			Indenture, dated as of 1 June 1999, among Diageo Investment Corporation, Diageo plc and The Bank of New York Mellon (incorporated by reference to Exhibit 2.2 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 November 2001 (pages 241 to 317 of paper filing)).(i)
2.3			Indenture, dated as of 8 December 2003, among Diageo Finance B.V., Diageo plc and The Bank of New York Mellon (incorporated by reference to Exhibit 1 to the Report on Form 6-K (File No. 001-10691) filed with the Securities and Exchange Commission on 9 December 2003).(i)
2.4			Description of Securities registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 2.4 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 August 2021).
4.1			Service Agreement, dated 1 October 2015, between Diageo plc and Kathryn Mikells (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 9 August 2016).
4.2			Service Agreement, dated 7 May 2013, between Diageo plc, Diageo North America, Inc. and Ivan Menezes (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 12 August 2013).
4.3			Letter of Agreement, dated 19 July 2007, between Diageo plc and Dr Franz B. Humer (incorporated by reference to Exhibit 4.4 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.4~~			Form of Service Agreement for Diageo plc’s executives in the United Kingdom, dated as of 1 July 2006 (incorporated by reference to Exhibit 4.7 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 17 September 2007).
~~4.5~~4.4			Form of Service Agreement for Diageo plc’s executives in the United States, dated as of 1 July 2006 (incorporated by reference to Exhibit 4.8 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 17 September 2007).
~~4.6~~4.5			Form of Service Agreement for Diageo plc’s executives in the United Kingdom, in use as of July 2015 (incorporated by reference to Exhibit 4.6 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 11 August 2015).
~~4.7~~4.6			Form of Service Agreement for Diageo plc’s executives in the United States, in use as of July 2015 (incorporated by reference to Exhibit 4.7 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 11 August 2015).
~~4.8~~4.7			Diageo 2010 Sharesave Plan, dated 14 October 2010 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (File No. 333-169934) filed with the Securities and Exchange Commission on 14 October 2010).
~~4.9~~4.8			Diageo 2001 Share Incentive Plan, dated 14 October 2010 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (File No. 333-169934) filed with the Securities and Exchange Commission on 14 October 2010).
~~4.10~~4.9			Rules of the Diageo plc 2009 International Share Match Plan, dated 14 October 2010 (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8 (File No. 333-169934) filed with the Securities and Exchange Commission on 14 October 2010).
~~4.11~~4.10			Diageo plc 2009 Executive Long Term Incentive Plan, dated 14 October 2009 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (File No. 333-162490) filed with the Securities and Exchange Commission on 15 September 2009).
~~4.12~~4.11			Diageo plc 2009 Discretionary Incentive Plan, dated 14 October 2009 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (File No. 333-162490) filed with the Securities and Exchange Commission on 15 September 2009).
~~4.13~~4.12			Diageo plc 2008 Performance Share Plan, dated as of 15 October 2008 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (File No. 333-154338) filed with the Securities and Exchange Commission on 16 October 2008).
~~4.14~~4.13			Diageo plc 2008 Senior Executive Share Option Plan, dated as of 15 October 2008 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (File No. 333-154338) filed with the Securities and Exchange Commission on 16 October 2008).
~~4.15~~4.14			Diageo plc Senior Executive Share Option Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.7 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).

303

Additional information for shareholders (continued)


~~4.16~~4.15			Diageo plc Executive Share Option Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.8 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).

~~302~~

~~Additional information for shareholders (continued)~~


~~4.17~~4.16			Diageo plc Associated Companies Share Option Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.9 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.18~~4.17			Diageo plc Long Term Incentive Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.10 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.19~~4.18			Diageo plc 1998 United States Employee Stock Purchase Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.12 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.20~~4.19			Diageo plc 2007 United States Employee Stock Purchase Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.13 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.21~~4.20			Diageo plc UK Sharesave Scheme 2000, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.14 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.22~~4.21			Addendum to Form of Service Agreement for Diageo plc’s executives in the United States (incorporated by reference to Exhibit 4.16 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.23~~4.22			Diageo plc Associated Companies Share Incentive Plan, dated as of 23 August 2011 (incorporated by reference to Exhibit 4.22 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 September 2012).
~~4.24~~4.23			Diageo plc Long Term Incentive Plan, dated as of 18 September 2014 (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 (File No. 333-206290) filed with the Securities and Exchange Commission on 11 August 2015).
~~4.25~~4.24			Letter of Agreement, dated 12 May 2016, between Diageo plc and Mr. Javier Ferrán (incorporated by reference to Exhibit 4.25 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 9 August 2016).
~~4.26~~4.25			Diageo plc Share Value Plan, dated as of 20 September 2017 (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 (File No. 333-223071) filed with the Securities and Exchange Commission on 16 February 2018).
~~4.27~~4.26			Service Agreement, dated 13 January 2021, between Diageo plc and Lavanya Chandrashekar (incorporated by reference to Exhibit 4.27 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 August 2021).
6.1			Description of earnings per share (included in the section ‘How we measure performance: Key performance indicators’ on page 5347 of this Annual Report on Form 20-F).
8.1			Principal group companies (included in note 21 to the consolidated financial statements on page ~~278~~2 84 of this Annual Report on Form 20-F).
12.1			Certification of Ivan Menezes filed pursuant to 17 CFR 240.13a-14(a).
12.2			Certification of Lavanya Chandrashekar filed pursuant to 17 CFR 240.13a-14(a).
13.1			Certification of Ivan Menezes furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C. 1350(a) and (b).
13.2			Certification of Lavanya Chandrashekar furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C. 1350(a) and (b).
15.1			Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
101.INS			Inline XBRL Instance Document
101.SCH			Inline XBRL Taxonomy Extension Schema
101.CAL			Inline XBRL Taxonomy Extension Schema Calculation Linkbase
101.DEF			Inline XBRL Taxonomy Extension Schema Definition Linkbase
101.LAB			Inline XBRL Taxonomy Extension Schema Label Linkbase
101.PRE			Inline XBRL Taxonomy Extension Schema Presentation Linkbase

(i) Pursuant to an Agreement of Resignation, Appointment and Acceptance dated 16 October 2007 by and among Diageo plc, Diageo Capital plc, Diageo Finance BV, Diageo Investment Corporation, The Bank of New York and Citibank NA, The Bank of New York Mellon has become the successor trustee to Citibank NA under Diageo’s indentures dated 3 August 1998, 8 December 2003 and 1 June 1999.

~~303~~304

Additional information for shareholders (continued)

Signature

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorised.



DIAGEO plc
(REGISTRANT)

/s/ Lavanya Chandrashekar
Name: Lavanya Chandrashekar

Title: Chief Financial Officer

54 August ~~2021~~2022

~~304~~305

Glossary of terms and US equivalents

In this document the following words and expressions shall, unless the context otherwise requires, have the following meanings:



Term used in UK annual report			US equivalent or definition
Associates			Entities accounted for under the equity method
American Depositary Receipt (ADR)			Receipt evidencing ownership of an ADS
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
Called up share capital			Common stock
Capital redemption reserve			Other additional capital
Company			Diageo plc
CPI			Consumer price index
Creditors			Accounts payable and accrued liabilities
Debtors			Accounts receivable
Employee share schemes			Employee stock benefit plans
Employment or staff costs			Payroll costs
Equivalent units			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. To convert volume of products other than spirits to equivalent units: beer in hectolitres divide by 0.9, wine in nine-litre cases divide by five, ready to drink in nine-litre cases divide by 10, and certain pre-mixed products classified as ready to drink in nine-litre cases divide by five.
Euro, €, ¢			Euro currency
Exceptional items			Items that, in management’s judgement, need to be disclosed separately by virtue of their size or nature
Excise duty			Tax charged by a sovereign territory on the production, manufacture, sale or distribution of selected goods (including imported goods) within that territory. It is generally based on the quantity or alcohol content of goods, rather than their value, and is typically applied to alcohol products and fuels.
Finance lease			Capital lease
Financial year			Fiscal year
Free cash flow			Net cash flow from operating activities aggregated with net purchase and disposal of property, plant and equipment and computer software and with movements in loans
Freehold			Ownership with absolute rights in perpetuity
GAAP			Generally accepted accounting principles
Group and Diageo			Diageo plc and its consolidated subsidiaries
IFRS			International Financial Reporting Standards as adopted for use in the European Union and International Financial Reporting Standards as issued by the International Accounting Standards Board
Impact Databank, IWSR, IRI, Beverage Information Group and Plato Logic			Information source companies that research the beverage alcohol industry and are independent from industry participants
Net sales			Sales after deducting excise duties
Noon buying rate			Buying rate at noon in New York City for cable transfers in sterling as certified for customs purposes by the Federal Reserve Bank of New York
Operating profit			Net operating income
Organic movement			At level foreign exchange rates and after adjusting for exceptional items, acquisitions and disposals for continuing operations
Own shares			Treasury stock
Pound sterling, sterling, £, pence, p			UK currency
Price/mix			Price/mix is the number of percentage points by which the organic movement in net sales exceeds the organic movement in volume. The difference arises because of changes in the composition of sales between higher and lower priced variants/markets or as price changes are implemented.
Profit			Earnings

~~305~~306

Glossary of terms and US equivalents (continued)



Term used in UK annual report			US equivalent or definition
Profit for the year			Net income
Provisions			Accruals for losses/contingencies
Reserves			Accumulated earnings, other comprehensive income and additional paid in capital
RPI			Retail price index
Ready to drink			Ready to drink products. Ready to drink also include ready to serve products, such as pre-mix cans in some markets, and progressive adult beverages in the United States and certain markets supplied by the United States.
SEC			US Securities and Exchange Commission
Share premium			Additional paid in capital or paid in surplus
Shareholders’ funds			Shareholders’ equity
Shareholders			Stockholders
Shares			Common stock
Shares and ordinary shares			Diageo plc’s ordinary shares
Shares in issue			Shares issued and outstanding
Trade and other payables			Accounts payable and accrued liabilities
Trade and other receivables			Accounts receivable
US dollar, US$, $, ¢			US currency

~~306~~307

000

Face value
(% of salary)

Ivan Menezes

03/09/2020

DLTIP - share options

ADR

43,377

$133.88

$6,230

375

Ivan Menezes

03/09/2021

DLTIP - share options

ADR

36,675

$194.75

$6,417

375

Ivan Menezes

03/09/2020

DLTIP - performance shares

ADR

43,377

—

$6,230

375

Ivan Menezes

03/09/2021

DLTIP - performance shares

ADR

36,675

—

$6,417

375

Kathryn Mikells

03/09/2020

DLTIP - share options

ADR

27,396

$133.88

$3,935

360

Kathryn Mikells

03/09/2020

DLTIP - performance shares

ADR

27,396

—

$3,935

360

Lavanya Chandrashekar

03/09/2021

DLTIP - share options

ADR

20,060

$194.75

$3,510

360

Lavanya Chandrashekar

03/09/2021

DLTIP - performance shares

ADR

20,060

—

$3,510

360

~~The face value of each award has been calculated using the award price.~~

The ADR price on the date of grant was ~~$133.70.~~$195.97.

~~205~~199

Governance (continued)

Outstanding share plan interests


Plan name	Date of award	Performance period	Date of vesting	Share type	Share price on date of grant	Exercise price	Number of shares/options at 30 June 2021 1	Granted	Vested/exercised	Dividend Equivalent Shares released	Lapsed	Number of shares/options at 30 June 2022
Ivan Menezes
DLTIP – share options10	Sep 2015	2015-2018	2018	ADR		$104.93	29,895		29,895			0
DLTIP – share options10	Sep 2016	2016-2019	2019	ADR		$113.66	39,734		39,734			—
DLTIP – share options3	Sep 2017	2017-2020	2020	ADR		$134.06	14,098					14,098
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	42,848				38,564	4,284
Total vested but unexercised share options in Ords2												73,528

DLTIP - share options4,5	Sep 2019	2019-2022	2022	ADR		$170.28	38,827					38,827
DLTIP - share options6	Sep 2020	2020-2023	2023	ADR		$133.88	43,377					43,377
DLTIP - share options7	Sep 2021	2021-2024	2024	ADR		$194.75	0	36,675				36,675
Total unvested share options subject to performance in Ords2												475,516
DLTIP - performance shares8	Sep 2018	2018-2021	2021	ADR	$139.41		42,848		12,554	701	30,294	0
DLTIP - performance shares4,5	Sep 2019	2019-2022	2022	ADR	$174.72		38,827					38,827
DLTIP - performance shares6	Sep 2020	2020-2023	2023	ADR	$133.70		43,377					43,377
DLTIP - performance shares7	Sep 2021	2021-2024	2024	ADR	$195.97		0	36,675				36,675
Total unvested shares subject to performance in Ords2												475,516
Lavanya Chandrashekar
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	3,832					3,832
DLTIP – share options3	Sep 2018	2018-2021	2021	ADR		$140.89	1,064					1,064
Total vested but unexercised share options in Ords2												19,584

DLTIP – share options7	Sep 2021	2021-2024	2024	ADR		$194.75		20,060				20,060
Total unvested share options subject to performance in Ords2												80,240
DLTIP – performance shares	Sep 2018	2018-2021	2021	ADR	$139.41		1,593		503	28	1,090	0
DLTIP – performance shares4,5	Sep 2019	2019-2022	2022	ADR	$174.72		1,444					1,444
DLTIP – performance shares6	Sep 2020	2020-2023	2023	ADR	$133.70		1,827					1,827
DLTIP – performance shares7	Sep 2021	2021-2024	2024	ADR	$195.97			20,060				20,060
Total unvested shares subject to performance in Ords2												93,324
DLTIP – restricted stock units	Sep 2018	2018-2021	2021	ADR	$139.41		766		766			0
DLTIP – restricted stock units	Sep 2018	2018-2021	2021	ADR	$139.41		1774		1,774			0
DLTIP – restricted stock units	Sep 2019	2019-2022	2022	ADR	$174.72		1567					1,567
DLTIP – restricted stock units	Sep 2020	2020-2023	2023	ADR	$133.70		2,635					2,635
Total unvested shares not subject to performance in Ords2,9												16,808

2. ADRs have been converted to Ords (one ADR is equivalent to four ordinary shares) for the purpose of calculating the total number of vested and unvested shares and ~~options~~options.

~~10. Kathryn Mikells exercised 1,037 tax-approved options on 24 June 2021~~price at ~~a market price of £34.87 and~~ exercise ~~price of £21.13~~

~~11. Kathryn Mikells’ retained unvested performance share and share option awards, pro-rated for employment over the performance period, when she left the company on 30 June 2021.~~

~~These awards will vest, subject to the achievement of the performance conditions, on the normal vesting date, together with any accrued dividend equivalents.~~was $192.04.

~~206~~200

Governance (continued)


Directors’ shareholding requirements and share and other interests


	Ordinary shares or equivalent1,2
	26 July 2022	30 June 2022(or date of departure, if earlier)	30 June 2021 (or date of appointment if later)	Shareholding requirement (% salary)3		Shareholding at 26 July 2022 (% salary)3		Shareholding requirement met
Chairman
Javier Ferrán7,9	307,522	307,288	254,242
Executive Directors
Ivan Menezes4,5,7	1,078,566	1,078,566	1,145,894	500	%	3,093	%	Yes
Lavanya Chandrashekar6,7	6,228	6,228		400	%	31	%	No - to be met by July 2026
Non-Executive Directors
Susan Kilsby7	2,600	2,600	2,600
Melissa Bethell	2,668	2,668
Valérie Chapoulaud-Floquet	2,055	2,055	2,017
Sir John Manzoni	2,870	2,870	2,816
Lady Mendelsohn	5,000	5,000	5,000
Alan Stewart	7,120	7,120	7,069
Ireena Vittal	0	0
Karen Blackett8	0	0

Notes

1. Each person listed beneficially owns less than 1% of Diageo’s ordinary shares. Ordinary shares held by Directors have the same voting rights as all other ordinary shares.

~~The last practicable date is within one month of the AGM notice.~~

4. In addition to the number of shares reported in the table above, Ivan Menezes holds ~~83,727~~73,528 vested but unexercised share ~~options (over ADRs; equal to 334,908 ordinary shares)~~options.

5. Ivan Menezes 2021 Deferred Bonus Plan Shares (2,826 ADSs) is included in his total share interests shown above.

share ~~equivalent~~

~~7. Melissa Bethell was appointed to the Board on 30 June 2020~~equivalents.

8. ~~Valérie Chapoulaud-Floquet was appointed to~~Karen Blackett joined the Board on 1 ~~January 2021~~June 2022.

9. ~~Sir John Manzoni was appointed~~With regard to Javier Ferrán, included in the ~~Board on 1 October 2020~~

~~10. Ireena Vittal was appointed~~number of shares reported in the table above are 180,000 ordinary shares which Javier Ferrán transferred to ~~the Board on 2 October 2020~~

~~11. Ho Kwon Ping retired from the Board on 28 September 2020~~

~~207~~201

Governance (continued)

Relative importance of spend on pay

~~Dividends have increased by 4% on the year before and the reduction in distributions to shareholders is a result of the suspension of the share buyback programme.~~

Relative importance of spend on pay – percentage change

Distributions to shareholders

~~-39.6%~~127.3%

Staff pay

~~13.0%~~13.2%

Chief Executive total remuneration and TSR performance

~~208~~202

Governance (continued)


	Paul S Walsh £'000 F13		Ivan Menezes1 £'000 F14		Ivan Menezes1 £'000 F15		Ivan Menezes1 £'000 F16		Ivan Menezes1 £'000 F17		Ivan Menezes1 £'000 F18		Ivan Menezes1 £'000 F19		Ivan Menezes1 £'000 F20		Ivan Menezes1 £'000 F21		Ivan Menezes1 £'000 F22
Chief Executive total remuneration (includes legacy LTIP awards)	15,557		7,312		3,888		4,156		3,399		8,995		11,776		2,273		6,019		7,881
Annual incentive2	51	%	9	%	44	%	65	%	68	%	70	%	61.0	%	0	%	93.75	%	93.75	%
Share options2	100	%	71	%	0	%	0	%	0	%	60	%	73.1	%	27.5	%	10.0	%	61.5	%
Performance shares2	95	%	55	%	33	%	31	%	0	%	70	%	89.3	%	10.0	%	29.3	%	59.3	%

1. To enable comparison, Ivan Menezes’ single total figure of remuneration has been converted into sterling using the average weighted exchange rate for the relevant financial year.

2. % of maximum opportunity


Pay for Directors in the context of wider workforce remuneration

CEO pay ratio

Year

Method

25th percentile pay ratio

Median pay ratio

75th percentile pay ratio

2019

Option A2

265:1

208:1

166:1

2020 1

Option A2

50:1

38:1

31:1

2021

Option A~~2,3~~2

~~125:~~127:1

~~98:~~100:1

~~77:~~79:1

~~2021~~2022

Option A2

157:1

122:1

96:1

2022

Total pay and benefits

£~~47,240~~50,260

£~~60,093~~64,627

£~~76,321~~81,888

~~2021~~2022

Salary

£~~32,141~~30,765

£~~42,578~~43,920

£~~48,550~~52,833

203

Governance (continued)

Methodology

Points to note for the year ended 30 June ~~2021~~2022

~~209~~

~~Governance (continued)~~

~~Looking after~~Supporting our people and investing in talent

Change in pay for Directors compared to wider workforce

~~210~~204

Governance (continued)

Year-on-year change in pay for Directors compared to the global average employee
2021 2020
Salary Bonus Benefits Salary Bonus Benefits
Plc employee average1
5.1 %
N/A6
38.8 % 7.5 % -100 % 9.0 %
Average global employee2
0.0 % 278.8 % 12.6 % 5.3 % -67.8 % 6.9 %
Calculated with constant FX rate 4.11 % 5.1 %
Executive Directors3
Ivan Menezes 0.7 %
N/A6
-10.7 % 2.7 % -100 % 0.8 %
Kathryn Mikells 0.7 %
N/A6
17.9 % 2.8 % -100 % 55.9 %
Non-Executive Directors4
Melissa Bethell — — — — — —
Valérie Chapoulaud-Floquet — — — — — —
Javier Ferrán (Chairman) 0.0 % — 0.0 % 0.0 % — 0.0 %
Susan Kilsby 9.6 % — -87.7 % 37.3 % — 68.9 %
Ho KwonPing5
3.2 % — -67.7 % 3.3 % — 93.3 %
Sir John Manzoni — — — — — —
Lady Mendelsohn 3.2 % — 0.0 % 3.3 % — 0.0 %
Alan Stewart 2.4 % — 0.0 % 2.5 % — 0.0 %
Ireena Vittal — — — — — —


Year-on-year change in pay for Directors compared to the global average employee
	2022						2021						2020
	Salary		Bonus		Benefits		Salary		Bonus		Benefits		Salary		Bonus		Benefits
Plc employee average1	11.1	%	25.8	%	10.5	%	5.1	%	N/A		38.8	%	7.5	%	(100)	%	9.0	%
Average global employee2	6.4	%	38.4	%	11.7	%	0.0	%	278.8	%	12.6	%	5.3	%	(68)	%	6.9	%
Executive Directors3
Ivan Menezes8	2.3	%	4.4		59.5	%	0.7	%	N/A5		(10.7)	%	2.7	%	(100)	%	0.8	%
Lavanya Chandrashekar	N/A5		N/A5		N/A5		N/A5		N/A5		N/A		N/A		N/A		N/A
Non-Executive Directors4
Melissa Bethell	2.3		—		16.0		N/A5		—		—		—		—		—
Valérie Chapoulaud-Floquet6	—		—		—		N/A5		—		—		—		—		—
Javier Ferrán (Chairman)	8.3	%	—		28.8	%	0.0	%	—		0.0	%	0.0	%	—		0.0	%
Susan Kilsby7	3.8	%	—		300.0	%	9.6	%	—		(87.7)	%	37.3	%	—		68.9	%
Sir John Manzoni6	—		—		—		—		—		—		—		—		—
Lady Mendelsohn	2.3	%	—		0.0	%	3.2	%	—		0.0	%	3.3	%	—		0.0	%
Alan Stewart	4.7	%	—		0.0	%	2.4	%	—		0.0	%	2.5	%	—		0.0	%
Ireena Vittal6	—		—		—		—		—		—		—		—		—
Karen Blackett	N/A5		—		N/A5		—		—		—		—		—		—

6. N/A refers to a nil value in the previous year, meaning that the year-on-year change cannot be calculated.

7. The percentage increase in benefits for Susan Kilsby reflects an increase travel expenses.

8. The percentage increase in benefits for Ivan Menezes reflects an increase in tax support services.

Payments to former Directors

A payment was made to Kathryn Mikells at the start of the year ended 30 June 2022 as described below. These details were previously disclosed in the 2021 Directors' remuneration report.

Payments for loss of office

205

Governance (continued)


Non-Executive Directors

Fee policy

January 2021 January 2020
Per annum fees £'000 £'000
Chairman of the Board 600 600
Non-Executive Directors

Base fee 98 98
Senior Non-Executive Director 30 30
Chairman of the Audit Committee 30 30
Chairman of the Remuneration Committee 30 30


	January 2022	January 2021
Per annum fees	£'000	£'000
Chairman of the Board	650	600
Non-Executive Directors
Base fee	101	98
Senior Non-Executive Director	30	30
Chairman of the Audit Committee	35	30
Chairman of the Remuneration Committee	35	30

~~211~~

~~Governance (continued)~~

Non-Executive Directors’ remuneration for the year ended 30 June ~~2021~~2022

Fees
£'000
Taxable benefits1
£'000
Total
£'000

2021 2020 2021 2020 2021 2020
Chairman

Javier Ferrán2
600 600 1 1 601 601
Non-Executive Directors

Susan Kilsby 158 144 1 10 159 154
Melissa Bethell 98 — 1 — 99 —
Valérie Chapoulaud-Floquet5
49 — 1 — 50 —
Sir John Manzoni3
74 — 1 — 75 —
Lady Mendelsohn 98 95 1 1 99 96
Alan Stewart 128 125 1 1 129 126
Ireena Vittal4
73 — 1 — 74 —
Ho KwonPing6
24 95 — 4 24 99


	Fees £'000		Taxable benefits1 £'000		Total £'0004
	2022	2021	2022	2021	2022	2021
Chairman
Javier Ferrán2	650	600	2	1	652	601
Non-Executive Directors
Susan Kilsby	164	158	5	1	169	159
Melissa Bethell	100	98	1	1	102	99
Valérie Chapoulaud-Floquet	100	49	5	1	105	50
Sir John Manzoni	100	74	1	1	102	75
Lady Mendelsohn	100	98	1	1	102	99
Alan Stewart	134	128	1	1	135	129
Ireena Vittal	100	73	1	1	102	74
Karen Blackett3	8	n/a	—	n/a	9	n/a

3. ~~Sir John Manzoni~~Karen Blackett was appointed to the Board on 1 ~~October 2020~~June 2022.

4. ~~Ireena Vittal was appointed~~Some figures add up to ~~the Board on 2 October 2020~~

~~5. Valérie Chapoulaud-Floquet was appointed~~slightly different totals due to ~~the Board on 1 January 2021~~

~~6. Ho KwonPing retired from the Board on 28 September 2020~~rounding.

206

Governance (continued)

Looking ahead to ~~2022~~2023

~~Salary increases for the year ending30 June 2022~~


Salary increases and pension reductions for the year ending 30 June 2023

Ivan Menezes Lavanya Chandrashekar
Salary at 1 October ('000) 2021 2020 2021 2020
Base salary $1,711 $1,661 $975 —
% increase (over previous year) 3 % — — —


	Ivan Menezes				Lavanya Chandrashekar
Salary at 1 October ('000)	2022		2021		2022		2021
Base salary	$1,763		$1,711		$1,004		$975
% increase (over previous year)	3	%	3	%	3	%	—

~~Annual incentive design for the year ending 30 June 2022~~


Annual incentive design for the year ending 30 June 2023

–net sales (% growth) (26.67% weighting): a key performance measure of year-on-year top line growth;

–~~net sales (% growth) (26.67% weighting): a key performance measure of year-on-year top line growth;~~

–operating cash conversion (26.67% weighting): ensures focus on efficient cash delivery by the end of the year; and

–individual business objectives (20% weighting): measurable deliverables that are specific to the individual and are focussed on supporting the delivery of key strategic objectives.

The Committee has discretion to adjust the payout to reflect underlying business performance and any other relevant factors.

~~212~~

~~Governance (continued)~~


Long-term incentive awards to be made in the year ending 30 June 2023

~~Long-term incentive awards to be made in the year ending 30 June 2022~~

–•reduction in greenhouse gas emissions;

–•improvement in water efficiency;

–•number of people who confirmed changed attitudes to the dangers of underage drinking, after participating in a Diageo supported education programme; and

–•inclusion and diversity metric (one measure on % female leaders globally, and another measure on % ethnically diverse leaders globally).

Awards are calculated on the basis of a six-month average share price for the period ending 30 June ~~2021.~~2022.

207

Governance (continued)

The table below summarises the annual DLTIP awards to Ivan Menezes and Lavanya Chandrashekar to be made in September ~~2021.~~2022.


Grant value (% salary)	Chief Executive		Chief Financial Officer
	Performance share equivalents (1 share: 3 options)
Performance shares	375	%	360	%
Share options	125	%	120	%
Total	500	%	480	%

Performance conditions for long-term incentive awards to be made in the year ending 30 June ~~2022~~2023

Performance shares Share options
Organic profit before exceptional items and tax (CAGR) Environmental, social & governance (ESG)
Organic net sales (CAGR) Greenhouse gas reduction Water efficiency Positive drinking % Female leaders % Ethnically diverse leaders Vesting schedule Relative Total Shareholder Return Cumulative free cash flow (£m) Vesting schedule
Weighting (% total) 40 % 40 % 5 % 5 % 5 % 2.5 % 2.5 % 100 % 50.0 % 50.0 % 100 %
Maximum 9.0 % 13.5 % 27.1 % 12.1 % 3.7m 46 % 41 % 100 % 3rd and above £9,250 100 %
Midpoint 7.0 % 10.0 % 23.1 % 9.2 % 3.0m 45 % 40 % 60 % — £8,350 60 %
Threshold 5.0 % 6.5 % 19.1 % 6.3 % 2.3m 44 % 39 % 20 % 9th and above £7,450 20 %


	Performance shares																Share options
			Organic profit before exceptional items and tax (CAGR)		Environmental, social & governance (ESG)
	Organic net sales (CAGR)				Greenhouse gas reduction1		Water efficiency		Positive drinking		% Female leaders		% Ethnically diverse leaders		Vesting schedule		Relative Total Shareholder Return		Cumulative free cash flow (£m)		Vesting schedule
Weighting (% total)	40	%	40	%	5	%	5	%	5	%	2.5	%	2.5	%	100	%	50.0	%	50.0	%	100	%
Maximum	8.5	%	12.0	%	17.6	%	12.1	%	4.0m		47	%	44	%	100	%	3rd and above		£9,450		100	%
Midpoint	6.5	%	8.5	%	14.2	%	9.2	%	3.3m		46	%	43	%	60	%	—		£8,550		60	%
Threshold	4.5	%	5.0	%	10.7	%	6.3	%	2.6m		45	%	42	%	20	%	9th and above		£7,650		20	%

1.Further context for the 2022 long-term incentive greenhouse gas reduction targets is set out on page 45.

~~213~~208

Governance (continued)

Additional information

Emoluments and share interests of senior management

Senior management options over ordinary shares

Number of options Weighted average exercise price Option period
Ivan Menezes 835,116 25.15 2015-2025
Lavanya Chandrashekar 19,584 27.15 2018-2028
Other1
1,742,559 25.6 2012-2030


	Number of options	Weighted average exercise price (£)	Exercise period
Ivan Menezes	549,044	30.67	2020-2031
Lavanya Chandrashekar	99,824	33.73	2021-2031
Other1	1,349,935	30.14	2015-2031

1. Other members of the Executive Committee ~~which includes the Company Secretary~~

Key management personnel related party transactions

Key management personnel of the group comprises the Executive and Non-Executive Directors, the members of the Executive Committee and the Company Secretary.

Statutory and audit requirements

This report was approved by a duly authorised Committee of the Board of Directors and was signed on its behalf on 2827 July ~~2021~~2022 by Susan Kilsby who is Chair of the Remuneration Committee.

~~214~~209

Governance (continued)

Directors’ report

The Directors present the Directors’ report for the year ended 30 June ~~2021.~~2022.

Company status

Directors

The Directors of the company who currently serve are shown in the section ‘Board of Directors’ on pages ~~154-156~~ 145-146

Auditor

The auditor, PricewaterhouseCoopers LLP, is willing to continue in office and a resolution for its re-appointment as auditor of the company will be submitted to the AGM.

Disclosure of information to the auditor

Corporate governance statement

Significant agreements – change of control

~~215~~210

Governance (continued)

Related party transactions

Transactions with ~~other~~ related parties are disclosed in note 2021 to the consolidated financial statements.

Major shareholders

At 30 June ~~2021,~~2022, the following substantial interests (3% or more) in the company’s ordinary share capital (voting securities) had been notified to the ~~company.~~company:

Shareholder Number of ordinary shares Percentage of issued ordinary share capital (excluding treasury shares) Date of notification of interest
BlackRock Investment Management (UK) Limited (indirect holding) 147,296,928 5.89 % 3 December 2009
Capital Research and Management Company (indirect holding) 124,653,096 4.99 % 28 April 2009


Shareholder	Number of ordinary shares	Percentage of issued ordinary share (excluding treasury shares)		Date of notification of interest
BlackRock Investment Management (UK) Limited (indirect holding)	147,296,928	5.89	%	3 December 2009
Capital Research and Management Company (indirect holding)	124,653,096	4.99	%	28 April 2009
Massachusetts Financial Services Company (indirect holding)	114,036,646	4.95	%	1 June 2022

Employment policies

Trading market for shares

~~216~~211

Governance (continued)

American depositary shares

Fees and charges payable by ADR holders

Direct and indirect payments by the Depositary

Articles of association

~~A key strategic imperative~~

Directors

Voting rights

Voting on any resolution at any general meeting of the company is by a show of hands unless a poll is duly demanded. On a show of hands,

212

Governance (continued)

A poll may be demanded by any of the following:

•the chairman of the general meeting;

•at least three shareholders entitled to vote on the relevant resolution and present in person or by proxy at the meeting;

Pre-emption rights and new issues of shares

Repurchase of shares

Restrictions on transfers of shares

~~217~~213

Governance (continued)

Other information

Other information relevant to the Directors’ report may be found in the following sections of the Annual Report:


Information (including that required by UK Listing Authority Listing Rule 9.8.4)			Location in Annual Report
Agreements with controlling shareholders			Not applicable
Contracts of significance			Not applicable
Details of long-term incentive schemes			Directors’ remuneration report
Directors’ indemnities and compensation			Directors’ remuneration report - Additional information; ~~Financial Statements~~Consolidated financial statements - note 2021 Related party transactions
Dividends			Group financial review; ~~Financial Statements~~Consolidated financial statements - Unaudited financial information
Engagement with employees			Corporate governance report - Workforce engagement statement
Engagement with suppliers, customers and others			~~Stakeholder engagement;~~ Corporate governance report - Stakeholder engagement
Events post 30 June ~~2021~~2022			~~Not applicable~~Consolidated financial statements - note 23 Post balance sheet events
Financial risk management			~~Financial~~Consolidated financial statements - note 1516 Financial instruments and risk management
Future developments			Chairman’s statement; Chief Executive’s statement; Our market dynamics
Greenhouse gas emissions			Sustainability performance; Responding to climate-related risks
Interest capitalised			Not applicable
Non-pre-emptive issues of equity for cash (including in respect of major unlisted subsidiaries)			Not applicable
Parent participation in a placing by a listed subsidiary			Not applicable
Political donations			Corporate governance report
Provision of services by a controlling shareholder			Not applicable
Publication of unaudited financial information			Unaudited financial information
Purchase of own shares			Repurchase of shares; ~~Financial~~Consolidated financial statements - note 1718 Equity
Research and development			~~Financial~~Additional Disclosures - Research and development; Consolidated financial statements - note 3 Operating costs
Review of the business and principal risks and uncertainties			Chief Executive’s statement; Our principal risks and risk management; Responding to climate-related risks; Business reviews
Share capital - structure, voting and other rights			~~Financial~~Consolidated financial statements - note 1718 Equity
Share capital - employee share plan voting rights			~~Financial~~Consolidated financial statements - note 1718 Equity
Shareholder waivers of dividends			~~Financial~~Consolidated financial statements - note 1718 Equity
Shareholder waivers of future dividends			~~Financial~~Consolidated financial statements - note 1718 Equity
Sustainability and responsibility			Sustainability performance; Responding to climate-related risks
Waiver of emoluments by a director			Not applicable
Waiver of future emoluments by a director			Not applicable

In addition, certain disclosures required to be contained in the Directors’ report have been incorporated into the ‘Strategic report’ as set out in ‘Other information’ above.

~~218~~214

Financial statements

Report of Independent Registered Public Accounting Firm

To theBoard of Directors and Shareholders of Diageo plc,

Opinions on the Financial Statements and Internal Control over Financial Reporting

~~Change in Accounting Principle~~

~~Basis for Opinions~~

Definition and Limitations of Internal Control over Financial Reporting

Critical Audit Matters

215

Financial statements (continued)

disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or

~~219~~

~~Financial statements (continued)~~

Impairment assessment of indefinite-lived brand intangible assets and goodwill

Taxation – Provisions for tax uncertainties

216

Financial statements (continued)

~~220~~

~~Financial statements (continued)~~

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the identification and recognition of the liabilities for uncertain tax positions, and controls addressing completeness of the uncertain tax positions, as well as controls over measurement of the liabilities. These procedures also included, among others, (i) testing the information used in the calculation of the liability for uncertain tax positions; (ii) testing the calculation of the liability for uncertain tax positions by jurisdiction, including management’s assessment of the technical merits of tax positions and estimates of the amount of tax benefit expected to be sustained; (iii) testing the completeness of management’s assessment of both the identification of uncertain tax positions and possible outcomes of each uncertain tax position; and (iv) evaluating the status and results of tax audits with the relevant tax authorities and (v) evaluating the sufficiency of the Company’s related disclosures. Professionals with specialised skill and knowledge were used to assist in the evaluation of the completeness and measurement of the Company’s uncertain tax positions, including evaluating the reasonableness of management’s assessment of whether tax positions are more-likely-than-not of being sustained, the application of relevant tax laws, and estimated interest and penalties, as well as evaluating the sufficiency of the Company’s related financial statement disclosures.

Post employment benefit obligations

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s determination of the carrying value of defined benefit obligations, including future inflation rates, discount rates and the life expectancy of members of the plans. These procedures also included, among others, testing management’s process for determining the present value of the significant post employment benefit obligations, evaluating the appropriateness of the methodology used in the valuation models, testing the completeness, accuracy, and relevance of underlying data used in the models, and evaluating the significant assumptions used by management, including the future inflation rates, discount rates and the life expectancy of members of the plans, as well as management’s sensitivities and related financial statement disclosures. Evaluating the reasonableness of management’s assumptions involved i) comparing these assumptions to our independently compiled expected ranges based on market observable indices or relevant national and industry benchmarks, ii) performing sensitivity analyses, and iii) using professionals with specialised skill and knowledge to assist in the evaluation of the significant assumptions.

/s/ PricewaterhouseCoopers LLP

London, United Kingdom

54 August ~~2021~~2022

We have served as the Company's auditor since 2015.

~~221~~217

Financial statements (continued)

Consolidated income statement

Notes Year ended 30 June 2021 £ million Year ended 30 June 2020 £ million Year ended 30 June 2019 £ million
Sales 2 19,153 17,697 19,294
Excise duties 3 (6,420) (5,945) (6,427)
Net sales 2 12,733 11,752 12,867
Cost of sales 3 (5,038) (4,654) (4,866)
Gross profit 7,695 7,098 8,001
Marketing 3 (2,163) (1,841) (2,042)
Other operating items 3 (1,801) (3,120) (1,917)
Operating profit 3,731 2,137 4,042
Non-operating items 4 14 (23) 144
Finance income 5 278 366 442
Finance charges 5 (651) (719) (705)
Share of after tax results of associates and joint ventures 6 334 282 312
Profit before taxation 3,706 2,043 4,235
Taxation 7 (907) (589) (898)
Profit for the year 2,799 1,454 3,337
Attributable to:
Equity shareholders of the parent company 2,660 1,409 3,160
Non-controlling interests 139 45 177
2,799 1,454 3,337
million million million
Weighted average number of shares
Shares in issue excluding own shares 2,337 2,346 2,418
Dilutive potential ordinary shares 8 8 10
2,345 2,354 2,428
pence pence pence
Basic earnings per share 113.8 60.1 130.7
Diluted earnings per share 113.4 59.9 130.1


	Notes	Year ended 30 June 2022 £ million	Year ended 30 June 2021 £ million	Year ended 30 June 2020 £ million
Sales	2	22,448	19,153	17,697
Excise duties	3	(6,996)	(6,420)	(5,945)
Net sales	2	15,452	12,733	11,752
Cost of sales	3	(5,973)	(5,038)	(4,654)
Gross profit		9,479	7,695	7,098
Marketing	3	(2,721)	(2,163)	(1,841)
Other operating items	3	(2,349)	(1,801)	(3,120)
Operating profit		4,409	3,731	2,137
Non-operating items	4	(17)	14	(23)
Finance income	5	497	278	366
Finance charges	5	(919)	(651)	(719)
Share of after tax results of associates and joint ventures	6	417	334	282
Profit before taxation		4,387	3,706	2,043
Taxation	7	(1,049)	(907)	(589)


Profit for the year		3,338	2,799	1,454
Attributable to:
Equity shareholders of the parent company		3,249	2,660	1,409

Non-controlling interests		89	139	45
		3,338	2,799	1,454
		million	million	million
Weighted average number of shares
Shares in issue excluding own shares		2,318	2,337	2,346
Dilutive potential ordinary shares		7	8	8
		2,325	2,345	2,354

		pence	pence	pence
Basic earnings per share		140.2	113.8	60.1



Diluted earnings per share		139.7	113.4	59.9

The accompanying notes are an integral part of these consolidated financial statements.

~~222~~218

Financial statements (continued)

Consolidated statement of comprehensive income

Year ended
30 June 2021
£ million
Year ended
30 June 2020
£ million
Year ended
30 June 2019
£ million
Other comprehensive income
Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment plans
Group 16 38 33
Associates and joint ventures 3 (14) 2
Tax on post employment plans (46) (21) 1
(27) 3 36
Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations
Group (1,233) (104) 274
Associates and joint ventures (240) 82 19
Non-controlling interests (173) (37) 55
Net investment hedges 810 (227) (93)
Exchange loss recycled to the income statement
On translation of foreign operations 0 4 0
Tax on exchange differences – group (9) 4 (19)
Tax on exchange differences – non-controlling interests (1) 0 0
Effective portion of changes in fair value of cash flow hedges
Hedge of foreign currency debt of the group (298) 221 180
Transaction exposure hedging of the group 101 (43) (86)
Hedges by associates and joint ventures (1) 6 (6)
Commodity price risk hedging of the group 41 (11) (9)
Recycled to income statement – hedge of foreign currency debt of the group 175 (75) (82)
Recycled to income statement – transaction exposure hedging of the group 10 42 45
Recycled to income statement – commodity price risk hedging of the group (2) 8 0
Tax on effective portion of changes in fair value of cash flow hedges (6) (23) (11)
Hyperinflation adjustment (17) (18) (22)
Tax on hyperinflation adjustment 5 4 6

(838) (167) 251
Other comprehensive (loss)/profit, net of tax, for the year (865) (164) 287
Profit for the year 2,799 1,454 3,337
Total comprehensive income for the year 1,934 1,290 3,624
Attributable to:
Equity shareholders of the parent company 1,969 1,282 3,392
Non-controlling interests (35) 8 232
Total comprehensive income for the year 1,934 1,290 3,624


	Notes	Year ended 30 June 2022 £ million	Year ended 30 June 2021 £ million	Year ended 30 June 2020 £ million
Other comprehensive income
Items that will not be recycled subsequently to the income statement
Net remeasurement of post employment benefit plans
Group	14	616	16	38
Associates and joint ventures		5	3	(14)
Non-controlling interests	14	(1)	—	—
Tax on post employment benefit plans		(123)	(46)	(21)
Changes in the fair value of equity investments at fair value through other comprehensive income		(12)	—	—
		485	(27)	3
Items that may be recycled subsequently to the income statement
Exchange differences on translation of foreign operations
Group		1,128	(1,233)	(104)
Associates and joint ventures	6	60	(240)	82
Non-controlling interests		171	(173)	(37)
Net investment hedges		(623)	810	(227)
Exchange loss recycled to the income statement
On disposal of foreign operations	8	63	—	4

Tax on exchange differences – group		(6)	(9)	4
Tax on exchange differences – non-controlling interests		—	(1)	—
Effective portion of changes in fair value of cash flow hedges
Hedge of foreign currency debt of the group		233	(298)	221
Transaction exposure hedging of the group		(172)	101	(43)
Hedges by associates and joint ventures		(15)	(1)	6
Commodity price risk hedging of the group		78	41	(11)
Recycled to income statement – hedge of foreign currency debt of the group		(239)	175	(75)
Recycled to income statement – transaction exposure hedging of the group		42	10	42
Recycled to income statement – commodity price risk hedging of the group		(46)	(2)	8

Tax on effective portion of changes in fair value of cash flow hedges		32	(6)	(23)






Hyperinflation adjustments		365	(17)	(18)
Tax on hyperinflation adjustments		(74)	5	4
		997	(838)	(167)
Other comprehensive income/(loss), net of tax, for the year		1,482	(865)	(164)
Profit for the year		3,338	2,799	1,454
Total comprehensive income for the year		4,820	1,934	1,290
Attributable to:
Equity shareholders of the parent company		4,561	1,969	1,282

Non-controlling interests	18	259	(35)	8
Total comprehensive income for the year		4,820	1,934	1,290

The accompanying notes are an integral part of these consolidated financial statements.

~~223~~219

Financial statements (continued)

Consolidated balance sheet

30 June 2021 30 June 2020
Notes £ million £ million £ million £ million
Non-current assets
Intangible assets 9 10,764 11,300
Property, plant and equipment 10 4,849 4,926
Biological assets

66 51
Investments in associates and joint ventures 6 3,308 3,557
Other investments 12 40 41
Other receivables 14 36 46
Other financial assets 15 327 686
Deferred tax assets 7 100 119
Post employment benefit assets 13 1,018 1,111
20,508 21,837
Current assets
Inventories 14 6,045 5,772
Trade and other receivables 14 2,385 2,111
Corporate tax receivables 7 145 190
Other financial assets 15 121 75
Cash and cash equivalents 16 2,749 3,323
11,445 11,471
Total assets 31,953 33,308
Current liabilities
Borrowings and bank overdrafts 16 (1,862) (1,995)
Other financial liabilities 15 (257) (389)
Share buyback liability 17 (91) 0
Trade and other payables 14 (4,648) (3,683)
Corporate tax payables 7 (146) (246)
Provisions 14 (138) (183)
(7,142) (6,496)
Non-current liabilities
Borrowings 16 (12,865) (14,790)
Other financial liabilities 15 (384) (393)
Other payables 14 (338) (175)
Provisions 14 (274) (293)
Deferred tax liabilities 7 (1,945) (1,972)
Post employment benefit liabilities 13 (574) (749)
(16,380) (18,372)
Total liabilities (23,522) (24,868)
Net assets 8,431 8,440
Equity
Share capital 17 741 742
Share premium

1,351 1,351
Other reserves

1,621 2,272
Retained earnings

3,184 2,407
Equity attributable to equity shareholders of the parent company 6,897 6,772
Non-controlling interests 17 1,534 1,668
Total equity 8,431 8,440


		30 June 2022		30 June 2021
	Notes	£ million	£ million	£ million	£ million
Non-current assets
Intangible assets	9	11,902		10,764
Property, plant and equipment	10	5,848		4,849
Biological assets	11	94		66
Investments in associates and joint ventures	6	3,652		3,308
Other investments	13	37		40
Other receivables	15	37		36
Other financial assets	16	345		327
Deferred tax assets	7	114		100
Post employment benefit assets	14	1,553		1,018
			23,582		20,508
Current assets
Inventories	15	7,094		6,045
Trade and other receivables	15	2,933		2,385
Corporate tax receivables	7	149		145
Assets held for sale	8	222		—
Other financial assets	16	251		121
Cash and cash equivalents	17	2,285		2,749
			12,934		11,445
Total assets			36,516		31,953
Current liabilities
Borrowings and bank overdrafts	17	(1,522)		(1,862)
Other financial liabilities	16	(444)		(257)
Share buyback liability	18	(117)		(91)
Trade and other payables	15	(5,887)		(4,648)
Liabilities held for sale	8	(61)		—
Corporate tax payables	7	(252)		(146)
Provisions	15	(159)		(138)
			(8,442)		(7,142)
Non-current liabilities
Borrowings	17	(14,498)		(12,865)
Other financial liabilities	16	(703)		(384)
Other payables	15	(380)		(338)
Provisions	15	(258)		(274)
Deferred tax liabilities	7	(2,319)		(1,945)
Post employment benefit liabilities	14	(402)		(574)
			(18,560)		(16,380)
Total liabilities			(27,002)		(23,522)
Net assets			9,514		8,431
Equity
Share capital	18	723		741
Share premium		1,351		1,351
Other reserves		2,174		1,621
Retained earnings		3,550		3,184
Equity attributable to equity shareholders of the parent company			7,798		6,897
Non-controlling interests	18		1,716		1,534
Total equity			9,514		8,431

The accompanying notes are an integral part of these consolidated financial statements.

~~224~~220

Financial statements (continued)

Consolidated statement of changes in equity

Other reserves Retained earnings/(deficit)
Share
capital
£ million Share premium
£ million Capital redemption reserve
£ million Hedging and exchange reserve
£ million Own shares
£ million Other retained earnings
£ million Total
£ million Equity attributable to parent company shareholders
£ million Non- controlling interests
£ million Total equity
£ million
At 30 June 2018 780 1,349 3,163 (1,030) (2,144) 7,830 5,686 9,948 1,765 11,713
Profit for the year — — — — — 3,160 3,160 3,160 177 3,337
Other comprehensive income — — — 212 — 20 20 232 55 287
Total comprehensive income for the year — — — 212 — 3,180 3,180 3,392 232 3,624
Employee share schemes — — — — 118 (49) 69 69 — 69
Share-based incentive plans — — — — — 49 49 49 — 49
Share-based incentive plans in respect of associates — — — — — 3 3 3 — 3
Tax on share-based incentive plans — — — — — 20 20 20 — 20
Shares issued — 1 — — — — — 1 — 1
Purchase of non-controlling interests (note 8) — — — — — (694) (694) (694) (90) (784)
Non-controlling interest in respect of new subsidiary — — — — — — — — 2 2
Change in fair value of put option — — — — — (3) (3) (3) — (3)
Share buyback programme (27) — 27 — — (2,801) (2,801) (2,801) — (2,801)
Dividends paid — — — — — (1,623) (1,623) (1,623) (114) (1,737)
At 30 June 2019 753 1,350 3,190 (818) (2,026) 5,912 3,886 8,361 1,795 10,156
Profit for the year — — — — — 1,409 1,409 1,409 45 1,454
Other comprehensive loss — — — (116) — (11) (11) (127) (37) (164)
Total comprehensive (loss)/income for the year — — — (116) — 1,398 1,398 1,282 8 1,290
Employee share schemes — — — — 90 (36) 54 54 — 54
Share-based incentive plans — — — — — 2 2 2 — 2
Share-based incentive plans in respect of associates — — — — — 4 4 4 — 4
Tax on share-based incentive plans — — — — — 1 1 1 — 1
Share based payments and purchase of treasury shares in respect of subsidiaries — — — — — (1) (1) (1) — (1)
Shares issued — 1 — — — — — 1 — 1
Transfers — — — 5 — (5) (5) — — 0
Purchase of non-controlling interests (note 8) — — — — — (39) (39) (39) (23) (62)
Non-controlling interest in respect of new subsidiary — — — — — — — — 5 5
Change in fair value of put option — — — — — 9 9 9 — 9
Share buyback programme (11) — 11 — — (1,256) (1,256) (1,256) — (1,256)
Dividends paid — — — — — (1,646) (1,646) (1,646) (117) (1,763)
At 30 June 2020 742 1,351 3,201 (929) (1,936) 4,343 2,407 6,772 1,668 8,440
Profit for the year — — — — — 2,660 2,660 2,660 139 2,799
Other comprehensive loss — — — (652) — (39) (39) (691) (174) (865)
Total comprehensive (loss)/income for the year — — — (652) — 2,621 2,621 1,969 (35) 1,934
Employee share schemes — — — — 59 (10) 49 49 — 49
Share-based incentive plans — — — — — 49 49 49 — 49
Share-based incentive plans in respect of associates — — — — — 3 3 3 — 3
Tax on share-based incentive plans — — — — — 9 9 9 — 9
Purchase of non-controlling interests (note 8) — — — — — (15) (15) (15) (27) (42)
Associates' transactions with non-controlling interests — — — — — (91) (91) (91) — (91)
Change in fair value of put option — — — — — (2) (2) (2) — (2)
Share buyback programme (1) — 1 — — (200) (200) (200) — (200)
Dividends declared — — — — — (1,646) (1,646) (1,646) (72) (1,718)
At 30 June 2021 741 1,351 3,202 (1,581) (1,877) 5,061 3,184 6,897 1,534 8,431


				Other reserves		Retained earnings/(deficit)
	Notes	Share capital £ million	Share premium £ million	Capital redemption reserve £ million	Hedging and exchange reserve £ million	Own shares £ million	Other retained earnings £ million	Total £ million	Equity attributable to parent company shareholders £ million	Non- controlling interests £ million	Total equity £ million
At 30 June 2019		753	1,350	3,190	(818)	(2,026)	5,912	3,886	8,361	1,795	10,156


Profit for the year		—	—	—	—	—	1,409	1,409	1,409	45	1,454
Other comprehensive loss		—	—	—	(116)	—	(11)	(11)	(127)	(37)	(164)
Total comprehensive (loss)/ income for the year		—	—	—	(116)	—	1,398	1,398	1,282	8	1,290
Employee share schemes		—	—	—	—	90	(36)	54	54	—	54
Share-based incentive plans	18	—	—	—	—	—	2	2	2	—	2
Share-based incentive plans in respect of associates		—	—	—	—	—	4	4	4	—	4
Tax on share-based incentive plans		—	—	—	—	—	1	1	1	—	1
Share-based payments and purchase of treasury shares in respect of subsidiaries		—	—	—	—	—	(1)	(1)	(1)	—	(1)
Shares issued		—	1	—	—	—	—	—	1	—	1
Transfers		—	—	—	5	—	(5)	(5)	—	—	—
Purchase of non-controlling interests	8	—	—	—	—	—	(39)	(39)	(39)	(23)	(62)


Non-controlling interest in respect of new subsidiary		—	—	—	—	—	—	—	—	5	5
Change in fair value of put option		—	—	—	—	—	9	9	9	—	9
Share buyback programme		(11)	—	11	—	—	(1,256)	(1,256)	(1,256)	—	(1,256)
Dividend declared for the year		—	—	—	—	—	(1,646)	(1,646)	(1,646)	(117)	(1,763)
At 30 June 2020		742	1,351	3,201	(929)	(1,936)	4,343	2,407	6,772	1,668	8,440
Profit for the year		—	—	—	—	—	2,660	2,660	2,660	139	2,799
Other comprehensive loss		—	—	—	(652)	—	(39)	(39)	(691)	(174)	(865)
Total comprehensive (loss)/income for the year		—	—	—	(652)	—	2,621	2,621	1,969	(35)	1,934
Employee share schemes		—	—	—	—	59	(10)	49	49	—	49
Share-based incentive plans	18	—	—	—	—	—	49	49	49	—	49
Share-based incentive plans in respect of associates		—	—	—	—	—	3	3	3	—	3
Tax on share-based incentive plans		—	—	—	—	—	9	9	9	—	9



Purchase of non-controlling interests	8	—	—	—	—	—	(15)	(15)	(15)	(27)	(42)


Associates' transactions with non-controlling interests		—	—	—	—	—	(91)	(91)	(91)	—	(91)
Change in fair value of put option		—	—	—	—	—	(2)	(2)	(2)	—	(2)
Share buyback programme		(1)	—	1	—	—	(200)	(200)	(200)	—	(200)
Dividend declared for the year	18	—	—	—	—	—	(1,646)	(1,646)	(1,646)	(72)	(1,718)
At 30 June 2021		741	1,351	3,202	(1,581)	(1,877)	5,061	3,184	6,897	1,534	8,431
Adjustment to 2021 closing equity in respect of hyperinflation in Turkey		—	—	—	—	—	251	251	251	—	251
Adjusted opening balance		741	1,351	3,202	(1,581)	(1,877)	5,312	3,435	7,148	1,534	8,682
Profit for the year		—	—	—	—	—	3,249	3,249	3,249	89	3,338
Other comprehensive income		—	—	—	535	—	777	777	1,312	170	1,482
Total comprehensive income for the year		—	—	—	535	—	4,026	4,026	4,561	259	4,820
Employee share schemes		—	—	—	—	39	50	89	89	—	89
Share-based incentive plans	18	—	—	—	—	—	59	59	59	—	59
Share-based incentive plans in respect of associates		—	—	—	—	—	4	4	4	—	4
Tax on share-based incentive plans		—	—	—	—	—	9	9	9	—	9
Share-based payments and purchase of own shares in respect of subsidiaries		—	—	—	—	—	(11)	(11)	(11)	(6)	(17)





Unclaimed dividend		—	—	—	—	—	3	3	3	1	4
Change in fair value of put option		—	—	—	—	—	(34)	(34)	(34)	—	(34)
Share buyback programme		(18)	—	18	—	—	(2,310)	(2,310)	(2,310)	—	(2,310)
Dividend declared for the year	18	—	—	—	—	—	(1,720)	(1,720)	(1,720)	(72)	(1,792)
At 30 June 2022		723	1,351	3,220	(1,046)	(1,838)	5,388	3,550	7,798	1,716	9,514

The accompanying notes are an integral part of these consolidated financial statements.

~~225~~221

Financial statements (continued)

Consolidated statement of cash flows

Year ended 30 June 2021 Year ended 30 June 2020 Year ended 30 June 2019
Notes £ million £ million £ million £ million £ million £ million
Cash flows from operating activities
Profit for the year 2,799 1,454 3,337
Taxation 907 589 898
Share of after tax results of associates and joint ventures (334) (282) (312)
Net finance charges 373 353 263
Non-operating items (14) 23 (144)
Operating profit 3,731 2,137 4,042
Increase in inventories (443) (366) (434)
(Increase)/decrease in trade and other receivables (446) 523 11
Increase/(decrease) in trade and other payables and provisions 1,220 (485) 201
Net decrease/(increase) in working capital 331 (328) (222)
Depreciation, amortisation and impairment 447 1,839 374
Dividends received 290 4 168
Post employment payments less amounts included in operating profit (30) (109) (121)
Other items 88 (14) 64
795 1,720 485
Cash generated from operations 4,857 3,529 4,305
Interest received 89 185 216
Interest paid (440) (493) (468)
Taxation paid (852) (901) (805)
(1,203) (1,209) (1,057)
Net cash inflow from operating activities 3,654 2,320 3,248
Cash flows from investing activities
Disposal of property, plant and equipment and computer software 13 14 32
Purchase of property, plant and equipment and computer software (626) (700) (671)
Movements in loans and other investments (4) 0 (1)
Sale of businesses and brands 8 14 11 426
Acquisition of businesses 8 (488) (130) (56)
Net cash outflow from investing activities (1,091) (805) (270)
Cash flows from financing activities
Share buyback programme 17 (109) (1,282) (2,775)
Proceeds from issue of share capital 0 1 1
Net sale of own shares for share schemes 49 54 50
Dividends paid to non-controlling interests (77) (111) (112)
Proceeds from bonds 16 1,031 5,188 2,766
Repayment of bonds 16 (1,247) (820) (1,168)
Purchase of shares of non-controlling interests 8 (42) (62) (784)
Net movements in other borrowings

(753) (285) 721
Equity dividends paid 17 (1,646) (1,646) (1,623)
Net cash (outflow)/inflow from financing activities (2,794) 1,037 (2,924)
Net (decrease)/increase in net cash and cash equivalents 16 (231) 2,552 54
Exchange differences (285) (120) (26)
Net cash and cash equivalents at beginning of the year 3,153 721 693
Net cash and cash equivalents at end of the year 2,637 3,153 721
Net cash and cash equivalents consist of:
Cash and cash equivalents 16 2,749 3,323 932
Bank overdrafts 16 (112) (170) (211)
2,637 3,153 721


		Year ended 30 June 2022		Year ended 30 June 2021		Year ended 30 June 2020
	Notes	£ million	£ million	£ million	£ million	£ million	£ million
Cash flows from operating activities
Profit for the year		3,338		2,799		1,454

Taxation		1,049		907		589
Share of after tax results of associates and joint ventures		(417)		(334)		(282)
Net finance charges		422		373		353
Non-operating items		17		(14)		23
Operating profit			4,409		3,731		2,137
Increase in inventories		(740)		(443)		(366)
(Increase)/decrease in trade and other receivables		(378)		(446)		523
Increase/(decrease) in trade and other payables and provisions		939		1,220		(485)
Net (increase)/decrease in working capital			(179)		331		(328)
Depreciation, amortisation and impairment		828		447		1,839
Dividends received		190		290		4
Post employment payments less amounts included in operating profit		(89)		(30)		(109)
Other items		53		88		(14)
			982		795		1,720
Cash generated from operations			5,212		4,857		3,529
Interest received		110		89		185
Interest paid		(438)		(440)		(493)
Taxation paid		(949)		(852)		(901)
			(1,277)		(1,203)		(1,209)
Net cash inflow from operating activities			3,935		3,654		2,320
Cash flows from investing activities
Disposal of property, plant and equipment and computer software		17		13		14
Purchase of property, plant and equipment and computer software		(1,097)		(626)		(700)
Movements in loans and other investments		(72)		(4)		—
Sale of businesses and brands	8	82		14		11
Acquisition of businesses	8	(271)		(488)		(130)
Net cash outflow from investing activities			(1,341)		(1,091)		(805)
Cash flows from financing activities
Share buyback programme	18	(2,284)		(109)		(1,282)
Proceeds from issue of share capital		—		—		1
Net sale of own shares for share schemes		18		49		54
Purchase of treasury shares in respect of subsidiaries		(15)		—		—
Dividends paid to non-controlling interests		(81)		(77)		(111)
Proceeds from bonds	17	2,263		1,031		5,188
Repayment of bonds	17	(1,521)		(1,247)		(820)
Purchase of shares of non-controlling interests	8	—		(42)		(62)

Cash inflow from other borrowings(1)		503		34		497
Cash outflow from other borrowings(1)		(424)		(787)		(782)
Equity dividends paid		(1,718)		(1,646)		(1,646)

Net cash (outflow)/inflow from financing activities			(3,259)		(2,794)		1,037
Net (decrease)/increase in net cash and cash equivalents	17		(665)		(231)		2,552
Exchange differences			239		(285)		(120)
Net cash and cash equivalents at beginning of the year			2,637		3,153		721
Net cash and cash equivalents at end of the year			2,211		2,637		3,153
Net cash and cash equivalents consist of:
Cash and cash equivalents	17		2,285		2,749		3,323
Bank overdrafts	17		(74)		(112)		(170)
			2,211		2,637		3,153

The accompanying notes are an integral part of these consolidated financial statements.

~~226~~222

Financial statements (continued)

Accounting information and policies

Introduction

1. Accounting information and policies

(a) Basis of preparation

On 31 December 2020, International Financial Reporting Standards (IFRSs) as adopted by the European Union (EU) at that date

were brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to

(b) Going concern

(d) Foreign currencies

223

Financial statements (continued)

~~227~~

~~Financial statements (continued)~~

The principal foreign exchange rates used in the translation of financial statements for the three years ended 30 June ~~2021,~~2022, expressed in US dollars and euros per £1, were as follows:

2021 2020 2019
US dollar
Income statement and cash flows(i)
1.35 1.26 1.29
Assets and liabilities(ii)
1.39 1.23 1.27
Euro
Income statement and cash flows(i)
1.13 1.14 1.13
Assets and liabilities(ii)
1.17 1.09 1.12


	2022	2021	2020
US dollar
Income statement and cash flows(1)	1.33	1.35	1.26
Assets and liabilities(2)	1.21	1.39	1.23
Euro
Income statement and cash flows(1)	1.18	1.13	1.14
Assets and liabilities(2)	1.16	1.17	1.09

~~(i)~~(1) Weighted average rates

~~(ii) Year end~~(2) Closing rates

The group uses foreign exchange hedges to mitigate the effect of exchange rate movements. For further information, see note ~~15.~~16.

(e) Critical accounting estimates and judgements

Details of critical estimates and judgements which the ~~directors~~Directors consider could have a significant impact upon the financial statements are set out in the related notes as follows:

–Exceptional items – management judgement whether exceptional or not – page ~~236~~233

(f) Hyperinflationary accounting

The group applied hyperinflationary accounting for its operations in Turkey, Venezuela and Lebanon.

224

Financial statements (continued)

Year ended 30 June 2021 Year ended 30 June 2020
At estimated exchange rate At DICOM
exchange rate At estimated
exchange rate At DICOM
exchange rate
236,878,083 VES/£ 4,449,579 VES/£ 10,024,865 VES/£ 252,558 VES/£
£ million £ million £ million £ million
Net sales 0 4 0 3
Operating (loss)/profit (1) 11 0 10
Other finance income - hyperinflation adjustment 2 122 6 222
Net cash inflow from operating activities 0 9 0 6
Net assets 38 2,016 48 1,893


	Year ended 30 June 2022		Year ended 30 June 2021
	At estimated exchange rate	At official reference exchange rate	At estimated exchange rate(1)	At official reference exchange rate(1)
	759 VES/£	7 VES/£	237 VES/£	4 VES/£
	£ million	£ million	£ million	£ million
Net sales	—	15	—	4
Operating (loss)/profit	(1)	(1)	(1)	11
Other finance income - hyperinflation adjustment	1	157	2	122
Net cash (outflow)/inflow from operating activities	—	(5)	—	9
Net assets	41	4,606	38	2,016

The impact of hyperinflationary accounting for Lebanon was immaterial both in the current and comparative periods.

~~228~~

~~Financial statements (continued)~~

~~(f)~~(g) New accounting standards and interpretations

–Amendments to ~~References to the Conceptual Framework in IFRS Standards~~

–~~Amendments to IFRS 3 – Definition of a Business~~

–~~Amendments to IAS 1 and IAS 8 – Definition of Material~~

–~~Amendments to~~ IFRS 16 – Covid-19 - ~~Related Rent Concessions~~related rent concessions beyond 30 June 2021

The following ~~amendments and standards~~amendment issued by the IASB ~~which have been~~and endorsed by the UK and EU, ~~have~~has been adopted by the group:

The following ~~amendment and~~ standard issued by the IASB has been endorsed by the UK and EU and has not been adopted by the group:

IFRS 17 – Insurance contracts ~~(effective in~~(effective from the year ending 30 June 2024) is ultimately intended to replace IFRS 4.

Based on a preliminary assessment, the group believes that the adoption of IFRS 17 will not have a significant impact on its consolidated results or financial position.

g)(h) Climate change considerations

The following considerations were made in respect of the financial statements:

–•Impact of climate change is not expected to be material on the going concern period and the viability of the group over the next three years.

–•The impact of climate change on factors (like residual values, useful lives and depreciation methods) that determine the carrying value of non-current assets.

–•The impact of climate change on ~~pension assets.~~

–~~The impact of climate change on the carrying value of the fixed~~post-employment assets.

~~229~~225

Financial statements (continued)

Results for the year

Introduction

2. Segmental information

Accounting policies

Advertising costs, point of sale materials and sponsorship payments are charged to marketing in operating profit when the company has a right of access to the goods or services acquired.

Diageo is an international manufacturer and distributor of premium drinks. Diageo also owns a number of investments in associates and joint ventures as set out in note 6.

The segmental information presented is consistent with management reporting provided to the Executive Committee (the chief operating decision maker).

~~230~~226

Financial statements (continued)

(a) Segmental information for the consolidated income statement
North America Europe
and
Turkey Africa Latin America and Caribbean Asia
Pacific SC&P Eliminate
inter-
segment
sales Total
operating
segments Corporate
and other Total
£ million £ million £ million £ million £ million £ million £ million £ million £ million £ million
2021
Sales 5,803 4,795 2,020 1,369 5,146 1,537 (1,537) 19,133 20 19,153
Net sales
At budgeted exchange rates(i)
5,527 2,579 1,541 1,176 2,561 1,627 (1,548) 13,463 20 13,483
Acquisitions and disposals 28 2 5 0 0 0 0 35 0 35
SC&P allocation 9 45 3 13 9 (79) 0 0 0 0
Retranslation to actual exchange rates (355) (68) (137) (143) (82) (11) 11 (785) 0 (785)
Net sales 5,209 2,558 1,412 1,046 2,488 1,537 (1,537) 12,713 20 12,733
Operating profit/(loss)
At budgeted exchange rates(i)
2,469 728 228 422 628 (97) — 4,378 (218) 4,160
Acquisitions and disposals (18) (3) 0 0 0 0 — (21) 0 (21)
SC&P allocation (30) (32) (3) (27) (5) 97 — 0 0 0
Fair value remeasurement of contingent considerations, equity option and earn out arrangements (9) (27) 0 0 0 0 — (36) 0 (36)
Fair value remeasurement of biological assets 0 0 0 0 0 0 — 0 0 0
Retranslation to actual exchange rates (175) (31) (54) (92) (15) 0 — (367) 10 (357)
Operating profit/(loss) before exceptional items 2,237 635 171 303 608 0 — 3,954 (208) 3,746
Exceptional items 0 (15) 0 0 0 0 — (15) 0 (15)
Operating profit/(loss) 2,237 620 171 303 608 0 — 3,939 (208) 3,731
Non-operating items 14
Net finance charges (373)
Share of after tax results of associates and joint ventures
Moët Hennessy 335
Other (1)
Profit before taxation 3,706


	North America	Europe	Asia Pacific	Africa	Latin America and Caribbean	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total
	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million
2022
Sales	6,682	5,740	5,624	2,403	1,945	2,010	(2,010)	22,394	54	22,448
Net sales
At budgeted exchange rates(1)	5,955	3,258	2,879	1,699	1,486	2,095	(2,016)	15,356	55	15,411
Acquisitions and disposals	34	23	—	15	3	—	—	75	—	75
SC&P allocation	9	46	9	3	12	(79)	—	—	—	—
Retranslation to actual exchange rates	97	(304)	(4)	(35)	24	(6)	6	(222)	(1)	(223)
Hyperinflation	—	189	—	—	—	—	—	189	—	189
Net sales	6,095	3,212	2,884	1,682	1,525	2,010	(2,010)	15,398	54	15,452
Operating profit/(loss)
At budgeted exchange rates(1)	2,388	1,086	703	346	528	(22)	—	5,029	(256)	4,773
Acquisitions and disposals	(28)	11	—	(10)	—	—	—	(27)	—	(27)
SC&P allocation	(1)	(18)	(2)	(1)	—	22	—	—	—	—
Fair value remeasurement of contingent considerations, equity option and earn out arrangements	32	36	—	—	(3)	—	—	65	—	65
Fair value remeasurement of biological assets	—	—	—	—	(5)	—	—	(5)	—	(5)
Retranslation to actual exchange rates	63	(108)	10	(20)	18	—	—	(37)	18	(19)
Hyperinflation	—	10	—	—	—	—	—	10	—	10
Operating profit/(loss) before exceptional items	2,454	1,017	711	315	538	—	—	5,035	(238)	4,797
Exceptional items	(1)	(146)	(241)	—	—	—	—	(388)	—	(388)
Operating profit/(loss)	2,453	871	470	315	538	—	—	4,647	(238)	4,409
Non-operating items										(17)
Net finance charges										(422)
Share of after tax results of associates and joint ventures
Moët Hennessy										425
Other										(8)
Profit before taxation										4,387

~~231~~227

Financial statements (continued)


	North America	Europe	Asia Pacific	Africa	Latin America and Caribbean	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total
	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million
2021
Sales	5,803	4,795	5,146	2,020	1,369	1,537	(1,537)	19,133	20	19,153
Net sales
At budgeted exchange rates(1)	5,527	2,579	2,561	1,541	1,176	1,627	(1,548)	13,463	20	13,483
Acquisitions and disposals	28	2	—	5	—	—	—	35	—	35
SC&P allocation	9	45	9	3	13	(79)	—	—	—	—
Retranslation to actual exchange rates	(355)	(68)	(82)	(137)	(143)	(11)	11	(785)	—	(785)
Net sales	5,209	2,558	2,488	1,412	1,046	1,537	(1,537)	12,713	20	12,733
Operating profit/(loss)
At budgeted exchange rates(1)	2,469	728	628	228	422	(97)	—	4,378	(218)	4,160
Acquisitions and disposals	(18)	(3)	—	—	—	—	—	(21)	—	(21)
SC&P allocation	(30)	(32)	(5)	(3)	(27)	97	—	—	—	—
Fair value remeasurement of contingent considerations, equity option and earn out arrangements	(9)	(27)	—	—	—	—	—	(36)	—	(36)

Retranslation to actual exchange rates	(175)	(31)	(15)	(54)	(92)	—	—	(367)	10	(357)
Operating profit/(loss) before exceptional items	2,237	635	608	171	303	—	—	3,954	(208)	3,746
Exceptional items	—	(15)	—	—	—	—	—	(15)	—	(15)
Operating profit/(loss)	2,237	620	608	171	303	—	—	3,939	(208)	3,731
Non-operating items										14
Net finance charges										(373)
Share of after tax results of associates and joint ventures
Moët Hennessy										335
Other										(1)
Profit before taxation										3,706

~~232~~228

Financial statements (continued)

North America Europe
and
Turkey Africa Latin America and Caribbean Asia
Pacific SC&P Eliminate
inter-
segment
sales Total
operating
segments Corporate
and other Total
£ million £ million £ million £ million £ million £ million £ million £ million £ million £ million
2019
Sales 5,074 5,132 2,235 1,444 5,356 1,739 (1,739) 19,241 53 19,294
Net sales
At budgeted exchange rates(i)
4,034 2,951 1,529 1,095 2,656 1,843 (1,738) 12,370 54 12,424
Acquisitions and disposals 88 1 1 1 1 0 0 92 0 92
SC&P allocation 11 63 5 15 11 (105) 0 0 0 0
Retranslation to actual exchange rates 327 (76) 62 19 20 1 (1) 352 (1) 351
Net sales 4,460 2,939 1,597 1,130 2,688 1,739 (1,739) 12,814 53 12,867
Operating profit/(loss)
At budgeted exchange rates(i)
1,755 972 257 312 671 139 — 4,106 (186) 3,920
Acquisitions and disposals 29 (1) 0 0 0 0 — 28 0 28
SC&P allocation 13 72 6 32 16 (139) — 0 0 0
Retranslation to actual exchange rates 151 (29) 12 21 16 0 — 171 (3) 168
Operating profit/(loss) before exceptional items 1,948 1,014 275 365 703 0 — 4,305 (189) 4,116
Exceptional items 0 (18) 0 0 (35) 0 — (53) (21) (74)
Operating profit/(loss) 1,948 996 275 365 668 0 — 4,252 (210) 4,042
Non-operating items 144
Net finance charges (263)
Share of after tax results of associates and joint ventures
Moët Hennessy 310
Other 2
Profit before taxation 4,235


	North America	Europe	Asia Pacific	Africa	Latin America and Caribbean	SC&P	Eliminate inter- segment sales	Total operating segments	Corporate and other	Total
	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million	£ million
2020
Sales	5,222	4,697	4,645	1,911	1,184	1,343	(1,343)	17,659	38	17,697
Net sales
At budgeted exchange rates(1)	4,445	2,501	2,253	1,300	944	1,439	(1,341)	11,541	38	11,579
Acquisitions and disposals	32	10	1	50	—	—	—	93	—	93
SC&P allocation	11	60	12	4	10	(98)	—	(1)	1	—
Retranslation to actual exchange rates	135	(4)	4	(8)	(46)	2	(2)	81	(1)	80
Net sales	4,623	2,567	2,270	1,346	908	1,343	(1,343)	11,714	38	11,752
Operating profit/(loss)
At budgeted exchange rates(1)	2,007	730	498	116	254	45	—	3,650	(152)	3,498
Acquisitions and disposals	(1)	(4)	—	—	—	—	—	(5)	—	(5)
SC&P allocation	6	26	6	2	5	(45)	—	—	—	—
Fair value remeasurement of contingent consideration	(10)	(4)	—	—	7	—	—	(7)	—	(7)
Fair value remeasurement of biological assets	—	—	—	—	9	—	—	9	—	9
Retranslation to actual exchange rates	32	9	(3)	(17)	(27)	—	—	(6)	5	(1)
Operating profit/(loss) before exceptional items	2,034	757	501	101	248	—	—	3,641	(147)	3,494
Exceptional items	54	(62)	(1,198)	(145)	(6)	—	—	(1,357)	—	(1,357)
Operating profit/(loss)	2,088	695	(697)	(44)	242	—	—	2,284	(147)	2,137
Non-operating items										(23)
Net finance charges										(353)
Share of after tax results of associates and joint ventures
Moët Hennessy										285
Other										(3)
Profit before taxation										2,043

~~(i)~~(1) These items represent the IFRS 8 performance measures for the geographical and SC&P segments.

~~(2)~~(ii) The group’s net finance charges are managed centrally and are not attributable to individual operating segments.

~~(3)~~(iii) Approximately ~~40%~~37% of annual net sales occurred in the last four months of ~~the~~ calendar year ~~2020.~~2021.

~~(b) Other segmental information~~

~~233~~229

Financial statements (continued)

(b) Other segmental information


	North America £ million	Europe £ million	Asia Pacific £ million	Africa £ million	Latin America and Caribbean £ million	SC&P £ million	Corporate and other £ million	Total £ million
2022
Capital expenditure	230	187	146	139	128	256	11	1,097
Depreciation and intangible asset amortisation	(80)	(93)	(93)	(81)	(16)	(116)	(10)	(489)

Exceptional impairment of tangible assets	—	(3)	—	—	—	—	—	(3)
Exceptional impairment of intangible assets	—	(96)	(240)	—	—	—	—	(336)
2021
Capital expenditure	153	23	56	125	20	125	124	626
Depreciation and intangible asset amortisation	(76)	(31)	(60)	(79)	(16)	(126)	(59)	(447)



2020
Capital expenditure	145	24	59	128	48	191	105	700
Depreciation and intangible asset amortisation	(68)	(37)	(59)	(103)	(21)	(119)	(73)	(480)
Underlying impairment	—	(7)	—	—	(7)	—	—	(14)
Exceptional impairment of tangible assets	—	—	(1)	(139)	—	—	—	(140)
Exceptional impairment of intangible assets	—	—	(1,205)	—	—	—	—	(1,205)


	Category analysis			Geographic analysis
	Spirits £ million	Beer £ million	Ready to drink £ million	Other £ million	Total £ million	United States £ million	India £ million	Great Britain £ million	Nether- lands £ million	Rest of World £ million	Total £ million
2022
Sales(1)	18,164	3,128	882	274	22,448	6,327	3,219	2,142	89	10,671	22,448
Non-current assets(2), (3)						5,899	2,396	2,413	2,600	8,261	21,569
2021
Sales(1)	15,634	2,562	741	216	19,153	5,441	3,011	1,822	70	8,809	19,153
Non-current assets(2), (3)						4,320	2,561	2,119	2,474	7,589	19,063
2020
Sales(1)	14,158	2,687	621	231	17,697	4,839	2,783	1,684	62	8,329	17,697
Non-current assets(2), (3)						5,028	2,758	1,911	2,661	7,563	19,921

~~(i)~~(1) The geographical analysis of sales is based on the location of ~~third party~~third-party sales.

~~(iii)~~(3) The management information provided to the chief operating decision maker does not include an analysis of assets and liabilities by category and therefore is not disclosed.

230

Financial statements (continued)

3. Operating costs

2021
£ million 2020 £ million 2019 £ million
Excise duties 6,420 5,945 6,427
Cost of sales 5,038 4,654 4,866
Marketing 2,163 1,841 2,042
Other operating items 1,801 3,120 1,917

15,422 15,560 15,252
Comprising:
Excise duties
Great Britain 1,018 930 898
United States 589 585 587
India 2,127 1,927 2,202
Other 2,686 2,503 2,740
Increase in inventories (293) (275) (446)
Raw materials and consumables 3,126 2,842 3,007
Marketing 2,163 1,841 2,042
Other external charges 1,978 2,044 2,285
Staff costs 1,586 1,404 1,580
Depreciation, amortisation and impairment 447 1,839 374
Gains on disposal of properties (1) (2) (5)
Net foreign exchange losses/(gains) 22 15 (7)
Other operating income (26) (93) (5)
15,422 15,560 15,252


	2022 £ million	2021 £ million	2020 £ million
Excise duties	6,996	6,420	5,945
Cost of sales	5,973	5,038	4,654
Marketing	2,721	2,163	1,841
Other operating items	2,349	1,801	3,120
	18,039	15,422	15,560
Comprising:
Excise duties
United States	614	589	585
Great Britain	1,172	1,018	930
India	2,182	2,127	1,927
Other	3,028	2,686	2,503
Increase in inventories	(909)	(293)	(275)
Raw materials and consumables	4,017	3,126	2,842
Marketing	2,721	2,163	1,841
Other external charges	2,597	1,978	2,044
Staff costs	1,795	1,586	1,404
Depreciation, amortisation and impairment	828	447	1,839
Gains on disposal of properties	(2)	(1)	(2)
Net foreign exchange losses	10	22	15
Other operating income	(14)	(26)	(93)
	18,039	15,422	15,560

(a) Other external charges

~~234~~

~~Financial statements (continued)~~

(b) ~~Auditor~~Auditors fees

Other external charges include the fees of the principal ~~auditor~~auditors of the group, PricewaterhouseCoopers LLP and its affiliates (PwC) and are analysed below.

2021
£ million 2020
£ million 2019
£ million
Audit of these financial statements 3.8 5.3 3.8
Audit of financial statements of subsidiaries 4.4 3.6 3.4
Audit related assurance services(i)
2.6 2.4 1.6
Total audit fees (Audit fees) 10.8 11.3 8.8
Other assurance services (Audit related fees)(ii)
0.8 0.8 0.7
All other non-audit fees (All other fees) 0 0 0.2
11.6 12.1 9.7


	2022 £ million	2021 £ million	2020 £ million
Audit of these financial statements	4.2	3.8	5.3
Audit of financial statements of subsidiaries	6.1	4.4	3.6
Audit related assurance services(1)	2.5	2.6	2.4
Total audit fees (Audit fees)	12.8	10.8	11.3

Other assurance services (Audit related fees)(2)	0.7	0.8	0.8

	13.5	11.6	12.1

~~(i)~~(1) Audit related assurance services are in respect of reporting under section 404 of the US Sarbanes-Oxley Act and the review of the interim financial information.

~~(ii)~~(2) Other assurance services comprise the aggregate fees for assurance and related services that are not reported under ‘total audit fees’.

231

Financial statements (continued)

2021
£ million 2020
£ million 2019
£ million
Aggregate remuneration
Wages and salaries 1,336 1,251 1,344
Share-based incentive plans 50 3 50
Employer’s social security 83 79 96
Employer’s pension
Defined benefit plans 82 37 61
Defined contribution plans 25 24 19
Other post employment plans 10 10 10
1,586 1,404 1,580


	2022 £ million	2021 £ million	2020 £ million
Aggregate remuneration
Wages and salaries	1,557	1,336	1,251
Share-based incentive plans	59	50	3
Employer’s social security	107	83	79
Employer’s pension
Defined benefit plans	36	82	37
Defined contribution plans	33	25	24
Other post employment plans	3	10	10
	1,795	1,586	1,404

The average number of employees on a full time equivalent basis (excluding employees of associates and joint ventures) was as follows:

2021 2020 2019
North America 2,616 2,466 2,410
Europe and Turkey 3,267 3,350 3,609
Africa 4,016 4,003 4,338
Latin America and Caribbean 1,505 1,549 1,610
Asia Pacific 6,474 6,559 7,038
SC&P 5,085 4,908 4,919
Corporate and other 4,687 4,940 4,496
27,650 27,775 28,420


	2022	2021 (Restated)(i)	2020 (Restated)(i)
North America	2,811	2,562	2,459
Europe	3,014	3,237	3,323
Asia Pacific	6,500	6,474	6,559
Africa	4,061	4,016	4,617
Latin America and Caribbean	1,500	1,505	1,549
SC&P	5,025	5,085	4,908
Corporate and other	5,076	4,687	4,940
	27,987	27,566	28,355

(1) The impact of acquisitions and disposals was changed and now disclosed restated where relevant.

~~235~~

~~Financial statements (continued)~~

(d) Exceptional operating items

Included in other operating items are the following:

2021
£ million
2020
£ million
2019
£ million
Staff costs
Guaranteed minimum pension equalisation charge 5 0 21
Other external charges 13 95 53
Other operating income (3) (83) 0
Depreciation, amortisation and impairment
Brand, goodwill, tangible and other assets impairment 0 1,345 0
Total exceptional operating items (note 4) 15 1,357 74


	2022 £ million	2021 £ million	2020 £ million
Staff costs
Guaranteed minimum pension equalisation charge	—	5	—
Other external charges	52	13	95
Other operating income	—	(3)	(83)

Depreciation, amortisation and impairment
Brand, goodwill, tangible and other assets impairment	336	—	1,345
Total exceptional operating items (note 4)	388	15	1,357

4. Exceptional items

Accounting policies

Changes in estimates and reversals in relation to items previously recognised as exceptional are presented consistently as exceptional in the current year.

232

Financial statements (continued)

~~236~~

~~Financial statements (continued)~~


	2022 £ million	2021 £ million	2020 £ million
Exceptional operating items
Brand, goodwill, tangible and other assets impairment (a)	(336)	—	(1,345)
Winding down Russian operations (b)	(50)	—	—
Donations (c)	(2)	(5)	(89)
Ongoing litigation in Turkey (d)	—	(15)	—
Guaranteed minimum pension equalisation (e)	—	(5)	—
Obsolete inventories (f)	—	7	(30)
Substitution drawback (g)	—	3	83
Indirect tax in Korea (h)	—	—	24

	(388)	(15)	(1,357)
Non-operating items
Sale of businesses and brands
Meta Abo Brewery (i)	(95)	—	—
Windsor business (j)	(19)	—	—
Picon brand (k)	91	—	—
United National Breweries (l)	6	10	(32)
USL businesses (m)	—	3	—
Portfolio of 19 brands (n)	—	1	2
Loss on disposal of associate (o)	—	—	(1)
Step acquisitions (p)	—	—	8
	(17)	14	(23)

Exceptional items before taxation	(405)	(1)	(1,380)
Items included in taxation (note 7 (b))	31	(84)	154

Total exceptional items	(374)	(85)	(1,226)
Attributable to:
Equity shareholders of the parent company	(271)	(86)	(1,157)
Non-controlling interests	(103)	1	(69)
Total exceptional items	(374)	(85)	(1,226)

~~(c) In line with the group’s accounting policy, given the unusual nature and magnitude of the below items, these were reported as exceptional operating items:~~

~~237~~

~~Financial statements (continued)~~

For further information, see ~~notes~~note 9 (d).

~~(e)~~

233

Financial statements (continued)

operations in Russia resulted in a loss of £146 million, including impairment of the Bell’s brand (£77 million), Smirnov related goodwill (£19 million), and directly attributable items.

(h) An assessment was issued by the Korea Tax Authority in the year ended 30 June 2020 that resulted in the reversal of the prior year's provision in the amount of £24 million.

~~In the year ended 30 June 2019, the disposal of the Indian wine business resulted in an exceptional loss of £2 million.~~

~~See note 8 (b) for further information.~~

~~(i)~~(o) In the year ended 30 June 2020, the disposal of an associate, Equal Parts, LLC resulted in an exceptional loss of ~~£1 million~~.£1 million.

For further information on acquisition and sale of businesses and brands, see note 8 (a) and 8 (b).

234

Financial statements (continued)

Cash payments and receipts included in net cash inflow from operating activities in respect of exceptional items were as follows:

2021
£ million
2020
£ million
2019
£ million
Substitution drawback 60 26 0
Donations (50) (7) 0
Thalidomide (note 14 (d) (a)) (15) (17) (15)
Indirect tax in Korea (10) 0 0
Ongoing litigation in Turkey (1) 0 0
French tax audit 0 (88) 0
Total cash payments (16) (86) (15)


	2022 £ million	2021 £ million	2020 £ million
Donations	(37)	(50)	(7)
Thalidomide (note 15 (d) (i))	(16)	(15)	(17)
Winding down Russian operations	(13)	—	—
Indirect tax in Korea	—	(10)	—
Ongoing litigation in Turkey	—	(1)	—
Substitution drawback	—	60	26
French tax audit	—	—	(88)
Total cash payments	(66)	(16)	(86)

5. Finance income and charges

Accounting policies

Net interest includes interest income and charges in respect of financial instruments and the results of hedging transactions used to manage interest rate risk.

~~238~~235

Financial statements (continued)

2021
£ million
2020
£ million
2019
£ million
Interest income 119 192 232
Fair value gain on financial instruments 124 123 155
Total interest income(i)
243 315 387
Interest charge on bank loans, bonds and overdrafts (365) (390) (349)
Interest charge on leases
(16) (15) (7)
Interest charge on other borrowings (84) (120) (122)
Fair value loss on financial instruments (126) (123) (157)
Total interest charges(i)
(591) (648) (635)
Net interest charges (348) (333) (248)
Net finance income in respect of post employment plans in surplus (note 13) 18 26 29
Hyperinflation adjustment in respect of Venezuela (note 1) 2 6 10
Interest income in respect of direct and indirect tax 15 16 16
Other finance income 0 3 0
Total other finance income 35 51 55
Net finance charge in respect of post employment plans in deficit (note 13) (13) (17) (22)
Hyperinflation adjustment and foreign exchange revaluation of monetary items in respect of Lebanon (note 1) (8) 0 0
Unwinding of discounts (20) (24) (17)
Interest charge in respect of direct and indirect tax (11) (22) (11)
Change in financial liability (Level 3) (7) (6) (8)
Other finance charges (exceptional)(ii)
0 0 (9)
Guarantee fees (1) (1) 0
Other finance charges 0 (1) (3)
Total other finance charges (60) (71) (70)
Net other finance charges (25) (20) (15)


	2022 £ million	2021 £ million	2020 £ million
Interest income	127	119	192
Fair value gain on financial instruments	341	124	123
Total interest income(1)	468	243	315
Interest charge on bank loans, bonds and overdrafts	(371)	(365)	(390)
Interest charge on leases	(12)	(16)	(15)

Interest charge on other borrowings	(92)	(84)	(120)
Fair value loss on financial instruments	(346)	(126)	(123)
Total interest charges(1)	(821)	(591)	(648)
Net interest charges	(353)	(348)	(333)
Net finance income in respect of post employment plans in surplus (note 14)	22	18	26
Hyperinflation adjustment in respect of Venezuela (note 1)	1	2	6
Interest income in respect of direct and indirect tax	2	15	16
Unwinding of discounts	4	—	—
Other finance income	—	—	3
Total other finance income	29	35	51
Net finance charge in respect of post employment plans in deficit (note 14)	(12)	(13)	(17)
Hyperinflation adjustment and foreign exchange revaluation of monetary items in respect of Lebanon (note 1)	(3)	(8)	—
Unwinding of discounts	(11)	(20)	(24)
Interest charge in respect of direct and indirect tax	(16)	(11)	(22)
Change in financial liability (Level 3)	(20)	(7)	(6)
Hyperinflation adjustment in respect of Turkey (note 1)	(34)	—	—

Guarantee fees	(1)	(1)	(1)
Other finance charges	(1)	—	(1)
Total other finance charges	(98)	(60)	(71)
Net other finance charges	(69)	(25)	(20)

~~(ii) In respect of the French tax audit settlement (see note 7(b)(v)).~~

~~239~~236

Financial statements (continued)

6. Investments in associates and joint ventures

Accounting policies

(a) An analysis of the movement in the group’s investments in associates and joint ventures is as follows:

Moët
Hennessy
£ million Others
£ million Total
£ million
Cost less provisions
At 30 June 2019 3,040 133 3,173
Exchange differences 78 4 82
Additions 0 47 47
Share of profit after tax 285 (3) 282
Disposals 0 (1) (1)
Dividends 0 (4) (4)
Share of movements in other comprehensive income and equity (8) 0 (8)
Step acquisitions 0 (11) (11)
Transfer 0 (2) (2)
Other 0 (1) (1)
At 30 June 2020 3,395 162 3,557
Exchange differences (228) (12) (240)
Additions 0 38 38
Share of profit after tax 335 (1) 334
Dividends (289) (1) (290)
Share of movements in other comprehensive income and equity (85) 0 (85)
Transfer 0 2 2
Impairment charged during the year 0 (8) (8)
At 30 June 2021 3,128 180 3,308


	Moët Hennessy £ million	Others £ million	Total £ million
Cost less provisions
At 30 June 2020	3,395	162	3,557
Exchange differences	(228)	(12)	(240)
Additions	—	38	38
Share of profit/(loss) after tax	335	(1)	334

Dividends	(289)	(1)	(290)
Share of movements in other comprehensive income and equity	(85)	—	(85)

Transfer	—	2	2
Impairment charged during the year	—	(8)	(8)

At 30 June 2021	3,128	180	3,308
Exchange differences	48	12	60
Additions	—	65	65
Share of profit/(loss) after tax	425	(8)	417

Dividends	(186)	(4)	(190)
Share of movements in other comprehensive income and equity	(6)	—	(6)


Impairment charged during the year	—	(2)	(2)
At 30 June 2022	3,409	243	3,652

~~(1)~~(i) Investment in associates balance includes loans given to and preference shares invested in associates of ~~£108~~£163 million ~~(2020~~(2021 – ~~£82~~£108 million).

(b) ~~Income statement information for the three years ended 30 June 2021 and balance sheet information as at 30 June 2021 and 30 June 2020 of Moët Hennessy is as follows:~~

2021
£ million 2020
£ million 2019
£ million
Sales 4,819 4,425 4,713
Profit for the year 985 838 911
Total comprehensive income 999 765 865

~~240~~

~~Financial statements (continued)~~

~~(1)~~Income statement information for the three years ended 30 June 2022 and balance sheet information as at 30 June 2022 and 30 June 2021 of Moët Hennessy is as follows:


	2022 £ million	2021 £ million	2020 £ million
Sales	5,553	4,819	4,425
Profit for the year	1,250	985	838
Total comprehensive income	1,269	999	765

237

Financial statements (continued)


	2022 £ million	2021 £ million
Non-current assets	5,957	5,320
Current assets	8,447	7,800
Total assets	14,404	13,120
Non-current liabilities	(1,791)	(1,665)
Current liabilities	(2,415)	(2,256)
Total liabilities	(4,206)	(3,921)
Net assets	10,198	9,199

(i) Including acquisition fair value adjustments principally in respect of Moët Hennessy’s brands and translated at £1 = ~~€1.17 (2020~~€1.16 (2021 – £1 = ~~€1.09)~~€1.17).

(c) ~~Information~~Information on transactions between the group and its associates and joint ventures is disclosed in note ~~20.~~21.

~~(e)~~(e) The associates and joint ventures have not reported any material contingent liabilities in their latest financial statements.

7. Taxation

Accounting policies

Critical accounting estimates and judgements

~~241~~238

Financial statements (continued)

(a) Analysis of taxation charge for the year

United Kingdom Rest of world Total
2021
£ million 2020
£ million 2019
£ million 2021
£ million 2020
£ million 2019
£ million 2021
£ million 2020
£ million 2019
£ million
Current tax
Current year 100 108 150 684 589 713 784 697 863
Adjustments in respect of prior years 1 6 (3) 28 (25) 52 29 (19) 49
101 114 147 712 564 765 813 678 912
Deferred tax
Origination and reversal of temporary differences 13 24 29 18 (143) (19) 31 (119) 10
Changes in tax rates 46 6 (2) 32 39 (52) 78 45 (54)
Adjustments in respect of prior years 8 0 5 (23) (15) 25 (15) (15) 30
67 30 32 27 (119) (46) 94 (89) (14)
Taxation on profit 168 144 179 739 445 719 907 589 898


	United Kingdom			Rest of world			Total
	2022 £ million	2021 £ million	2020 £ million	2022 £ million	2021 £ million	2020 £ million	2022 £ million	2021 £ million	2020 £ million
Current tax
Current year	174	100	108	867	684	589	1,041	784	697
Adjustments in respect of prior years	10	1	6	16	28	(25)	26	29	(19)
	184	101	114	883	712	564	1,067	813	678
Deferred tax
Origination and reversal of temporary differences	—	13	24	21	18	(143)	21	31	(119)
Changes in tax rates	2	46	6	1	32	39	3	78	45
Adjustments in respect of prior years	—	8	—	(42)	(23)	(15)	(42)	(15)	(15)
	2	67	30	(20)	27	(119)	(18)	94	(89)
Taxation on profit	186	168	144	863	739	445	1,049	907	589

(b) Exceptional tax ~~charges/~~(credits)/charges


	2022 £ million	2021 £ million	2020 £ million
Brand and tangible asset impairment(1)	(55)	—	(165)
Sale of Picon brand	23	—	—
Winding down Russian operations	3	—	—
Donations(2)	(2)	(5)	—
Tax rate change in the United Kingdom(3)	—	46	—
Tax rate change in the Netherlands(4)	—	42	—


Obsolete inventories	—	1	(7)
Substitution drawback	—	1	20
Guaranteed minimum pension equalisation	—	(1)	—



Other items	—	—	(2)







	(31)	84	(154)

~~242~~239

Financial statements (continued)

2021
£ million 2021
% 2020
£ million 2020
% 2019
£ million 2019
%
Profit before taxation 3,706 2,043 4,235
Notional charge at UK corporation tax rate 704 19.0 388 19.0 805 19.0
Elimination of notional tax on share of after tax results of associates and joint ventures (63) (1.7) (54) (2.6) (59) (1.4)
Differences in overseas tax rates 128 3.5 53 2.6 106 2.5
Effect of intra-group financing 0 0 (13) (0.6) (34) (0.8)
Non taxable gain on disposals of businesses (2) (0.1) 0 0 (3) 0
Step-up gain 0 0 (2) (0.1) 0 0
Other tax rate and tax base differences 0 0 (47) (2.3) (79) (1.9)
Other items not chargeable (52) (1.4) (60) (3.0) (51) (1.2)
Impairment 0 0 135 6.6 0 0
Non deductible losses on disposals of businesses 0 0 6 0.3 0 0
Other items not deductible(i)
67 1.8 115 5.6 122 2.9
Irrecoverable withholding taxes 25 0.7 36 1.7 24 0.6
Movement in provision related to uncertain tax positions(ii)
1 0 6 0.3 98 2.3
Changes in tax rates(iii)
78 2.1 45 2.2 (54) (1.3)
Fair value adjustment in respect of assets held for sale 0 0 0 0 1 0
Adjustments in respect of prior years(iv)
21 0.6 (19) (0.9) 22 0.5
Taxation on profit 907 24.5 589 28.8 898 21.2
Tax rate before exceptional items — 22.2 — 21.7 — 20.6


	2022 £ million	2022 %	2021 £ million	2021 %	2020 £ million	2020 %
Profit before taxation	4,387		3,706		2,043
Notional charge at UK corporation tax rate	833	19.0	704	19.0	388	19.0
Elimination of notional tax on share of after tax results of associates and joint ventures	(79)	(1.8)	(63)	(1.7)	(54)	(2.6)
Differences in overseas tax rates	161	3.7	128	3.5	53	2.6
Effect of intra-group financing	—	—	—	—	(13)	(0.6)
Non-taxable gain on disposals of businesses	—	—	(2)	(0.1)	—	—
Step-up gain	—	—	—	—	(2)	(0.1)
Other tax rate and tax base differences	—	—	—	—	(47)	(2.3)
Other items not chargeable	(49)	(1.1)	(52)	(1.4)	(60)	(3.0)
Impairment	36	0.8	—	—	135	6.6
Non-deductible losses on disposals of businesses	21	0.5	—	—	6	0.3

Other items not deductible(1)	58	1.3	67	1.8	115	5.6
Irrecoverable withholding taxes	39	0.9	25	0.7	36	1.7
Movement in provision in respect of uncertain tax positions(2)	42	0.9	1	—	6	0.3
Changes in tax rates(3)	3	0.1	78	2.1	45	2.2

Adjustments in respect of prior years(4)	(16)	(0.4)	21	0.6	(19)	(0.9)
Taxation on profit	1,049	23.9	907	24.5	589	28.8
Tax rate before exceptional items	—	22.5	—	22.2	—	21.7

~~(i)~~(1) Other items not deductible include additional state and local taxes and other expenses.

~~(iv)~~(4) Excludes prior year movement in provisions.

~~243~~240

Financial statements (continued)

(d) Deferred tax assets and liabilities

~~The amounts of deferred~~Deferred tax ~~accounted for~~recognised in the consolidated balance sheet comprise the following net deferred tax (liabilities)/assets:

Property,
plant and
equipment
£ million Intangible
assets
£ million Post
employment
plans
£ million Tax losses
£ million
Other
temporary
differences(i)
£ million
Total
£ million
At 30 June 2019 (349) (1,795) (38) 24 264 (1,894)
Exchange differences 0 12 1 (1) (7) 5
Recognised in income statement – continuing operations (10) 115 (5) 7 27 134
Reclassification 8 6 0 (3) (11) 0
Recognised in other comprehensive loss and equity 0 (3) (16) 34 (33) (18)
Tax rate change – recognised in income statement 11 (52) 2 0 (6) (45)
Tax rate change – recognised in other comprehensive loss and equity 0 0 (16) 0 0 (16)
Acquisition of subsidiaries 0 (19) 0 0 0 (19)
At 30 June 2020 (340) (1,736) (72) 61 234 (1,853)
Exchange differences 26 176 (7) (5) (17) 173
Recognised in income statement – continuing operations (28) (19) 2 0 29 (16)
Reclassification 0 7 0 0 (7) 0
Recognised in other comprehensive loss and equity 0 0 (6) 0 (2) (8)
Tax rate change – recognised in income statement (39) (48) (2) 1 10 (78)
Tax rate change – recognised in other comprehensive loss and equity 0 0 (44) 0 (4) (48)
Acquisition of subsidiaries 0 (16) 0 0 1 (15)
At 30 June 2021 (381) (1,636) (129) 57 244 (1,845)


	Property, plant and equipment £ million	Intangible assets £ million	Post employment plans £ million	Tax losses £ million	Other temporary differences(1) £ million	Total £ million
At 30 June 2020	(340)	(1,736)	(72)	61	234	(1,853)
Exchange differences	26	176	(7)	(5)	(17)	173
Recognised in income statement	(28)	(19)	2	—	29	(16)
Reclassification	—	7	—	—	(7)	—
Recognised in other comprehensive loss and equity	—	—	(6)	—	(2)	(8)

Tax rate change – recognised in income statement	(39)	(48)	(2)	1	10	(78)
Tax rate change – recognised in other comprehensive loss and equity	—	—	(44)	—	(4)	(48)
Acquisition of subsidiaries	—	(16)	—	—	1	(15)

At 30 June 2021	(381)	(1,636)	(129)	57	244	(1,845)
Exchange differences	(21)	(155)	3	3	17	(153)
Recognised in income statement	(42)	(3)	(10)	2	74	21
Reclassification	2	40	—	—	(7)	35
Recognised in other comprehensive loss and equity	(20)	(104)	(103)	—	20	(207)
Tax rate change – recognised in income statement	(1)	(3)	—	1	—	(3)
Tax rate change – recognised in other comprehensive loss and equity	—	—	(22)	—	2	(20)
Acquisition of businesses	—	(31)	—	—	—	(31)
Sale of businesses	(5)	—	—	—	3	(2)

At 30 June 2022	(468)	(1,892)	(261)	63	353	(2,205)

After offsetting deferred tax assets and liabilities where appropriate within territories, the net deferred tax liability comprises:

2021
£ million 2020
£ million
Deferred tax assets 100 119
Deferred tax liabilities (1,945) (1,972)
(1,845) (1,853)


	2022 £ million	2021 £ million
Deferred tax assets	114	100
Deferred tax liabilities	(2,319)	(1,945)
	(2,205)	(1,845)

(e) Unrecognised deferred tax assets

2021
£ million 2020
£ million
Capital losses – indefinite 105 76
Trading losses – indefinite 23 30
Trading and Capital losses – expiry dates up to 2030 50 70
178 176


	2022 £ million	2021 £ million
Capital losses – indefinite	98	105
Trading losses – indefinite	25	23
Trading and capital losses – expiry dates up to 2032	46	50
	169	178

~~244~~241

Financial statements (continued)

(f) Unrecognised deferred tax liabilities

~~245~~242

Financial statements (continued)

Operating assets and liabilities

Introduction

8. Acquisition and sale of businesses and brands and purchase of non-controlling interests

Accounting policies

Transactions with non-controlling interests are recorded directly in retained earnings.

On an acquisition, fair values are attributed to the assets and liabilities acquired. This may involve material judgement to determine these values.

~~246~~243

Financial statements (continued)

(a) Acquisition of businesses

Fair value of net assets acquired and cash consideration paid in respect of the acquisition of subsidiaries in the three years ended 30 June ~~2021~~2022 were as follows:

Net assets acquired and consideration
Aviation Gin and Davos Brands
£ million Other
£ million 2021
£ million 2020
£ million 2019
£ million
Brands and other intangibles 206 128 334 102 25
Property, plant and equipment 11 4 15 0 0
Inventories 7 5 12 2 0
Other working capital 0 (3) (3) (3) (2)
Deferred tax 0 (15) (15) (19) (5)
Borrowings (6) (2) (8) 0 0
Cash 2 2 4 2 0
Fair value of assets and liabilities 220 119 339 84 18
Goodwill arising on acquisition 228 46 274 8 10
Step acquisitions 0 0 0 (23) (7)
Consideration payable 448 165 613 69 21
Satisfied by:
Cash consideration paid (263) (95) (358) (27) (6)
Contingent consideration payable (185) (68) (253) (42) (15)
Deferred consideration payable 0 (2) (2) 0 0
(448) (165) (613) (69) (21)


	Net assets acquired and consideration
	21Seeds £ million	Other £ million	2022 £ million	2021 £ million	2020 £ million
Brands and other intangibles	84	36	120	334	102
Property, plant and equipment	—	—	—	15	—
Inventories	4	2	6	12	2
Other working capital	—	3	3	(3)	(3)
Deferred tax	(20)	(11)	(31)	(15)	(19)
Borrowings	—	—	—	(8)	—
Cash	1	—	1	4	2
Fair value of assets and liabilities	69	30	99	339	84
Goodwill arising on acquisition	48	22	70	274	8

Settlement of pre-existing relationship	—	(1)	(1)	—	—
Step acquisitions	—	(6)	(6)	—	(23)
Consideration payable	117	45	162	613	69
Satisfied by:
Cash consideration paid	(62)	(26)	(88)	(358)	(27)
Contingent consideration payable	(55)	(15)	(70)	(253)	(42)
Deferred consideration payable	—	(4)	(4)	(2)	—
	(117)	(45)	(162)	(613)	(69)

Cash consideration paid in respect of the acquisition of ~~business~~businesses and purchase of shares of non-controlling interests in the three years ended 30 June ~~2021~~2022 were as follows:


	Consideration
	2022 £ million	2021 £ million	2020 £ million
Acquisitions in the year - subsidiaries
Cash consideration paid	(88)	(358)	(27)

Prior year acquisitions - subsidiaries
Contingent consideration paid for Casamigos	(83)	(89)	(49)
Other consideration	(36)	(7)	(9)
Investments in associates
Cash consideration paid	(4)	—	(6)
Capital injection	(61)	(38)	(41)
Cash acquired	1	4	2
Net cash outflow on acquisition of businesses	(271)	(488)	(130)
Purchase of shares of non-controlling interests	—	(42)	(62)
Total net cash outflow	(271)	(530)	(192)

244

Financial statements (continued)

Acquisitions in the year

Prior year acquisitions

~~247~~

~~Financial statements (continued)~~

performance targets, and one of the transactions ~~provides~~provided for a further £2 million of deferred consideration, of which £1 million ~~has been~~was paid by 30 June 2021.

Purchase of shares of non-controlling interests

245

Financial statements (continued)

(b) Sale of businesses and brands

Cash consideration received and net assets disposed of in respect of sale of businesses and brands in the three years ended 30 June 2022 were as follows:


	2022 £ million	2021 £ million	2020 £ million
Sale consideration
Cash received	106	14	11
Overdraft disposed of	2	—	—
Transaction and other directly attributable costs paid	(26)	—	—
Net cash received	82	14	11
Transaction costs payable	(16)	1	(1)
	66	15	10
Net assets disposed of

Goodwill	(14)	—	—
Property, plant and equipment	(11)	(2)	(1)
Investment in associates	—	—	(1)
Assets and liabilities held for sale	—	—	(30)
Inventories	(4)	—	—
Other working capital	15	1	—
Other borrowings	1	—	—
Corporate tax	(5)	—	—
Deferred tax	(2)	—	—
	(20)	(1)	(32)
Impairment charge recognised up until the date of sale	—	—	(7)
Exchange recycled from other comprehensive income	(63)	—	(4)
(Loss)/gain on disposal before taxation	(17)	14	(33)
Taxation	(23)	—	—
(Loss)/gain on disposal after taxation	(40)	14	(33)

246

Financial statements (continued)


	Windsor business £ million	USL Popular brands £ million	2022 £ million
Intangible assets	145	20	165
Property, plant and equipment	3	9	12
Other investments	1	—	1
Inventories	6	15	21
Trade and other receivables	1	22	23


Assets held for sale	156	66	222
Trade and other payables	(5)	(13)	(18)
Corporation tax	(6)	—	(6)
Deferred tax	(28)	(7)	(35)
Leases	(2)	—	(2)
Liabilities held for sale	(41)	(20)	(61)
Total	115	46	161

~~248~~247

Financial statements (continued)

9. Intangible assets

Accounting policies

Critical accounting estimates and judgements

Assessment of the recoverable amount of an intangible asset and the useful economic life of an asset are based on management's estimates.

–additional sensitivity scenarios are applied for those markets or regions where the ~~size of~~inflation and/or the ~~on-trade channel in the market;~~

–~~the life cycle phase of the brand and the maturity of the market.~~exchange devaluation is considered significant based on management’s judgement.

Consideration of climate risk impact

248

Financial statements (continued)


	Brands £ million	Goodwill £ million	Other intangibles £ million	Computer software £ million	Total £ million
Cost
At 30 June 2020	8,923	2,664	1,587	698	13,872
Exchange differences	(799)	(311)	(174)	(30)	(1,314)
Additions	334	274	8	32	648
Disposals	—	—	—	(27)	(27)

At 30 June 2021	8,458	2,627	1,421	673	13,179
Hyperinflation adjustment in respect of Turkey	315	208	—	1	524
Exchange differences	639	145	194	28	1,006
Additions	109	70	55	67	301
Disposals	(23)	(42)	—	(23)	(88)
Reclassification to asset held for sale	(560)	—	—	(8)	(568)
At 30 June 2022	8,938	3,008	1,670	738	14,354
Amortisation and impairment
At 30 June 2020	1,168	752	78	574	2,572
Exchange differences	(71)	(82)	(3)	(26)	(182)
Amortisation for the year	—	—	5	44	49

Disposals	—	—	—	(24)	(24)
At 30 June 2021	1,097	670	80	568	2,415
Exchange differences	51	60	(1)	25	135
Amortisation for the year	—	—	7	38	45
Impairment	317	19	—	—	336
Disposals	(23)	(28)	—	(20)	(71)
Reclassification to asset held for sale	(400)	—	—	(8)	(408)
At 30 June 2022	1,042	721	86	603	2,452
Carrying amount
At 30 June 2022	7,896	2,287	1,584	135	11,902
At 30 June 2021	7,361	1,957	1,341	105	10,764
At 30 June 2020	7,755	1,912	1,509	124	11,300

249

Financial statements (continued)

(a) Brands

At 30 June ~~2021,~~2022, the principal acquired brands, all of which are regarded as having indefinite useful economic lives, are as follows:

Principal markets
2021
£ million
2020
£ million
Crown Royal whisky United States 1,053 1,190
McDowell's No.1 whisky, rum and brandy India 944 1,050
Captain Morgan rum Global 864 977
Johnnie Walker whisky Global 625 625
Smirnoff vodka Global 593 670
Casamigos tequila United States 434 491
Shui Jing Fang Chinese white spirit Greater China 253 260
Aviation American gin United States 190 0
Don Julio tequila United States 185 179
Bell's whisky Europe 179 179
Signature whisky India 177 197
Seagram's 7 Crown whiskey United States 160 181
Black Dog whisky India 150 167
Antiquity whisky India 147 163
Windsor Premier whisky Korea 145 154
Yenì Raki Turkey 141 202
Zacapa rum Global 138 156
Gordon's gin Europe 119 119
Other brands

864 795
7,361 7,755


	Principal markets	2022 £ million	2021 £ million
Crown Royal whisky	United States	1,210	1,053
Captain Morgan rum	Global	993	864
McDowell's No.1 whisky, rum and brandy	India	778	944
Smirnoff vodka	Global	681	593
Johnnie Walker whisky	Global	625	625
Casamigos tequila	United States	499	434
Yenì raki	Turkey	294	141
Shui Jing Fang Chinese white spirit	Greater China	279	253
Aviation American gin	United States	218	190
Don Julio tequila	United States	207	185
Signature whisky	India	191	177
Seagram's 7 Crown whiskey	United States	184	160
Black Dog whisky	India	162	150
Antiquity whisky	India	158	147
Zacapa rum	Global	158	138
Gordon's gin	Europe	119	119
Bell's whisky	Europe	102	179
Windsor Premier whisky	Korea	—	145


Other brands		1,038	864
		7,896	7,361

~~250~~

~~Financial statements (continued)~~

(b) Goodwill

For the purposes of impairment testing, goodwill has been attributed to the following cash-generating units:


	2022 £ million	2021 £ million
North America	773	609
Europe

Turkey	255	143
Asia Pacific
Greater China	141	128
India	747	693
Latin America and Caribbean – Mexico	142	126



Other cash-generating units	229	258
	2,287	1,957

250

Financial statements (continued)

(d) Impairment testing

The key assumptions used for the value in use calculations are as follows:

Cash flows

~~251~~

~~Financial statements (continued)~~

–Cash flows for the subsequent years after the forecast period are extrapolated based on a terminal growth rate which does not exceed the long-term annual inflation rate of the country or region.

Discount rates

The pre-tax discount rates, terminal and long-term growth rates used for impairment testing are as follows:

2021 2020
Pre-tax discount rate
% Terminal growth rate
% Long-term growth rate
% Pre-tax discount rate
% Terminal growth rate
% Long-term growth rate
%
North America – United States 7 2 4 8 2 4
Europe and Turkey
United Kingdom 6 2 4 5 2 4
Spain 5 2 4 8 2 3
Turkey 22 11 16 22 11 15
Russia 12 4 6 12 3 6
Africa
South Africa 13 0 6 18 0 7
Nigeria 19 10 14 21 11 14
Africa Emerging Markets 22 4 10 26 5 11
Latin America and Caribbean
Brazil 11 3 6 15 3 6
Mexico 17 3 6 16 3 5
Asia Pacific
Korea 10 (4) 0 10 (4) 0
India 12 4 11 12 4 12
Global Travel 7 2 5 8 2 5


	2022			2021
	Pre-tax discount rate %	Terminal growth rate %	Long-term growth rate %	Pre-tax discount rate %	Terminal growth rate %	Long-term growth rate %
North America – United States	8	2	4	7	2	4
Europe
United Kingdom	8	2	4	6	2	4

Turkey	31	15	25	22	11	16

Asia Pacific
Australia	7	2	5	6	2	5
India	14	4	11	12	4	11

Africa

South Africa	16	—	6	13	—	6
Nigeria	24	12	15	19	10	14

Latin America and Caribbean
Brazil	12	3	6	11	3	6

251

Financial statements (continued)

~~252~~

~~Financial statements (continued)~~

(e) Sensitivity to change in key assumptions

Impairment testing for the year ended 30 June ~~2021~~2022 has identified the following cash-generating units as being sensitive to reasonably possible changes in assumptions.

The table below shows the headroom at 30 June ~~2021~~2022 and the impairment charge that would be required if the assumptions in the calculation of their value in use were changed:

Increase in discount rate

Decrease in terminal growth rate

Decrease in annual growth rate in forecast period 2023-2029

Decrease in cash flows

Decrease in future volume forecast

Further devaluation of local currency

Carrying value of CGU
£ million

Headroom
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

Reasonably possible change

Potential impairment charge
£ million

McDowell's No.1

892

—

1ppt

(92)

n/a

2ppt

(121)

n/a

Bell's

145

—

3ppt

(27)

1ppt

(9)

n/a

(15)

n/a

Yenì Raki

346

7ppt

(95)

n/a

(20)

n/a

Turkey

688

7ppt

(249)

1ppt

(13)

n/a

(88)

(124)

(69)

10. Property, plant and equipment

Accounting policies

Reviews are carried out if there is an indication that assets may be impaired, to ensure that property, plant and equipment are not carried at above their recoverable amounts.

252

Financial statements (continued)

Government grants

~~253~~

~~Financial statements (continued)~~


	Land and buildings £ million	Plant and equipment £ million	Fixtures and fittings £ million	Returnable bottles and crates £ million	Under construction £ million	Total £ million
Cost
At 30 June 2020	2,141	4,868	127	575	549	8,260


Exchange differences	(137)	(322)	(10)	(55)	(34)	(558)
Acquisitions	9	2	—	—	4	15
Sale of businesses	(1)	(3)	—	—	—	(4)
Additions	95	149	9	27	367	647
Disposals	(24)	(126)	(7)	(21)	—	(178)
Transfers	77	146	2	2	(227)	—
At 30 June 2021	2,160	4,714	121	528	659	8,182


Hyperinflation adjustment in respect of Turkey	56	32	2	—	7	97
Exchange differences	107	226	1	11	45	390

Sale of businesses	(4)	(58)	(3)	(19)	(1)	(85)
Additions	230	245	8	41	612	1,136
Disposals	(65)	(122)	(15)	(32)	(3)	(237)
Transfers	177	249	10	13	(449)	—
Reclassification to assets held for sale	(8)	(25)	—	—	—	(33)
At 30 June 2022	2,653	5,261	124	542	870	9,450
Depreciation
30 June 2020	597	2,256	86	395	—	3,334
Exchange differences	(31)	(167)	(8)	(39)	—	(245)
Depreciation charge for the year	110	244	15	29	—	398

Sale of businesses	—	(2)	—	—	—	(2)
Disposals	(18)	(113)	(7)	(14)	—	(152)

At 30 June 2021	658	2,218	86	371	—	3,333
Exchange differences	31	94	1	9	—	135
Depreciation charge for the year	127	277	14	29	—	447


Sale of businesses	(4)	(50)	(2)	(18)	—	(74)
Disposals	(62)	(113)	(13)	(30)	—	(218)
Transfers	5	4	(9)	—	—	—
Reclassification to assets held for sale	(5)	(16)	—	—	—	(21)
At 30 June 2022	750	2,414	77	361	—	3,602
Carrying amount
At 30 June 2022	1,903	2,847	47	181	870	5,848
At 30 June 2021	1,502	2,496	35	157	659	4,849
At 30 June 2020	1,544	2,612	41	180	549	4,926

~~254~~253

Financial statements (continued)

11. Biological assets

Accounting policies

Biological assets held by the group consist of agave (Agave Azul Tequilana Weber) plants. The harvested plants are used during the production of tequila.

Agricultural produce is measured at fair value less costs to sell at the point of harvest which is used as the cost of inventory when the harvested agave is transferred.

Changes in biological assets were as follows:


			Biological assets £ million
Fair value
At 30 June 2020			51
Exchange differences			2
Transferred to inventories			(7)
Farming cost capitalised			20
At 30 June 2021			66
Exchange differences			10
Transferred to inventories			(11)
Fair value change			(5)
Farming cost capitalised			34
At 30 June 2022			94

At 30 June 2022, the number of agave plants were approximately 33 million (2021 – 20 million), ranging from new plantations up to eight year old plants.

12. Leases

Accounting policies

254

Financial statements (continued)

(a) Movement in right-of-use assets

The company principally leases warehouses, office buildings, plant and machinery, cars and distribution vehicles in the ordinary course of business.

Land and buildings
£ million Plant and equipment
£ million Under construction
£ million Total
£ million
At 30 June 2019 2 228 0 230
IFRS16 Transition 173 63 0 236
Adjusted balance at 1 July 2019 175 291 0 466
Exchange differences (3) 2 0 (1)
Additions 150 24 32 206
Disposals (2) 0 0 (2)
Depreciation (51) (41) 0 (92)
At 30 June 2020 269 276 32 577
Exchange differences (21) (18) 0 (39)
Additions 33 23 0 56
Transfer (1) (63) (3) (67)
Acquisitions 8 0 0 8
Depreciation (58) (34) 0 (92)
At 30 June 2021 230 184 29 443


	Land and buildings £ million	Plant and equipment £ million	Under construction £ million	Total £ million
At 30 June 2020	269	276	32	577


Exchange differences	(21)	(18)	—	(39)
Additions	33	23	—	56
Transfers	(1)	(63)	(3)	(67)

Acquisitions	8	—	—	8
Depreciation	(58)	(34)	—	(92)
At 30 June 2021	230	184	29	443


Exchange differences	26	14	—	40
Additions	129	56	—	185
Transfers	29	—	(29)	—
Reclassification to assets held for sale	(1)	(1)	—	(2)

Disposal	(6)	—	—	(6)
Depreciation	(54)	(41)	—	(95)
At 30 June 2022	353	212	—	565

(b) Lease liabilities

2021
£ million 2020
£ million
Current lease liabilities (82) (106)
Non-current lease liabilities (281) (364)
(363) (470)


	2022 £ million	2021 £ million
Current lease liabilities	(85)	(82)
Non-current lease liabilities	(390)	(281)
	(475)	(363)

The total cash outflow for leases in the year ended 30 June ~~2021~~2022 was ~~£179~~£154 million ~~(2020 - £180~~(2021 – £179 million).

255

Financial statements (continued)

~~12.~~13. Other investments

Accounting policies

Loans
£ million Others
£ million Total
£ million
Cost less allowances or fair value
At 30 June 2019 17 32 49
Exchange differences 1 1 2
Additions 3 0 3
Repayments and disposals (1) (2) (3)
Fair value adjustment 0 2 2
Provision charged during the year (14) 0 (14)
Capitalised interest 1 0 1
Transfer 0 1 1
At 30 June 2020 7 34 41
Exchange differences 0 (3) (3)
Additions 5 0 5
Repayments and disposals (1) 0 (1)
Transfer (1) (1) (2)
At 30 June 2021 10 30 40


	Loans £ million	Other investments £ million	Total £ million
Cost less allowances or fair value
At 30 June 2020	7	34	41
Exchange differences	—	(3)	(3)
Additions	5	—	5
Repayments and disposals	(1)	—	(1)



Transfer	(1)	(1)	(2)
At 30 June 2021	10	30	40
Exchange differences	2	1	3
Additions	6	9	15
Repayments and disposals	(1)	(1)	(2)
Fair value adjustment	—	(13)	(13)
Step acquisitions	—	(6)	(6)

Capitalised interest	1	—	1
Transfer	—	(1)	(1)
At 30 June 2022	18	19	37

256

Financial statements (continued)

~~13.~~14. Post employment benefits

Accounting policies

Critical accounting estimates and judgements

(a) Post employment benefit plans

The most recent funding valuations of the significant defined benefit plans were carried out as follows:


Principal plans			Date of valuation
United Kingdom~~(i)~~(1)			1 April ~~2018~~2021
Ireland~~(ii)~~(2)			31 December 2018
United States			1 January 2021

257

Financial statements (continued)

2021
£ million 2020
£ million 2019
£ million
Current service cost and administrative expenses (105) (109) (110)
Past service gains – ordinary activities 0 50 56
Past service losses – exceptional (5) 0 (21)
Gains on curtailments and settlements 18 12 4
Charge to operating profit (92) (47) (71)
Net finance gain in respect of post employment plans 5 9 7
Charge before taxation(i)
(87) (38) (64)
Actual returns less amounts included in finance income (6) 774 438
Experience gains 80 34 113
Changes in financial assumptions 125 (754) (514)
Changes in demographic assumptions (183) (14) (6)
Other comprehensive income 16 40 31
Changes in the surplus restriction 0 (2) 2
Total other comprehensive income 16 38 33


	2022 £ million	2021 £ million	2020 £ million
Current service cost and administrative expenses	(107)	(105)	(109)
Past service gains – ordinary activities	34	—	50
Past service losses – exceptional	—	(5)	—
Gains on curtailments and settlements	34	18	12
Charge to operating profit	(39)	(92)	(47)
Net finance gain in respect of post employment plans	10	5	9
Charge before taxation(1)	(29)	(87)	(38)
Actual returns less amounts included in finance income	(1,432)	(6)	774
Experience (losses)/gains	(35)	80	34
Changes in financial assumptions	2,133	125	(754)
Changes in demographic assumptions	(40)	(183)	(14)
Other comprehensive income	626	16	40
Changes in the surplus restriction	(11)	—	(2)
Total other comprehensive income	615	16	38

~~(i)~~(1) The (charge)/income before taxation is in respect of the following ~~countries is:~~countries:

2021
£ million 2020
£ million 2019
£ million
United Kingdom (46) (23) (3)
Ireland 4 34 (13)
United States (28) (30) (30)
Other (17) (19) (18)
(87) (38) (64)


	2022 £ million	2021 £ million	2020 £ million
United Kingdom	(27)	(46)	(23)
Ireland	45	4	34
United States	(31)	(28)	(30)
Other	(16)	(17)	(19)
	(29)	(87)	(38)

258

Financial statements (continued)

The movement in the net surplus for the two years ended 30 June ~~2021~~2022 is set out below:

Plan
assets
£ million Plan
liabilities
£ million Net
surplus
£ million
At 30 June 2019 9,713 (9,498) 215
Exchange differences 65 (73) (8)
Charge before taxation 198 (236) (38)
Other comprehensive income/(loss)(i)
774 (734) 40
Contributions by the group 156 0 156
Employee contributions 5 (5) 0
Benefits paid (489) 489 0
At 30 June 2020 10,422 (10,057) 365
Exchange differences (214) 245 31
Charge before taxation(ii)
149 (236) (87)
Other comprehensive income/(loss)(i)
(6) 22 16
Contributions by the group 122 0 122
Settlements paid(iii)
(169) 169 0
Employee contributions 4 (4) 0
Benefits paid (416) 416 0
At 30 June 2021 9,892 (9,445) 447


	Plan assets £ million	Plan liabilities £ million	Net surplus £ million
At 30 June 2020	10,422	(10,057)	365
Exchange differences	(214)	245	31
Charge before taxation(1)	149	(236)	(87)
Other comprehensive income/(loss)(2)	(6)	22	16
Contributions by the group	122	—	122
Settlements paid(3)	(169)	169	—
Employee contributions	4	(4)	—
Benefits paid	(416)	416	—
At 30 June 2021	9,892	(9,445)	447
Exchange differences	93	(100)	(7)
Charge before taxation(1)	176	(205)	(29)
Other comprehensive income/(loss)(2)	(1,432)	2,058	626
Contributions by the group	128	—	128
Settlements paid(3)	(52)	52	—
Employee contributions	5	(5)	—
Benefits paid	(411)	411	—
At 30 June 2022	8,399	(7,234)	1,165

(i) Excludes surplus restriction.
(ii)(1) Includes net settlement gain of £27 million (F21 - £14 ~~million~~.million) and past service gain of £28 million.

~~(iii)~~(2) Excludes surplus restriction.

(3) Includes settlement payment of £52 million on ETV exercise in Ireland (F21 – £151 million in respect of a settlement in the US Cash Balance ~~plan.~~plan).

The plan assets and liabilities by type of post employment benefit and country is as follows:

2021 2020
Plan
assets
£ million Plan
liabilities
£ million Plan
assets
£ million Plan
liabilities
£ million
Pensions
United Kingdom 7,341 (6,580) 7,696 (6,831)
Ireland 1,826 (1,926) 1,810 (2,031)
United States 470 (373) 660 (578)
Other 186 (225) 183 (240)
Post employment medical 2 (262) 2 (288)
Other post employment 67 (79) 71 (89)
9,892 (9,445) 10,422 (10,057)


	2022		2021
	Plan assets £ million	Plan liabilities £ million	Plan assets £ million	Plan liabilities £ million
Pensions
United Kingdom	6,041	(4,897)	7,341	(6,580)
Ireland	1,645	(1,409)	1,826	(1,926)
United States	453	(408)	470	(373)
Other	191	(212)	186	(225)
Post employment medical	2	(225)	2	(262)
Other post employment	67	(83)	67	(79)
	8,399	(7,234)	9,892	(9,445)

The balance sheet analysis of the post employment plans is as follows:

2021 2020

Non-
current
assets(i)
£ million
Non-
current
liabilities
£ million
Non-
current
assets(i)
£ million
Non-
current
liabilities
£ million
Funded plans 1,018 (279) 1,111 (434)
Unfunded plans — (295) — (315)
1,018 (574) 1,111 (749)


	2022		2021
	Non- current assets(1) £ million	Non- current liabilities £ million	Non- current assets(1) £ million	Non- current liabilities £ million
Funded plans	1,553	(144)	1,018	(279)
Unfunded plans	—	(258)	—	(295)
	1,553	(402)	1,018	(574)

~~(i)~~(1) Includes surplus restriction of £3£14 million ~~(2020~~(2021 – £3 million).

259

Financial statements (continued)

~~259~~

~~Financial statements (continued)~~

(b) Principal risks and assumptions

The material post employment plans are not exposed to any unusual, ~~entity specific~~entity-specific or ~~scheme specific~~scheme-specific risks but there are general risks:

United Kingdom Ireland
United States(i)
2021% 2020% 2019% 2021% 2020% 2019% 2021% 2020% 2019%
Rate of general increase in salaries(ii)
3.4 3.2 3.6 3.0 2.6 2.3 — 0 0
Rate of increase to pensions in payment 3.1 3.0 3.2 1.7 1.4 1.5 0 0 0
Rate of increase to deferred pensions 2.5 2.1 2.2 1.6 1.2 1.3 0 0 0
Discount rate for plan liabilities 1.9 1.5 2.3 1.0 1.2 1.2 2.7 2.6 3.4
Inflation – CPI 2.5 2.1 2.2 1.6 1.2 1.3 2.3 1.4 1.7
Inflation - RPI 3.0 2.8 3.2 — — — — — —


	United Kingdom			Ireland			United States(1)
	2022%	2021%	2020%	2022%	2021%	2020%	2022%	2021%	2020%
Rate of general increase in salaries(2)	3.6	3.4	3.2	3.8	3.0	2.6	—	—	—
Rate of increase to pensions in payment	2.9	3.1	3.0	2.2	1.7	1.4	—	—	—
Rate of increase to deferred pensions	2.6	2.5	2.1	2.3	1.6	1.2	—	—	—
Discount rate for plan liabilities	3.8	1.9	1.5	3.2	1.0	1.2	4.4	2.7	2.6
Inflation – CPI	2.6	2.5	2.1	2.4	1.6	1.2	2.3	2.3	1.4
Inflation - RPI	3.1	3.0	2.8	—	—	—	—	—	—

~~(ii)~~(2) The salary increase assumptions include an allowance for ~~age related~~age-related promotional salary increases.

United Kingdom(i)
Ireland(ii)
United States
2021
Age 2020
Age 2019
Age 2021
Age 2020
Age 2019
Age 2021
Age 2020
Age 2019
Age
Retiring currently at age 65
Male 87.2 86.4 86.2 86.9 86.6 86.5 85.4 85.6 85.7
Female 88.7 88.7 88.5 89.3 89.3 89.2 87.1 87.3 87.7
Currently aged 45, retiring at age 65
Male 88.6 88.5 88.3 88.6 89.6 89.5 86.9 87.2 87.3
Female 90.8 90.8 90.6 91.1 92.3 92.2 88.5 88.9 89.3


	United Kingdom(1)			Ireland(2)			United States
	2022 Age	2021 Age	2020 Age	2022 Age	2021 Age	2020 Age	2022 Age	2021 Age	2020 Age
Retiring currently at age 65
Male	87.1	87.2	86.4	87.7	86.9	86.6	85.5	85.4	85.6
Female	88.7	88.7	88.7	90.0	89.3	89.3	87.2	87.1	87.3
Currently aged 45, retiring at age 65
Male	88.5	88.6	88.5	89.3	88.6	89.6	87.0	86.9	87.2
Female	90.7	90.8	90.8	91.7	91.1	92.3	88.6	88.5	88.9

~~(i)~~(1) Based on the CMI’s S3 mortality tables with scaling factors based on the experience of the plan and where people live, with suitable future improvements.

~~(ii)~~(2) Based on the ~~‘00’ series of~~CMI's S3 mortality tables with scaling factors based on the experience of the plan, ~~and~~ with suitable future improvements.

260

Financial statements (continued)

United Kingdom Ireland United States and other
Benefit/(cost) Operating
profit
£ million Profit after
taxation
£ million
Plan
liabilities(i)
£ million
Operating
profit
£ million Profit after
taxation
£ million
Plan
liabilities(i)
£ million
Operating
profit
£ million Profit after
taxation
£ million
Plan
liabilities(i)
£ million
Effect of 0.5% increase in discount rate 5 18 532 2 3 159 1 2 26
Effect of 0.5% decrease in discount rate (5) (15) (611) (2) (3) (183) (1) (2) (29)
Effect of 0.5% increase in inflation (4) (11) (466) (1) (2) (109) (1) (1) (12)
Effect of 0.5% decrease in inflation 5 10 351 1 2 131 1 1 12
Effect of 1 year increase in life expectancy (1) (5) (279) 0 (1) (87) 0 (1) (19)


	United Kingdom			Ireland			United States
Benefit/(cost)	Operating profit £ million	Profit after taxation £ million	Plan liabilities(1) £ million	Operating profit £ million	Profit after taxation £ million	Plan liabilities(1) £ million	Operating profit £ million	Profit after taxation £ million	Plan liabilities(1) £ million
Effect of 0.5% increase in discount rate	2	19	336	1	4	96	1	3	22
Effect of 0.5% decrease in discount rate	(3)	(17)	(374)	(1)	(4)	(108)	(1)	(3)	(23)
Effect of 0.5% increase in inflation	(2)	(9)	(246)	(1)	(3)	(59)	—	(1)	(10)
Effect of 0.5% decrease in inflation	2	10	260	1	3	57	—	1	9
Effect of 1 year increase in life expectancy	—	(6)	(171)	—	(2)	(56)	—	(1)	(17)

~~(i)~~(1) The estimated effect on the liabilities excludes the impact of any interest rate and inflation swaps held by the pension plans.

261

Financial statements (continued)

An analysis of the fair value of the plan assets is as follows:

2021 2020
United Kingdom
£ million Ireland
£ million
United States
and other
£ million
Total
£ million United
Kingdom
£ million Ireland
£ million
United States
and other
£ million
Total
£ million
Equities
Quoted 0 308 158 466 1 315 255 571
Unquoted and private equity 604 0 18 622 501 1 21 523
Bonds
Fixed-interest government 147 81 51 279 114 124 50 288
Inflation-linked government 0 239 0 239 0 247 0 247
Investment grade corporate 512 355 391 1,258 507 306 467 1,280
Non-investment grade 151 117 12 280 137 77 17 231
Loan securities 1,789 279 0 2,068 1,697 328 0 2,025
Repurchase agreements 3,608 0 0 3,608 4,809 0 0 4,809
Liability driven investment (LDI) 212 66 0 278 222 64 0 286
Property - unquoted 685 72 1 758 620 85 1 706
Hedge funds 101 139 4 244 92 134 4 230
Interest rate and inflation swaps (994) 108 0 (886) (1,048) 66 0 (982)
Cash and other 526 62 90 678 44 63 101 208
Total bid value of assets 7,341 1,826 725 9,892 7,696 1,810 916 10,422


	2022
	United Kingdom £ million		Ireland £ million		United States and other £ million		Total £ million
	Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Total
Equities	23	1,218	—	319	70	105	93	1,642	1,735
Bonds
Fixed-interest government	2	86	—	30	49	152	51	268	319
Inflation-linked government	—	—	—	199	1	1	1	200	201
Investment grade corporate	—	68	—	388	25	222	25	678	703
Non-investment grade	44	557	2	200	1	1	47	758	805
Loan securities	11	1,271	—	98	—	—	11	1,369	1,380
Repurchase agreements	2,400	(215)	—	—	—	—	2,400	(215)	2,185
Liability Driven Investment (LDI)	—	119	—	46	—	—	—	165	165
Property	28	716	—	74	—	1	28	791	819
Hedge funds	—	107	—	92	—	5	—	204	204
Interest rate and inflation swaps	—	(900)	—	37	—	—	—	(863)	(863)
Cash and other	24	481	7	154	—	80	31	715	746
Total bid value of assets	2,532	3,508	9	1,637	146	567	2,687	5,712	8,399

~~(1)~~


	2021
	United Kingdom £ million		Ireland £ million		United States and other £ million		Total £ million
	Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Quoted	Unquoted	Total
Equities	—	604	2	306	70	106	72	1,016	1,088
Bonds
Fixed-interest government	86	61	—	81	47	4	133	146	279
Inflation-linked government	—	—	—	239	—	—	—	239	239
Investment grade corporate	13	499	—	355	24	367	37	1,221	1,258
Non-investment grade	17	134	2	115	2	10	21	259	280
Loan securities	58	1,731	1	278	—	—	59	2,009	2,068
Repurchase agreements	4,512	(904)	—	—	—	—	4,512	(904)	3,608
Liability Driven Investment (LDI)	2	210	—	66	—	—	2	276	278
Property	—	685	—	72	—	1	—	758	758
Hedge funds	—	101	—	139	—	4	—	244	244
Interest rate and inflation swaps	—	(994)	—	108	—	—	—	(886)	(886)
Cash and other	12	514	2	60	—	90	14	664	678
Total bid value of assets	4,700	2,641	7	1,819	143	582	4,850	5,042	9,892

Total cash contributions by the group to all post employment plans in the year ending 30 June ~~2022~~2023 are estimated to be approximately ~~£120~~£70 million.

262

Financial statements (continued)

(d) Deficit funding arrangements

UK plans

Irish plans

(e) Timing of benefit payments

The following table provides information on the timing of the benefit payments and the average duration of the defined benefit obligations and the distribution of the timing of benefit payments:

~~262~~

~~Financial statements (continued)~~

United Kingdom Ireland United States
2021
£ million 2020
£ million 2021
£ million 2020
£ million 2021
£ million 2020
£ million
Maturity analysis of benefits expected to be paid
Within one year 288 346 84 76 52 56
Between 1 to 5 years 1,112 1,202 338 364 145 202
Between 6 to 15 years 2,606 2,556 656 691 247 357
Between 16 to 25 years 2,314 2,083 588 627 145 196
Beyond 25 years 2,840 2,648 746 918 138 173
Total 9,160 8,835 2,412 2,676 727 984
years years years years years years
Average duration of the defined benefit obligation 18 18 18 18 11 11


	United Kingdom		Ireland		United States
	2022 £ million	2021 £ million	2022 £ million	2021 £ million	2022 £ million	2021 £ million
Maturity analysis of benefits expected to be paid
Within one year	295	288	70	84	58	52
Between 1 to 5 years	1,082	1,112	353	338	187	145
Between 6 to 15 years	2,556	2,606	704	656	310	247
Between 16 to 25 years	2,252	2,314	634	588	183	145
Beyond 25 years	2,787	2,840	768	746	174	138
Total	8,972	9,160	2,529	2,412	912	727
	years	years	years	years	years	years
Average duration of the defined benefit obligation	15	18	15	18	9	11

(f) Related party disclosures

Information on transactions between the group and its pension plans is given in note ~~20.~~21.

263

Financial statements (continued)

~~14.~~15. Working capital

Accounting policies

(a) Inventories

2021
£ million 2020
£ million
Raw materials and consumables 348 363
Work in progress 60 48
Maturing inventories 4,668 4,562
Finished goods and goods for resale 969 799
6,045 5,772


	2022 £ million	2021 £ million
Raw materials and consumables	489	348
Work in progress	86	60
Maturing inventories	5,229	4,668
Finished goods and goods for resale	1,290	969
	7,094	6,045

Maturing inventories include whisk(e)y, rum, tequila and Chinese white spirits. The following amounts of inventories are expected to be utilised after more than one year:

2021
£ million 2020
£ million
Raw materials and consumables 17 18
Maturing inventories 3,296 3,740
3,313 3,758


	2022 £ million	2021 £ million
Raw materials and consumables	15	17
Maturing inventories	3,713	3,296
	3,728	3,313

Inventories are disclosed net of provisions for obsolescence, an analysis of which is as follows:

2021
£ million 2020
£ million 2019
£ million
Balance at beginning of the year 98 63 71
Exchange differences (8) 0 0
Income statement charge/(release)(i)
20 47 (3)
Utilised (14) (12) (5)
96 98 63


	2022 £ million	2021 £ million	2020 £ million
Balance at beginning of the year	96	98	63
Exchange differences	6	(8)	—
Income statement charge	6	20	47
Utilised	(13)	(14)	(12)
Sale of businesses	(1)	—	—
	94	96	98

~~(i) Income statement charge in the year ended 30 June 2021 includes a release of £4 million exceptional gain (2020 – exceptional charge of £23 million) due to Covid-19 pandemic.~~

264

Financial statements (continued)

(b) Trade and other receivables

2021 2020
Current
assets
£ million Non-current
assets
£ million Current
assets
£ million Non-current
assets
£ million
Trade receivables 1,817 0 1,498 0
Interest receivable 35 0 29 0
VAT recoverable and other prepaid taxes 216 18 192 13
Other receivables 148 18 210 31
Prepayments 150 0 157 2
Accrued income 19 0 25 0
2,385 36 2,111 46


	2022		2021
	Current assets £ million	Non-current assets £ million	Current assets £ million	Non-current assets £ million
Trade receivables	2,155	—	1,817	—
Interest receivable	18	—	35	—
VAT recoverable and other prepaid taxes	290	15	216	18
Other receivables	158	13	148	18
Prepayments	290	9	150	—
Accrued income	22	—	19	—
	2,933	37	2,385	36

The aged analysis of trade receivables, net of expected credit loss allowance, is as follows:

2021
£ million 2020
£ million
Not overdue 1,771 1,379
Overdue 1 – 30 days 15 5
Overdue 31 – 60 days 8 23
Overdue 61 – 90 days 6 39
Overdue 91 – 180 days 7 39
Overdue more than 180 days 10 13
1,817 1,498


	2022 £ million	2021 £ million
Not overdue	2,114	1,771
Overdue 1 – 30 days	19	15
Overdue 31 – 60 days	8	8
Overdue 61 – 90 days	5	6
Overdue 91 – 180 days	5	7
Overdue more than 180 days	4	10
	2,155	1,817

Trade and other receivables are disclosed net of expected credit loss allowance for doubtful debts, an analysis of which is as follows:

2021
£ million 2020
£ million 2019
£ million
Balance at beginning of the year 160 113 97
Exchange differences (13) (3) 3
Income statement (income)/charge (15) 55 23
Written off (20) (5) (10)
112 160 113


	2022 £ million	2021 £ million	2020 £ million
Balance at beginning of the year	112	160	113
Exchange differences	6	(13)	(3)
Income statement charge/(release)	21	(15)	55
Written off	(21)	(20)	(5)
	118	112	160

265

Financial statements (continued)

2021 2020
Current
liabilities
£ million Non-current
liabilities
£ million Current
liabilities
£ million Non-current
liabilities
£ million
Trade payables 2,014 0 1,333 0
Interest payable 124 0 152 0
Tax and social security excluding income tax 656 0 698 0
Other payables 606 338 420 175
Accruals 1,152 0 971 0
Deferred income 72 0 79 0
Dividend payable to non-controlling interests 24 0 30 0
4,648 338 3,683 175


	2022		2021
	Current liabilities £ million	Non-current liabilities £ million	Current liabilities £ million	Non-current liabilities £ million
Trade payables	2,705	—	2,014	—
Interest payable	143	—	124	—
Tax and social security excluding income tax	696	—	656	—
Other payables	600	380	606	338
Accruals	1,635	—	1,152	—
Deferred income	90	—	72	—
Dividend payable to non-controlling interests	18	—	24	—
	5,887	380	4,648	338

(d) Provisions

Thalidomide
£ million Other
£ million Total
£ million
At 30 June 2020 199 277 476
Exchange differences (1) (30) (31)
Provisions charged during the year 0 80 80
Provisions utilised during the year (15) (105) (120)
Unwinding of discounts 7 0 7
At 30 June 2021 190 222 412
Current liabilities 15 123 138
Non-current liabilities 175 99 274
190 222 412


	Thalidomide £ million	Other £ million	Total £ million
At 30 June 2021	190	222	412
Exchange differences	—	18	18
Disposal of businesses	—	(6)	(6)
Provisions charged during the year	—	65	65
Provisions utilised during the year	(16)	(73)	(89)
Transfers from other payables	—	12	12
Unwinding of discounts	4	1	5
At 30 June 2022	178	239	417
Current liabilities	12	147	159
Non-current liabilities	166	92	258
	178	239	417

266

Financial statements (continued)

Risk management and capital structure

Introduction

~~15.~~16. Financial instruments and risk management

Accounting policies

The accounting policies for other investments and loans are described in note ~~12,~~13, for trade and other receivables and payables in note 1415 and for cash and cash equivalents in note ~~16.~~17.

Hedge accounting

267

Financial statements (continued)

(a) Currency risk

Hedge of net investment in foreign operations

Hedge of foreign currency debt

The group uses cross currency interest rate swaps to hedge the foreign currency risk associated with certain foreign currency denominated borrowings.

Transaction exposure hedging

~~268~~

~~Financial statements (continued)~~

(b) Interest rate risk

2021 2020
£ million % £ million %
Fixed rate 9,278 77 9,213 70
Floating rate(i)
2,521 21 3,746 28
Impact of financial derivatives and fair value adjustments (53) (1) (183) (1)
Lease liabilities 363 3 470 3
Net borrowings 12,109 100 13,246 100


	2022		2021
	£ million	%	£ million	%
Fixed rate	11,070	78	9,278	77
Floating rate(1)	2,612	19	2,521	21
Impact of financial derivatives and fair value adjustments	(20)	—	(53)	(1)
Lease liabilities	475	3	363	3
Net borrowings	14,137	100	12,109	100

~~(i)~~(1) The floating rate portion of net borrowings includes cash and cash equivalents, collaterals, floating rate loans and bonds and bank overdrafts.

268

Financial statements (continued)

The table below sets out the average monthly net borrowings and effective interest rate:

Average monthly net borrowings Effective interest rate
2021
£ million
2020
£ million
2019
£ million
2021
%
2020
%
2019
%
12,702 12,708 10,393 2.7 2.6 2.4


Average monthly net borrowings			Effective interest rate
2022 £ million	2021 £ million	2020 £ million	2022 %	2021 %	2020 %
12,692	12,702	12,708	2.7	2.7	2.6

IBOR reform

(d) Market risk sensitivity analysis

~~269~~

~~Financial statements (continued)~~

global financial markets which may cause fluctuations in interest and exchange rates to vary from the hypothetical amounts disclosed in the table below.

Impact on income
statement
gain/(loss)
Impact on consolidated
comprehensive income
gain/(loss)(i) (ii)
2021 2020 2021 2020
£ million £ million £ million £ million
0.5% decrease in interest rates 13 19 23 45
0.5% increase in interest rates (13) (19) (22) (43)
10% weakening of sterling (32) (26) (1,008) (1,384)
10% strengthening of sterling 27 22 825 1,132


	Impact on income statement gain/(loss)		Impact on consolidated comprehensive income gain/(loss)(1) (2)
	2022	2021	2022	2021
	£ million	£ million	£ million	£ million
0.5% decrease in interest rates	13	13	31	23
0.5% increase in interest rates	(13)	(13)	(30)	(22)
10% weakening of sterling	(33)	(32)	(1,125)	(1,008)
10% strengthening of sterling	28	27	922	825

~~(i)~~(1) The impact on foreign currency borrowings and derivatives in net investment hedges is largely offset by the foreign exchange difference arising on the translation of net investments.

~~(ii)~~(2) The impact on the consolidated statement of comprehensive income includes the impact on the income statement.

269

Financial statements (continued)

(e) Credit risk

Credit risk is managed separately for financial and business related credit exposures.

Financial credit risk

Business related credit risk

(f) Liquidity risk

270

Financial statements (continued)

Contractual cash flows

Due within
1 year
£ million Due between
1 and 3 years
£ million Due between
3 and 5 years
£ million Due after
5 years
£ million Total
£ million Carrying
amount at
balance
sheet date
£ million
2021
Borrowings(i)
(1,859) (2,590) (2,788) (7,498) (14,735) (14,727)
Interest on borrowings(i)(iii)
(390) (552) (467) (1,375) (2,784) (122)
Lease capital repayments (82) (92) (45) (144) (363) (363)
Lease future interest payments (9) (12) (8) (25) (54) 0
Trade and other financial liabilities(ii)
(3,800) (71) (108) (191) (4,170) (4,125)
Non-derivative financial liabilities (6,140) (3,317) (3,416) (9,233) (22,106) (19,337)
Cross currency swaps (gross)
Receivable 57 780 79 1,294 2,210 0
Payable (41) (811) (56) (986) (1,894) 0
Other derivative instruments (net) 143 54 0 (23) 174 0
Derivative instruments(iii)
159 23 23 285 490 312
2020
Borrowings(i)
(1,994) (2,980) (3,080) (8,615) (16,669) (16,785)
Interest on borrowings(i)(iii)
(466) (669) (541) (1,741) (3,417) (148)
Lease capital repayments (106) (135) (71) (158) (470) (470)
Lease future interest payments (9) (13) (9) (31) (62) 0
Trade and other financial liabilities(ii)
(2,833) (127) (48) (35) (3,043) (3,006)
Non-derivative financial liabilities (5,408) (3,924) (3,749) (10,580) (23,661) (20,409)
Cross currency swaps (gross)
Receivable 65 902 89 1,506 2,562 0
Payable (41) (824) (56) (1,014) (1,935) 0
Other derivative instruments (net) 21 89 45 19 174 0
Derivative instruments(iii)
45 167 78 511 801 610


	Due within 1 year £ million	Due between 1 and 3 years £ million	Due between 3 and 5 years £ million	Due after 5 years £ million	Total £ million	Carrying amount at balance sheet date £ million
2022
Borrowings(1)	(1,524)	(2,842)	(2,738)	(9,276)	(16,380)	(16,020)
Interest on borrowings(1)(2)	(427)	(626)	(560)	(1,622)	(3,235)	(141)
Lease capital repayments	(85)	(107)	(61)	(222)	(475)	(475)
Lease future interest payments	(13)	(20)	(16)	(44)	(93)	—
Trade and other financial liabilities(3)	(4,765)	(123)	(142)	(126)	(5,156)	(5,145)
Non-derivative financial liabilities	(6,814)	(3,718)	(3,517)	(11,290)	(25,339)	(21,781)
Cross currency swaps (gross)
Receivable	851	90	90	1,442	2,473	—
Payable	(783)	(56)	(56)	(958)	(1,853)	—
Other derivative instruments (net)	(86)	(123)	(78)	(65)	(352)	—
Derivative instruments(2)	(18)	(89)	(44)	419	268	22
2021
Borrowings(1)	(1,859)	(2,590)	(2,788)	(7,498)	(14,735)	(14,727)
Interest on borrowings(1)(2)	(390)	(552)	(467)	(1,375)	(2,784)	(122)
Lease capital repayments	(82)	(92)	(45)	(144)	(363)	(363)
Lease future interest payments	(9)	(12)	(8)	(25)	(54)	—
Trade and other financial liabilities(3)	(3,800)	(71)	(108)	(191)	(4,170)	(4,125)
Non-derivative financial liabilities	(6,140)	(3,317)	(3,416)	(9,233)	(22,106)	(19,337)
Cross currency swaps (gross)
Receivable	57	780	79	1,294	2,210	—
Payable	(41)	(811)	(56)	(986)	(1,894)	—
Other derivative instruments (net)	143	54	—	(23)	174	—
Derivative instruments(2)	159	23	23	285	490	312

~~(i)~~(1) For the purpose of these tables, ~~above,~~ borrowings are defined as gross borrowings excluding lease liabilities and fair value of derivative instruments as disclosed in note ~~16.~~17.

~~(ii) Primarily consists of trade and other payables that meet the definition of financial liabilities under IAS 32.~~

~~(iii)~~(2) Carrying amount of interest on borrowings, interest on derivatives and interest on other payable is included within interest payable in note ~~14.~~15.

(3) Primarily consists of trade and other payables that meet the definition of financial liabilities under IAS 32.

The group had available undrawn committed bank facilities as follows:

2021
£ million
2020
£ million
Expiring within one year 540 2,439
Expiring between one and two years 691 610
Expiring after two years 1,287 2,236
2,518 5,285


	2022 £ million	2021 £ million
Expiring within one year	793	540
Expiring between one and two years	103	691
Expiring after two years	1,893	1,287
	2,789	2,518

The facilities can be used for general corporate purposes and, together with cash and cash equivalents, support the group’s commercial paper programmes.

There are no financial covenants on the group’s material short- and long-term borrowings. Certain of these borrowings contain cross default provisions and negative pledges.

271

Financial statements (continued)

(g) Fair value measurements

Fair value measurements of financial instruments are presented through the use of a three-level fair value hierarchy that prioritises the valuation techniques used in fair value calculations.

The group’s financial assets and liabilities measured at fair value are categorised as follows:

2021
£ million
2020
£ million
Derivative assets 443 758
Derivative liabilities (129) (145)
Valuation techniques based on observable market input (Level 2) 314 613
Financial assets - other 138 116
Financial liabilities - other (578) (416)
Valuation techniques based on unobservable market input (Level 3) (440) (300)


	2022 £ million	2021 £ million
Derivative assets	480	443
Derivative liabilities	(456)	(129)
Valuation techniques based on observable market input (Level 2)	24	314
Financial assets - other	184	138
Financial liabilities - other	(587)	(578)
Valuation techniques based on unobservable market input (Level 3)	(403)	(440)

The movements in level 3 instruments, measured on a recurring basis, are as follows:

Zacapa
financial
liability
Contingent consideration recognised on acquisition of businesses(i)
Zacapa
financial
liability Contingent consideration recognised on acquisition of businesses
2021 2021 2020 2020
£ million £ million £ million £ million
At the beginning of the year (167) (249) (174) (227)
Net losses included in the income statement (7) (47) (6) (24)
Net gains/(losses) included in exchange in other comprehensive income 21 31 (5) (5)
Net (losses)/gains included in retained earnings (2) 0 9 0
Acquisitions 0 (253) 0 (42)
Settlement of liabilities 6 89 9 49
At the end of the year (149) (429) (167) (249)



	Zacapa financial liability	Contingent consideration recognised on acquisition of businesses(1)	Zacapa financial liability	Contingent consideration recognised on acquisition of businesses(1)
	2022	2022	2021	2021
	£ million	£ million	£ million	£ million
At the beginning of the year	(149)	(429)	(167)	(249)
Net (losses)/gains included in the income statement	(20)	62	(7)	(47)
Net (losses)/gains included in exchange in other comprehensive income	(26)	(39)	21	31
Net losses included in retained earnings	(34)	—	(2)	—
Acquisitions	—	(70)	—	(253)
Settlement of liabilities	13	105	6	89
At the end of the year	(216)	(371)	(149)	(429)

(h) Results of hedge relationships

272

Financial statements (continued)

The change in the credit risk of the hedging instruments or the hedged items is not expected to be the primary factor in the economic relationship.

~~272~~

~~Financial statements (continued)~~

The notional amounts, contractual maturities and rates of the hedging instruments designated in hedging relationships as of 30 June 2022 and 30 June 2021 by the main risk categories are as follows:


	Notional amounts £ million	Maturity	Range of hedged rates~~(i)~~(1)
2022
Net investment hedges
Derivatives in net investment hedges of foreign operations	11	July 2022	Turkish lira 22.27
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	1,694	April 2023 - April 2043	US dollar 1.22 - 1.88
Derivatives in cash flow hedge (foreign currency risk)	1,874	September 2022 - June 2024	US dollar 1.22 - 1.42, euro 1.13 - 1.17
Derivatives in cash flow hedge (commodity price risk)	234	July 2022 - March 2024	Natural Gas: 1.67 - 3.57 GBP/therm(ec) LME Aluminium: 2,009 - 3,399 USD/Mt
Fair value hedges
Derivatives in fair value hedge (interest rate risk)	4,444	September 2022 - April 2043	(0.01) - 3.09%
2021
Net investment hedges
Derivatives in net investment hedges of foreign operations	11	July 2021	Turkish lira 11.86 - 12.22
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	1,475	April 2023 - April 2043	US dollar 1.22 - 1.88
Derivatives in cash flow hedge (foreign currency ~~exchange~~ risk)	1,303	September 2021 - December 2022	US dollar 1.19 - 1.42, euro 1.07 - 1.16
Derivatives in cash flow hedge (commodity price risk)	93	July 2021 - May 2023	Corn: 3.63 - 5.17 USD/Bu LME Aluminium: 1,631 - 2,421 USD/Mt
Fair value hedges
Derivatives in fair value hedge (interest rate risk)	4,646	October 2021 - April 2030	(0.01) - 3.09%
~~2020~~


~~Cash flow hedges~~
~~Derivatives in cash flow hedge (foreign currency debt)~~	~~1,667~~	~~April 2023 - April 2043~~	~~US dollar 1.22 - 1.88~~
~~Derivatives in cash flow hedge (foreign currency exchange risk)~~	~~1,428~~	~~September 2020 - March 2022~~	~~US dollar 1.19 - 1.36, euro 1.06 - 1.18~~
~~Derivatives in cash flow hedge (commodity price risk)~~	~~133~~	~~July 2020 - February 2023~~	~~Corn: 3.45 - 4.04 USD/Bu~~ ~~Fuel Oil: 1.11 - 1.87 USD/gal~~
~~Fair value hedges~~
~~Derivatives in fair value hedge (interest rate risk)~~	~~6,092~~	~~July 2020 - April 2030~~	~~(0.01) - 4.83%~~

~~(i)~~(1) In case of derivatives in cash flow ~~hedge~~hedges (commodity price risk and foreign ~~exchange~~currency risk), the range of the most significant contract’s hedged rates are presented.

273

Financial statements (continued)

At the beginning
of the year
£ million
Income
statement
£ million Consolidated statement of comprehensive income
£ million Other
£ million At the end
of the year
£ million
2021
Net investment hedges
Derivatives in net investment hedges of foreign operations 0 0 3 (3) 0
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt) 469 (175) (123) (17) 154
Derivatives in cash flow hedge (foreign currency exchange risk) (58) (26) 111 26 53
Derivatives in cash flow hedge (commodity price risk) (9) 2 39 (16) 16
Fair value hedges
Derivatives in fair value hedge (interest rate risk) 189 (126) — — 63
Fair value hedge hedged item (189) 124 — — (65)
Instruments in fair value hedge relationship 0 (2) — — (2)
2020
Net investment hedges
Derivatives in net investment hedges of foreign operations (1) 0 (1) 2 0
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt) 271 75 146 (23) 469
Derivatives in cash flow hedge (foreign currency exchange risk) (57) (47) (1) 47 (58)
Derivatives in cash flow hedge (commodity price risk) (9) (8) (3) 11 (9)
Fair value hedges
Derivatives in fair value hedge (interest rate risk) 104 85 — — 189
Fair value hedge hedged item (103) (86) — — (189)
Instruments in fair value hedge relationship 1 (1) — — 0


	At the beginning of the year £ million	Consolidated Income statement £ million	Consolidated statement of comprehensive income £ million	Other £ million	At the end of the year £ million
2022
Net investment hedges
Derivatives in net investment hedges of foreign operations	—	—	5	(6)	(1)
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	154	239	(6)	(20)	367
Derivatives in cash flow hedge (foreign currency risk)	53	(11)	(130)	11	(77)
Derivatives in cash flow hedge (commodity price risk)	16	46	32	(44)	50
Fair value hedges
Derivatives in fair value hedge (interest rate risk)	63	(346)	—	—	(283)
Fair value hedge hedged item	(65)	341	—	—	276
Instruments in fair value hedge relationship	(2)	(5)	—	—	(7)
2021
Net investment hedges
Derivatives in net investment hedges of foreign operations	—	—	3	(3)	—
Cash flow hedges
Derivatives in cash flow hedge (foreign currency debt)	469	(175)	(123)	(17)	154
Derivatives in cash flow hedge (foreign currency risk)	(58)	(26)	111	26	53
Derivatives in cash flow hedge (commodity price risk)	(9)	2	39	(16)	16
Fair value hedges
Derivatives in fair value hedge (interest rate risk)	189	(126)	—	—	63
Fair value hedge hedged item	(189)	124	—	—	(65)
Instruments in fair value hedge relationship	—	(2)	—	—	(2)

274

Financial statements (continued)

(i) Reconciliation of financial instruments

The table below sets out the group’s accounting classification of each class of financial assets and liabilities:

Fair value
through income
statement
£ million Fair value through other comprehensive income
£ million Assets and liabilities at amortised cost
£ million Not categorised
as a financial
instrument
£ million Total
£ million Current
£ million Non-current
£ million
2021
Other investments and loans(i)
121 17 8 2 148 — 148
Trade and other receivables — — 2,017 404 2,421 2,385 36
Cash and cash equivalents — — 2,749 — 2,749 2,749 —
Derivatives in fair value hedge (interest rate risk) 106 — — — 106 4 102
Derivatives in cash flow hedge (foreign currency debt) 205 — — — 205 — 205
Derivatives in cash flow hedge (foreign currency exchange risk) 61 — — — 61 57 4
Derivatives in cash flow hedge (commodity price risk) 16 — — — 16 14 2
Other instruments 55 — — — 55 46 9
Leases — — 5 — 5 — 5
Total other financial assets 443 — 5 — 448 121 327
Total financial assets 564 17 4,779 406 5,766 5,255 511
Borrowings(ii)
— — (14,727) — (14,727) (1,862) (12,865)
Trade and other payables (429) — (3,580) (977) (4,986) (4,648) (338)
Derivatives in fair value hedge (interest rate risk) (43) — — — (43) 0 (43)
Derivatives in cash flow hedge (foreign currency debt) (51) — — — (51) — (51)
Derivatives in cash flow hedge (foreign currency exchange risk) (8) — — — (8) (5) (3)
Other instruments (176) — (91) — (267) (261) (6)
Leases — — (363) — (363) (82) (281)
Total other financial liabilities (278) — (454) — (732) (348) (384)
Total financial liabilities (707) — (18,761) (977) (20,445) (6,858) (13,587)
Total net financial (liabilities)/assets (143) 17 (13,982) (571) (14,679) (1,603) (13,076)
2020
Other investments and loans(i)
96 20 5 2 123 — 123
Trade and other receivables — — 1,784 373 2,157 2,111 46
Cash and cash equivalents — — 3,323 — 3,323 3,323 —
Derivatives in fair value hedge (interest rate risk) 189 — — — 189 0 189
Derivatives in cash flow hedge (foreign currency debt) 469 — — — 469 — 469
Derivatives in cash flow hedge (foreign currency exchange risk) 8 — — — 8 1 7
Derivatives in cash flow hedge (commodity price risk) 1 — — — 1 1 0
Other instruments 91 — — — 91 73 18
Leases — — 3 — 3 — 3
Total other financial assets 758 — 3 — 761 75 686
Total financial assets 854 20 5,115 375 6,364 5,509 855
Borrowings(ii)
— — (16,785) — (16,785) (1,995) (14,790)
Trade and other payables (249) — (2,742) (867) (3,858) (3,683) (175)
Derivatives in cash flow hedge (foreign currency exchange risk) (66) — — — (66) (52) (14)
Derivatives in cash flow hedge (commodity price risk) (10) — — — (10) (9) (1)
Other instruments (236) — 0 — (236) (222) (14)
Leases — — (470) — (470) (106) (364)
Total other financial liabilities (312) — (470) — (782) (389) (393)
Total financial liabilities (561) — (19,997) (867) (21,425) (6,067) (15,358)
Total net financial assets/(liabilities) 293 20 (14,882) (492) (15,061) (558) (14,503)


	Fair value through income statement £ million	Fair value through other comprehensive income £ million	Assets and liabilities at amortised cost £ million	Not categorised as a financial instrument £ million	Total £ million	Current £ million	Non-current £ million
2022
Other investments and loans(1)	180	4	15	1	200	—	200
Trade and other receivables	—	—	2,365	605	2,970	2,933	37
Cash and cash equivalents	—	—	2,285	—	2,285	2,285	—
Derivatives in fair value hedge (interest rate risk)	1	—	—	—	1	—	1
Derivatives in cash flow hedge (foreign currency debt)	367	—	—	—	367	43	324
Derivatives in cash flow hedge (foreign currency risk)	32	—	—	—	32	15	17
Derivatives in cash flow hedge (commodity price risk)	57	—	—	—	57	57	—

Other instruments	136	—	—	—	136	136	—
Leases	—	—	3	—	3	—	3
Total other financial assets	593	—	3	—	596	251	345
Total financial assets	773	4	4,668	606	6,051	5,469	582
Borrowings(2)	—	—	(16,020)	—	(16,020)	(1,522)	(14,498)
Trade and other payables	(371)	—	(4,774)	(1,122)	(6,267)	(5,887)	(380)
Derivatives in fair value hedge (interest rate risk)	(284)	—	—	—	(284)	(1)	(283)

Derivatives in cash flow hedge (foreign currency risk)	(109)	—	—	—	(109)	(81)	(28)
Derivatives in cash flow hedge (commodity price risk)	(7)	—	—	—	(7)	(5)	(2)
Derivatives in net investment hedge	(1)	—	—	—	(1)	(1)	—
Other instruments	(271)	—	(117)	—	(388)	(388)	—
Leases	—	—	(475)	—	(475)	(85)	(390)
Total other financial liabilities	(672)	—	(592)	—	(1,264)	(561)	(703)
Total financial liabilities	(1,043)	—	(21,386)	(1,122)	(23,551)	(7,970)	(15,581)
Total net financial (liabilities)/assets	(270)	4	(16,718)	(516)	(17,500)	(2,501)	(14,999)
2021
Other investments and loans(1)	121	17	8	2	148	—	148
Trade and other receivables	—	—	2,017	404	2,421	2,385	36
Cash and cash equivalents	—	—	2,749	—	2,749	2,749	—
Derivatives in fair value hedge (interest rate risk)	106	—	—	—	106	4	102
Derivatives in cash flow hedge (foreign currency debt)	205	—	—	—	205	—	205
Derivatives in cash flow hedge (foreign currency risk)	61	—	—	—	61	57	4
Derivatives in cash flow hedge (commodity price risk)	16	—	—	—	16	14	2

Other instruments	55	—	—	—	55	46	9
Leases	—	—	5	—	5	—	5
Total other financial assets	443	—	5	—	448	121	327
Total financial assets	564	17	4,779	406	5,766	5,255	511
Borrowings(2)	—	—	(14,727)	—	(14,727)	(1,862)	(12,865)
Trade and other payables	(429)	—	(3,580)	(977)	(4,986)	(4,648)	(338)
Derivatives in fair value hedge (interest rate risk)	(43)	—	—	—	(43)	—	(43)
Derivatives in cash flow hedge (foreign currency debt)	(51)	—	—	—	(51)	—	(51)
Derivatives in cash flow hedge (foreign currency risk)	(8)	—	—	—	(8)	(5)	(3)


Other instruments	(176)	—	(91)	—	(267)	(261)	(6)
Leases	—	—	(363)	—	(363)	(82)	(281)
Total other financial liabilities	(278)	—	(454)	—	(732)	(348)	(384)
Total financial liabilities	(707)	—	(18,761)	(977)	(20,445)	(6,858)	(13,587)
Total net financial (liabilities)/assets	(143)	17	(13,982)	(571)	(14,679)	(1,603)	(13,076)

~~(i)~~(1) Other investments and loans are including those in respect of associates.

~~(ii)~~(2) Borrowings are defined as gross borrowings excluding lease liabilities and the fair value of derivative instruments.

275

Financial statements (continued)

(j) Capital management

~~275~~

~~Financial statements (continued)~~

~~16.~~17. Net borrowings

Accounting policies

Bank overdrafts form an integral part of the group’s cash management and are included as a component of net cash and cash equivalents in the consolidated statement of cash flows.

276

Financial statements (continued)

2021
£ million
2020
£ million
Bank overdrafts 112 170
Bank and other loans 160 367
Credit support obligations 98 180
€ 775 million 0% bonds due 2020 0 711
US$ 696 million 4.828% bonds due 2020 0 566
€ 900 million 0.25% bonds due 2021 769 0
US$ 1,000 million 2.875% bonds due 2022(i)
719 0
Fair value adjustment to borrowings 4 1
Borrowings due within one year 1,862 1,995
€ 900 million 0.25% bonds due 2021 0 825
US$ 1,000 million 2.875% bonds due 2022(i)
0 812
US$ 300 million 8% bonds due 2022(i)
215 243
US$ 1,350 million 2.625% bonds due 2023 970 1,096
€ 600 million 0.125% bonds due 2023 511 548
US$ 500 million 3.5% bonds due 2023 360 405
US$ 600 million 2.125% bonds due 2024 431 487
€ 500 million 1.75% bonds due 2024 426 456
€ 500 million 0.5% bonds due 2024 425 456
US$ 750 million 1.375% bonds due 2025 537 606
€ 600 million 1% bonds due 2025 510 546
€ 850 million 2.375% bonds due 2026 723 776
£ 500 million 1.75% bonds due 2026 497 496
€ 750 million 1.875% bonds due 2027 637 683
€ 500 million 1.5% bonds due 2027 426 457
€ 700 million 0.125% bonds due 2028 594 0
US$ 500 million 3.875% bonds due 2028 358 404
US$ 1,000 million 2.375% bonds due 2029 711 804
£ 300 million 2.875% bonds due 2029 298 298
US$ 1,000 million 2% bonds due 2030 714 807
€ 1,000 million 2.5% bonds due 2032 850 911
US$ 750 million 2.125% bonds due 2032 534 603
£ 400 million 1.25% bonds due 2033 395 0
US$ 400 million 7.45% bonds due 2035(i)
288 325
US$ 600 million 5.875% bonds due 2036 427 483
US$ 500 million 4.25% bonds due 2042(i)
356 402
US$ 500 million 3.875% bonds due 2043 353 400
Bank and other loans 253 260
Fair value adjustment to borrowings 66 201
Borrowings due after one year 12,865 14,790
Total borrowings before derivative financial instruments 14,727 16,785
Fair value of cross currency interest rate swaps (154) (469)
Fair value of foreign exchange swaps and forwards (15) (28)
Fair value of interest rate hedging instruments (63) (189)
Lease liabilities 363 470
Gross borrowings 14,858 16,569
Less: Cash and cash equivalents (2,749) (3,323)
Net borrowings 12,109 13,246


	2022 £ million	2021 £ million
Bank overdrafts	74	112

Bank and other loans	105	160
Credit support obligations	(19)	98
€ 900 million 0.25% bonds due 2021	—	769
$ 300 million 8% bonds due 2022(1)	248	—
$ 1,000 million 2.875% bonds due 2022(1)	—	719
$ 1,350 million 2.625% bonds due 2023	1,115	—
Fair value adjustment to borrowings	(1)	4
Borrowings due within one year	1,522	1,862


$ 300 million 8% bonds due 2022(1)	—	215
$ 1,350 million 2.625% bonds due 2023	—	970
€ 600 million 0.125% bonds due 2023	516	511
$ 500 million 3.5% bonds due 2023	413	360
$ 600 million 2.125% bonds due 2024	495	431
€ 500 million 1.75% bonds due 2024	430	426
€ 500 million 0.5% bonds due 2024	430	425
$ 750 million 1.375% bonds due 2025	618	537
€ 600 million 1% bonds due 2025	515	510
€ 850 million 2.375% bonds due 2026	731	723
£ 500 million 1.75% bonds due 2026	498	497
€ 750 million 1.875% bonds due 2027	643	637
€ 500 million 1.5% bonds due 2027	430	426
€ 700 million 0.125% bonds due 2028	600	594
$ 500 million 3.875% bonds due 2028	411	358
£ 300 million 2.375% bonds due 2028	298	—
$ 1,000 million 2.375% bonds due 2029	819	711
£ 300 million 2.875% bonds due 2029	298	298
€ 750 million 1.15% bonds due 2029	645	—
$ 1,000 million 2% bonds due 2030	821	714
€ 1,000 million 2.5% bonds due 2032	856	850
$ 750 million 2.125% bonds due 2032	614	534
£ 400 million 1.25% bonds due 2033	395	395
€ 900 million 1.15% bonds due 2034	770	—
$ 400 million 7.45% bonds due 2035(1)	331	288
$ 600 million 5.875% bonds due 2036	491	427
£ 600 million 2.75% bonds due 2038	595	—
$ 500 million 4.25% bonds due 2042(1)	409	356
$ 500 million 3.875% bonds due 2043	407	353
Bank and other loans	293	253
Fair value adjustment to borrowings	(274)	66
Borrowings due after one year	14,498	12,865
Total borrowings before derivative financial instruments	16,020	14,727
Fair value of cross currency interest rate swaps	(367)	(154)
Fair value of foreign currency swaps and forwards	11	(15)
Fair value of interest rate hedging instruments	283	(63)
Lease liabilities	475	363
Gross borrowings	16,422	14,858
Less: Cash and cash equivalents	(2,285)	(2,749)
Net borrowings	14,137	12,109

~~(i)~~(1) SEC-registered debt issued on an unsecured basis by Diageo Investment Corporation, a 100% owned ~~finance~~ subsidiary of Diageo plc.

~~(1)~~(i) The interest rates shown are those contracted on the underlying borrowings before taking into account any interest rate hedges (see note ~~15)~~16).

~~(2)~~(ii) Bonds are stated net of unamortised finance costs of £85 million (2021 – £78 ~~million (2020~~million; 2020 – £86 ~~million; 2019 – £63~~ million).

~~(3)~~(iii) Bonds are reported above at amortised cost with a fair value adjustment shown separately.

277

Financial statements (continued)

Gross borrowings before derivative financial instruments are expected to mature as follows:

2021
£ million
2020
£ million
Within one year 1,862 1,995
Between one and three years 2,623 3,013
Between three and five years 2,788 3,134
Beyond five years 7,454 8,643
14,727 16,785


	2022 £ million	2021 £ million
Within one year	1,522	1,862
Between one and three years	2,817	2,623
Between three and five years	2,625	2,788
Beyond five years	9,056	7,454
	16,020	14,727

During the year, the following bonds were issued and repaid:

2021
£ million
2020
£ million
2019
£ million
Issued
€ denominated 636 1,594 2,270
£ denominated 395 298 496
US$ denominated 0 3,296 0
Repaid
€ denominated (696) 0 (1,168)
US$ denominated (551) (820) 0
(216) 4,368 1,598


	2022 £ million	2021 £ million	2020 £ million
Issued
€ denominated	1,371	636	1,594
£ denominated	892	395	298
$ denominated	—	—	3,296
Repaid
€ denominated	(769)	(696)	—
$ denominated	(752)	(551)	(820)
	742	(216)	4,368

(a) Reconciliation of movement in net borrowings


	2022 £ million	2021 £ million
At beginning of the year	12,109	13,246
Net decrease in cash and cash equivalents before exchange	665	231
Net increase/(decrease) in bonds and other borrowings(1)	825	(967)
Increase/(decrease) in net borrowings from cash flows	1,490	(736)
Exchange differences on net borrowings	334	(598)
Other non-cash items(2)	204	197

Net borrowings at end of the year	14,137	12,109

278

Financial statements (continued)

(b) Analysis of net borrowings by currency

2021 2020
Cash and cash
equivalents
£ million
Gross
borrowings(i)
£ million
Cash and cash
equivalents
£ million
Gross
borrowings(i)
£ million
US dollar 1,890 (4,001) 2,649 (6,300)
Euro 82 (2,841) 57 (3,119)
Sterling 38 (7,279) 19 (6,233)
Indian rupee 26 (109) 13 (253)
Kenyan shilling 16 (293) 28 (351)
Hungarian forint 3 (241) 3 (239)
Mexican peso 9 (102) 16 (104)
Chinese yuan 255 (20) 207 (1)
Nigerian naira 60 (1) 6 (15)
Other(ii)
370 29 325 46
Total 2,749 (14,858) 3,323 (16,569)


	2022		2021
	Cash and cash equivalents £ million	Gross borrowings(1) £ million	Cash and cash equivalents £ million	Gross borrowings(1) £ million
US dollar	1,315	(3,260)	1,890	(4,001)
Euro	61	(2,943)	82	(2,841)
Sterling	67	(9,214)	38	(7,279)
Indian rupee	26	(74)	26	(109)
Mexican peso	14	(264)	9	(102)
Kenyan shilling	53	(254)	16	(293)
Hungarian forint	2	(214)	3	(241)
Chinese yuan	290	(75)	255	(20)
Nigerian naira	133	—	60	(1)
Other(2)	324	(124)	370	29
Total	2,285	(16,422)	2,749	(14,858)

~~(i)~~(1) Includes foreign currency forwards and swaps and leases.

~~(ii)~~(2) Includes ~~£31~~£23 million (Turkish ~~lira)~~lira and Euro) cash and cash equivalents in cash-pooling arrangements ~~(2020~~(2021 – ~~£100~~£31 million (Turkish lira)).

~~17.~~

18. Equity

Accounting policies

Dividends are included in the financial statements in the year in which they are approved.

(a) Allotted and fully paid share capital – ordinary shares of 28101⁄108 pence each

Number of shares
million Nominal value
£ million
At 30 June 2021 2,559 741
At 30 June 2020 2,562 742
At 30 June 2019 2,601 753

~~(b) Hedging and exchange reserve~~


	Number of shares million	Nominal value £ million
At 30 June 2022	2,498	723
At 30 June 2021	2,559	741
At 30 June 2020	2,562	742

279

Financial statements (continued)

(b) Hedging and exchange reserve


	Hedging reserve £ million	Exchange reserve £ million	Total £ million
At 30 June 2019	(37)	(781)	(818)
Other comprehensive income/(loss)	125	(241)	(116)
Transfers from other retained earnings	5	—	5

At 30 June 2020	93	(1,022)	(929)
Other comprehensive income/(loss)	20	(672)	(652)

At 30 June 2021	113	(1,694)	(1,581)
Other comprehensive (loss)/income	(87)	622	535

At 30 June 2022	26	(1,072)	(1,046)

Movements in own shares
Number
of shares
million Purchase
consideration
£ million
At 30 June 2018 238 2,144
Share trust arrangements (1) (14)
Shares used to satisfy options (5) (104)
Shares purchased - share buyback programme 95 2,775
Shares cancelled (95) (2,775)
At 30 June 2019 232 2,026
Share trust arrangements (1) (7)
Shares used to satisfy options (4) (83)
Shares purchased - share buyback programme 39 1,282
Shares cancelled (39) (1,282)
At 30 June 2020 227 1,936
Share trust arrangements (1) (11)
Shares used to satisfy options (3) (48)
Shares purchased - share buyback programme 3 109
Shares cancelled (3) (109)
At 30 June 2021 223 1,877


	Number of shares million	Purchase consideration £ million
At 30 June 2019	232	2,026
Share trust arrangements	(1)	(7)

Shares used to satisfy options	(4)	(83)
Shares purchased - share buyback programme	39	1,282
Shares cancelled	(39)	(1,282)
At 30 June 2020	227	1,936
Share trust arrangements	(1)	(11)

Shares used to satisfy options	(3)	(48)
Shares purchased - share buyback programme	3	109
Shares cancelled	(3)	(109)
At 30 June 2021	223	1,877
Share trust arrangements	(2)	(23)

Shares used to satisfy options	(2)	(16)
Shares purchased - share buyback programme	61	2,284
Shares cancelled	(61)	(2,284)
At 30 June 2022	219	1,838

Share trust arrangements

Purchase of own shares

280

Financial statements (continued)

~~280~~

~~Financial statements (continued)~~

The monthly breakdown of all shares purchased and the average price paid per share (excluding expenses) for the year ended 30 June ~~2021~~2022 were as follows:

Period Number of shares
purchased under
share buyback
programme Total number of
shares purchased Average price paid pence Authorised purchases unutilised at month end
May 2021 1,484,935 1,484,935 3360 231,335,953
June 2021 1,848,952 1,848,952 3453 229,487,001
Total 3,333,887 3,333,887 3411 229,487,001


Period	Number of shares purchased under share buyback programme	Total number of shares purchased	Average price paid pence	Authorised purchases unutilised at month end
July 2021	1,728,254	1,728,254	3457	227,758,747
August 2021	2,396,223	2,396,223	3538	225,362,524
September 2021	3,175,936	3,175,936	3493	222,186,588

October 2021(1)	1,565,980	1,565,980	3550	232,045,302
November 2021	1,375,946	1,375,946	3785	230,669,356
December 2021	4,423,031	4,423,031	3960	226,246,325
January 2022	5,822,743	5,822,743	3797	220,423,582
February 2022	5,865,710	5,865,710	3714	214,557,872
March 2022	8,480,736	8,480,736	3588	206,077,136
April 2022	7,260,564	7,260,564	3935	198,816,572
May 2022	12,627,704	12,627,704	3724	186,188,868
June 2022	6,771,405	6,771,405	3584	179,417,463
Total	61,494,232	61,494,232	3708	179,417,463

(1) New maximum number of purchasable shares was authorised by shareholders at the AGM held on 30 September 2021

(d) Dividends


	2022	2021	2020
	£ million	£ million	£ million
Amounts recognised as distributions to equity shareholders in the year
Final dividend for the year ended 30 June 2021
44.59 pence per share (2020 – 42.47 pence; 2019 – 42.47 pence)	1,040	992	1,006
Interim dividend for the year ended 30 June 2022
29.36 pence per share (2021 – 27.96 pence; 2020 – 27.41 pence)	680	654	640
	1,720	1,646	1,646

Dividends are waived on all treasury shares owned by the company and all shares owned by the employee share trusts.

281

Financial statements (continued)

(e) Non-controlling interests

Summarised financial information for USL and other subsidiaries, after fair value adjustments on acquisition, and the amounts attributable to non-controlling interests are as follows:

2021 2020 2019
USL
£ million Others
£ million Total
£ million Total
£ million Total
£ million
Income statement
Sales 3,005 2,135 5,140 4,688 5,346
Net sales 877 1,676 2,553 2,314 2,656
Profit for the year 85 213 298 85 383
Other comprehensive (loss)/income(i)
(182) (252) (434) (96) 137
Total comprehensive (loss)/income (97) (39) (136) (11) 520
Attributable to non-controlling interests (42) 7 (35) 8 234
Balance sheet
Non-current assets(ii)
1,823 2,846 4,669 5,170 5,313
Current assets 584 908 1,492 1,280 1,469
Non-current liabilities (302) (1,054) (1,356) (1,459) (1,526)
Current liabilities (433) (902) (1,335) (1,188) (1,204)
Net assets 1,672 1,798 3,470 3,803 4,052
Attributable to non-controlling interests 714 820 1,534 1,668 1,795
Cash flow
Net cash inflow from operating activities 149 512 661 233 542
Net cash outflow from investing activities (10) (127) (137) (152) (157)
Net cash outflow from financing activities (142) (229) (371) (209) (266)
Net increase/(decrease) in cash and cash equivalents (3) 156 153 (128) 119
Exchange differences 0 (19) (19) (3) 3
Dividends payable to non-controlling interests 0 (72) (72) (117) (114)


	2022			2021	2020
	USL £ million	Others £ million	Total £ million	Total £ million	Total £ million
Income statement
Sales	3,194	2,603	5,797	5,140	4,688
Net sales	1,013	2,042	3,055	2,553	2,314
(Loss)/profit for the year	(127)	354	227	298	85
Other comprehensive income/(loss)(1)	134	199	333	(434)	(96)
Total comprehensive income/(loss)	7	553	560	(136)	(11)
Attributable to non-controlling interests	3	256	259	(35)	8
Balance sheet
Non-current assets(2)	1,668	3,349	5,017	4,669	5,170
Current assets	727	1,275	2,002	1,492	1,280
Non-current liabilities	(275)	(1,224)	(1,499)	(1,356)	(1,459)
Current liabilities	(441)	(1,205)	(1,646)	(1,335)	(1,188)
Net assets	1,679	2,195	3,874	3,470	3,803
Attributable to non-controlling interests	717	999	1,716	1,534	1,668
Cash flow
Net cash inflow from operating activities	149	541	690	661	233
Net cash outflow from investing activities	(74)	(215)	(289)	(137)	(152)
Net cash outflow from financing activities	(72)	(250)	(322)	(371)	(209)
Net increase/(decrease) in cash and cash equivalents	3	76	79	153	(128)
Exchange differences	—	52	52	(19)	(3)
Dividends payable to non-controlling interests	—	(72)	(72)	(72)	(117)

~~(i)~~(1) Other comprehensive income is principally in respect of exchange on translating the subsidiaries to sterling.

(2) During the financial year, Diageo's fully consolidated subsidiary, Shui Jing Fang, completed treasury share purchase of 0.02%. This increased Diageo's controlling interest from 63.14% to 63.17%.

282

Financial statements (continued)

(f) Employee share compensation

The group uses a number of share award and option plans to grant to its directors and employees.

The annual fair value charge in respect of the equity settled plans for the three years ended 30 June ~~2021~~2022 is as follows:

2021 £ million 2020 £ million 2019 £ million
Executive share award plans 41 (3) 41
Executive share option plans 4 2 4
Savings plans 4 3 4
49 2 49


	2022 £ million	2021 £ million	2020 £ million
Executive share award plans	51	41	(3)
Executive share option plans	4	4	2
Savings plans	4	4	3
	59	49	2

283

Financial statements (continued)

For the three years ended 30 June ~~2021,~~2022, the calculation of the fair value of each share award used the Monte Carlo and Black Scholes pricing model and the following assumptions:


	2022		2021		2020
Risk free interest rate	0.4	%	(0.1	%)	0.4	%
Expected life of the awards	40 months		36 months		37 months
Dividend yield	2.1	%	2.7	%	1.9	%
Weighted average share price	3545 p		2557 p		3501 p
Weighted average fair value of awards granted in the year	2729 p		2107 p		899 p
Number of awards granted in the year	2.1 million		2.1 million		1.7 million
Fair value of all awards granted in the year	£57 million		£45 million		£16 million

~~283~~284

Financial statements (continued)

Transactions on schemes

Transactions on the executive share award plans for the three years ended 30 June ~~2021~~2022 were as follows:

2021 Number of awards million 2020 Number of awards million 2019 Number of awards million
Balance outstanding at 1 July 5.6 7.0 7.8
Granted 2.1 1.8 2.5
Awarded (1.2) (2.5) (2.1)
Forfeited (1.2) (0.7) (1.2)
Balance outstanding at 30 June 5.3 5.6 7.0


	2022 Number of awards million	2021 Number of awards million	2020 Number of awards million
Balance outstanding at 1 July	5.3	5.6	7.0
Granted	2.1	2.1	1.8
Awarded	(1.1)	(1.2)	(2.5)

Forfeited	(1.1)	(1.2)	(0.7)
Balance outstanding at 30 June	5.2	5.3	5.6

~~284~~285

Financial statements (continued)

Other financial ~~information~~statements disclosures

Introduction

This section includes additional financial information that are either required by the relevant accounting standards or management considers these to be material information for shareholders.

~~18.~~19. Contingent liabilities and legal proceedings

Accounting policies

Critical accounting judgements and estimates

(a) Guarantees and related matters

As of 30 June ~~2021,~~2022, the group has no material unprovided guarantees or indemnities in respect of liabilities of third parties.

(b) Acquisition of USL shares from UBHL ~~winding-up petitions against UBHL~~ and ~~other~~related proceedings in relation to the USL transaction

~~285~~

~~Financial statements (continued)~~

There can be no certainty as to the outcome of the existing or any further related legal proceedings or the ~~timeframe~~time frame within which they would be concluded.

286

Financial statements (continued)

(c) Continuing matters relating to ~~the resignation of~~ Dr Vijay Mallya ~~from USL~~ and ~~USL internal inquiries~~affiliates

~~286~~

~~Financial statements (continued)~~

~~(d) Other continuing matters relating to Dr Mallya and affiliates~~

287

Financial statements (continued)

~~(e)~~(d) Other matters in relation to USL

~~288~~

~~Financial statements (continued)~~

~~(f)~~(e) USL’s dispute with IDBI Bank Limited

~~(g)~~(f) Tax

~~289~~

~~Financial statements (continued)~~

288

Financial statements (continued)

~~(h)~~(g) Information request

~~(i)~~(h) Other

~~290~~289

Financial statements (continued)

~~19.~~20. Commitments

(a) Capital commitments

(b) Other commitments

~~20.~~21. Related party transactions

Transactions between the group and its related parties are made on terms equivalent to those that prevail in arm’s length transactions.

(a) Subsidiaries

Transactions between the company and its subsidiaries are eliminated on consolidation and therefore are not disclosed. Details of the principal group companies are given in note ~~21.~~22.

(b) Associates and joint ventures

Sales and purchases to and from associates and joint ventures are principally in respect of premium drinks products but also include the provision of management services.

Transactions and balances with associates and joint ventures are set out in the table below:

2021
£ million 2020
£ million 2019
£ million
Income statement items
Sales 8 9 9
Purchases 23 29 28
Balance sheet items
Group payables 5 2 12
Group receivables 1 1 2
Loans payable 9 6 6
Loans receivable 108 82 55
Cash flow items
Loans and equity contributions, net 38 47 32


	2022 £ million	2021 £ million	2020 £ million
Income statement items
Sales	11	8	9
Purchases	31	23	29
Balance sheet items
Group payables	2	5	2
Group receivables	2	1	1
Loans payable	—	9	6
Loans receivable	175	108	82
Cash flow items
Loans and equity contributions, net	66	38	47

Other disclosures in respect of associates and joint ventures are included in note 6.

2021
£ million
2020
£ million
2019
£ million
Salaries and short-term employee benefits 9 10 10
Annual incentive plan 13 0 10
Non-Executive Directors’ fees 1 1 1
Share-based payments(i)
12 (11) 20
Post employment benefits 1 2 3
Termination benefits(ii)
2 2 0
38 4 44


	2022 £ million	2021 £ million	2020 £ million
Salaries and short-term employee benefits	10	9	10
Annual incentive plan	13	13	—
Non-Executive Directors’ fees	1	1	1
Share-based payments(1)	19	12	(11)
Post employment benefits	2	1	2
Termination benefits	—	2	2
	45	38	4

~~(i)~~(1) Time-apportioned fair value of unvested options and share awards.

~~(ii) £1 million of the termination benefits disclosed for 2021 have been paid in the year ended 30 June 2021; a further £1 million will be paid in the year ending 30 June 2022.~~

Non-Executive Directors do not receive share-based payments or post employment benefits.

~~291~~290

Financial statements (continued)

~~There have been~~ no ~~other~~ transactions with these related parties during the year ended 30 June ~~2021~~2022 on terms other than those that prevail in arm’s length transactions.

(d) Pension plans

(e) Directors’ remuneration

2021
£ million 2020
£ million 2019
£ million
Salaries and short-term employee benefits 2 2 2
Annual incentive plan 4 0 2
Non-Executive Directors' fees 1 1 1
Share option exercises(i)
0 0 2
Shares vesting(i)
1 11 13
Post employment benefits 0 1 1
8 15 21


	2022 £ million	2021 £ million	2020 £ million
Salaries and short-term employee benefits	3	2	2
Annual incentive plan	4	4	—
Non-Executive Directors' fees	1	1	1
Share option exercises(1)	4	—	—
Shares vesting(1)	3	1	11
Post employment benefits	—	—	1
	15	8	15

~~292~~

~~Financial statements (continued)~~

~~21.~~22. Principal group companies

Country of incorporation

Country of operation

Percentage of equity owned~~(i)~~(1)

Business description

Subsidiaries

Diageo Ireland

~~Republic of~~ Ireland

Worldwide

~~100~~

%100%

Production, marketing and distribution of premium drinks

Diageo Great Britain Limited

England

Great Britain

~~100~~

%100%

Marketing and distribution of premium drinks

Diageo Scotland Limited

Scotland

Worldwide

~~100~~

%100%

Production, marketing and distribution of premium drinks

Diageo Brands B.V.

Netherlands

Worldwide

~~100~~

%100%

Marketing and distribution of premium drinks

Diageo North America, Inc.

United States

Worldwide

~~100~~

%100%

Production, importing, marketing and distribution of premium drinks

United Spirits Limited~~(ii)~~(2)

India

~~55.94~~

%55.94%

Production, importing, marketing and distribution of premium drinks

Diageo Capital plc~~(iii)~~(3)

Scotland

United Kingdom

~~100~~ 100%

Financing company for the group

Diageo Capital B.V.(3)

Netherlands

%Netherlands

100%

Financing company for the group

Diageo Finance plc~~(iii)~~(3)

England

United Kingdom

~~100~~

%100%

Financing company for the group

Diageo Investment Corporation

United States

~~100~~

%100%

Financing company for the US group

Mey İçki Sanayi ve Ticaret A.Ş.

Turkey

~~100~~

%100%

Production, marketing and distribution of premium drinks

Associates

Moët Hennessy, SAS~~(iv)~~(4)

France

%34%

Production, marketing and distribution of premium drinks

~~(i)~~(1) All percentages, unless otherwise stated, are in respect of holdings of ordinary share capital and are equivalent to the percentages of voting rights held by the group.

~~(ii)~~(2) Percentage ownership excludes 2.38% owned by the USL Benefit Trust.

~~(iii)~~(3) Directly owned by Diageo plc.

~~(iv)~~(4) French limited liability company.

~~293~~291

Financial statements (continued)

23. Post balance sheet events

292

Unaudited financial information

1. Five years financial information


	Year ended 30 June
	2022	2021	2020	2019	2018
Income statement data	£ million	£ million	£ million	£ million	£ million
Sales	22,448	19,153	17,697	19,294	18,432
Excise duties	(6,996)	(6,420)	(5,945)	(6,427)	(6,269)
Net sales	15,452	12,733	11,752	12,867	12,163
Cost of sales	(5,973)	(5,038)	(4,654)	(4,866)	(4,634)
Gross profit	9,479	7,695	7,098	8,001	7,529
Marketing	(2,721)	(2,163)	(1,841)	(2,042)	(1,882)
Other operating items	(2,349)	(1,801)	(3,120)	(1,917)	(1,956)
Operating profit	4,409	3,731	2,137	4,042	3,691
Non-operating items	(17)	14	(23)	144	—
Net interest and other finance charges	(422)	(373)	(353)	(263)	(260)
Share of after tax results of associates and joint ventures	417	334	282	312	309
Profit before taxation	4,387	3,706	2,043	4,235	3,740
Tax before exceptional items	(1,080)	(823)	(743)	(859)	(799)
Exceptional taxation	31	(84)	154	(39)	203


Profit for the year	3,338	2,799	1,454	3,337	3,144

Weighted average number of shares	million	million	million	million	million
Shares in issue excluding own shares	2,318	2,337	2,346	2,418	2,484
Dilutive potential ordinary shares	7	8	8	10	11
	2,325	2,345	2,354	2,428	2,495

Per share data	pence	pence	pence	pence	pence
Basic earnings per share	140.2	113.8	60.1	130.7	121.7
Diluted earnings per share	139.7	113.4	59.9	130.1	121.1

Dividend per share	76.18	72.55	69.88	68.57	65.30

293

Unaudited financial information


	As at 30 June
	2022	2021	2020	2019	2018
Balance sheet data	£ million	£ million	£ million	£ million	£ million
Non-current assets	23,582	20,508	21,837	21,923	21,024
Current assets	12,934	11,445	11,471	9,373	8,691
Total assets	36,516	31,953	33,308	31,296	29,715
Current liabilities	(8,442)	(7,142)	(6,496)	(7,003)	(6,360)
Non-current liabilities	(18,560)	(16,380)	(18,372)	(14,137)	(11,642)
Total liabilities	(27,002)	(23,522)	(24,868)	(21,140)	(18,002)
Net assets	9,514	8,431	8,440	10,156	11,713
Share capital	723	741	742	753	780
Share premium	1,351	1,351	1,351	1,350	1,349
Other reserves	2,174	1,621	2,272	2,372	2,133
Retained earnings	3,550	3,184	2,407	3,886	5,686
Equity attributable to equity shareholders of the parent company	7,798	6,897	6,772	8,361	9,948
Non-controlling interests	1,716	1,534	1,668	1,795	1,765
Total equity	9,514	8,431	8,440	10,156	11,713
Net borrowings	(14,137)	(12,109)	(13,246)	(11,277)	(9,091)

294

Additional information for shareholders

Production

~~Legal proceedings~~The major facilities with locations, principal activities, products represented in the below table:


Location	Principal activities	Products
United Kingdom	distilling, bottling, warehousing, RTD canning, Filling/Disgorging, cooperage, visitor centre	beer, scotch whisky, gin, vodka, rum, RTD
Ireland	liquid production, blending, brewing, bottling, packaging, warehousing	beer and Baileys
Italy	distilling, bottling, warehousing	vodka, rum, RTD, non-alcoholic
Mexico	distilling, bottling, warehousing	tequila
India	distilling, bottling, warehousing, trading	rum, vodka, whisky, scotch, brandy, gin
United States, Canada, US Virgin Islands	distilling, bottling, warehousing, shipping, RTD canning, visitor centre	vodka, gin, tequila, rum, Canadian whisky, American whiskey, progressive adult beverages, RTD
East Africa (Uganda, Kenya, Tanzania)	distilling, brewing, bottling, packaging, warehousing	beer and spirits
Nigeria	distilling, brewing, bottling, packaging, warehousing	beer and spirits
South Africa	distilling, bottling, warehousing	spirits
Africa Regional Markets (Cameroon, Ghana, Seychelles)	distilling, brewing, bottling, warehousing	beer and spirits
Turkey	distilling, bottling, warehousing	raki, vodka, gin, liqueur, wine
Brazil	distilling, bottling, RTD canning, warehousing	cachaça, vodka, RTD
Australia	distilling, bottling, warehousing, RTD canning & bottling	rum, vodka, gin, RTD

~~Information~~

Spirits and investments

295

Additional information for shareholders (continued)

Beer and investments

~~Investors can obtain copies of Diageo’s articles of association by contacting the Company Secretary at the.cosec@diageo.com.~~

~~Any amendment to the articles of association of the company may be made in accordance with the provisions of the Companies Act 2006, by way of special resolution.~~Caribbean.

~~Directors~~Ready to drink (RTD)

~~Directors are not required to hold any shares of Diageo as a qualification to act as a director.~~March 2022.

~~Dividend rights~~Raw materials and supply agreements

~~294~~296

Additional information for shareholders (continued)

Competition

~~Voting rights~~Research and development

Trademarks and other intellectual property

Regulations and taxes

~~Diageo’s articles of association and the Companies Acts provide for matters to be transacted at general meetings of Diageo by the proposing and passing of two kinds of resolutions:~~

~~Liquidation rights~~

~~Pre-emption rights and new issues of shares~~

beverage alcohol sales.

~~295~~297

Additional information for shareholders (continued)

~~Disclosure~~Labelling of ~~interests~~beverage alcohol products is also regulated in ~~Diageo’s shares~~

•~~reaches, exceeds or falls below 3% and/or any subsequent whole percentage figure as a result of an acquisition or disposal of shares or financial instruments; or~~

~~General meetings and notices~~

~~An annual general meeting of shareholders must be held within six months of Diageo’s accounting reference date and at a time and place determined by the directors.~~

~~Variation of rights~~

~~Repurchase of shares~~

~~296~~

~~Additional information for shareholders (continued)~~

~~Restrictions on transfers of shares~~

~~297~~

~~Additional information for shareholders (continued)~~

~~Exchange controls~~

~~Please refer to the ‘Taxation’ section below for details relating to the taxation of dividend payments.~~

~~Documents on display~~

Taxation

•a dealer in securities or foreign currency;

•a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;

•a tax-exempt organisation;

•a life insurance company;

•a person liable for alternative minimum tax;

•a person that actually or constructively owns 10% or more of the combined voting power of voting stock of Diageo or of the total value of stock of Diageo;

•a person that holds ordinary shares or ADSs as part of a straddle or a hedging or conversion transaction;

•a person that holds ordinary shares or ADSs as part of a wash sale for tax purposes; or

•a US holder (as defined below) whose functional currency is not ~~the~~ US dollar.

~~298~~

~~Additional information for shareholders (continued)~~

298

Additional information for shareholders (continued)

A US holder is a beneficial owner of ordinary shares or ADSs that is for US federal income tax purposes:

•a citizen or resident for tax purposes of the United States and who is not and has at no point been resident in the United Kingdom;

•a US domestic corporation;

•an estate whose income is subject to US federal income tax regardless of its source; or

•a trust if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust.

Dividends

UK taxation

The company will not be required to withhold tax at source when paying a dividend.

Any taxable dividend income in excess of the Nil Rate Amount will be subject to income tax at the following special rates (as at the ~~2020/2021~~2022/2023 tax year):

•at the rate of ~~7.5%~~8.75%, to the extent that the relevant dividend income falls below the threshold for the higher rate of income tax;

•at the rate of ~~38.1%~~39.35%, to the extent that the relevant dividend income falls above the threshold for the additional rate of income tax.

299

Additional information for shareholders (continued)

US taxation

Taxation of capital gains

UK taxation

US taxation

~~300~~

~~Additional information for shareholders (continued)~~

PFIC rules

300

Additional information for shareholders (continued)

UK inheritance tax

UK stamp duty and stamp duty reserve tax

Whilst stamp duty and SDRT may in certain circumstances both apply to the same transaction, in practice usually only one or other will need to be paid.

Annual General Meeting (AGM)

The AGM will be held at etc.venues St Paul's, 200 Aldersgate, London EC1A 4HD at 2.30 pm on Thursday, 6 October 2022.

Documents on display

Warning to shareholders –- share fraud

Electronic communications

301

Additional information for shareholders (continued)

Dividend payments

Direct payment into bank account

Dividend Reinvestment Plan

Exchange controls

There are no restrictions under the company’s articles of association or under English law that limit the right of non-resident or foreign owners to hold or vote the company’s ordinary shares.

Please refer to the ‘Taxation’ section on page 238 for details relating to the taxation of dividend payments.

Useful contacts

The Registrar/Shareholder queries

Link Group acts as the company’s registrar and can be contacted as follows:

By email: Diageo@linkgroup.co.uk

By telephone: +44 (0) 371 277 1010*

In writing: Registrars – Link Group, Diageo Registrar, 10th Floor, Central Square, 29 Wellington Street, Leeds, LS1 1DL.

ADR administration

Citibank Shareholder Services acts as the company’s ADR administrator and can be contacted as follows:

By email: citibank@shareholders-online.com

By telephone: +1 866 253 0933/ (International) +1 781 575 4555*

In writing: Citibank Shareholder Services. PO Box 43077, Providence, RI 02940-3077

*Lines are open Monday to Friday 8:30 to 18:00 EST

General Counsel and Company Secretary

Tom Shropshire

The.cosec@diageo.com

Investor Relations

investor.relations@diageo.com

302

Additional information for shareholders (continued)

Exhibits



1.1			Articles of Association of Diageo plc (incorporated by reference to Exhibit 1.1 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 August 2021).
2.1			Indenture, dated as of 3 August 1998, among Diageo Capital plc, Diageo plc and The Bank of New York Mellon (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form F-1 (File No. 333-8874) filed with the Securities and Exchange Commission on 24 July 1998 (pages 365 to 504 of paper filing)).(i)
2.2			Indenture, dated as of 1 June 1999, among Diageo Investment Corporation, Diageo plc and The Bank of New York Mellon (incorporated by reference to Exhibit 2.2 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 November 2001 (pages 241 to 317 of paper filing)).(i)
2.3			Indenture, dated as of 8 December 2003, among Diageo Finance B.V., Diageo plc and The Bank of New York Mellon (incorporated by reference to Exhibit 1 to the Report on Form 6-K (File No. 001-10691) filed with the Securities and Exchange Commission on 9 December 2003).(i)
2.4			Description of Securities registered under Section 12 of the Exchange Act (incorporated by reference to Exhibit 2.4 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 August 2021).
4.1			Service Agreement, dated 1 October 2015, between Diageo plc and Kathryn Mikells (incorporated by reference to Exhibit 4.1 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 9 August 2016).
4.2			Service Agreement, dated 7 May 2013, between Diageo plc, Diageo North America, Inc. and Ivan Menezes (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 12 August 2013).
4.3			Letter of Agreement, dated 19 July 2007, between Diageo plc and Dr Franz B. Humer (incorporated by reference to Exhibit 4.4 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.4~~			Form of Service Agreement for Diageo plc’s executives in the United Kingdom, dated as of 1 July 2006 (incorporated by reference to Exhibit 4.7 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 17 September 2007).
~~4.5~~4.4			Form of Service Agreement for Diageo plc’s executives in the United States, dated as of 1 July 2006 (incorporated by reference to Exhibit 4.8 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 17 September 2007).
~~4.6~~4.5			Form of Service Agreement for Diageo plc’s executives in the United Kingdom, in use as of July 2015 (incorporated by reference to Exhibit 4.6 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 11 August 2015).
~~4.7~~4.6			Form of Service Agreement for Diageo plc’s executives in the United States, in use as of July 2015 (incorporated by reference to Exhibit 4.7 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 11 August 2015).
~~4.8~~4.7			Diageo 2010 Sharesave Plan, dated 14 October 2010 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (File No. 333-169934) filed with the Securities and Exchange Commission on 14 October 2010).
~~4.9~~4.8			Diageo 2001 Share Incentive Plan, dated 14 October 2010 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (File No. 333-169934) filed with the Securities and Exchange Commission on 14 October 2010).
~~4.10~~4.9			Rules of the Diageo plc 2009 International Share Match Plan, dated 14 October 2010 (incorporated by reference to Exhibit 4.4 to the Registration Statement on Form S-8 (File No. 333-169934) filed with the Securities and Exchange Commission on 14 October 2010).
~~4.11~~4.10			Diageo plc 2009 Executive Long Term Incentive Plan, dated 14 October 2009 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (File No. 333-162490) filed with the Securities and Exchange Commission on 15 September 2009).
~~4.12~~4.11			Diageo plc 2009 Discretionary Incentive Plan, dated 14 October 2009 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (File No. 333-162490) filed with the Securities and Exchange Commission on 15 September 2009).
~~4.13~~4.12			Diageo plc 2008 Performance Share Plan, dated as of 15 October 2008 (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-8 (File No. 333-154338) filed with the Securities and Exchange Commission on 16 October 2008).
~~4.14~~4.13			Diageo plc 2008 Senior Executive Share Option Plan, dated as of 15 October 2008 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 (File No. 333-154338) filed with the Securities and Exchange Commission on 16 October 2008).
~~4.15~~4.14			Diageo plc Senior Executive Share Option Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.7 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).

303

Additional information for shareholders (continued)


~~4.16~~4.15			Diageo plc Executive Share Option Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.8 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).

~~302~~

~~Additional information for shareholders (continued)~~


~~4.17~~4.16			Diageo plc Associated Companies Share Option Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.9 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.18~~4.17			Diageo plc Long Term Incentive Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.10 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.19~~4.18			Diageo plc 1998 United States Employee Stock Purchase Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.12 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.20~~4.19			Diageo plc 2007 United States Employee Stock Purchase Plan, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.13 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.21~~4.20			Diageo plc UK Sharesave Scheme 2000, dated as of 26 August 2008 (incorporated by reference to Exhibit 4.14 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.22~~4.21			Addendum to Form of Service Agreement for Diageo plc’s executives in the United States (incorporated by reference to Exhibit 4.16 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 15 September 2008).
~~4.23~~4.22			Diageo plc Associated Companies Share Incentive Plan, dated as of 23 August 2011 (incorporated by reference to Exhibit 4.22 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 September 2012).
~~4.24~~4.23			Diageo plc Long Term Incentive Plan, dated as of 18 September 2014 (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 (File No. 333-206290) filed with the Securities and Exchange Commission on 11 August 2015).
~~4.25~~4.24			Letter of Agreement, dated 12 May 2016, between Diageo plc and Mr. Javier Ferrán (incorporated by reference to Exhibit 4.25 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 9 August 2016).
~~4.26~~4.25			Diageo plc Share Value Plan, dated as of 20 September 2017 (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 (File No. 333-223071) filed with the Securities and Exchange Commission on 16 February 2018).
~~4.27~~4.26			Service Agreement, dated 13 January 2021, between Diageo plc and Lavanya Chandrashekar (incorporated by reference to Exhibit 4.27 to the Annual Report on Form 20-F (File No. 001-10691) filed with the Securities and Exchange Commission on 5 August 2021).
6.1			Description of earnings per share (included in the section ‘How we measure performance: Key performance indicators’ on page 5347 of this Annual Report on Form 20-F).
8.1			Principal group companies (included in note 21 to the consolidated financial statements on page ~~278~~2 84 of this Annual Report on Form 20-F).
12.1			Certification of Ivan Menezes filed pursuant to 17 CFR 240.13a-14(a).
12.2			Certification of Lavanya Chandrashekar filed pursuant to 17 CFR 240.13a-14(a).
13.1			Certification of Ivan Menezes furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C. 1350(a) and (b).
13.2			Certification of Lavanya Chandrashekar furnished pursuant to 17 CFR 240.13a-14(b) and 18 U.S.C. 1350(a) and (b).
15.1			Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
101.INS			Inline XBRL Instance Document
101.SCH			Inline XBRL Taxonomy Extension Schema
101.CAL			Inline XBRL Taxonomy Extension Schema Calculation Linkbase
101.DEF			Inline XBRL Taxonomy Extension Schema Definition Linkbase
101.LAB			Inline XBRL Taxonomy Extension Schema Label Linkbase
101.PRE			Inline XBRL Taxonomy Extension Schema Presentation Linkbase

~~303~~304

Additional information for shareholders (continued)

Signature



DIAGEO plc
(REGISTRANT)

/s/ Lavanya Chandrashekar
Name: Lavanya Chandrashekar

Title: Chief Financial Officer

54 August ~~2021~~2022

~~304~~305

Glossary of terms and US equivalents

In this document the following words and expressions shall, unless the context otherwise requires, have the following meanings:



Term used in UK annual report			US equivalent or definition
Associates			Entities accounted for under the equity method
American Depositary Receipt (ADR)			Receipt evidencing ownership of an ADS
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
Called up share capital			Common stock
Capital redemption reserve			Other additional capital
Company			Diageo plc
CPI			Consumer price index
Creditors			Accounts payable and accrued liabilities
Debtors			Accounts receivable
Employee share schemes			Employee stock benefit plans
Employment or staff costs			Payroll costs
Equivalent units			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. To convert volume of products other than spirits to equivalent units: beer in hectolitres divide by 0.9, wine in nine-litre cases divide by five, ready to drink in nine-litre cases divide by 10, and certain pre-mixed products classified as ready to drink in nine-litre cases divide by five.
Euro, €, ¢			Euro currency
Exceptional items			Items that, in management’s judgement, need to be disclosed separately by virtue of their size or nature
Excise duty			Tax charged by a sovereign territory on the production, manufacture, sale or distribution of selected goods (including imported goods) within that territory. It is generally based on the quantity or alcohol content of goods, rather than their value, and is typically applied to alcohol products and fuels.
Finance lease			Capital lease
Financial year			Fiscal year
Free cash flow			Net cash flow from operating activities aggregated with net purchase and disposal of property, plant and equipment and computer software and with movements in loans
Freehold			Ownership with absolute rights in perpetuity
GAAP			Generally accepted accounting principles
Group and Diageo			Diageo plc and its consolidated subsidiaries
IFRS			International Financial Reporting Standards as adopted for use in the European Union and International Financial Reporting Standards as issued by the International Accounting Standards Board
Impact Databank, IWSR, IRI, Beverage Information Group and Plato Logic			Information source companies that research the beverage alcohol industry and are independent from industry participants
Net sales			Sales after deducting excise duties
Noon buying rate			Buying rate at noon in New York City for cable transfers in sterling as certified for customs purposes by the Federal Reserve Bank of New York
Operating profit			Net operating income
Organic movement			At level foreign exchange rates and after adjusting for exceptional items, acquisitions and disposals for continuing operations
Own shares			Treasury stock
Pound sterling, sterling, £, pence, p			UK currency
Price/mix			Price/mix is the number of percentage points by which the organic movement in net sales exceeds the organic movement in volume. The difference arises because of changes in the composition of sales between higher and lower priced variants/markets or as price changes are implemented.
Profit			Earnings

~~305~~306

Glossary of terms and US equivalents (continued)



Term used in UK annual report			US equivalent or definition
Profit for the year			Net income
Provisions			Accruals for losses/contingencies
Reserves			Accumulated earnings, other comprehensive income and additional paid in capital
RPI			Retail price index
Ready to drink			Ready to drink products. Ready to drink also include ready to serve products, such as pre-mix cans in some markets, and progressive adult beverages in the United States and certain markets supplied by the United States.
SEC			US Securities and Exchange Commission
Share premium			Additional paid in capital or paid in surplus
Shareholders’ funds			Shareholders’ equity
Shareholders			Stockholders
Shares			Common stock
Shares and ordinary shares			Diageo plc’s ordinary shares
Shares in issue			Shares issued and outstanding
Trade and other payables			Accounts payable and accrued liabilities
Trade and other receivables			Accounts receivable
US dollar, US$, $, ¢			US currency

~~306~~307


Title of each class	Trading symbol(s)	Name of each exchange on which registered
American Depositary Shares	DEO	New York Stock Exchange
Ordinary shares of 28101/108 pence each		New York Stock Exchange(i)
~~2.875% Guaranteed Notes due 2022~~	~~DEO/22~~	~~New York Stock Exchange~~
8.000% Guaranteed Notes due 2022	DEO/22A	New York Stock Exchange
7.450% Guaranteed Notes due 2035	DEO/35	New York Stock Exchange
4.250% Guaranteed Notes due 2042	DEO/42	New York Stock Exchange



5	Cross reference to Form 20-F
7	Introduction
9		~~Recent trends~~
10	~~Historical information~~

1410	Strategic report
1410	Business description
1410	Our brands
1512	Connecting purpose to performance
1714	Chairman’s statement
2017	Our investment proposition
2219	Chief Executive’s statement
2622	Our market dynamics
3127	Our business model
39			~~Stakeholder engagement~~
4130	Our people
4332	Our strategic priorities
5947	~~Key~~Monitoring performance ~~indicators~~and progress
6450	~~Sustainability performance~~Performing against our 2030 targets
7257	~~Risk factors~~Our ESG reporting approach
8358	Responding to climate-related risks
80	Cautionary statement concerning forward-looking statements
8482	~~Responding to climate-related risks~~Risk factors

98 93		Business review
9893	Operating results ~~2021~~2022 compared with ~~2020~~2021
~~136~~128	Liquidity and capital resources
~~138~~	~~Contractual obligations and commitments~~
~~138~~	~~Off-balance sheet arrangements~~
~~138~~	~~Risk management~~
~~139~~	~~Critical accounting policies~~
~~139~~	~~New accounting standards~~
~~140~~133	Definitions and reconciliation of non-GAAP measures to GAAP measures

~~154~~145	Governance
~~154~~145	Board of Directors ~~and Company Secretary~~
~~157~~148	Executive Committee
~~159~~150	Corporate governance report
~~175~~167	Audit Committee report
~~180~~173	Nomination Committee report
~~183~~176	Directors’ remuneration report
~~215~~210	Directors’ report



Item	Required item in Form 20-F	Page(s)
10.	Additional information
	A. Share capital	Not applicable
	B. Memorandum and articles of association	~~294-297~~212, 303
	C. Material contracts	~~196, 283-284~~190, 283-285, 303, 304
	D. Exchange controls	~~298~~302
	E. Taxation	298-301
	F. Dividends and paying agents	Not applicable
	G. Statement by experts	Not applicable
	H. Documents on display	—301
	I. Subsidiary information	Not applicable
11.	Quantitative and qualitative disclosures about market risk	~~138,~~131, 267-276
12.	Description of securities other than equity securities
	A. Debt securities	Not applicable
	B. Warrants and rights	Not applicable
	C. Other securities	Not applicable
	D. American depositary shares	~~217~~211, 212
Part II
13.	Defaults, dividend arrearages and delinquencies	Not applicable
14.	Material modifications to the rights of security holders and use of proceeds	Not applicable
15.	Controls and procedures
	A. Disclosure controls and procedures	~~171~~168
	B. Management’s report on internal control over financial reporting	~~173~~165
	C. Attestation report of the registered public accounting firm	~~219-221~~215-217
	D. Changes in internal control over financial reporting	~~173~~165
16A.	Audit committee financial expert	~~178~~169
16B.	Code of ethics	~~179~~170
16C.	Principal accountant fees and services	~~177-178, 235~~168-169, 231
16D.	Exemptions from the listing standards for audit committees	Not applicable
16E.	Purchases of equity securities by the issuer and affiliated purchasers	~~13, 107, 137,~~103, 132, 276, 279-281
16F.	Change in registrant’s certifying accountant	Not applicable
16G.	Corporate governance	~~173-174~~166
16H.	Mine safety disclosure	Not applicable
16I.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	Not applicable
Part III
17.	Financial statements	Not applicable
18.	Financial statements	See Item 8
19.	Exhibits	~~302-303~~303-304
Additional information
	Glossary of terms and US equivalents	~~305-306~~306-307


		Year ended 30 June
		2021 pence	2020 pence	2019 pence	2018 pence	2017 pence
Per ordinary share	Interim	27.96	27.41	26.10	24.90	23.70
	Final	44.59	42.47	42.47	40.40	38.50
	Total	72.55	69.88	68.57	65.30	62.20
		$	$	$	$	$
Per ADS	Interim	1.53	1.36	1.36	1.39	1.18
	Final	2.48	2.19	2.11	2.10	2.02
	Total	4.01	3.55	3.47	3.49	3.20


Aligned to stakeholders’ interests			Measuring our progress
OUR STAKEHOLDERS			OUR KEY PERFORMANCE INDICATORS
Our people			[EG] [CVC] Organic net sales growth
Consumers			[EG] [CVC] Organic operating profit growth
Customers			[EG] [CVC] Earnings per share before exceptional items
Suppliers			[EG] [CVC] Free cash flow
Communities			[CVC] Return on average invested capital
Investors			[CVC] Total shareholder return
Governments and regulators			[CVC] [CT] [EP] Percentage of ethnically diverse leaders globally
			[CVC] [CT] [EP] Percentage of female leaders globally
			[CT] [EP] Reach and impact of positive drinking programmes
			[CT] [EP] Health and safety
			[CT] [CVC] [EP] Water efficiency
			[CT] [CVC] [EP] Carbon emissions
			[CT] [EP] Employee engagement
Read more on pages ~~39-40.~~156-159.			Read more on pages ~~59-63.~~47-53.


†			The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.



~~219~~215						Financial statements
~~219~~215						Report of ~~independent registered public accounting firm~~Independent Registered Public Accounting Firm - PCAOB ID 876
~~222~~218						Consolidated income statement
~~223~~219						Consolidated statement of comprehensive income
~~224~~220						Consolidated balance sheet
~~225~~221						Consolidated statement of changes in equity
~~226~~222						Consolidated statement of cash flows
~~227~~223						Notes to the consolidated financial statements
~~227~~223						Accounting information and policies
~~230~~226						Results for the year
~~246~~243						Operating assets and liabilities
267						Risk management and capital structure
~~285~~286						Other financial statements disclosure

293						Unaudited financial information

~~294~~295						Additional information for shareholders
~~294~~						~~Legal proceedings~~
~~294~~						~~Articles of association~~
~~298~~						~~Exchange controls~~
~~298~~						~~Documents on display~~
298						Taxation
~~301~~						~~Warning to shareholders - share fraud~~
~~302~~303						Exhibits
~~304~~305						Signature

~~305~~306						Glossary of terms and US equivalents


Statement on Section 172 of the Companies Act 2006
Section 172 of the Companies Act 2006 requires the Directors to promote the success of the company for the benefit of the members as a whole, having regard to the interests of stakeholders in their decision-making. In making decisions, the Directors consider what is most likely to promote the success of the company for its shareholders in the long term, as well as the interests of the group’s stakeholders. The Directors understand the importance of taking into account the views of stakeholders and the impact of the company’s activities on local communities, the environment, including climate change, and the group’s reputation.
Read about: –~~Our stakeholder groups on pages 39-40~~ –How stakeholders were taken into account in decision-making on pages ~~165-167~~156-159


Reported volume movement ~~2021: 9.9%~~2022: 10.3%↑ ~~2020:11.8% ↓~~2021:9.9% ↑			Volume movement 2022: 10.3% ↑ 2021: 11.2% ↑ ~~2020: 11.2% ↓~~
Reported net sales movement 2022: 21.4% ↑ 2021: 8.3% ↑ ~~2020: 8.7% ↓~~			Net sales movement 2022: 21.4% ↑ 2021: 16.0%↑ ~~2020: 8.4%↓~~
Reported operating profit movement 2022: 18.2%↑ 2021: 74.6%↑ ~~2020: 47.1%~~% ↓↑			Operating profit movement 2022: 26.3% ↑ 2021: 17.7%↑ ~~2020: 14.4%↓~~


PROMOTE POSITIVE DRINKING We want to change the way the world drinks for the better.	CHAMPION INCLUSION AND DIVERSITY We believe the most inclusive and diverse culture makes for a better business and a better world.	PIONEER GRAIN TO GLASS SUSTAINABILITY We are committed to preserving the natural resources on which we all depend.
~~We will do this by celebrating moderation and continuing to address the harmful use of alcohol, expanding our programmes that tackle underage drinking, drink driving and binge drinking.~~	~~We will champion inclusion and diversity across our business, with our partners and communities, to celebrate diversity and help shape a tolerant society.~~	~~We will work in partnership to tackle climate change, water stress and biodiversity loss, and help create a more sustainable world.~~
		â


PRESERVE WATER FOR LIFE Water is the basis of life and our most precious resource.	BECOME SUSTAINABLE BY DESIGN We all have a responsibility to restore the natural world on which life depends.	ACCELERATE TO A LOW CARBON WORLD The planet needs significant science-based action to create a sustainable low-carbon future.
~~By 2030, every drink we make will use 30% less water than today and by 2026 we will replenish more water than we use in all our water-stressed areas.~~	~~We will do our bit by eliminating waste from our value chain, collaborating with farmers to regenerate landscapes and creating innovative solutions to grow sustainably.~~	~~We will decarbonise our own operations by 2030 and work with our suppliers to halve theirs too.~~

DOING BUSINESS THE RIGHT WAY FROM GRAIN TO GLASS We believe doing business the right way contributes to a fair and just society.
We will create an environment where all our people feel they are treated fairly and with respect. We will act with integrity to ensure we are doing business in the right way, meeting external expectations and our own standards.


Location	Principal products	Production capacity in millions of equivalent units1	Production volume in 2021 in millions of equivalent units
United Kingdom (Spirits)	Scotch whisky, gin, vodka, rum, ready to drink	96	56
United Kingdom, Ireland (Guinness)	Beer	8	6
Ireland (Baileys)	Irish cream liqueur	12	9
Italy (Santa Vittoria)	Vodka, rum, ready to drink	11	7
Turkey	Raki, vodka, gin, liqueur, wine	7	4
United States, Canada, US Virgin Islands	Vodka, gin, tequila, rum, Canadian whisky, American whiskey, progressive alcohol, ready to drink, Flavoured Malt Beverages	52	37
Brazil	Cachaça, vodka	10	4
Mexico	Tequila	4	4
Australia	Rum, vodka, ready to drink	4	3
Singapore	Finishing centre	7	0
India	Rum, vodka, whisky, scotch, brandy, gin, wine	64	33
Nigeria	Beer and spirits	11	7
South Africa	Spirits	4	3
East Africa (Uganda, Kenya, Tanzania)	Beer and spirits	17	14
Africa Regional Markets (Ethiopia, Cameroon, Ghana, Seychelles)	Beer and spirits	7	4


	~~People~~	~~Consumers~~	~~Customers~~
~~Why we engage~~	Our people and our brands are at the core of our business. We aim to build a trusting, respectful and inclusive culture where every individual feels highly engaged and fulfilled. We want our people to feel their human rights are respected and that they are treated with dignity at work. We are committed to creating opportunities for career growth and building a continuous learning culture.	Understanding our consumers is key to growing our business sustainably for the long term. Consumer motivations, attitudes and behaviour form the basis of our brand marketing and innovation. We make our products with pride and want them to be enjoyed responsibly. On occasions when consumers choose to drink alcohol, we want them to ‘drink better, not more’.	Our customers are experts in the products they buy and sell, as well as in the experiences they create and deliver. We work with a wide range of customers, big and small, on-trade and off-trade, retailers, wholesalers and distributors, digital and e-commerce. Our passion is to ensure we nurture mutually beneficial relationships that deliver joint value and great outcomes for our consumers.
~~Their interests~~	–~~Prioritisation of health, safety and wellbeing~~ –~~Investment in learning opportunities for employee growth and development~~ –~~Ways of working, culture and benefits programme~~ –~~Contribute to the growth of our brands and our performance~~ –~~The promotion of inclusion and diversity~~	–~~Choice of brands for different occasions, including no- and lower-alcohol~~ –~~Innovation in heritage brands and creation and nurturing of new brands~~ –~~Responsible marketing~~ –~~Great experiences~~ –~~Product quality~~ –~~Sustainability credentials~~ –~~Price~~	–~~A portfolio of leading brands that meets evolving consumer preferences~~ –~~Identification of opportunities that offer profitable growth~~ –~~Insights into consumer behaviour and shopper trends~~ –~~Trusted product quality~~ –~~Innovation, promotional support and merchandising~~ –~~Availability and reliable supply and stocking~~ –~~Technical expertise~~
~~How we respond~~	–~~Company-wide employee engagement surveys~~ –~~Consistent talent and performance management approach~~ –~~Extensive online learning and development material~~ –~~Informative and up-to-date employee communication channels~~ –~~Meetings with non-executive workforce engagement director~~ –~~Employee/business resource groups~~	–~~Broad portfolio of choices across categories and price points~~ –~~Insightful innovation that satisfies consumer preferences~~ –~~Responsible advertising and marketing that adheres to our Diageo Marketing Code~~ –~~Active engagement and education to promote moderation and reduce the harmful use of alcohol~~ –~~High-quality manufacturing and environmental standards~~	–~~Use of digital sales technology and best practice analytics to support our retailers and distributors~~ –~~Ongoing dialogue and account management support~~ –~~Physical and virtual sales calls and our new digital customer sales portal~~ –~~Development of joint business plans, including Covid-19 support for our on-trade and distributor customers~~ –~~Regular business updates~~ –~~Training and webinars through unique offerings such as Diageo Bar Academy~~


~~Suppliers~~	~~Communities~~	~~Investors~~	~~Governments and regulators~~
Our suppliers and agencies are experts in the wide range of goods and services we require to create and market our brands. Through collaboration with them, we not only deliver high-quality products marketed responsibly, but improve our collective impact, ensuring sustainable supply chains, reducing our environmental impact and making positive contributions to society.	Investing in sustainable growth means creating long-term value for the communities in which we live, work, source and sell. By ensuring we empower people, increase their access to opportunity and champion inclusion and diversity, we can help build thriving communities, shape a tolerant society and strengthen our business.	We want to enable equity and debt investors to have an in-depth understanding of our strategy and our operational and financial performance, so they can more accurately assess the value of our shares and the opportunities to finance our business.	The regulatory environment is critical to the success of our business. We believe it is important that those who can influence policy, laws and regulation understand our views. We also want to share information and perspectives on areas that can impact public health and our businesses, as well as on the broader environment and community.
–~~Strong, mutually beneficial partnerships~~ –~~Strategic alignment and growth opportunities~~ –~~Fair contract and payment terms~~ –~~Collaboration to realise innovation~~ –~~Consistent performance measurement~~ –~~Joint risk assessment and mitigation~~	–~~Impact of our operations on the local economy~~ –~~Access to skills development, opportunities for employment and supplier opportunities~~ –~~Inclusion and diversity and tackling inequality in all forms~~ –~~Improved access to water, sanitation and hygiene~~ –~~Responsible use of natural resources~~ –~~Transparency and engagement~~	–~~Strategic priorities~~ –~~Financial performance~~ –~~Corporate governance~~ –~~Leadership credentials, experience and succession~~ –~~Executive remuneration policy~~ –~~Shareholder returns~~ –~~Environmental, inclusion and diversity, and social commitments and progress~~	–~~Contribution to national and local economic, development and public health priorities~~ –~~International trade, excise, regulation and tackling illicit trade~~ –~~Tackling harmful drinking and the impact of responsible drinking initiatives~~ –~~Climate change and wider sustainability agenda, including carbon reduction, human rights, environmental impacts, sustainable agriculture and support for communities~~ –~~Corporate behaviour~~
–~~Partnering with Suppliers standard, our code for working with suppliers, which incorporates our ’Society 2030: Spirit of Progress’ goals~~ –~~Supplier Service Hub, our portal for end-to-end supplier interactions, including real-time invoicing information~~ –~~Sharing of best practice and learnings, including Covid-19 safety protocols~~ –~~Global Supplier Diversity programme and access to DRINKiQ tools and information~~ –~~Confidential, independent whistleblowing helpline and website~~ –~~Supplier Connect sessions and regional supplier awards~~ –~~Supplier performance measurement and performance reviews with two-way feedback~~ –~~Standardised assessments through independent bodies~~	–~~‘Raising the Bar’, our $100 million fund supporting the recovery of pubs, bars and restaurants in global hospitality centres~~ –~~Partnerships with local and global NGOs, such as Care International and WaterAid, and local raw material supply partnerships in Africa~~ –~~Providing skills and resources through initiatives such as Diageo Bar Academy and Learning for Life~~ –~~Inclusion and diversity embedded into community programme design~~ –~~Community water, sanitation and hygiene (WASH) programmes in Africa and India~~	–~~Stock exchange announcements, including financial results~~ –~~Investor roadshows~~ –~~Meetings and calls~~ –~~Capital markets days~~ –~~Annual general meeting~~ –~~Succession planning, Board and Executive appointments~~ –~~Annual Report, Form 20-F and ESG Reporting Index~~ –~~Shareholder information on diageo.com~~ –~~Participation in investor conferences~~	–~~Ongoing dialogue~~ –~~Collaboration on responsible drinking initiatives and promotion of moderation, tackling illicit trade and strengthening industry standards~~ –~~Participation in governments’ business and industry advisory groups~~ –~~Sharing of research, economic modelling and international best practice, including as a member of industry trade organisations~~ –~~Support for communities and hospitality sector during Covid-19, including provision of hand sanitiser and personal protective equipment (PPE)~~ –~~Diageo Code of Business Conduct~~


Average number of employees by region by gender3
Region5	Men	%	Women	%	Not declared4	%	Total
North America	1,719	59%	1,150	40%	28	1%	2,897
Europe	5,487	58%	3,914	41%	59	1%	9,460
Asia Pacific	5,634	69%	2,481	30%	89	1%	8,204
Africa	2,445	67%	1,185	32%	18	0%	3,647
Latin America and Caribbean	2,349	62%	1,398	37%	32	1%	3,779
Total	17,634	63%	10,127	36%	226	1%	27,987


Average number of employees by region by gender1,2,3
Region	Men	%	Women	%	Total
North America	1,626	60	1,078	40	2,704
Europe and Turkey	5,885	60	3,915	40	9,800
Africa	2,862	72	1,109	28	3,971
Latin America and Caribbean	1,809	62	1,091	38	2,900
Asia Pacific	6,020	73	2,255	27	8,275
Total	18,202	66	9,448	34	27,650


~~NET SALES~~ ~~(%)~~			~~OPERATING PROFIT~~ ~~(%)~~			~~BASIC EARNINGS PER SHARE~~ ~~(pence)~~


~~NET CASH FROM OPERATING~~ ~~ACTIVITIES~~ ~~(£ million)~~			~~RETURN ON CLOSING INVESTED~~ ~~CAPITAL~~ ~~(%)~~


Average number of employees by role by gender1,2
Role	Men	%	Women	%	Total
Executive	8	62	5	38	13
Senior manager4	312	58	229	42	541
Line manager5	2,263	69	1,039	31	3,302
Supervised employee6	15,619	66	8,175	34	23,794
Diageo (total)	18,202	66	9,448	34	27,650


Country	Body	Industry complaints upheld	Complaints about Diageo brands upheld	Brand
Australia	ABAC Scheme	48	1	UDL
Ireland	Advertising Standards Authority for Ireland (ASAI)	0	0
United Kingdom	Advertising Standards Authority	7	0
	Portman Group	8	0
United States	Distilled Spirits Council of the United States (DISCUS)	1	0


Role	Role	Ethnically diverse	%		Non-ethnically diverse	%		Decline to self-identify	%		Not disclosed	%		Total	Role	Ethnically diverse	%		Non-ethnically diverse	%		Decline to self-identify	%		Not disclosed	%		Total
Leadership population2	Leadership population2	207	37	%	289	52	%	12	2	%	46	9	%	554	Leadership population2	231	41	%	291	52	%	14	3	%	21	4	%	557


~~Definition~~	~~Definition~~	~~Definition~~
~~Sales growth after deducting excise duties.~~	Operating profit growth including exceptional items.	Profit attributable to equity shareholders of the parent company, divided by the weighted average number of shares in issue.
~~Performance~~	~~Performance~~	~~Performance~~
~~Reported net sales grew by 8.3%, driven by~~ ~~strong organic growth, partially offset~~ ~~by unfavourable foreign exchange.~~	~~Reported operating profit increased 74.6%,~~ ~~primarily due to a significant reduction in~~ ~~exceptional operating items compared to fiscal~~ ~~20, and growth in organic operating profit. This~~ ~~was partially offset by the negative impact from~~ ~~adverse exchange rate movements.~~	~~Basic eps increased 53.7 pence due to~~ ~~significantly lower exceptional items after tax~~ ~~and an increase in organic operating profit. This~~ ~~increase was partially offset by the impact from~~ ~~unfavourable exchange and higher tax charges.~~


~~Definition~~			~~Definition~~
Net cash from operating activities comprises the net cash flow from operating activities as disclosed on the face of the cash flow statement.			Profit for the year divided by net assets at the end of the financial year.
~~Performance~~			~~Performance~~
~~Net cash from operating activities was £3,654~~ ~~million, an increase of £1,334 million compared~~ ~~to the prior period. This was driven by~~ ~~an increase in operating profit, working capital~~ ~~management and receipt of a delayed dividend~~ ~~from Moët Hennessy. Working capital benefitted~~ ~~from a large increase in creditors relative to the~~ ~~end of June 2020, when the creditor balance was~~ ~~particularly low as a result of reduced volumes~~ ~~and lower discretionary spend. Creditors~~ ~~increased in fiscal 21 due to improved business~~ ~~performance and increased investment in~~ ~~marketing. Debtors and inventory~~ ~~levels also increased but to a lesser extent.~~			~~The return on closing invested capital of 33.2%~~ ~~for the year ended 30 June 2021, calculated as~~ ~~profit for the year divided by net assets as of 30~~ ~~June 2021, increased by 1600bps driven by~~ ~~higher profit after tax.~~


Region	Region	Employee LTA rate	Employee TRA rate	Independent contractor	LTAs1	Fatalities2	Region	Employee LTA rate	Employee TRA rate	Independent contractor LTAs1	Employee LTAs	Fatalities2
North America	North America	1.14	2.07	0	3	0	North America	1.85	4.33	1	5	0
Europe and Turkey		2.44	3.21	3	25	0
Europe							Europe	1.09	2.89	12	11	0
Asia Pacific							Asia Pacific	0.59	1.17	2	7	0
Africa	Africa	0.25	1.12	5	2	0	Africa	1.01	1.75	8		0
Latin America and Caribbean	Latin America and Caribbean	1.06	2.16	4	3	0	Latin America and Caribbean	0.61	3.44	4	2	0
Asia Pacific		0.33	1.80	3	4	0
Diageo (total)	Diageo (total)	1.03	1.98	15	37	0	Diageo (total)	0.92	2.18	27	33	0


Focus area	Relevant policies and standards	Read more in this report	Page
Promote positive drinking	– Marketing and Digital Marketing Policy – Employee Alcohol Global Policy – Position papers	– Promote positive drinking – Performing against our 2030 targets	~~50-52~~38-40 ~~64-67~~50-53
Champion inclusion and diversity Our people	– Code of Business Conduct – ~~2020~~2021 Gender Pay Gap Report – Human Rights Global Policy	– Champion inclusion and diversity – Our people – Performing against our 2030 targets	~~53-55~~30-31 ~~41-42~~41-43 ~~64-67~~50-53
Pioneer grain-to-glass sustainability	– Environmental Global Policy – Sustainable Agriculture Guidelines – Sustainable Packaging Commitments – Partnering with Suppliers Standard – Deforestation Guidelines	– Pioneer grain-to-glass sustainability – Performing against our 2030 targets – Responding to climate-related risks	~~56-58~~44-46 ~~64-67~~50-53 ~~84-97~~58-65
Human rights	– Human Rights Global Policy – Modern Slavery Statement – Global Brand Promoter Standard	– Doing business the right way from grain to glass	~~68-70~~54-56
Health and safety	– Health, Safety and Wellbeing Global Policy	– Doing business the right way from grain to glass	~~68-70~~54-56
Anti-bribery and corruption	– Code of Business Conduct	– Risk factors	~~72-82~~82-92
Our contribution to the UN Sustainable Development Goals		– Performing against our 2030 targets	~~64-67~~50-53


Executive Sponsors President of Global Supply Chain and Procurement Corporate Relations Director


~~Cross functional Climate Risk Steering Group~~ ~~Corporate relations Supply Strategy Risk Finance~~


~~Activity before this year~~Risks
Risk type	~~2021 highlights~~Water scarcity	~~2022 priorities~~Input costs	~~2023~~Consumer behaviour
	Increasing water-stress and ~~beyond priorities~~water scarcity negatively affects our ability to continue to produce beverages in areas of high water-stress	Policy changes (carbon taxation, shift to renewables) causes increases in input costs, particularly glass	Consumers shift purchasing behaviour towards more sustainable products, rejecting products perceived as unsustainable
Strong commitment to cutting carbon emissions, increasing water efficiency and measuring and managing water stress. Climate change highlighted in our principal risks, sustainability and responsibility. Clear governance established for oversight of climate change risk.Category	~~Climate change risk assessment and scenario analyses in Scotland and North America, geographies which represent half of net sales value.~~Physical – chronic	~~Climate change risk assessment and scenario analysis in India and Africa, incorporating a more sophisticated approach building on work from 2021. Include Scope 3 emissions in our scenario analysis.~~Transition – policy/legal	~~Refresh 2021 and 2022 analyses and extend to other material regions, applying learnings gathered during previous years to increase sophistication of analyses.~~Transition – market
~~Continuous process~~Timeframe	Short, medium, long	Short, medium	Short, medium, long
Trajectory	Increasing	Increasing	Increasing
Impact (if not mitigated)	Moderate1	Moderate	Moderate
Response examples	•Water use efficiency improvements •Water replenishment in 100% of ~~improvement, increased sophistication~~water-stressed areas •Collective action programme to reduce water use in 'priority water basins'	•Supply chain decarbonisation •Engaging suppliers in alternative technologies for low-carbon operations •Exploring technologies for reducing packaging weight	•Pack weight reduction •Increased recycled content •Developing circular product offerings (refill, reuse)
Opportunities
Opportunity type	Supply chain decarbonisation		Innovation in sustainable product offerings
	Reducing our Scope 1, 2, and ~~further embedding into core business decision-making~~3 emissions reduces our exposure to carbon taxes and ~~risk management~~related costs, and improves our reputation with customers and consumers		Developing more sustainable products (lighter weight, higher recycled content, more refillable and reusable containers) meets consumers’ increasing demands for more sustainable products
Category	Transition – policy/legal		Transition – market
Timeframe	Short, medium		Short, medium
Trajectory	Increasing		Increasing
Impact (if not mitigated)	Moderate		Moderate
Response examples	•Society 2030 targets for Scope 1,2, and 3 emissions •Decarbonisation programme and capital investment •Renewable energy		•Society 2030 targets for sustainable packaging •Innovation to deliver more sustainable products


Region	Diageo and key TPO assets (detailed assessments)	Agricultural commodities	Supplier assets	Ports2
North America	12 (4)	8	86	6
Scotland	47 (5)	16	103	15
Africa	48 (5)	6	256	14
India	46 (7)	4	59	1
Mexico	16 (4)	1	68	2
Turkey	9 (4)	4	64	5
Total	178 (29)	n/a1	636	43


Scenario	Combined number of sites/activities at medium-high risk, including % of total site/activities	Combined number of sites/activities at high risk, including % of total site/activities
Present day	29 (9%)	2 (1%)
2030, 2-3°C (RCP 4.5)	28 (9%)	9 (3%)
2050, 2-3°C (RCP 4.5)	34 (11%)	10 (3%)
2030, 4-5°C (RCP 8.5)	32 (10%)	9 (3%)
2050, 4-5°C (RCP 8.5)	42 (13%)	11 (3%)


Region	Risks increasing	Risks declining
North America	•Wildfires •Storm winds •High temperatures •Water temperature	•Cold temperatures
Mexico	•Water temperature •Water stress •Wildfires	•Cold temperatures
Scotland	•Water temperature •Wildfires	•Cold temperatures
Africa	•Water temperature •Cold temperatures •Rising sea level / coastal flooding	•Cold temperatures
Turkey	•Water temperature •High temperatures •Rising sea level / coastal flooding	•Cold temperatures
India	•Water stress •Extreme heat	•Cold temperatures


Target	KPI	~~2021~~2022 performance
Becoming carbon net zero ~~carbon~~ in our direct ~~operation~~operations (Scopes 1 and 2)	Percentage reduction in absolute GHG ~~(kt CO~~(ktCO2e)2e)	~~5.1~~5.3	%
Reducing our value chain (Scope 3) ~~emission~~emissions by 50%	Percentage reduction in absolute GHG ~~(kt CO~~(ktCO2e)	(4.7)%2e)		~~-2.1~~	%
Using 100% renewable energy across our direct operations	Percentage of renewable energy across our direct operations	3641.2	%


Carbon emissions (Scopes 1 and 2) by region by year (1,000 tonnes CO2e)3,4,5
Region	2020 (baseline)	2021	2022
North America	128	127	100
Europe	153	130	145
Asia Pacific	37	15	14
Africa	151	172	150
Latin America and Caribbean	23	28	38

Diageo (total)	492	472	447
United Kingdom	87	71	84


Target	KPI	~~2021~~2022 performance
Reduce water use in our operations with a 40% improvement in water use efficiency in water-stressed areas and 30% improvement across the company	Percentage improvement in litres of water used per litre of packaged product	~~7.7~~		%3.7% across the company
Replenish more water than we use for our operations in 100% of sites in water-stressed areas by 2026	Percentage of water replenished in water-stressed areas	~~12.7~~15.3	%
Invest in improving access to clean water, sanitation, and hygiene (WASH) in communities near our sites and local sourcing areas in 100% of our water-stressed markets	Percentage of water-stressed markets with investment in WASH	8988.9	%
Engage in collective action in all of our priority water basins to improve water accessibility, availability and quality and contribute to a net positive water impact	Percentage of priority water basins ~~with~~participating in our collective action ~~participation~~plans	1533.3	%


Water efficiency (litres per litre packaged) by region by year1,2
Region	2020 (baseline)	2021	2022
North America	5.33	4.91	5.06
Europe	5.10	5.13	4.87
Asia Pacific	3.95	3.58	3.57
Africa	4.11	3.53	3.29
Latin America and Caribbean	4.93	5.07	4.86
Diageo (total)	4.63	4.29	4.13


TCFD recommendation			Alignment
Governance — see page 59
a. Describe the board’s oversight of climate-related risks and opportunities			Yes
b. Describe management’s role in assessing and managing climate-related risks and opportunities
Risk management — see pages 59-66
a. Describe the organisation’s processes for identifying and assessing climate-related risks			Yes
b. Describe the organisation’s processes for managing climate-related risks
c. Describe how processes for identifying, assessing and managing climate related risks are integrated into the organisation’s overall risk management
Strategy — see pages 66-69
a. Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term			We have described risks and opportunities for our business in North America and Scotland (high value markets), and in India, Africa, Mexico and Turkey (geographies most exposed to physical risk), as well as the impact of those risks and opportunities on our strategy. We have modelled the resilience of our strategy under three climate-related scenarios. We intend to extend this analysis to our remaining markets over the next two years, and include a quantitative analysis of the impact in our disclosure.
b. Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning
c. Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario
Metrics and targets — see pages 69-70
a. Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process			Yes
b. Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions and the related risks			Yes for Scopes 1, 2 and 3
c. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets			Yes


Reported net sales increased ~~8.3%~~21.4% driven by organic growth.
Reported operating profit was up ~~74.6%~~18.2% driven by growth in organic operating profit, ~~and reduction in~~partially offset by the negative impact of exceptional operating items.
Organic results improved with volume growth of ~~11%~~10.3%
Organic net sales ~~growth~~growth1 of ~~16%~~21.4%
Organic operating profit(1) grew ~~17.7%~~26.3%
Net cash from operating activities was ~~£3.7~~£3.9 bn
Free cash ~~flow~~flow1 was ~~£3.0~~£2.8 bn
Basic eps of ~~113.8 pence~~140.2p was up ~~89.4%~~23.2%
Eps before exceptional ~~items~~items1 increased ~~7.4%~~29.3% to ~~117.5~~151.9 pence


Summary financial information		2022	2021
Volume	EUm	263.0	238.4
Net sales	£ million	15,452	12,733
Marketing	£ million	2,721	2,163
Operating profit before exceptional items	£ million	4,797	3,746
Exceptional operating items(1)	£ million	(388)	(15)
Operating profit	£ million	4,409	3,731
Share of associate and joint venture profit after tax	£ million	417	334
Non-operating exceptional items(1)	£ million	(17)	14
Net finance charges	£ million	(422)	(373)
Exceptional taxation credit/(charge)(1)	£ million	31	(84)
Tax rate including exceptional items	%	23.9	24.5
Tax rate before exceptional items	%	22.5	22.2
Profit attributable to parent company’s shareholders	£ million	3,249	2,660
Basic earnings per share	pence	140.2	113.8
Basic earnings per share before exceptional items	pence	151.9	117.5
Recommended full year dividend	pence	76.18	72.55